Private capital’s great disappointment era begins

One scoop to start: A broker for Pete Hegseth, the US defence secretary, attempted to make a big investment in major defence companies in the weeks leading up to the US-Israeli attack on Iran, according to three people familiar with the matter.

And another: London-based start-up Fractile is in talks to raise more than $200mn as part of a growing group of UK chip companies seeking to challenge Nvidia’s dominance.

And another thing: Unilever is nearing a deal to combine its food business with spice and sauce maker McCormick, which would bring Hellmann’s mayonnaise and French’s mustard under one portfolio.

In today’s newsletter:

Private capital’s moment of truth

On Monday the Trump administration proposed a rule to open up the $10tn American retirement marketplace to private capital.

Donald Trump’s efforts to give about 90mn US savers access to unlisted assets, first scooped by the FT last year, would unlock for private capital groups an enormous source of untapped funds.

There’s no rule against offering private investments in the retirement accounts, called 401ks, but managers of the plans have historically been reluctant to do so for fear of being sued.

The new rule would offer administrators of retirement plans a “process-based safe harbour” to protect them against litigation, so long as they consider factors to safeguard investors.

The proposal comes at a fraught moment for private markets, with even top White House officials warning about the risks of $4tn in unsold private equity assets.

Last month, US Treasury secretary Scott Bessent warned about “rotten” private equity entering the retirement accounts of ordinary Americans. Still, Bessent signed off on Monday’s ruling.

Private capital bosses argue their funds are well-suited for retirees and have increasingly pitched the “diversification” offered by their funds, instead of eye-watering returns.

But there are doubts about whether private markets are worth higher costs and lower liquidity.

In a Big Read, DD’s Antoine Gara and Eric Platt took a sweeping look at the growing challenges private equity and private credit deals face as more muted returns may yield a great disappointment for investors.

Private capital has been in the limelight in recent months as new AI tools have generated fears that highly leveraged software companies, the epicentre of a boom in dealmaking the past decade, will cause losses among PE buyers and many credit funds that financed the deals. Wealthy “retail” investors that poured into private credit funds have recently raced to redeem their money.

The sector’s problems go back further, with industry-wide returns plummeting since central banks started raising interest rates in 2021, making it difficult for private equity funds to exit investments.

The financial health of private equity-owned companies has also been squeezed by higher rates and geopolitical turmoil. A record percentage of such groups have chosen to increase their debt rather than making their interest payments in cash, Fitch recently found.

On the debt side, ageing deals have proved problematic for lenders, which have slashed the value of many of their holdings. Loans left in debt funds often are of lower quality since stronger businesses have been easily able to refinance in recent years.

The falling returns have caused a flood of redemption requests at funds sold to wealthy investors, presaging the risks that private capital groups will be exposed to as their investor bases change.

As megafirms such as Blackstone, Apollo and KKR increasingly covet money from retirement savers, they have opened their firms, once small shops of buccaneering takeover artists with little regulatory oversight, to far greater scrutiny.

Apollo’s ‘The Decision’ 2.0

It was appointment television in 2010. In The Decision, basketball superstar LeBron James revealed in a televised interview he would be joining the Miami Heat.

His line, “I’m going to take my talents to South Beach,” may soon be repeated by some of Wall Street’s most feared dealmakers. Otherwise, Texas may want to get ready for some city slickers.

Apollo Global Management — a firm filled with Hamptons aficionados — is looking to add a second headquarters after Manhattan, with Texas or Florida set to eventually win the sweepstakes, the FT scooped on Sunday.

Apollo told the FT that “New York does not have a monopoly on talent” and that the second HQ would be the place where “most of our future growth will take place”.

Not long ago, Apollo was a small, elite firm of leveraged buyout artists housed at 9 West 57th Street.

But with total assets today pushing $1tn and an employee count at more than 4,000, more space is clearly needed.

Florida and Texas have more conservative politics, and with a democratic socialist mayor in New York whom Apollo chief Marc Rowan has called an “enemy”, one can see the political and culture war signalling in the move.

New York has at least scored recent big commitments from JPMorgan Chase, American Express and Bank of America.

Whether it’s private credit evangelising or junior associate recruiting, Apollo has leaned into being a Wall Street tastemaker.

Expect other top-tier firms to kick around the idea of finding a cheaper and friendlier place to store some employees.

But DD wonders how many rainmakers would actually give up life in the big city for highways and strip malls.

The gulf in war insurance

Airlines flying into the Middle East are facing insurance rates so high that one executive at a European carrier likened the quotes they had received to “blackmail”.

But one airline has secured “war risk” insurance for a steal.

Emirates, the international airline known for offering ritzy first class travel, is paying an order of magnitude less in insurance than rivals to land its fleet in Dubai, the FT scoops.

The Dubai-based airline’s broker WTW has negotiated a policy in which it pays an additional war-risk premium of about $100,000 a week to cover its planes landing in and taking off from Dubai.

That looks cheap compared with other airlines that are being quoted $70,000 to $150,000 in additional charges for every flight that lands in the region.

One insurance executive said Emirates’ rate looked “outrageously” low given the heightened risk of transit to and from the Middle East, where the past four weeks of conflict have caused thousands of flights to be cancelled.

Gulf airlines do benefit from the experience of operating hundreds of flights a day through the region’s airspace, as well as close co-ordination with its airports and authorities, industry executives told the FT.

Still, at least one rival airline insurer declined to sign up for Emirates’ policy, which is led by Atrium.

“It’s very cheap cover, that we and others have not agreed to,” said one executive with knowledge of the policy.

But another insurer — who did agree to provide cover at the cheaper rate — said the carrier’s size and market power made it hard to say no: “You effectively have to fall in line, otherwise you risk not writing Emirates”.

Job moves

• Standard Chartered has hired Ole Matthiessen as global head, transaction services and digital assets in Singapore. He previously worked at Deutsche Bank.

• Squire Patton Boggs has named Andrew Wilkinson as European managing partner, effective in May.

• BP head of electric vehicle charging Martin Thomsen has departed to join Rolls-Royce as chief procurement and supply chain officer.

• Xerox has appointed Louie Pastor as chief executive. He was most recently the photocopier-maker’s chief operating officer.

• Air Canada chief executive Michael Rousseau will step down later this year after provoking a political uproar over his failure to speak French in a video message addressing a fatal New York plane crash.

Smart reads

Lending practices Bangladesh’s former land minister Saifuzzaman Chowdhury has been Market Financial Solutions’ most-scrutinised borrower. But the collapsed UK mortgage provider also lent to a number of others accused of financial crimes, the FT reports.

Condiment boss The new CEO of Kraft Heinz has overseen the break-up of a business before, but he says this group should stay whole. Steve Cahillane spoke to The New York Times about his plans, noting that without processed food, “the world would be a very, very hungry place”.

Art of the deal The US government is striking minerals deals with companies that many experts doubt will actually be able to deliver on their promises to mine rare earths, the FT reports. A more optimistic analyst says it’s a “VC-type approach”.

News round-up

Delaware judge reassigns Elon Musk cases after LinkedIn row (FT)

Mistral raises $830mn to build Nvidia-powered AI centres in Europe (FT)

TotalEnergies made bumper profit on Middle East oil bet (FT)

ECB warns Monte dei Paschi over chief executive succession battle (FT)

Eli Lilly signs $2bn deal for AI drug development with Hong Kong biotech (FT)

UK government on verge of full nationalisation of British Steel (FT)

AI satellite start-ups gain traction with investors ahead of SpaceX IPO (FT)