I suspect that most sane investors are currently engaged in an exercise of mental pass the parcel. We will all happily engage in the bullish enthusiasm but we’re all wondering when it might end – and which suckers will get left the overpriced parcel. To repeat my past comments, I am still expecting a 5 to 15% reversal in 2021 at some point, probably H1 but I also think that we might see continuing manic buying of all manner of crazy stuff (not least bitcoin).
If I had to venture a guess, I’d hazard that once the S&P 500 has pushed past 4000 – say to 4200 – I’d be starting to look at leveraged shorts on the benchmark index.
The chief mechanism for a retreat has already been discussed on these pages – which is that the real-world economy is powering ahead, diverting ready cash from investors pockets to spend on real-world goods, services and cruise trips. And we will also see central banks begin to moderate their cash infusions, whilst also prompting investors to worry about rate rises at some point.
One useful way of gauging this potential turning point is to look at news flow indicators.
SocGen’s strategists have their own proprietary indicators which are currently flashing …..well… amber if not quite red. According to SG “Our global economic newsflow indicator (ECNI) has reached its highest level in seven years, supporting an optimistic growth outlook. Meanwhile, with the indicator only 7% below its all-time high in May 2013 (just before the taper tantrum), we can rightfully ask the question if the best part of the recovery is already behind us?”
The Sg strategists don’t quite answer in the affirmative but its clear they are starting to get more cautious, although, like me, they think we could still see more bullish euphoria.
“Currently, our global economic newsflow is only 7% below its all-time high, a point that was reached just before Bernanke triggered a taper tantrum in 2013. Meanwhile, the global policy mix remains super expansionary. In this context, we continue to believe that our economic newsflow indicators can potentially reach levels similar to previous highs. But even then, 93% of the global newsflow recovery would already be behind us.”
But we cautious types also need to be a tad careful. It’s all good and well us saying that we are worried but what might actually happen as a catalyst to stop the positive momentum?
Charlie Robertson, chief economist at Renaissance very rationally asks “why will this stop? Central banks are not going to raise the cost of borrowing from zero in 2021-22 so for the next two years at least, where do you get income/yield? Maybe markets just have to drive prices until they get to unjustifiable levels that force a correction (like oil did at $147 in 2008). Even with US stocks at a p/e of 36 and people citing Buffett’s market cap to GDP ratios (equalling the highest ever in recent decades) this looks like it has further to run – especially as the Austrian minded bears who post this stuff .. clearly haven’t capitulated yet. “
All good points. In this scenario, we could see another 5 to 10% upside on where we are at the moment.
Cordiant raise bumper amount for their digital infra fund
Congratulations are in order to the managers behind the Cordiant Digital Infra launch. They raised gross proceeds of £370m at IPO to invest in operating digital infrastructure assets. The Ordinary shares and Subscription shares started trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange (under the tickers “CORD” and “CSRD”) yesterday, Tuesday, and are currently at 98p.
This is a great result for Cordiant, and I must admit I took part in the IPO.
I’m slightly surprised that the shares aren’t trading at a premium, but I think once the fund is better understood by the mainstream we’ll see the price tick up.
On that score its worth noting the view of fund researchers at Numis who are probably about as mainstream as one can get – “This is a strong result for Cordiant, the fund had been seeking to raise £300m. Investors are typically highly reluctant to participate in IPOs and a frustrating number give feedback that they like the idea but will back it in the second fundraising round. We believe this reflects the higher due diligence requirements on an IPO and the potential wasted time and reputational risk if it fails to get away. As a result, many IPOs struggle to get away and we have also seen a number of IPOs coming back to the market and raising capital relatively shortly after launch.”
An alternative explanation for the subpar share price is that the very large amount raised has soaked up all the demand, much of which would traditionally have found its way into the secondary market.
If that is the case, then I slightly fear for the Triple Point team who are currently trying to raise capital for their D9 IPO. I still prefer their fund but £370m is a lot of money and I suspect that the D9 team are now having to work overtime to raise the money.
For those looking o compare the two funds I have repeated my compare and contrast table from a few weeks back.
Cordiant vs D9
|Key variable||D9 Digital Infrastructure PLC||Cordiant Digital Infrastructure|
|Investment focus||Data centres, terrestrial fibre and 5G networks comprise further pipeline assets. Data centre pipeline portfolio
includes >20,000 m2 of
operating assets, with crossover to the Aqua Comms customer base and connected into their
existing sub-sea network
|Digital infrastructure asset values are supported by long-term contractual cash-
flows and offer attractive growth characteristics from the provision of additional
Tenants are typically telecom operators,
software/technology companies and governments.
|Seed Assets||£165m. 30% invested immediately on IPO into Initial Assets, over $3 billion in proprietary pipeline, of which $1 billion is ready to invest in the next 12 months. Initial Assets (Aqua Comms): fully operational, highly resilient and reliable sub-sea fibre systems, long term contracts with the highest quality counterparties, primarily with the FAANGs + Microsoft||The Investment Trust currently has an opportunity pipeline of approximately €1.5 billion. Includes tower operators (UK and UK), backbone fibre data centres, US edge data platform. On ramp up : Substantially committed within 12 months through active and existing pipeline of ~€ 1.5 billion|
|Geographical mix||The overall mix is likely to be c60% global : 40% UK on the initial £400m raise||Nothing specific I can see but the prospectus states that it has “the aim of achieving a long-term balance between North America and Europe.”|
|Dividend target||6% divi in yr 1, payable from IPO. In detail: 6.0% dividend payable from IPO, 2/3 cash covered on day one, progressive thereafter||Progressive dividend targeting 4p a share, in detail 1pps in year 1; 2 – 3pps in year 2; progressive thereafter with target dividend rising to at least 4pps within 5 years|
|Total Return Target||10% net return||Over 9% net return|
|Performance Fees||None||12.5% over a 9%/p.a. hurdle|
|Investment into IPO – Investment manager as well as vendor of Initial Assets||£25.0m into the IPO (£5m+ from Triple Point and £20m from vendor of Initial assets)||£1.2m into IPO|
But professional or advised retail investors can access the IPO via Primary Bid
|Management Fee||Management Fee: 1% of adjusted NAV (of which 20% paid to development partner) up to
$500m, reducing to 0.9% to $1bn, and 0.8% above $1bn
|1% p.a. of the first £500 million of average market cap; 0.9% p.a. on average market cap £500 million – £1 billion; 0.8% p.a. on average market cap above £1 billion. Fees to be charged based on % capital deployed until 75% of IPO funds
committed or invested. 10% of management fees paid in shares and subject to a 12 month lock-up
|Of note||Experienced chairman: Jack Waters – over 30 years in digital infrastructure, most recently as COO at Zayo, operating 13
million miles of fibre and 45 data centres across Europe and the US, Zayo was listed on the NYSE prior to
its $14bn acquisition and take private by Digital Colony and EQT in 2019
|Cordiant issuing subscription shares: Issued on a 1-for-8 basis to IPO investors for nil consideration
Subscription right to acquire one ordinary share until February 2026 (monthly between 1 March 2021 an 31 August
2021; semi-annually in February and August thereafter)
Subscription price of 100p in the first six months; thereafter increasing by circa 9% p.a. (from IPO) less dividends paid
|Timescale||Intention to float released yesterday but other details subject to change. Prospectus is imminent in the next week or so, with full listing probably towards end of March||Prospectus issued last week. Closing offer on 12 February. Initial admission 16 February.|
|More about the manager||Triple Point is a 16 year old London based investment management firm, with an AUM of c.£1.8bn and a client base consisting of private investors, institutional investors, pensions funds and UK Government (Department of Business Energy & Industrial Strategy). They focus on essential infrastructure with long-term, stable cash flows underpinned by rigorous ESG considerations. The firm employees c.140 people and key investment themes include essential social housing, energy and infrastructure, leasing, and digital infrastructure.||A ~$2 billion AUM institutional asset manager, Cordiant is a sector-focused investor in infrastructure private
equity and private debt. Digital Infrastructure is one of four key sectors for the firm. The client base consists of large insurer, pension plans and governments in North America and Europe. Partner-owned and run, the
firm has fully registered entities in Luxembourg (AIFM), the U.S. (SEC) and Canada