The hedge funds playing Venezuela

One scoop to start: Microsoft and McKinsey are among the US companies paying up to $1mn to sponsor a Davos venue that will serve as a base for US government officials during President Donald Trump’s trip to the World Economic Forum later this month.

In today’s newsletter: 

• The early winners in Venezuela

• Warren Buffett passes the torch

• PE’s supermarket property deals

Venezuela mints a hedge fund payday

The US military’s capture of Venezuela’s President Nicolás Maduro over the weekend left open the question of what’s next for the country. 

While Donald Trump has said US companies will bring “billions of dollars” to the country and generate “a tremendous amount of wealth”, it’s not entirely clear yet what that means for investors.

But even amid uncertainty about what a corporate rush into the country’s oil reserves will look like, some investors have already turned a profit from the upheaval.

Two main types of debt in the country have surged in value since the US detained Maduro and his wife: Venezuela’s defaulted government bonds and the bonds of PDVSA, the state oil company.

Both liabilities are seen as the most conventional ways to make bets on where the country and its economy might be headed. The government bonds rose almost 30 per cent on Monday.

The rally in the bonds has rewarded managers who have spent years building positions in unloved debt with a total face value of about $60bn. 

Bond prices jumped in the early hours on Monday even as big questions remained over the country’s future, including, critically, who exactly is running it.

Some of the biggest winners so far include London-based Broad Reach and Winterbrook Capital, as well as asset managers such as Allianz Global Investors and RBC BlueBay.

And like any great complicated sovereign debt situation in Latin America, hedge fund Elliott Management is also involved. The fund recently won a legal battle to take control of Citgo, a large refiner previously controlled by PDVSA. 

Even amid the uncertainty about Venezuela’s future, some hedge funds have already begun chasing claims to build their exposure to the volatile situation.

But other investors were sceptical that the US would be able to usher through an orderly regime change at all.

“This is a casino,” said one hedge fund manager. “You can’t put material risk on a trade where you have a 60 per cent chance of a positive outcome but there is a serious risk of material downside.”

The questions facing a Berkshire without Buffett

The so-called Oracle of Omaha has finally stepped down after more than six decades atop Berkshire Hathaway, leaving big questions for the $1.1tn financial behemoth now that Warren Buffett is no longer calling the shots.

Berkshire vice-chair Greg Abel took over as chief executive on January 1, and Wall Street is waiting to see how he plans to fill the shoes of one of the most important investors in the history of US finance.

The new CEO has seldom made himself available to the press and investors, and shareholders have instead looked to Abel’s comments at Berkshire’s annual meetings for clues as to how he will size up investment opportunities.

Berkshire has more than $350bn of cash and short-term Treasuries and $283bn in publicly traded stock. Investors will also scrutinise how Abel allocates the almost $900mn of cash that flows in from its businesses each week.

Abel, a 63-year-old Canadian who rose up through Berkshire’s utilities division, has said to expect continuity.

Last year he told investors he would continue to target businesses that generate significant cash flows and the company’s long-term investment horizon would remain intact.

“It is really the investment philosophy and how Warren and the team have allocated capital for the past 60 years,” Abel said last May. “It will not change and it’s the approach we’ll take as we go forward.”

Still, investors have more questions than answers. 

To what extent will Abel hew to Buffett’s value investing philosophy? Will he start holding quarterly earnings calls? Will he lay out his vision in a February letter? 

Was he involved in Berkshire’s $4.3bn investment in Alphabet last year? If so, does it mean Abel — unlike Buffett — is open to making big bets on fast-growing technology companies?

Shareholders are surely hoping that some of those big unknowns might be answered before Berkshire’s annual shareholder meeting in May. At least then, Abel is expected to take the stage and address questions head-on. 

The property deals buoying UK supermarkets

Underperforming supermarket chains have one asset they can reliably exploit to secure funds from investors: their huge property portfolios.

Since the pandemic, nobody has done sales-and-leasebacks in the UK better than the respective private equity owners of Asda and Morrisons, two of the country’s biggest supermarket chains.

They have raised about £6.5bn selling off supermarkets, petrol forecourts and distribution centres in recent years, according to FT research and data from property agency Cushman & Wakefield.

London-based TDR Capital has raised about £3.3bn from Asda’s property assets since it acquired the supermarket chain with the Issa brothers in 2021 for £6.8bn, while US private equity group Clayton Dubilier & Rice has raised about £3.2bn from Morrisons’ property portfolio since its 2022 purchase for £7bn.

In ideal situations, sale and leasebacks can work for both sides: purchasers get sites with high occupancy rates and long, inflation-linked leases, while sellers get cash to focus on their business operations.  

It’s not always so rosy. The real estate deals can sometimes add unnecessary lease obligations to businesses that might already be short on cash. And real estate can often be among a company’s most valuable assets. Selling it can cause long-term problems.

The chains see the cash influx as aiding their ability to recapture market share lost to rivals such as Tesco and Aldi, plus they can pay down the big debts they took on to finance their takeovers.

“The liquidity and breadth and depth of the market is really strong right now,” said Marcus Wood, head of retail investment at Cushman & Wakefield. “People want to buy grocery real estate assets.”

Job moves

• Davis Polk has hired Benjamin Joseloff as a partner in New York where he will focus on national security. Joseloff joins from Cravath and previously worked for the US Treasury department.

• White & Case has hired Rubina Ali as a capital markets and derivatives partner in New York. Ali joins from Jones Day.

• BNP Paribas has appointed Mark Lynagh to global head of capital markets for Emea and Valérie Jourdan to global head of leveraged finance. Both will retain their existing roles as head of global banking in the UK and head of debt markets in Emea, respectively.

Smart reads

Trust busters EU officials are writing new merger guidelines as they face fierce pressure to allow the formation of “European champions”, the FT’s Barbara Moens writes. But just how willing is Brussels to ease up on antitrust?

Golden handcuffs Senior bankers want to leave their jobs but can’t find the exit. There’s a market for their skills outside banking, Craig Coben writes for the FT, and they’re likely to find that taking the pay cut is worth it. 

Failed effort Washington is faltering in its crusade against tech giants, the FT writes, as judges have declined to break up companies and AI raises the hurdles for antitrust watchdogs.

News round-up

Ex-Chevron executive seeks $2bn for Venezuelan oil projects (FT)

Novo Nordisk launches US price war over weight-loss pills (FT)

UK broadband operator sold to distressed debt specialist (FT)

Deutsche Bank shares exceed book value for first time since 2008 (FT)

US wins exemptions from global minimum corporate tax rules (FT)

US oil baron Harold Hamm sets sights on Javier Milei’s Argentina (FT) 

Bridgepoint agrees to buy former KPMG restructuring unit at £800mn valuation (FT)