Apple's AI Disappointment, Hedge Funds Change of Heart, and Active Bond Funds in this Week's Edition....
Take a Lap Around the Industry
Aramco’s Venture Arm Doubles Down on Thiel-Backed AI Startup (Bloomberg)
GM Approves $6 Billion Buyback on Growth in EV Business (Bloomberg)
US Small-Business Optimism Improves to Highest Level This Year (Bloomberg)
A Natural-Gas Billionaire Bets on Greener Fossil Fuel (WSJ)
Apple's AI Reveal Disappoints Despite Stock Surge
Apple's recent Worldwide Developers Conference (WWDC) brought heightened anticipation from investors and the tech community as the company hinted at significant advancements in artificial intelligence (AI). Despite a 14% surge in Apple’s stock leading up to the event—the largest increase seen in a decade for this period—Monday's unveiling left some investors underwhelmed. The new AI features showcased, including enhanced image search and email composition tools, seemed reminiscent of those already offered by Microsoft and Google. Moreover, Apple announced these AI services, including the latest version of ChatGPT, would be free, raising questions about monetization strategies. Unlike its competitors, Apple plans to process many of these AI features on-device, leveraging its hardware strength. This approach aligns with Apple's privacy commitments but leaves uncertainty regarding its cost implications and revenue generation from AI. Notably absent were major hardware announcements, signaling potential reveals later in the year, particularly as Apple prepares for an essential iPhone cycle amidst three years of weak sales. UBS analyst David Vogt highlighted consumer concerns over AI, especially regarding price and privacy, with only 27% of surveyed smartphone users outside China showing interest in generative AI capabilities.
"It's not 100 percent. But I think we have done everything that we know to do, including thinking very deeply about the readiness of the technology in the areas that we're using it in."
Tim Cook (CEO of Apple)
Private Funding Pulse Check
Whoosh, a company based in Mill Valley, CA that provides club operations software solutions for the golf industry, has raised $10.3 million in Series A funding from Jim Pallotta's family office, Raptor Group
Tenderd, a platform facilitating digital transformation in heavy equipment management, has successfully secured $30 million in Series A funding from Arnold Peter Møller's family office, A.P. Møller Holding
Prolific Machines, a biotech startup focusing on optogenetics, has secured $55 million in Series B funding backed by David Adelman's family office, Darco Capital
Bright Peak Therapeutics, a Swiss biotech firm pioneering advanced multifunctional immunotherapies has revealed its successful completion of $90 million in Series C funding backed by Invus Group Family Office https://www.fintrx.com/
Rep Activity Tracker 🚨
Cresset Asset Management has acquired The Connable Office, a Michigan family office with a history dating back over 130 years, adding $1.6 billion in assets and bringing Cresset’s total assets under management to more than $52 billion
The Connable Office, founded as a single family office and now serving multiple families, has been led by principals Loyal Eldridge III, Kenneth Larason, James Melvin, and Bradley Weller, overseeing a team of over 30 professionals
Eric Becker, Cresset’s co-founder and co-chairman, emphasized the cultural fit and shared commitment to client-centric service, while Connable’s CEO, James Melvin, expressed enthusiasm for the partnership's potential to enhance comprehensive services and support future growth and success for their clients and team members
This acquisition is part of Cresset’s broader strategy of expansion and strengthens their position in the family office space while reinforcing their commitment to long-term, multi-generational client service Citywire
James Melvin
CEO at Connable
Seven AI Raises $36M to Enhance Cyber Defense
Greylock Partners has spearheaded a $36 million funding round for Seven AI, an innovative startup from Boston aiming to bolster enterprise cybersecurity using artificial intelligence. Co-founded by Lior Div and Yonatan Striem Amit, who previously established Cybereason, Seven AI emerged from stealth mode with a valuation exceeding $100 million. Despite lacking a tangible product initially, the company's vision for autonomous threat detection and investigation caught investors' attention. Greylock investor, Asheem Chandna, highlighted the evolving nature of cybersecurity, emphasizing that future battles will be AI versus AI rather than human-centric. Unlike current generative AI applications requiring user input, Seven AI's system independently identifies and responds to threats, potentially automating significant portions of security operations. Though still in the development phase and not yet generating revenue, Seven AI is collaborating with early corporate adopters to refine its technology, with ambitions to expand its workforce and eventually create proprietary large language models.
"Humans are not going to stand a chance fighting AI."
Active Bond Funds See Surge in Popularity Amid Market Volatility
Amid a turbulent period in debt markets, American savers are increasingly turning to Wall Street professionals for bond-picking expertise, leading to a notable shift towards actively managed fixed-income funds. Data from Morningstar Direct reveals that, as of April 30, these funds attracted $105 billion in net inflows this year, surpassing the $74 billion funneled into passive bond funds. This trend marks the first time since 2021 that active bond funds have outpaced passive counterparts. Despite bonds stabilizing after a record downturn in 2022, ongoing inflation concerns have driven investors to seek active managers' ability to navigate interest rate fluctuations and identify high-yield opportunities. Notably, 74% of nearly 1,700 active bond funds outperformed their benchmarks in the past year, a significant improvement from previous periods. Additionally, active bond ETFs have taken in $36.2 billion as of June, already surpassing the full-year record set in 2023. The higher fees of active management are now seen as justified, given the enhanced returns and the potential to manage risks more effectively.
"Because it’s unclear if and when the Fed is going to be cutting interest rates, investors have turned toward active management to help squeeze out as much income as possible through the benefits of ETFs."
Todd Rosenbluth (Head of Research at VettaFi)
Hedge Funds Embrace Wall Street's Quant Clone
Wall Street's burgeoning $552 billion business of cloning quantitative investment strategies (QIS) has found unexpected supporters in hedge funds, once critical of these mimic products. QIS transforms sophisticated, systematic trades into swaps or structured notes, offering a cost-effective, convenient way to gain exposure to complex strategies developed by firms like AQR Capital Management. Hedge funds, now a significant driver of QIS adoption, are leveraging these tools to streamline operations and enhance portfolio diversification. Despite concerns about their rigidity and higher costs during market selloffs, hedge funds are drawn to the convenience and operational efficiency. Banks report that hedge funds now constitute a high single-digit to double-digit percentage of QIS assets. However, the high failure rate of these strategies—32% delivering negative returns post-launch—raises questions about their long-term viability, highlighting a cautious yet growing acceptance among hedge fund managers. Additionally, the ability to customize and switch QIS on and off has broadened their appeal, despite the ongoing competition and skepticism.
"To multi-pod hedge funds, QIS is a cheap way for them to get access to an asset class. Five or 10 years ago, there was very little hedge fund adoption. If anything, hedge funds could see QIS as a competitor."
Arnaud Jobert (co-head of global strategic indices at JPMorgan Chase & Co.)
Written by:
Sharah Roy | Research Associate
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