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Arvind's Newsletter
Issue No #804
1.Financial services sector continues to be hot in India from a news flow perspective. It is a sector which as we noted last week has seen the most Foreign Portfolio investor (FPI) investment inflows recently. However, had two other interesting developments in the sector.
First,BlackRock Inc., the world’s largest asset manager, is set to re-enter India, joining forces with India’s largest company Reliance Industries Ltd (RIL), marking a return to the country after exiting in 2018. The US-based investment giant is creating a 50:50 joint venture with Jio Financial Services (JFS) to create an asset management business.
Second, a Mahindra group entity has acquired close to 4.9% stake in RBL Bank through open market route. Under RBI norms, if the shareholding of one company reaches 5% in a bank, the RBI’s approval is needed for any further stake buy. Mahindra Group is present in financial services business through group company Mahindra & Mahindra Financial Services.
2.How Gaurav Trehan recast KKR’s culture, investment thesis and approach in India. This is long read by Ranjani Raghavan in the Mint. Here are some excerpts.
Gaurav Trehan, a TPG veteran and a UCLA alumnus, who joined KKR in December 2020, has almost entirely recast its investment strategy. A person familiar with Trehan’s operating style says he places a premium on likeability, believing that people like to do business with people they like.
“If you invest in a company, you are going to have to work with that promoter for at least five years. There will be good times and bad. You need to like each other to make it work," the person said, adding that the executive has focussed a lot over the last three years to ensure KKR India’s culture is one of “humility, politeness, respect, collaboration and team work".
While Trehan has been focussing on building a milder, gentler KKR in India, he has also broadened the firm’s approach to private equity.“KKR has re-engineered its thinking to be more thematic in approach instead of just thinking about buyouts. It has to be a good sector in a theme it likes.” Some of the broad sector buckets the firm likes include financial services, technology services, general technology, consumer, healthcare and pharmaceuticals.
This is also because the firm now has the benefit of drawing capital from multiple global pools, beyond its flagship Asia buyout fund—which allows the firm to have multiple strategies within private equity. It has an Asia Next Generation technology fund, for its technology investments, and a global healthcare strategic growth fund which it uses to make small growth equity investments in healthcare and pharmaceuticals companies. In the last few years, KKR has also formed a Core Fund, raised through internal KKR capital, which can stay invested in companies for over 10-15 years. Separately, it also has Asia-focussed infrastructure and credit funds.
This strategy allows KKR to make a play for deals of every size, even those in the range of $50 million to $75 million.In all, the company has invested some $7 billion since Trehan took over.
3. Visualizing the Top Economies in the World
According to a recent report from Goldman Sachs, the balance of global economic power is projected to shift dramatically in the coming decades.
The Visual Capitalist has created a bump chart that provides a historical and predictive overview of the world’s top 15 economies at several milestones: 1980, 2000, 2022, and Goldman Sachs projections for 2050 and 2075.
A major theme of the past several decades has been China and India’s incredible growth. For instance, between 2000 and 2022, India jumped eight spots to become the fifth largest economy, surpassing the UK and France.
By 2050, Goldman Sachs believes that the weight of global GDP will shift even more towards Asia. While this is partly due to Asia outperforming previous forecasts, it is also due to BRICS nations underperforming.
Notably, Indonesia will become the fourth biggest economy by 2050, surpassing Brazil and Russia as the largest emerging market. Indonesia is the world’s largest archipelagic state, and currently has the fourth largest population at 277 million
4.The European Union will require fast electric-vehicle charging stations at regular intervals along all major highways by the end of 2025.
The new rules say that the chargers must meet a certain power standard, must accept direct payment rather than requiring subscriptions, and should be no more than 60 km apart. The rules will apply on all the “Trans-European Network” roads. Smaller roads will also be included in the requirements in later years. It’s part of an EU plan to reduce carbon emissions by 55% by 2030: Transport accounts for 25% of total emissions, mostly from road use.
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5.How Saudi football clubs are disrupting European football, reports the Economist.
In 1975 a 34-year-old Pelé came out of semi-retirement to sign a huge contract with the New York Cosmos in the nascent North American Soccer League (NASL).
It was a coup for the club to hire a player who had won the World Cup three times, even if he was in his footballing dotage. The Brazilian proved his worth, scoring 37 goals in 64 matches. Before long, the NASL was established as an attractive place for leading players to wind down their careers: Gerd Müller, George Best and Johan Cruyff followed in Pelé’s wake.
Although the NASL collapsed in 1984, the idea of raising the profile of a football league by signing older stars seeking a final payday (and a more relaxed level of competition) has been replicated elsewhere. Some of these leagues have flourished and gone on to develop local talent (Japan, Australia), whereas others have crashed and burned (China). The latest country to have a go is Saudi Arabia, whose revamped and highly lucrative Pro League is shaking up the economics of European football.
In June the Saudi Arabian government announced that its sovereign wealth fund had acquired a 75% stake in four of the league’s 18 teams: Al-Hilal and Al-Nassr in Riyadh, and Al-Ahli and Al-Ittihad in Jeddah. The Public Investment Fund (pif) is co-ordinating the acquisition of players based in Europe, of whom it aims to place at least three at each of these clubs.
Four state-owned entities have invested in another four teams. The pif argues that its involvement in football is part of a broader project to diversify the Saudi economy away from oil and to promote physical activity among citizens. In 2021 it bought an English Premier League club, Newcastle United, and Saudi Arabia is widely expected to bid to host the World Cup in 2030, perhaps as the dominant partner in a joint bid. Critics see the government’s investments in football, as well as in boxing, Formula One and golf, as an attempt to draw attention away from its dismal human-rights record.
For wealthy European clubs, second-tier leagues in far-flung destinations have been relatively unimportant. They offer lucrative places to tour and suitable employers onto whom to offload fading stars on high-wage contracts. The transfer of Cristiano Ronaldo to Al-Nassr in late 2022 was greeted with a sigh of relief in the red half of Manchester. Chelsea have trimmed their bloated roster by selling three squad players to Saudi clubs. The wages on offer in the Middle East far exceed those on offer in the Premier League. Mr Ronaldo’s salary, including commercial agreements, is reportedly $200m per year.
It appears, though, that the pif’s ambitions extend further than taking Europe’s cast-offs. The most interesting signing so far this summer is that of a 26-year-old Portuguese midfielder, Rúben Neves. He moved from a mid-table Premier League team, Wolverhampton Wanderers, to Al-Hilal. Mr Neves, who was the club captain and has been a regular with the Portuguese national team, is entering his prime years.
That he has opted to spend a chunk of these playing in a league of lower quality challenges the assumption of most clubs and fans that professionals will seek to play at the highest level they can. For Mr Neves, the transfer is a sacrifice of sorts. He is believed to earn much more money in Saudi Arabia, but his career at the highest level may have ended. Had he stayed in England, he could possibly have played for a club in the UEFA Champions League, Europe’s most prestigious competition. If he seeks a move back to Europe, clubs of the same calibre may not be interested in him. He could lose his place in the Portuguese team.
The move also highlighted European clubs’ vulnerabilities. Wolves are far from minnows. They are the world’s 25th-richest team by revenue, according to Deloitte, an accounting firm. Yet the PIF presented them with a clear choice.
They could accept £47m ($60m) for their star player or hold on to him for one more year until his contract expired, and then lose him for nothing. The number of clubs with either the status or resources to resist the PIF is very small.
Consider also Marcelo Brozovic, a 30-year-old Croatian midfielder, who captained Internazionale in the Champions League final five weeks ago. After eight years in Milan he wanted a new challenge. Barcelona had been keen to sign him, but their contract offer was eclipsed by Al-Nassr’s, and Mr Brozovic chose to head east. It isn’t just that European clubs are struggling to keep hold of their existing players. Teams of all sizes—no one, after all, is more prestigious than Barcelona—may have to rethink their recruitment plans.
Players are still only trickling towards Saudi Arabia. But the summer transfer window does not close until the end of August, so for the next few weeks, and then again during transfer windows to come,European football clubs will look eastwards with concern. The PIF will continue to eye up well-known players—in particular if Saudi Arabia wins the right to part-host the World Cup in 2030, an outcome that would intensify the government’s focus on football.
Much will be revealed in the next few years. Speculation abounds of Saudi Arabia’s lofty hopes: of entering its clubs in an expanded Champions League, or of reviving and expanding the reviled idea for a European Super League. For now, though, and for the first time, an upstart league is posing a genuine challenge to Europe’s stranglehold on the world’s brightest talents.
The Economist article was written in July 14 and since then many other footballers at the end of the career and some younger footballers have been tempted by the lucrative contracts . The latest could be Kylian Mbappe, a world cup winner on a one year deal worth 200 million euros.
