The final Credit Suisse postmortem

Two scoops to start: US private equity firm General Atlantic is in talks to acquire infrastructure fund manager Actis as it seeks to diversify and add assets ahead of an expected initial public offering, according to three people with knowledge of the plans.

And: European telecoms group Lebara is examining a possible sale or initial public offering after emerging as a winner from the cost of living crisis.

In today’s newsletter:

• Finma’s Credit Suisse postmortem

• Hipgnosis delays its results

• Microsoft and OpenAI in the spotlight

Finma caps off a wild year in Swiss finance

It’s been an eventful year for Zurich’s finance sector — and the final working week of 2023 is proving no exception.

Within hours of the FT breaking news on Tuesday morning that Europe’s biggest dedicated activist investor, Cevian Capital, had taken a €1.2bn bet that UBS would double in value over the next few years, Switzerland’s financial regulator Finma released its 84-page postmortem on Credit Suisse.

The watchdog catalogued the “repeated scandals and management errors” in the fallen bank’s final few years. It revealed that from 2012, Finma conducted 43 preliminary investigations into Credit Suisse for potential enforcement proceedings, issued nine reprimands, filed 16 criminal charges and completed 11 enforcement proceedings against the bank and three against individuals.

“These figures and measures illustrate that Finma exhausted its options and legal powers,” the regulator said.

To improve its oversight of the finance sector, it would need to be able to fine companies, Finma said in the report. It also called for the introduction of a senior managers’ regime, similar to the system in the UK, where there’s much greater personal accountability for executives.  

Reuters published its own end-of-year retrospective on the collapse of Credit Suisse on Tuesday, blaming a lack of joined-up thinking between Switzerland’s regulators for the bank’s unravelling.

Having rescued its former rival, UBS is now planning on a full-scale assault on Wall Street, according to an interview given by Rob Karofsky, the head of its investment bank, to The Wall Street Journal. But it’s not shooting for market domination — sixth place will do.

As for UBS chief executive Sergio Ermotti, he’s seeing out 2023 in style by cutting the ribbon at the reopening ceremony of the Mandarin Oriental Savoy on Thursday.

The grand Zurich hotel — which dates back to 1838 and sits proudly on Paradeplatz — came into UBS’s possession when it took over Credit Suisse.

The gnomes of Zurich will be hoping that its multimillion-dollar facelift is a sign of the city’s return to good fortune after a year to forget.

How Hipgnosis’s valuation fell out of tune

The trouble with operating in a relatively uncharted asset class is that the room for error can be just as vast.

Such is the conundrum faced by the Hipgnosis Songs Fund, which on Tuesday delayed the release of its first-half results after receiving a valuation it called “materially higher” than that implied by recent deals in the music rights industry.

It’s the latest sour note to be struck between the fund’s chief executive Merck Mercuriadis, who once managed Elton John before pitching music rights to investors as a way to make reliable, bond-like returns, and HSF’s board.

Spearheading the valuation of the London-listed fund’s song catalogue, containing hits such as Mark Ronson and Bruno Mars’s “Uptown Funk” and Ed Sheeran’s “Shape of You”, is Barry Massarsky.

Massarsky, whose Massarsky Consulting was bought by US professional services group Citrin Cooperman in 2022, has made a name for himself crunching the numbers for pop stars and record labels — Hipgnosis being one of his best customers.

But the firm’s methods have come under question in changing economic conditions.

As higher interest rates have pushed up the “discount rate” used to calculate asset values into the future, song right valuations have fallen. Yet Massarsky and his colleagues at Citrin have resisted raising the discount rate in their own calculations, in an effort to avoid potentially wreaking havoc for investors who have used debt towards the purchases.

The Massarsky Group told the FT last year it was “strictly independent” and that the firm is “compensated solely for our expertise . . . We do not validate valuations, that is simply not part of what we do. We conduct independent valuations that reflect, to the best of our ability, what the market would bear.”  

The decision to delay the results “is an early blow to the credibility of the new [fund] board, and casts further doubt over the credibility of the independent valuer, Citrin Cooperman”, JPMorgan Chase analysts noted on Tuesday.

It’s worth noting that the issue goes beyond just HSF. “There is widespread scepticism over private valuations . . . not helped by limited transactional evidence”, the analysts added.

Microsoft and OpenAI come under the regulatory microscope 

Despite being one of Silicon Valley’s most-watched alliances, Microsoft’s partnership with OpenAI has also been one of the least understood.

Until recently, that is. An impending probe by UK competition officials — expected to begin next year — has shone a light on the intricacies of the two companies’ relationship, which our FT colleagues investigate in this deep-dive.

Instead of owning conventional equity in the company, OpenAI’s backers — including Microsoft, Thrive Capital and Sequoia Capital — are entitled to receive a share of its profits from a specific subsidiary of OpenAI, up to a certain limit.

In fact, Microsoft’s billions — which include huge investments in data centre infrastructure as OpenAI’s “exclusive cloud provider” — entitle it to up to 49 per cent of the profit generated by a subsidiary of OpenAI, according to people familiar with the deal.

The investigation is likely to hinge on whether Microsoft’s influence over OpenAI has grown in recent months. That could include the expansion of its partnership via Microsoft’s “multibillion-dollar investment” in January or the boardroom fiasco at the ChatGPT maker that took the tech world by storm last month.

Some OpenAI executives have felt pressured by Microsoft to commercialise faster, as it “really wanted to be deploying AI products and be an AI leader and make money”, according to one person close to the leadership’s deliberations.

There was also the matter of November’s dramatic ousting — then reinstatement — of OpenAI chief Sam Altman, after which Microsoft took a non-voting observer role on the reconfigured board.

This would “certainly give [Microsoft] some level of additional influence”, this person added, but suggested that would be a positive step for the start-up’s governance. “There would be more of an expectation that things at OpenAI be done by the book.”

Job moves

• Calpers private equity head Yup Kim is leaving the US’s largest public pension fund to become chief investment officer of the Texas Municipal Retirement System. He will be replacing Dave Hunter, who announced his retirement in November.

• TSMC chair Mark Liu will retire next year, Nikkei Asia reports.

• Houlihan Lokey has hired Keith Kushin as a managing director, based in New York. He joins from Grant Thornton.

• Croda International chief financial officer Louisa Burdett will step down in June 2024 to become CFO of Spirax-Sarco Engineering.

• Simpson Thacher & Bartlett has hired Travers Smith’s Katie McMenamin as a partner in its fund finance practice, based in London.

Smart reads

Double trouble Jan Marsalek — currently on the run — is wanted for Wirecard’s missing $2bn. But the fallen payments group’s former operating chief is also now suspected of being a Russian spy, The Wall Street Journal reports.

Besties, assemble With trouble in venture capital paradise, self-proclaimed “besties” and “degenerate gamblers” Jason Calacanis, David Friedberg, Chamath Palihapitiya and David Sacks have diversified beyond their VC roots into podcasting.

Hong Kong’s ‘existential crisis’ The territory’s increasing economic dependence on China is testing the longevity of its independent systems, as this FT Big Read explores.

News round-up

Spain to buy 10% share in Telefónica in response to Saudi stakebuilding (FT)

Turkish brewer to acquire AB InBev stake in Russian joint venture (FT)

Norway’s Equinor and German state energy group sign €50bn long-term gas deal (FT)

Signa puts Chrysler Building up for sale in urgent effort to raise cash (FT)

Raiffeisen and Deripaska skirt Russia sanctions with €1.5bn deal (FT)

Odey Asset Management says FCA ‘will not be taking any action’ after closing probe (FT)

Goldman Sachs plans up to 10% bonus hike for dealmakers despite 2023 job cuts (Financial News) 

Icahn is ready to launch a fight to control Illumina’s board (Bloomberg)

FT Person of the Year: Lars Fruergaard Jørgensen of Novo Nordisk (FT)