Gravitas Spark CrowdFunding

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  • Could Passive Defence Kill Your Pension Dreams Too? 

    Could Passive Defence Kill Your Pension Dreams Too? 

    Passive must be the word of the week. Yes, England manager, Thomas Tuchel is being press-hammered for overly passive defensive tactics in the closing stages of The Three Lions’ World Cup semi-final this week. However, just over a week previously, the consensus view was that England’s rearguard action in the Estadio Azteca cauldron of Mexico City was the finest World Cup knockout stage display by an English team since 1966. Of course, the small matter of an all-time football genius like Lionel Messi on the pitch in Atlanta can mess(!) with the best of plans, but surely this was a Rumsfeldian ‘known known’?

    Meanwhile, the financial world is currently grappling with a ‘hidden’ force which could overwhelm the advisory consensus. Current thinking is that passive investing (market/index tracking ) is a sensible ‘lower risk’ option than adopting an ‘active’ investment strategy. Active management of a fund involves picking individual stock or bond investments rather than buying the market in aggregate by investing in market-tracking ETFs, index funds or index notes. It also helps that these index/passive instruments have lower costs which means financial advisors are overwhelmingly shifting client investment plans to defensive low-risk/cost strategies. This feels like the modern investing equivalent of ‘nobody gets fired for buying IBM’ strategy, aka CYA. Ah yes, IBM…..  

    Amid all the mad headlines from the Middle East and White House this week, we have become quietly immune to some truly stunning moves in stock markets. ‘Exhibit A’ might be IBM itself. In one trading session this week, after a disappointing quarterly results update, the IBM share price cratered by 25% and shredded $70 billion of shareholder value. Clearly, you can be fired these days for buying IBM. However, on a more serious note, that size of move is not a sign of ‘healthy’ functioning stock markets.

    A relatively minor quarterly earnings result does NOT, in any world of fundamental financial analysis or valuation modelling methodology, justify this size of move. Of course, the corollary to this observation is that the majority of eye-popping share price moves in this bull market have been upwards. Take AI chip manufacturer and market darling, Broadcom. In one trading day in April this year it added $100 billion to its valuation as its share price drove it to a $2 trillion market captalisation. This is the key feature of a financial market driven by MOMENTUM not just fundamentals. This momentum factor is always present in stock market trends but right now its influence is monstrous and it facilitates the massive outperformance of passive investing strategies over active strategies. Basically, if you don’t “buy the market” you’re commercially dead as a professional manager of client monies. That’s the fact, but not the future. However, even an investing giant like my former boss, Terry Smith of Fundsmith, is being forced to embrace momentum…. 

    Terry’s fund grew to a peak of almost $40 billion in assets under management (AUM) including his own money, and its performance topped the league tables for years since its 2010 inception. The marketing of Fundsmith’s strategy was exceptionally well communicated – buy good companies, don’t overpay and DO NOTHING. This third pillar was a standout feature of the fund – its fund turnover rate was incredibly low, some years even negative. While Terry did all the fundamental bits (find good companies and be firm on price/valuation) and then patiently did NOTHING, other active managers were actively buying and selling shares of different companies throughout the year. And the Fundsmith approach worked. Until it didn’t. Performance in recent years has been poor, and AUM levels have halved as impatient clients pulled monies. In the first half of this year the fund underperformed its benchmark (the passive index return) by more than 14%. Ouch. So, the fund has informed its clients that it has changed its approach to incorporate momentum by increasing its trading/turnover activity. It’s a seismic change of approach. But, the commercial reality was the fund could end up at some point in the future with zero external client AUMs. The snappy marketing mantra of DO NOTHING has gone out the window but you sense it’s an uneasy forced move. Indeed, Smith highlights the influence of passive investment strategies on daily trading activity: 

    “Moreover, whilst AUM in index funds is now >60%, in terms of volume of trades, active fund managers are an even smaller minority than this implies. According to Cboe Global Markets, having been 80% of trades in the 1990s, active funds share of trades is now down to just 10%. The trading activity which drives prices is now driven not by active fund management decisions but by the momentum feedback loop of funds moving from active to passive and reweighting within passive funds” 

    In other words, passive investing (following the market) is now the dominant ‘hidden’ force driving share prices individually and collectively. This raises some uncomfortable questions about market risks, and the dangers of too many investors all following the same style of investing. This passive following of investment flows equates to buying when everyone is buying, and selling when everyone is …….. Oh wait, we haven’t come to that bit yet. But Terry Smith has painted a rather worrying scenario….for those thinking they can change strategy when the passive index trend changes direction. Read carefully: 

    “You may take the view that you can switch into the index and reap the benefits of this momentum and then switch back if or when events cause this momentum to unwind. However, if $200bn market valuation stocks are moving 33% a day in a bull market, you can reasonably speculate about what’s going to happen if or when things reverse. It may make 2000–03 and 2007–08 look like a blip. In 2007–08, the S&P fell 57% in five months. Next time round, it would not surprise me if it accomplished this in five days. In 2000–03 it took even eventual winners like Amazon 10 years to recover their peak share price.” 

    Read that again. FIVE DAYS. So, we need to understand that the structure of the market and its investing flow/channels have dramatically changed. The original beauty of stock markets and public markets/listings was the ability to buy/sell shares in seconds. This also meant instant visibility/transparency on pricing and valuations which, in turn, allowed companies access to huge pools of investment capital attracted to this ‘liquidity’ and transparency. Everyone was happy – investors, investee companies, investment banks, fund/asset managers, governments and….. regulators. Everyone is still happy it seems, but all investors and pension plans should be cognisant of the latest realities of investing in public stock markets. Here’s a few worth considering: 

    1. Daily headlines about massive share price moves of highly analysed (therefore fewer unknowns/surprises) companies (IBM, Hynix, Broadcom etc) or stock markets (South Korea) should alert investors to the hidden risks of potentially much faster (“5 Days”) declines in markets or sectors (AI, chips anyone?).  
    1. Investors have been in a 17-year bull market which has created confidence…. and appetite for borrowing to invest (margin accounts). Note this week that a 6% fall in South Korea’s stock market impacted 1.2 million margin trading accounts (or 3% of the adult population) and resulted in 350,000 accounts being liquidated (100% loss).  Wowzers, that’s 350,000 awkward communications or calls…
    1. We have seen private credit funds ‘close’ for investor withdrawals. The worry in extreme moves is that ETF/Index fund infrastructure buckles under extreme selling scenarios resulting in temporary ‘selling’ closures for certain funds (ETFs). Note some of these index fund providers/platforms control or manage more than $10 trillion. Too big to fail perhaps, but not too big to temporarily pause activity (selling) and cause panic.  

    Maybe, this all sounds a bit panicky. However, the Smithfund move is hugely significant. Possibly for its timing alone. Financial history tells us that these commercial realities or capitulations often arrive at a time close to market inflexion points. We shall see, but it’s also an extra risk headache for governments in Europe trying to increase household investment activity (versus non productive bank deposits). Ireland is close to announcing its own Savings & Investment Account initiative and the dogs in the street seem to know it will (in its first iteration) be focused/steered to investing in liquid, transparent and regulated public stock markets. Of course, governments want to avoid embarrassment and the risk of investment accounts LOSING money but there’s another leg to this initiative: Education/Financial literacy. Risk needs to be understood and embraced; there are no returns without risk, and time (long-term investing) is the true compounder of wealth generation.  

    Margin accounts, short-term performance/profits and bonkers daily price moves should not be the policy goal or destination. However, there’s another way to educate and adjust behaviours. There’s a reason why wealthy family offices and high-net-worth individuals now allocate up to 50% of their investments to private assets (to diversify away from the daily gyrations of public markets). The lack of daily or weekly emotional button-pushing is a key feature of private asset markets. Instead, valuations build (or erode) steadily over time and avoid the emotional baggage or boredom-beat associated with habitual trading. It’s the DO NOTHING strategy but without the trillions of passive dollars in every day public markets chasing momentum and pushing FOMO (*fear of missing out*) on fund managers trying to keep their performance-based (beat the index) jobs.  

    There’s no one style answer. However, there’s significant grounds for thinking about diversification and balancing risks, be it public v private, or passive v active, or momentum v fundamental investing. I will add it to my Leinster House request list, and possibly throw in the performance of our own private asset portfolio since inception in late 2023 (more on that next week). The ultimate irony of the thoughts above is that a well-meaning and needed financial innovation (index/passive investing) has been too successful and now, through weight of money, wields too much influence on public markets. General Patton might have his famous words applied once more …. “If everyone is thinking alike, then somebody isn’t thinking.”  

    Indeed, as an avid military history buff, those very words were hanging for many years on the Dublin office walls of Smith’s earlier successful financial adventure, Collins Stewart. Different days.

    Different Fundsmith too — the famous DO NOTHING fund’s turnover rate is currently hitting 51%. Definitely different days…..
     

  • Ten WOW Moments This Week

    Ten WOW Moments This Week

    I feel good. Maybe it’s an Arsenal triumph thing? Ok, I won’t go there but I do think we need to absorb some astonishing other developments this week. Dare I say it, even Republicans are astonished by their own crime family in the White House. Currently, Republican politicians are fleeing Washington to avoid precarious Capitol Hill votes, press scrutiny and global ridicule as the world digests the single most corrupt action by any US President in history. The phrasing I use is almost Trumpian but deserved this time. A self-dealing ‘settlement’ between the Trump family and the US government (via its IRS taxation department) is truly one for the ages. The establishment of a $1.776 billion ‘slush fund’ to spend on anyone the Donald wants, as well as a full waiver on Trump family tax audits in perpetuity is finally generating senior GOP leader outrage….and rebellion. This is ‘end of days’ stuff only missing a Caligula-like attempt to appoint a loyal horse (or Eric) to the Senate. However, the real WOW stuff is to be found elsewhere. Join me on a quick whistlestop tour of developments which have genuinely earned their superlatives.

    • The $5 trillion AI chip superstar stock, Nvidia, reported quarterly earnings this week. Again, as the most analysed company on the planet, the company managed to exceed revenue and earnings forecasts in the quarter, and then increased its guidance for the following quarter way ahead of the estimates in dozens of analyst spreadsheets. But, the real wow bit was Nvidia’s CFO forecasting global AI spend of $4 trillion PER YEAR by 2030.

     

    • IPO markets have been sleepy in recent years but get ready for a very hot IPO summer. SpaceX, Open AI and Anthropic are expected to list on US stock exchanges with a combined valuation of $3.5 trillion. For context, that equates to the GDP of France! More crucially, IPO exits means investment capital is freed up to be re-invested in the next SpaceX or Google. For illustration, Founders Fund, Valor Equity Partners, and Sequoia are set for over $100B, $60B, and $20B windfalls respectively from SpaceX alone in the biggest VC exit ever.

     

    • Ukraine rarely gets the headlines these days but something’s up. Vladimir Putin is increasingly paranoid about his personal safety as Russian advances in Ukraine stall or go into reverse. Losses are now approaching Vietnam war (57,000 US deaths) levels every 6 weeks. Meanwhile, deep-strike capabilities of Ukrainian drones into the Russian motherland are reaching targets 1,500 kilometres away. Military and infrastructure targets are being picked off at will by Ukrainian drones and there are emerging reports of large parts of Russia’s road network littered with destroyed military equipment. This writer’s personal view is that Putin’s removal and Ukraine peace could be the summer wow geopolitical moment.

     

    • The UAE’s announcement to transform healthcare, public services and federal operations with AI — including deploying Agentic AI across 50% of government services and training 80,000 employees in AI technologies — feels like a significant inflection point. The commitment to train 80,000 public service employees is particularly noteworthy.

     

    • The structural tailwind of generational wealth transfer continues to be under-estimated, particularly by those convinced 5 times a year that financial asset markets are going to crash. In Europe alone, €3.5 trillion of wealth will shift into new hands by 2030. That means new relationships and new wealth tools. So, please DO pay attention to this enormous structural trend and possibly take a look at NestiFi which is raising funds with Spark right now.

     

    • The biggest stock market move this week was not actually the US, despite Nvidia’s best efforts. Actually, it was South Korea’s KOSPI index which rocketed 8% in one trading session adding more than $400 billion of value to the market. The reason for the move was Samsung’s last minute deal with its worker unions, an agreement to pay a $26 billion AI bonus to employees. Wow. However, don’t forget Samsung is now a trillion dollar company and accounts for 30% of South Korea’s stock market value.

     

    • Not all news in Asia is good news. One can’t help feeling an untethered Japanese bond market could cause the global economy some real pain. Japan’s bonds are selling off in ways not seen since 1999. The current yield on Japan’s 30-year debt instruments is 4.2% (yields rise as prices fall). Watch this very carefully.

     

    • Bond and debt prices rising globally are the critical risk factor right now but the M&A market is showing continued confidence that debt markets will settle down. For illustration, the electric utility merger deal in the US between NextEra Energy and Dominion Energy is a $67 billion whopper bet, and biggest ever seen in the sector. Again, AI and its insatiable demand for power is driving deals in the sector.

     

    • As the Strait of Hormuz focuses minds on supply chains and logistics, there was a double reminder of two big trends from Japan. Logistics is a ‘hot’ sector for private equity, as is Japan. So, it was interesting $4.6B Japan-listed logistics firm NIKKON Holdings is exploring going private, with Bain Capital, Warburg Pincus, and Blackstone seen as potential bidders. That’s a helpful tailwind for our own portfolio name, Net Feasa, which has just this week teamed up with network giant, Ericsson, to deliver 5G IoT connectivity on container ships. Watch that connectivity trend too – Ericsson’s share price is up 44% and Nokia’s has rocketed 145% year-to-date. Wowzers.

     

    • Finally, as Europe prepares a €25 billion IPO of its tank manufacturer, KNDS, with 80% ownership by French and German government… it’s worth thinking about other traditional areas of German engineering prowess. The AI data centre race for power is driving massive demand for grid/transformer equipment and you should check out Siemens’ latest margins in this activity. Margins(EBITDA) in recent years have more than trebled from 5% to 18%. The old economy and real assets can still wow.

     

    All of the above are big themes to keep an eye on, but now it’s time to dream. Can Leinster follow Arsenal with another long-awaited triumph?    That would be WOW too…..

  • Google Growth, Giddiness and Gullibility…

    Google Growth, Giddiness and Gullibility…

    Deep breaths…I’m searching for expletives. Google has not only become briefly the most valuable company on the planet last week, it also has its own eponymous verb. Now I’m wondering will there one day be a verb “Farage”? Could someone ‘farage’ a nation? Not quite damage or ravage, more like persuade a country to screw itself repeatedly. I’m staring at the screens over the last few days and gasping at the fact that millions of UK voters are trusting dear Nigel (again) and his Thai-based crypto billionaire backers to lead them to the “sunlit uplands” which escaped them on Brexit. Anyway, back to Google and another prediction which has ended up going horribly wrong. Remember how the commentariat gurus confidently predicted AI was going to destroy Google because of its dependence on search? Well, the reality today is far sunnier…

    Google’s AI focused cloud business delivered $20 billion of revenues in its last quarter. That number is astonishingly growing at 63% year-on-year and surpassed the expectations of all herd-like analysts on Wall Street. As mentioned earlier, Google last week briefly passed Nvidia as the world’s most valuable company at almost $5 trillion. Incredibly, 38% of that value, or $1.3 trillion, was added in April alone. Growth is still being rewarded, despite the simultaneous chaos caused by the strangulation of the global economy’s critical energy supply route in the Persian Gulf. This tug-of-war between positive and negative macro drivers is both scary and fascinating to long-time market watchers. Clearly, as stock markets hit all-time highs, the AI growth story is winning the battle for investors’ mindset. Indeed, the S&P 500 in the midst of strategic White House chaos has managed to add $10 TRILLION in value in the past month. It’s not just sentiment and valuations on the rise. The fundamentals look pretty good too.

    The year-on-year earnings growth (yep, that income thing after sales) for the median S&P 500 company in Q1 hit a double-digit 12% pace (Source: Deutsche Bank). The average across all 500 companies actually reached a monster 25% growth rate. That pace of fundamental profit growth hasn’t been seen in at least 4 years and has nothing to do with a pandemic recovery or other macro rebound. Fundamentals like income and earnings matter for the more risk-averse investors. So, it was encouraging to see US high-yield bonds perform strongly in April, European M&A volume at its highest since 2007 and the European bond market just had its busiest day ever.  Yes, people are concerned about supply/demand imbalances in the AI infrastructure world but, if anything, demand is running ahead of capacity. Check out the deal just done by Anthropic and SpaceX. This is all about Anthropic’s urgent need for compute power to meet demand. For illustration, Anthropic had planned for 10x revenue and usage growth in the first quarter of this year. In fact, the growth has been closer to 80x……. yep 80x, not 8x. Euphoric stuff, but it’s time for a word of caution.

    Confidence and rising expectations are great for driving valuations higher. However, this also brings over-confidence and speculation. Arguably, the gullible are in danger of being sucked into the wrong ‘opportunities’. Two outstanding examples of over-confidence and gullibility working in tandem appeared on my screens this week. First, the original meme-stock, GameStop, which gathered a huge retail investor following from online communities like Reddit and Mashable, announced a $56 billion bid for the much larger company, eBay. However, no matter how many times GameStop CEO, Ryan Cohen, awkwardly told his CNBC interviewers the financing was “half cash, half stock”, nobody sane could make the numbers add up. At best, GameStop equity valued at $11 billion, plus $9 billion cash in the bank, plus an offer of $20 billion of financing from Toronto Dominion was still going to be $15-20 billion short of the asking price. Nuts stuff which probably won’t end well. However, you don’t have to wait to find out with Fermi Inc.

    Fermi Inc listed publicly (IPO) as recently as October 2025 with a valuation of about $19 billion. Fermi was riding the coat tails of the AI infrastructure-chasing-energy theme. Its solution was a promise to supply 17 gigawatts of nuclear-powered AI infrastructure….with zero revenues and zero clients. In the subsequent months the CEO and CFO have both departed, and the company still has not signed a single customer. Unsurprisingly, gullible investors have taken serious pain. The Fermi Inc share price has imploded by 85% wiping $16 billion from the IPO valuation. Customers and market traction remain a critical consideration for sensible investors and thankfully there are investment themes out there which are showing encouraging form. Here’s two worth watching.

    Amazon’s cloud business, AWS, was built around its first, best customer, Amazon’s e-commerce business. Now Amazon is launching Amazon Supply Chain Services (ASCS). And guess what? Amazon itself will be this logistics business’s first and best customer again. This allows Amazon to invest massively in infrastructure to challenge the incumbents, UPS, FedEx etc.  Regular readers will know we have strong positive views on the logistics infrastructure space and have recently raised money for OOHPod. Now, think how Amazon invented cloud computing before it was “hot”. This writer believes logistics infrastructure in the coming years will attract lots of investment capital and… customers. Check out Bloomberg’s view:

     

    “The world’s largest online retailer on Monday announced Amazon Supply Chain Services (ASCS), offering other companies access to its “full portfolio” of supply-chain and distribution offerings. The service largely consolidates a package of existing products — air and ocean freight, trucking and last-mile delivery — into a new suite it says companies like Procter & Gamble Co. and 3M Co. are already using.”

     

    Not bad, P&G and 3M on the customer roster already. Of course, our angle in logistics infrastructure is more deals and more M&A. So, it was interesting to catch another positive signal on M&A activity in recent days. It looks like Chicago’s boutique investment bank, Lincoln International, is looking to go for IPO in 2026. This will be the first boutique investment bank to go public since Perella Weinberg in 2021, and is enjoying a 31% income growth tailwind from 2025. Of course, the perkier M&A environment has helped. Data from Pitchbook would seem to confirm same…

     

    “2025 was a record-setting year for global M&A activity, with both deal value and volume shattering the previous highs set in 2021. PitchBook data tracked 50,810 transactions last year—the first time deal count has ever surpassed 50,000; and combined deal value hit nearly $5 trillion, up 37% from the prior year. In its filing, Lincoln contends that the growth of private capital will create a “larger and more durable M&A fee pool,” particularly for sponsor-led deals.”

     

    Again, we have written frequently about the structural shifts in finance and fintech investment. The opportunities to leverage technology in financial services are enormous, and particularly for small disruptors. The standout number for me in April was the trading revenue achieved by a firm unknown to most. Jane Street is a financial trading firm with 3,500 personnel and a lot of technology. In the last 12 months Jane Street generated $39.6 billion in trading revenues. JP Morgan with 316,000 employees did $35.8 billion; Goldman Sachs and its 46,000 superstars did $31.1 billion. The average revenue per employee at Jane Street was an incredible $11 million. Technology and trillions of dollars of investment capital flows can be a phenomenal combination. So, it is timely that Spark Private investors in the coming weeks will be shown two excellent fintech platform prospects. The beach can wait….

  • The Truth Can Hurt ….. Investment

    The Truth Can Hurt ….. Investment

    Forty years ago this week, reactor 4 of the Chernobyl Nuclear Power Plant exploded. The human and monetary costs were in the thousands and hundreds of billions respectively. More difficult to quantify was Chernobyl’s contribution to the collapse of the Soviet Union. However, I did re-watch the excellent HBO series Chernobyl in recent days and was struck by a non-monetary factor which might resonate for those currently enduring daily White House appeals to ignore our eyes and ears. The words of Professor Valery Legasov of Moscow State University in the opening scene of Chernobyl seem almost prescient  –  “What is the cost of lies? It’s not that we’ll mistake them for the truth. The real danger is that if we hear enough lies, then we no longer recognize the truth at all.”  For the USSR, the truth of technological decline, an obsolete economic model, and the inability of centralised power to deal with the complexity of a more connected global economy was easy to see. But fatally, not recognized. Fast forward to today, and we could be in similar TRUTH territory….

    Don’t worry, we won’t go down any conspiracy theory rabbit holes. So, no need to wonder why a would-be assassin might gain access without security challenge to the Washington Hilton and within one floor of almost the entire Trump regime senior leadership at Saturday’s annual White House Correspondents dinner. If the current head of the FBI is nicknamed “J. Edgar Boozer” then the truth is closer to incompetence than conspiracy. Similarly, but with far greater global economic impact, if Germany’s normally cautious Chancellor Merz is saying that the US has “no clear exit strategy” and is being “humiliated” by Iran, then the truth is that the US does not really “hold all the cards” or the keys to “Schrödinger’s Strait” of Hormuz. The consequences are plain to see as oil prices soar past $110 per barrel again and OPEC’s number 3 producer, UAE, just left the cartel after 59 years of membership.

    Clearly, the old world order alliances from NATO to OPEC are fragmenting. And, that’s before anyone dares to mention the eye-catching new Pew (March 2026) poll showing 60% of Americans now view Israel unfavourably — up from 42% in 2022. That’s almost as bad a swing as Trump’s voter approval on dealing with inflation shifting to a net MINUS 40, and national Consumer Sentiment surveys (Michigan/Ipsos) diving to the lowest levels seen since 1978. And yet….

    There’s a danger we have been distracted and miss other truths. Watch what people do, not what they feel. For example US consumer sentiment might be plummeting but US retail sales are running ‘hot’ at 7.7% year-on-year growth, the fastest growth pace seen since 2022. Meanwhile, fossil fuels and Strait of Hormuz blockades (unless you’re a Russian oligarch’s yacht – I know…Russia, Russia, Russia) might be dominating the gloomy headlines but there’s more positive long-term developments accelerating at speed. If you have been unable to copy or track Baron Trump’s oil trading strategies or share the Fox Business congratulations of Maria Bartiromo on Eric Trump’s new $24 million contract with the Pentagon(yup), then there’s good news and bad news. The bad news is you’re not making millions on risk-free trading or commerce, but the good news is you won’t need a fitting for an orange jump suit. However, away from the fossil fuel supply crisis, check out the following quiet developments which could hurt your investment portfolio if you miss them…

     

    • In 2025, for the first time in history, clean power met every single unit of new global electricity demand.
    • Renewable energy sources (33.8%) officially crushed coal (33.0%) for the first time in 100 years.
    • Electric vehicle (EV) sales in emerging markets have surged 80%.
    • In Europe, EV sales soared 51% in March while EV sales smash through 25% of the total global market.
    • Chinese company, CATL, just unveiled a battery with a 1,500km range that charges in 6 minutes
    • China exports of batteries, EVs and solar cells were up 34%, 53%, 80% respectively last month.

     

    A quick glance at the last two developments might suggest another uncomfortable truth; China is winning this global electrification ‘war’ and arguably is the winner of the Persian Gulf one too. However, there’s clearly only one country, USA, winning the global race for AI investment capital right now. The AI chip superstar stock, Nvidia, has just clocked up another $1.25 trillion increase in market value in less than 4 weeks. Nvidia’s current market capitalisation of $5.25 TRILLION is just shy of the entire value of Germany’s GDP and surpassed by only those of China and the USA itself. Google and Nvidia’s combined market value is now over $10 trillion.

    AI is acting like a ‘death star’ for other investment sectors as it sucks up huge amounts of investment dollars. In Q1 of this year software stocks collapsed 29% from their highs while 81% of all venture capital funding ($265 billion out of $330 billion) went to AI start-ups, with 65% of that going to just 4 companies (Source: Pitchbook). You’ll keep hearing and reading that word “concentration” and how investment capital is racing into ever narrower niches within technology. However, it might be worth keeping a mix of old and new names on the investment radar. Here’s two to watch:

    NEW: Anthropic, the parent of my new best work friend this week, Claude, is apparently trading in private markets right now at a $1 trillion valuation. Of course, it does help valuations if your annualised revenue jumps from $9 billion to $30 billion….in just 3 months.

    OLD: Samsung, the unwieldy Korean conglomerate of TV, phone and memory chip manufacture, is going to be the most profitable company in the world by 2027. Bloomberg reckon Samsung will edge out Nvidia for top spot with a whopping operating profit of $330 billion. Yep, good old memory chips (DRAM, NAND etc) are needed by Claude, Gemini and all the other agentic chatbots to remember you (and your prompts).

    So, that’s all good for now. But, let’s get back to the Truth thing. And, we’re not talking about AI chatbot hallucinations, or even Trumpolini’s Jesus delusions. It’s much more basic than that. In the middle of all this AI euphoria sits the company who kicked things off with ChatGPT, Open AI, and its CEO, Sam Altman. This week we heard OpenAI are behind on planned revenues and new subscriber growth targets. These things happen in fast growing tech stories, but OpenAI is attached to $1.2 trillion of AI infrastructure deals where OpenAI’s commitment is $600 billion despite current annual cash burn of…… $17 billion. Furthermore, OpenAI does not have a huge balance sheet like Google, Microsoft or Amazon. So, credibility and confidence matters. And, I’m concerned.

    Altman’s career history per various in-depth media articles (the New Yorker one is best) is littered with massive commercial relationship breakdowns and a common theme. Loss of trust. Phrases like “profound mistrust”, “lack of candour”, “consistent pattern of lying” and “deceptive and chaotic behaviour” are used to describe the CEO of a company seeking to publicly list (IPO) in New York this year with a valuation of more than $800 billion. This week Altman faces Elon Musk in court for a $150 billion lawsuit brought by the latter regarding governance at OpenAI. Let’s just say the potential damage to Altman’s credibility could have ‘nuclear’ consequences for the AI financial ecosystem. Watch carefully and remember the fragility of the Open AI balance sheet in the context of its trillion dollar commitments. Then think of Chernobyl and Valery Legasov’s most powerful words which we have cited before on these pages…

    “Every lie we tell incurs a debt to the truth. Sooner or later that debt is paid”

  • Summer Looking Hot….

    Summer Looking Hot….

    Last week was biblical. Firstly, President Trump became Jesus online, before dodging to “doctor” retreat on evangelical outrage. Secondly, Vice President, JD Vance, fresh from blowing up Viktor Orban’s election chances in Hungary, told the Pope to tread carefully on….theology. And then, Secretary of War, Pete Hegseth, presented a biblical verse, Ezekiel 25:17, at a Pentagon prayer service which turned out to be more fiction than truth. In fact, it was Pulp Fiction and the words delivered by Samuel L. Jackson’s character in Quentin Tarantino’s cult classic. Who needs The Gimp character with these White House slaves to ignorance?? Sadly, there’s little chance of ball gags for the Trump crime gang just yet as they ‘flood the zone’ with reality-defying nonsense. Meanwhile, our job in the macro risk world is to look behind the eye-rolling headlines connected to the on/off blockade of the Strait of Hormuz, and make sense of real events and numbers. Coincidence or not, I was about to write a rather upbeat piece before any Persian Gulf news broke. Here’s the real stuff which caught my eye away from the Oval Office clown show…

     

    Big Tech stocks leading a $4 trillion market rebound – Bloomberg

     

    Systematic hedge funds bought stocks at a record pace last week – Reuters

     

    Global Venture Capital (VC) investment surged to a record $330 billion in Q1 –   KPMG

     

    Emerging Market bond sales are soaring again as investors dive back into risk  – Bloomberg

     

    It feels like markets and investors have moved on, and confidence is building rapidly. Goldman Sachs research reported that March was the best month in a decade for long/short trading hedge funds. The actual average return in one month for these type of funds was 7.7%, and will be music to the ears of investment banks who need these huge institutional generators of commissions, M&A fees and securities lending to be “feeling good” and chasing opportunity/risk. Indeed, quarterly updates from all the US investment banks showed Goldman Sachs delivering a best-ever quarter for their equities trading operation, and the Guardian has reported almost $50 billion of profits (Q1) generated by just 6 banks – Goldman, Morgan Stanley, JP Morgan, Citigroup, Wells Fargo and Bank of America. It’s all about confidence and we’ve been waiting a while for the IPO market to come to life. In the private equity world, and the Spark world, this public listing channel (IPOs) is critical in providing the much needed ‘exits’ while pumping liquidity flows (and confidence) through the financial ecosystem. The latest numbers look encouraging.

    In Q1 there were 22 IPOs in the US with a combined stock sale value of $9.4 billion compared to just 15 exits the year before and $7.9 billion of liquidity generated (Source: PwC). So, the pace is picking up but we must brace ourselves for the ‘galactico’ listings promised later in the year. Elon Musk’s SpaceX alone could raise $75 billion on a $2 trillion valuation and the listings of OpenAI and Anthropic will be massive conduits of capital back into the AI ecosystem. War or no war, there seems to be no end to investor demand for a slice of AI action. CB Insights research showed that global venture capital (VC) markets invested $226 billion in AI in Q1 of this year. That compares to the $217 billion raised by private AI companies in ALL of 2025. Note that the ‘concentration’ effect familiar to many observers of the ‘Magnificent 7′ tech dominance of public markets can also be seen in private markets; more than 94% of the value of Q1’s VC funding was funnelled into deals worth more than $100m. But it’s not all AI giddiness…

    The biggest industrial IPO this century was just completed last week. Madison Air Solutions, in the ‘hot’ HVAC sub-sector critical to hi-tech construction, officially claimed the title of the largest industrial IPO since UPS in 1999, pricing its $2.23 billion offering at the top of its range and surging 18.5% in its Thursday debut. Madison Air delivers the cooling systems for servers in the data centre space but one can’t help feeling things are generally hotting up, and could make for a very interesting summer. Of course, there are big ‘IFs” on the macro geopolitical front but the longer-term picture is beginning to reveal some emerging trends. In particular, I’m watching Jeff Bezos going BIG into physical robotics and manufacturing automation with a planned  $100 billion fund named Project Prometheus. It is noteworthy how often the AI chip king, Jensen Huang of Nvidia, refers to robotics as the next multi-trillion dollar wave of the AI economy after agentic services (eg Claude, Gemini, ChatGPT etc). However, there’s another agency service which is quietly picking up speed and needs watching.

    We have written before about Waymo and autonomous driving passenger miles growing rapidly. So, the most recent data from start-up funding database, Crunchbase, is striking. Autonomous vehicle start-ups have already raised a record $21.4B across just 34 deals in 2026 year-to-date, versus $5.9B across 99 deals in all of 2025. Waymo led with a $16 billion round at a $126 billion valuation, while Shield AI raised $2 billion and Wayve raised $1.3 billion. Again, automation and human-collaboration are very much our future, and are driving (!) investor animal spirits. This also confirms the theme of a book I cite often, The Future Is Faster Than You Think, and highlights how technologies are converging – think battery power, AI, and robotics in combination. Feel free to follow the ridiculous Trump headlines, but there’s a danger you’ll miss the bigger picture. It’s hotting up out there….

  • Short Prompts, Longer Impacts….

    Short Prompts, Longer Impacts….

    That was exhausting. And it was only a short week. Iranian civilization and the White House insider trading desk were given a bit more time to exist under autocratic regimes while Schrödinger’s ceasefire broke out everywhere but in the Strait of Hormuz and Lebanon. This paradox seemed to inspire Melania Trump who went to the Presidential podium to assure the world’s press that Epstein criminality was not a hoax, but at the same time that she “never had a relationship” with dear Jeffrey.  I’m thinking that’s a “relations” denial but that’s the Clinton nostalgia in me. Anyway, this very strange First Lady intervention has prompted some very short-term thinking about what exact Epstein bombshell is about to drop. The longer term implications might take a bit longer to decipher but, at the bare minimum, Melania appears to be keeping an eye on the catastrophic GOP polling for the mid-term elections this November. In fact, there were a few other developments this week which prompted relatively light commentary levels but could have far weightier longer term impact. Let’s start with a prompt, but one of the AI variety…

    Anthropic is the parent of the chat bot Claude which recently fell out with the Pentagon. Well, it looks like Anthropic might have prompted one of their LLM chat bots (large language models) rather too well. The latest reports suggest a cousin of Claude (certainly not Greg), Mythos, could be a bigger threat to the planet than Agent Orange in the Oval Office. Yeah, seriously. Apparently, and this is the really simple language version….Mythos was tasked/prompted to find vulnerabilities in software and systems deployed by the world’s biggest institutions, banks, utilities and blue chip companies. Mythos didn’t come back with one or two “exploits” or ways to hack software, it came back with hundreds even thousands of ways to hack into software systems. Mythos was SO good, Anthropic has taken the immediate decision not to release the model to the public. That’s not all. Some very senior people have been spooked by Mythos. Treasury Secretary Scott Bessent and Federal Reserve Chair Jerome Powell called the CEOs of America’s biggest and most important banks into a closed-door meeting this week at the Treasury building in Washington, D.C. Expect to hear a lot more about Mythos and wonder how long before Polymarket or Kalshi start running betting books on the probability of world destruction being at the hands of digital weapons rather than nuclear weapons. But if we stick with the nuclear threat…..

    Earlier in the week, CNBC’s Trump-cheering anchor, Joe Kernen, was destroyed by former Transport Secretary, Pete Buttigieg in a toe-curling TV clip which has gone viral. Kernen tried desperately to amplify Tehran’s imminent nuclear capabilities but struggled to deflect from the strategically disastrous consequences of the Iran war including the shutting down of the Strait of Hormuz. “Whataboutism” is about to hit peak volume in MAGA land to drown out the inevitable rise in prices, inflation and voter discontent in the “golden age” of the USA. Peace talks begin at the weekend in Islamabad but the longer term consequences of world fuel supplies being cut by 10-20% will be felt for months to come. As each day passes, the global economy will pay the price of minimal shipping traffic passing the Strait of Hormuz. Before the war, daily shipping traffic averaged 130 vessels. Currently, Schrödinger’s ceasefire is delivering a daily traffic total of…… 6-7 vessels. Not 67, six…or seven. No wonder Trump is panicking, and that’s before he even checks the latest polls and actual votes.

    Amid all the ceasefire headlines, US voters are beginning to shift sharply. In Georgia, former Trump lovey, Marjorie Taylor Green’s seat witnessed a 25 point voter move towards the Democrats. In another swing state, Wisconsin, politicised Supreme Court elections saw a 20 point shift to the Democrats. According to the election analysis publication, the Downballot, Democrats have improved upon their 2024 presidential election margins by an average of 11% in special elections so far in 2026 and roughly 13% since the start of 2025. Prediction markets, Kalshi and Polymarket, are giving Democrats 88% odds of House control and 53% for the Senate in November 2026. Meanwhile, closer to home, Hungary goes to the polls this weekend with the real possibility of Trump and Putin fanboy, Viktor Orban, being ousted from power. A particularly eye-rolling moment during the last week of the campaign was the the arrival of US Vice-President JD Vance to complain about EU interference in the election……while on a trip to Hungary to interfere in their election. The EU-US relationship has never looked so broken, and will take years to repair. Indeed, it’s increasingly clear from a European perspective that no senior US leader gets a pass for staying quiet during this insanity. It’s not the only upside-down shift in the world we used to know…

    The downturn in the performance of software stocks like SAP, Salesforce and Microsoft has been a feature of financial market commentary in recent months, spawning multiple SaaSpocalypse headlines. I’m not convinced the valuation meltdown of software under the threat of AI is fully merited. Current valuation multiples, price/earnings below 20x, are back at pre-Covid levels and below those of lower growth consumer staples stocks like Walmart. In fact, Walmart is currently trading at higher valuation multiples than Amazon. Clearly, longer-term prospects for software have currently shifted in investors’ minds but perhaps the bigger story is in hardware. The semiconductor sector (ETF $SOXX) has risen by 108% over the past year while the software sector (ETF $IGV) has declined by 14% over the same period. This scale of market performance divergence is unprecedented and is a reminder (if the Strait of Hormuz isn’t already) that the securing of the supply of physical assets (atoms, molecules) is becoming THE strategic business edge in the global tech race, and not digital code (bits).

    A final thought on performance, as Ireland’s government considers new tax frameworks and savings products to encourage households and businesses to take risk with circa €340 billion sitting in bank deposits. Of course, Spark (and our 60-strong stable of companies we have funded) have skin in this game so one hopes the government is mindful of the benefits of diversification across the entire investing spectrum. A narrow solution steering monies into already publicly listed (and funded) companies would be a missed opportunity to drive investment into our capital starved start-up and SME sectors. Oh, and the investment returns in private assets are certainly worth investigation. Our own EIIS Private Portfolio service launched just over two years ago has funded 24 companies to date. Current valuations and funding milestones/marks indicate an estimated (average) performance by the entire portfolio of somewhere near 25%. Steady stuff, and early yet as these companies are just 2 years into their scaling up journey. However, there is one other BIG factor to consider. The EIIS tax rebate scheme does work, and all Spark investors have been receiving their tax rebates. Now, here’s the interesting twist. That return of cash completely changes the returns profile of the portfolio above. The average return  to investors (if you had invested in all 24 companies) is actually over 100%. In just 2 years, and that’s mostly cash, not just paper. Expect us to write lots more on this very soon.

    Let’s call that a little prompt, with a very big long-term impact.

  • Time To Look At The Big Savings Picture

    Time To Look At The Big Savings Picture

    As Artemis II hurtles towards a lunar orbit we are reminded of how distance can give us new perspectives on our little planet. So too for time and our savings habits. Funnily enough, those perspectives are more reminders than new lessons. And, it’s definitely a good week for reminders. Top prize for memory-jogging was the Reform UK’s housing spokesperson, Simon Dudley, whose outstanding contribution to post-Grenfell safety debate was that “everyone dies in the end” while attacking current safety regulations. Thus ended Dudley’s 23-day reign as Reform housing guru –  even Igor Tudor’s stint at Spurs was 44 days. Of course, on a bigger stage, Pam Bondi learned a very old lesson this week that in a lawless society, the shelf-life of an Attorney General is limited no matter how good the cosmetic surgery. Let’s not go there with ex “ICE Barbie”, Kirsti Noem, except to say that these evangelical-political types really do have the most astonishing fetishes hidden in those bible-stacked closets. Poor Cricket clearly knew too much. Now, let’s take a look at areas of investment where we might need to know a bit more.

    In the week of Ireland’s first Savings & Investment Forum, we must applaud any efforts to put our savings capital to better use. The critical impetus is to move from a ‘savings’ no-risk culture to an investment wealth-creation culture. However, I’m personally concerned the investment options in new tax and incentive frameworks might be quite narrow. So, as luck would have it, the most striking thing I read this week highlights the dangers of a relatively ‘narrow’ approach to investment. Credit to Ben Carlson of A Wealth of Common Sense for highlighting the updated findings of Hendrick Bessembinder’s work. If that name sounds familiar it’s because we quote Bessembinder’s work extensively in our EIIS Private Portfolio brochure and newsletters. The Professor of Finance at Arizona State University in a 2018 research paper made a very powerful case for diversification, or a ‘portfolio approach’ to investing. His view, and mine, is that ‘picking winners’ is beyond the capability of all but a handful of people on the planet. Hence, my encouragement to build multi-year portfolios. His research covering S&P 500 stock returns since 1926 flagged two key features of investing:

     

    **60% of all stocks underperform risk-free government bonds(Treasuries).

    **Only a tiny 4% of the entire stock market’s securities (company shares) account for the vast majority of investor gains.

     

    The enormous concentration of performance in just a few stocks is strong justification for just buying ‘the market’ or indexing. Think about the Magnificent 7 or MANGO stocks these days and the ‘cost’ of not being invested in a single name like Nvidia (350,000 % outperformance since 1999). Now, let’s take a look at Bessembinder’s latest updated research with a full 100 years of data in the analysis. The inclusion of an extra 10 years of data shows that concentration of performance has accelerated into an even smaller pool of stocks:

     

    “Over the 1926 to 2016 period studied in Bessembinder (2018), 89 firms accounted for half of the $43 trillion in net wealth creation. After including outcomes for the most recent nine years, just 46 firms account for half of the $91 trillion in net wealth creation over the full century.”

     

    Wowzers! $45 trillion of wealth generated by just 46 companies accounts for more than half of ALL returns over time. However, I want to concentrate on the almost 60% of stocks who don’t even beat cash/Treaury bonds. That’s not a figure which helps the marketing departments of private client stockbrokers or active fund managers. But….. it does help those of us who are trying to increase investment in private assets including venture capital, private equity and infrastructure projects. You might wonder why, given it seems to ‘prove’ that investing can result in many companies failing to beat cash – at last count there’s more than €340 billion in Irish bank accounts. Well, one of the most common rebuttal arguments of investing in young venture capital type opportunities is that “most companies fail”.  Now check out that figure from the PUBLIC markets. Yes, 60% of those publicly listed companies fail to beat cash in performance terms. So, here’s the mindset change required for investing in private markets – many of the investments won’t better cash but it’s worth it if you can just find a few winners in your portfolio. Furthermore, that should not merit a guffaw from a professional advisor that those winners are too rare to justify investing in the asset class. Repeat slowly back to him/her that 46 companies over 100 years delivered half of ALL returns in the S&P 500. This week we also received a reminder of what private markets can deliver for early stage investors.

    SpaceX has filed paperwork to IPO in June. The plan is to raise $75 billion of new money at a valuation of….. $2 trillion. For historical context, please note that the previous global record IPO was Saudi Aramco which raised $29 billion in 2019. In 2025 the entire US capital markets raised a total of $44 billion across 202 IPO listings. For the valuation curious, SpaceX looks like it’s hoping to raise money at circa 100x this year’s revenues. I think the big picture pointer here is that private asset ‘winners’ can generate an outsized proportion of your overall investment returns while the majority will destroy wealth/purchasing power. However, the big learning reminder today is that this outcome is not much different to what happens in those orderly, liquid, mature public markets.

    Hopefully, Europe and Ireland will grasp that lesson and understand that diversification should not stop at publicly listed investments. Each asset class has its own risks but the bigger picture doesn’t look too different, be it public or private assets. FORTY SIX companies tell that 100 year old story. Now, Europe must think about how it can fund its own SpaceX and mobilise the €14 trillion of European household savings sitting in wealth destructive low-yield bank accounts. Yep, FOURTEEN TRILLION. It seems apt as we look to the skies and the possible this week, that Artemis is both the Greek goddess of hunting….and transitions.

  • When Words Are Definitely NOT Our Bonds…

    When Words Are Definitely NOT Our Bonds…

    There’s only one thing sicker than an Irish parrot outfit this morning. That’s the global bond market. The biggest bully of them all is sick of the nonsense. Not just the front-running of the US President’s social media posts. The Financial Times rightly flagged this week the gob-smacking scale of corruption and ‘insider’ trading going on close to the Oval Office but, in real financial terms, the pricing reactions of equity and oil markets to Trump’s Monday TACO were relatively muted. Of course, oil prices dipped below $100 earlier in the week but they’re back above $110 now. Similarly, the S&P 500 spiked for a day but it too is back slightly below Monday levels. Arguably, Trump’s words have been losing credibility since his first TACO retreat on tariffs in April last year but there’s a much more dangerous aspect to this credibility failure now. Truth has officially fled the higher echelons of US institutions and that impacts the biggest contracts of them all, United States Treasury bonds’ (or IOUs) credit worthiness with the rest of the world. Here are the headlines you’re not reading…

     

    • The yield on the US 10-year Treasury bond has deteriorated/risen by 13.5% (in yield or cost of money terms) since the Iran war began.
    • The yield on the US 20-year Treasury bond has deteriorated/risen by 11% in the same period (25 days!!).
    • The yields on US Treasuries are used to price almost everything so the average cost of a mortgage in the US is now at a 7 month high despite job creation being at a multi-year low.
    • It’s not just the cost of US assets. The global disruption caused by the Iran ‘operation’ has driven Japanese government bond yields up by 16%.
    • UK bond yields above 5% are the highest seen in 20 years.

     

    The price moves above are the ones that really count. And their message is very clear: the damage done to energy infrastructure and global supply chains is inflationary. The bond traders don’t believe a word of what is coming out of the White House and Pentagon propaganda machines. The opening up of the Strait of Hormuz is dependent on Iranian cooperation and the ability of logistics companies to commit their ships and crews to a safer and insurable environment.  At current levels of reduced shipping activity, the world is losing 11 million barrels of oil every day, as well as numerous other critical distillates like ammonia, diesel, helium, urea etc.  The key point is that bond markets do not “price” temporary cost spikes or supply squeezes. The bond market is explicitly contradicting the Trump regime and suggesting longer-term disruption. In fact, the French government have laid out the following observations:

    • 30-40% of Gulf oil refining capacity is destroyed.
    • That is the worst energy infrastructure destruction since WW2.
    • Full repairs could take 3 years.

     

    Thanks Donald. Actually, you don’t need to thank him. Speaker of the House of Representatives, Mike Johnson, went full North Korea at this week’s National Republican Congressional Committee fundraiser by presenting Trump with a new award. The Guardian reports:

     

    “The president has done so much for the American people and we want to honour him, in some small way, some token of our appreciation for his leadership,” said Mike Johnson, the US House speaker. “So, tonight, we have created a new award.” Johnson then introduced the “America First” award, made up of a golden eagle statue. “We could think of no better title for what that is,” said Johnson. “That’s this beautiful golden statue here – appropriate for the new golden era in America.”

     

    Idolatry and empty words. Asia might have other words right now. Latest headlines suggest crisis:

     

    Pakistan is reducing government working hours to save energy

    India is diverting gas from factories to homes

    Philippines declares a national emergency

    Japan to temporarily lift coal power plant curbs over Hormuz crisis

     

    Clearly, bond markets are looking East and not West for the true story. Indeed, it was striking how most commentators and traders earlier in the week were looking to Tehran to verify whether the US President was telling the truth about ‘negotiations’. Yes, an autocratic theocracy is now more credible than the leader of the ‘free world’.

    It’s a very strange world, but I suspect the bond market will have a very big say about how events unfold in the Middle East from here.

  • Battle For Capital Starts At Home

    Battle For Capital Starts At Home

    Investment capital does not come easy. Unless you’re Kristi Noem, the very recent US Secretary of Homeland Security. It seems Kristi had no problem accessing capital to fund a $220m personal branding campaign, a fleet of $70m luxury jets with queen-sized beds to ride around the nation and multiple photo shoots of the DHS Secretary on horseback at national monuments. Those rides – that word is doing some heavy lifting – are now over. “Generalissimo Bonespurs” bravely reached for his social media keyboard last night and fired her via Truth Social. At least it was a fate less lethal than that experienced by Kristi’s late puppy, Cricket, who was shot by “ICE Barbie” for discipline issues. No tears from Cricket, or the rest of the caring world me thinks. Anyway, I’d like to stick with investment capital and discipline.

    The screaming headlines away from the Arabian Peninsula in 2026 have been again all about AI, and the ‘space race’ to spend more and more money to build that AI future. Leaving aside the discipline or uncertainty of returns(success) on that capital spend, there is one certainty. This enormous shift of investment capital – $650 billion spend this year by MSFT, Amazon, META and Google alone – risks ‘crowding out’ other sectors desperately looking for capital to fund their own growth plans. In fact, Pitchbook data indicates funding for AI exceeded half of all VC deal value in 2025 (53% of $513 billion). However, this sector concentration phenomenon highlights a challenge for Europe. Clearly, the investment capital is out there but Europe is struggling to muster up ‘big ticket’ investment to truly dominate/gain monopoly on the global stage. Consider SAP as the only European ‘startup’ of recent decades to achieve a valuation of over €100 billion. Then think of the still privately owned SpaceX eying up a 2026 IPO with a $1.7 trillion valuation. The US is on a different planet to Europe in terms of swinging the investment capital ‘bat’. Indeed, Mario Draghi’s report on EU competitiveness way back in 2024 flagged a couple of things relevant to today’s article:

     

    • Europe needs to radically overhaul innovation. Draghi noted only 4 of the world’s top 50 tech companies were European.

     

    • His solutions included innovation in Europe’s financial markets: 5% of European GDP (or €800 billion per annum) needs to be invested in Europe’s best innovative companies, infrastructure, energy etc. This capital could be unleashed through joined-up thinking on common EU debt instruments and unlocking the vast private savings pools in Europe’s aging societies.

     

    Closer to home, the government and Tanaiste Simon Harris are promising a new savings scheme to incentivise savers to deploy some risk capital. Despite the presence of so many bold brave successful US multinational corporations in Ireland’s economy, we have become a nation fearful of risk. Possibly we have been spoiled and become risk flabby due to multi-national ‘air cover’. The €170 billion of savings sitting in Irish banking deposit accounts earning returns below the rate of inflation is a damning indictment of our national financial literacy and an exercise in mass wealth destruction. Something radical needs to happen so we will be writing further on this theme in terms of what’s possible and what we believe might work. After all, we are pretty much the only Irish free-to-access platform for investing and purchasing the shares of young fast growing companies. So, we do have a view close to the coalface and….. we also know the hurdles currently experienced by both the companies seeking investment and the institutions assessing the returns prospects of those companies. Let’s first consider how venture capital institutions, family offices and private equity houses make that returns assessment.

    One of the more thought provoking pieces I have read in the last 12 months was an article by Progress Ireland’s Sean Keyes. He used real numbers in an investment decision example to demonstrate how an Irish company when competing against other European companies (not even US ones) for investment “need to be smarter, harder working, or luckier than Europeans to achieve the same results”.  Why? Simply put, investment companies have a ‘hurdle’ or returns target which they put in all their marketing literature for their investors, partners, shareholders etc. It will be expressed as an annual rate of return over the duration term of the investment (eg 20% or 30% per annum over 5 years). However, this is NOT the same as what the investee company achieves in its own operations. Think of two companies earning profits of €1m per annum for 5 years and then selling/exiting for €10 million to a new owner. You’d be right to think that both companies delivered €15 million over the holding period of the investment. But…. that is NOT what the investment company will receive. That will depend on the tax regime of the relevant investment. Here’s where the numbers don’t look good for Ireland’s companies. We DO have a low corporation tax (15%) but other taxes significantly change the returns picture for investment companies. Consider the following:

     

    • Ireland taxes dividends at the highest rates in Europe (remember the distribution – out of company – of those €1m per annum profits)
    • Capital Gains Tax is the 4th highest in the EU (remember that €10 million exit)

     

    Clearly, the post-tax picture for investors in Irish companies compared to the exact same average EU company is lower. Therefore, an investment manager needs to know that an Irish company is going to deliver a supra-normal PRE-tax performance in order to deliver a post-tax result in line with his ‘hurdle’ requirements. The Progress Ireland article is worth a read to understand the framework calculations but for the purposes of this article (and Friday lunch deadline approaching) I would flag the two key numbers which standout. An Irish company receiving €1m of VC funding and required to beat a hurdle of 30% per annum over 5 years needs to generate€ 23.7m over the 5 years. Meanwhile, the average EU start-up receiving the same €1m VC investment only needs to deliver €11.3m over the same period. That feels like an Irish start-up needs to be roughly twice as lucky, smart and hard working than average. It also feels wrong. Not the maths, the returns hurdle implicit in any Irish start-up investment by an institutional player is way too onerous. Radical thinking is required and none of these challenges are addressed if we end up incentivising SSIA-type savings schemes which steer investment capital into publicly listed companies on global stock markets.

    We already have an incentive solution for that. It’s called a pension. So, we will return to this topic again with more on the potential solutions and the wider imperative for Europe to mobilize its vast savings’ pools. Frankly, if we and Europe don’t encourage risk-taking discipline, then we all economically end up like poor Cricket.

     

  • Software Is Eating Your Pension….

    Software Is Eating Your Pension….

    Is it time to rip up our favoured playbooks? No, I’m not trying to steer Andy Farrell after that first half ‘traffic cone’ tackling effort in Paris. Nor will I hold out any hope of Britain’s Labour Party saving its government from the existential fallout of ignoring its own “Prince of Darkness” links to Epstein. Sir Keir Starmer’s premiership is already “dead in the water” but I will stick with the trading theme. Long-time political commentators are rightly appalled that Peter Mandelson tipped off Jeffrey Epstein and his elite rolodex/assets about a €500 billion bailout of the euro currency during the Greek debt crisis. The €500 billion number is huge in its own right but the derivative opportunities in banking debt, currencies, bond markets etc at the time were in the trillions and available for exploitation by Epstein & Co without any obvious trace. So, following on from last week’s article, we promised to dig deeper into the huge AI numbers hitting our screens. Actually, we won’t. Instead, we will focus on a related huge number with potentially massive knock-on/derivative investment implications.

    For me, the big number this week is the $1 trillion of value wiped from software stocks (and their SaaS subscription/business models) in just 6 days of trading. Of course, this is directly connected to the threat of AI and some developments, in particular, from the Anthropic/Claude suite of products which are making massive strides in assisting coders and companies to develop/manage their own work processes. Software, of course, is the incumbent go-to solution for companies seeking to optimise work processes and engagement with their customers. Indeed, the venture capital guru, Marc Andreessen, in 2011 was moved to say  “software is eating the world”. From Netflix to Uber to Amazon, digital subscriptions gave companies and consumers access to technology-optimised services. As AI invades the digital opportunity, software is possibly no longer the ‘always’ solution on the Boardroom table. In fact, software could be on the displacement menu itself. The twin threats of AI are summarised well by Business Insider:

     

    “First, if employees get more efficient using AI tools, companies may not need to buy as many business software subscriptions. That would dent the growth of “seats” or how many subscriptions software companies sell. Each employee has a seat, so if there’s no new hiring, growth stalls.

     The second threat is more existential. If AI tools and AI agents get good enough, companies could replace the software they use entirely and instead rely on new AI-powered workflows. And with AI coding tools showing big improvements lately, companies could even develop their own software, without needing to buy it from established vendors.”

     

    There are plenty of analysts and observers who disagree with the gloomy interpretation of AI’s eventual impact on software companies like SAP, Salesforce, Adobe, Figma and HubSpot. However, these company share prices falling by 30-40% in just one month, is telling us the ‘fear’ is real. The $1 trillion of value evaporation in less than a week is not an earth-shattering number given some individual companies are valued in the trillions alone. But… perhaps looking at the software value obliteration in isolation is misguided. The commentariat might think software fears are ‘overdone’ but, if you have a pension, this might be the less scary of TWO outcomes. The first is that software stocks growth and valuations are hit severely by AI replacement. However, there’s a second set of updated numbers/data to take a look at. While the software sector was being hammered, the AI/Cloud giants were announcing quarterly results. Interestingly, their earnings and sales growth numbers were pretty much ignored as the market focused on just one number; capital expenditure spend on AI infrastructure and development. Last week Facebook promised $135 billion of INVESTMENT in 2026 which equates to their total sales in 2023. Microsoft told us their number was circa $105 billion. This week it was Google and Amazon’s respective turns to talk the AI ‘space race’…

    Google, perceived as the AI leader these days, told the market it would spend a cool $185 billion. That equates to its total revenues in 2020(!). Meanwhile, Jeff Bezos seems happy to test out the theory that “Democracy Dies in Darkness” at the investment-starved Washington Post, as his primary wealth creation vehicle, Amazon, announces a planned $200 billion capex spend for 2026. So, the Big 4 are up for a $625 billion investment splurge this year and probably every year for the foreseeable future. That looks like a bet of $3 trillion to $5 trillion on AI, and I’m just wondering what the ‘risk’ calculations could be? I chose the ‘space race’ phrasing earlier deliberately. It feels like the prospect of AI failure for these companies is existential in terms of economic power and analogous to the geopolitical calculations at the height of the Cold War in the 1960s. Well, the historians would probably agree that Reagan’s “Star Wars”  broke the Soviet empire. It’s too early to tell who will ‘break’ in the AI race but software is in the crosshairs right now. However, the sense that big tech including software is ‘going for broke’ introduces a very new risk for financial markets.

    The beauty of software and SaaS business models is recurring revenues, huge scalability at minimal incremental cost, 80-90% margins and enormous cash flow generation. The end result can be seen in the massive spending plans of Big Tech; these companies’ balance sheets were sitting on enormous cash piles (or equivalent liquidity). Simply put, these were the most robust (credit risk) companies on the planet. Pension funds, family offices, sovereign wealth funds and Swiss bank accounts loved the security/risk safety attached to loans and bonds issued by tech/software companies. These instruments were considered “defensive”. Now, not so much.

    Stock/equities markets (as my former boss Terry Smith used to point out to me) occupy 28 of the 30 pages of the Financial Times. But, the last two pages covering debt, currencies, commodities etc are much more significant for financial markets. Now the bonds and loans associated with big technology companies are receiving intense scrutiny (and investor selling) as they each seek to out-spend their cash and balance sheet credibility. This has incredibly important implications for your pension. The credibility of the United States and global technology stocks are being reviewed for their ‘risk safety’. Some serious investment institutions are already acting and re-positioning. This doesn’t mean just selling. What investors are buying at the moment is telling too. Here’s a few data snippets to alert you to what is happening right now….

     

    *Software sector selling activity is the worst since 2008

    *Software valuations – forward price/earnings multiples of 20x – are now at levels (low) not seen since 2014.  

    *Now the buying: defensive consumer staples companies (Nestle, Mondelez, Heinz etc) have been up 1% on consecutive days while technology sector companies fell 1% on the same days. That divergence of performance has not happened since ….2000.

    *The same consumer staples stocks are experiencing buying intensity (“RSI” for the technicians) not seen since 1995. Other indicators (DMA 200 day) are 4.2 standard deviations above average.

     

    It looks like people are buying ordinary stuff; petfood, protein, household goods, chocolate….. really boring but real. We have written before that investors are flocking to atoms (real) and hedging/selling their risk with bits(digital code). One suspects the meltdown in crypto land (Bitcoin at $65,000, down over 50% from its highs) is also partly driven by digital ‘fear’. So, for those keeping an eye on the headlines and their pensions, you might want to check with your advisors on three areas:

     

    1. Pension exposure to technology (software or AI spend). It could be as high as 30% of your portfolio.
    2. Pension exposure to defensive real stuff. It could be as low as 5% of your portfolio.
    3. Pension exposure to the USA. It could be as high as 70% but there is currently a lawless armed militia running around the country, a Supreme Court in dereliction of its duty, international grift on an epic scale and the real threat of mid-term election suspension.

     

    The advisors won’t have all the answers but it should be on ALL pension radars. This period of history offers mind-boggling opportunity but we must be also aware that there is an unusual confluence of technology ambition/confidence and global political leadership operating in an environment where traditional values and rules are being disregarded. Hopefully, rules-based leadership will return soon but here’s a warning from Andrew Ross Sorkin’s book, 1929:

     

    “It’s a haunting elegy for a fractured era, a timeless reminder that progress is fragile, choices have repercussions, and the flaws embedded in the human condition are ours to confront”

     

    Might be time to make better choices and confront those flaws (including White House ape videos)….