• D.C.
  • BXL
  • Lagos
  • Dubai
  • Beijing
  • SG
rotating globe
  • D.C.
  • BXL
  • Lagos
Semafor Logo
  • Dubai
  • Beijing
  • SG


In today’s edition, we bring you highlights from our event in New York, where we heard from Pfizer C͏‌  ͏‌  ͏‌  ͏‌  ͏‌  ͏‌ 
 
rotating globe
June 25, 2024
semafor

Business

Business
Sign up for our free newsletters
 
Liz Hoffman
Liz Hoffman

Hi, and welcome back.

Last night we hosted our second annual Semafor Business Summit in New York. At the risk of trying to string a through-line into a series of conversations that were fascinating and newsy in their own right — Pfizer CEO Albert Bourla on Covid lessons, National Women’s Soccer League Commissioner Jessica Berman on Caitlin Clark, Advent’s John Maldonado’s respectful advice to Elizabeth Warren — one thing stood out: the perils of the mushy middle.

Daniel McKnight/Semafor

The business world has always been a barbell: Companies grow and throw off talent and ideas and capital that seed smaller upstarts. It’s the corporate carbon cycle and it works well. But it’s working faster these days, and that mushy middle — undifferentiated, undercapitalized, and without the benefits of either speed or scale — is increasingly dangerous.

Maldonado and JAB’s Anant Bhalla talked about it in the investing world, where financial superstores are zooming away from specialists. Jon Pruzan, formerly of Morgan Stanley and now Pretium’s president, talked about it for banks, a year after the regional lending crisis. Berman talked about it in sports: “We have the sophisticated investors and capital and support from media partners and sponsors to ensure that we can compete with the Big Four” in men’s sports and not get stuck competing for eyeballs with pickleball and professional slap-fighting.

I came away full of story ideas, which I hope to bug some of you about, and bring to the rest of you, in the coming months. In the meantime, today’s newsletter has highlights from the event.

Plus, Semafor announced a lineup of new contributors today. One of them is Jon Hilsenrath, who I first met at The Wall Street Journal, where I was a baby reporter and he was the resident Fed whisperer and a brilliant voice on the economy. He’ll be hosting exciting conversations for us, helping to make our live journalism even better, and you’ll see his writing occasionally in this newsletter.

Buy/Sell

➚ BUY: Shein. After its planned US listing hit political resistance, the fast fashion company has filed to go public in London instead, Reuters reports. The LSE is taking all comers these days.

➘ SELL: Son. Shareholder support for SoftBank CEO and mystic-in-chief Masayoshi Son’s reappointment to the board fell to 79%, from 95% last year, a rebuke for sagging profits. Son was undaunted, calling SoftBank’s venture investments to date “a warm up for my great dream to realize artificial super intelligence.”

Francis Tang/Reuters
PostEmail
The Tape

Ken Griffin settles with IRS over tax leak… EU says Microsoft broke antitrust rules… Record labels allege AI song ripoffs… China approves Wegovy shots… Kenyan taxes spark deadly protests... Car-dealer software will pay ransom to end blackout…

PostEmail
Semafor Business Summit

Berman was in Cannes last week, selling corporate sponsors on women’s soccer, which has historically been more of a DEI consideration than an ROI one. She says that’s starting to change, helped by a new blockbuster media-rights deal — $240 million across streaming (Amazon) and linear TV (CBS, ESPN, and ION).

The league’s choice to go with Amazon is itself a compelling datapoint for the Everything Store’s ambitions in content: “As long as you have a Prime Video membership, which is virtually everybody in our country, you can see our games,” she said, “so we get the streaming audience without burying it behind a paywall.”

We talked about the influx of Wall Street money into sports in general and NWSL in particular, which was the first major sports league to allow institutional investors to control teams. “We have to be very cautious and careful [but] I’m obviously a fan of it,” she said, singling out Sixth Street, which owns San Francisco’s Bay FC through its evergreen fund. A sports team “is not something that you hold for five years and expect to make money,” she said, “and that requires a different kind of investor.”

The private-equity industry is splitting. Publicly traded firms like Blackstone ($1 trillion in assets) and KKR ($580 billion) are turning into financial supermarkets, leaving firms like Advent, with about $90 billion, facing a choice to try to beat them — by focusing on returns in their core businesses of corporate LBOs — or join them. Maldonado says Advent is betting on the former and has no plans to go public. Seeing my skepticism, he added a caveat: “If the tectonic plates shifted in a way where all of a sudden we can’t do the things we need to do to be great investors, we will revisit that assumption.”

We also touched on healthcare investing, Maldonado’s specialty and the target of increasing scrutiny from Washington after a string of bankruptcies and bad patient outcomes: “If Elizabeth Warren were here, I might suggest there’s a lot of great ideas, not to mention capital and insight and innovation, that can come from the private sector.”

Pruzan hit back at the narrative that firms like Pretium are contributing to the housing crunch. He noted that Wall Street firms aren’t squeezing out buyers — home ownership rates have been pretty steady historically in the mid-60% range — but rather smaller landlords who can’t offer 24/7 maintenance. “We as an industry are doing better than the traditional mom and pop who own two or three units,” he said.

We also talked about his old life in banking, where midsized firms face fleeing deposits, growing compliance costs, and shrinking loan books: “Since I retired, nothing good has happened for bank profitability.” He likes a “Canada on steroids” model, with a few dozen big banks on one end and small community lenders on the other. “All these banks in the middle are going to come under immense pressure because they’re competing against people that have $2 trillion, $3 trillion balance sheets,” he said. (For more on that, read my recent interview with PNC’s chief executive Bill Demchak, who is trying desperately to get out of that uncomfortable middle.)

Pfizer, as far as can be said about any company, had a great pandemic. Its post-pandemic run has been tough. The stock is down by more than half from its 2021 high, and Bourla has made an all-in bet on cancer.

He readily acknowledged the company’s miscalculations about demand for vaccines and about the science-skepticism that turned one of the great pharmaceutical wins in history into a PR minefield and that’s still hanging around today’s politics. “We stayed with the manufacturing and laboratory infrastructure that was there to support a way bigger business,” he said. “Covid is not what it used to be.” Cue a $4 billion cost-cutting effort.

We also talked about the weight-loss craze, where Pfizer is working on a competitor to Ozempic and Wegovy, which have done wonders for Novo Nordisk’s and Eli Lilly’s share price. He suggested Wall Street is a bit overenthusiastic: “Right now it is almost a duopoly, so it’s very lucrative,” he said “But there are dozens of companies that are preparing competing products, so when all of this hits the market, probably the price will go down.”

I’ve spent the past nine months watching people’s eyes glaze over when I tell them that insurance is the most interesting corner of finance, so I was delighted to sit down with Bhalla. He built American Equity Life into a major insurer and sold it last year to private-equity firm Brookfield, and is now rebuilding inside JAB, the investment arm of the Reckitt Benckiser heirs.

He was an incredibly good sport when I suggested, more than once, that this was all going to end terribly for policyholders, and he acknowledged the risk of bad actors giving in to bad incentives. “If you wake up as an asset manager and say ‘Gosh, I wish I had insurance funding because I could now fund my [deals] with long-term money at 4%,’ that’s not the right motivation structure,” he said. “Because you’re thinking ‘how do I find more and more assets? How do I make more and more in fees?’”

“Fee-related earnings are a drug,” he said in the evening’s pull-quote for a particular kind of Wall Street nerd (hi, it’s me.)

That was Marquez, who has spent three decades working for automotive brands including BMW and Infiniti and, now, Hyundai’s luxury brand, Genesis, on the effects of inflation and higher interest rates on luxury buyers.

Still Genesis has made inroads in the US, where sales are strongest in south Florida — no surprise to anyone who has followed Wall Street’s coastal exodus. Like other carmakers, it is betting heavily on electric vehicles but wary of consumer demand that has proven to be fickle. In May, 18% of Genesis’ sales were EVs, double 2023’s annual figure, she said, and the company struck a deal last year to gain access to Tesla’s network of charging stations. “We have to always think [about] what we need to do for adoption, and for consumers to have less anxiety,” she said.

PostEmail
Mixed Signals

In the latest episode of Mixed Signals from Semafor Media, presented by Think With Google, Ben, Nayeema, and Max report from Cannes, decoding the year ahead for the ad business amidst the panels and parties. While enjoying the Côte d’Azur, they discuss Washington’s move to ban TikTok and the company’s denial of what’s unfolding. Then, they weigh in on whether Will Lewis, CEO of the Washington Post, will survive.

Listen to this episode of Mixed Signals wherever you get your podcasts.

PostEmail
Evidence

The US government has long been in the mortgage business; now it’s getting into the second-mortgage business. Freddie Mac will buy up to $2.5 billion in second mortgages in a pilot program to test whether government largesse can do for that market what it did for primary home loans. After years of rising home prices, Americans have $32 trillion of equity in their houses, and higher interest rates make adding a smaller second mortgage a more attractive option than a cash-out refinancing.

Wall Street is not happy about the competition: A finance trade group is opposing the move, which it calls “unnecessary encroachment by the government into sectors of the housing market that operate well.”

PostEmail
Intel

Soft landing: To beef up its board, Goldman Sachs is going back to its favorite recruiting well — its corporate clients. John Hess, who is steering his eponymous oil company — with Goldman’s advice — through a rocky merger with Chevron, will join the bank’s board of directors. In 2016, Ellen Kullman joined Goldman’s board after losing her job as DuPont’s CEO following a bruising proxy fight with activist investor Nelson Peltz. DuPont’s advisers in the brawl: Goldman Sachs.

PostEmail
What We’re Tracking
Marjorie Taylor Greene/X.com

Tip sheet: Donald Trump’s “no tax on tips” push is gaining some political steam and shows the former president — who passed the largest tax overhaul since 1986 when he was in office and didn’t think to include any changes to tipping — making political zags in an effort to throw off Democrats, my colleague Dave Weigel writes. A former Biden senior staffer called it “a profoundly unserious idea for a serious problem,” noting that the average tipped worker pays little to no federal income taxes anyway.

Rise and grind: More than three years after Chinese authorities promised to crack down on the “9-9-6” schedule at the country’s tech giants, slowing growth and the specter of job cuts keep workers putting in punishing hours. “I often attend meetings in the middle of the night,” one TikTok employee told the Financial Times. China’s coders never enjoyed the on-site massages and catered meals common in Silicon Valley, but swooning stock prices have further hardened the hustle culture made famous by Alibaba founder Jack Ma. To “employees who prefer to enjoy life, who put life first and work second… I can only say that you are not our brother, you are a passerby,” an executive at e-commerce company JD.com told employees recently.

PostEmail
Hot on Semafor
  • Bill Gates on the climate tipping point that really matters.
  • UNICEF chief warns four million children face malnutrition in Sudan.
  • Jamaal Bowman hopes to stave off a devastating loss for the American left.
PostEmail