Finance

In the last five years, MicroStrategy has effectively converted itself from a software company to Bitcoin SPAC, and its success at driving its market cap upwards has led some to argue that other companies would be well served following that model and redirecting their cash holdings into bitcoin. I disagree, and not because I have a point of view on bitcoin (I do.. but it is not relevant). It is not a good substitute for cash (which is held as a shock absorber), it steps on and obscures your business narrative, managers are terrible traders (of bitcoin or any other investment) and it opens the door to self-dealing and worse. Put simply, if you are a shareholder in a company with a large cash balance, and you think bitcoin is the place to be for the future, you are better served asking for the cash to be returned to you (in dividends and buybacks) and doing It yourself. There are four exceptions to this general rule - a company with a bitcoin savant in change (MicroStrategy), companies with bitcoin businesses (PayPal and Coinbase), companies in countries with failed currencies and companies with failed businesses that have become meme stocks (AMC, Gamestop). Even in these companies, you need governance, disclosure and accounting guardrails in place, to prevent abuse.

Private Thoughts From My Desk ……………. #33 𝐓𝐚𝐫𝐢𝐟𝐟𝐬 & 𝐔𝐧𝐜𝐞𝐫𝐭𝐚𝐢𝐧𝐭𝐲: 𝐖𝐡𝐚𝐭 𝐈𝐭 𝐌𝐞𝐚𝐧𝐬 𝐟𝐨𝐫 𝐏𝐄 𝐑𝐢𝐠𝐡𝐭 𝐍𝐨𝐰 After five years of what I can only describe as "unique disruptions"—a global pandemic, unprecedented inflation, interest rate shocks—we now face yet another: a new wave of tariffs. For private equity, the impact of these policy moves isn’t just about the numbers—it’s about the uncertainty they inject into long-term models. Private equity lives and dies by its ability to predict the future—five years at a time, with leverage. So when policy shifts like these arrive without clear direction or a timeline, deal pipelines stall. It’s not that the tariffs themselves are necessarily fatal—it’s that no one knows what game we’re playing, or how the rules might change again next quarter. We entered 2025 with momentum. Intermediaries were busy, due diligence was in high gear, portfolio companies were readying for exit. But in February, the “T word” started surfacing. Tariffs are just another word for uncertainty—what I call the dreaded “U word” in private equity—and everything slowed. Activity now reflects what we’re hearing every day: it’s hard to make long-term bets when you don’t know what to model in the short term. For LPs, the liquidity crunch is especially acute. Liquidity is at levels we haven’t seen since the Great Recession. Many LPs are rebalancing through secondaries; some are exploring NAV loans and other creative strategies. The ones with dry powder—sovereign wealth funds, select family offices—see dislocation as opportunity. But for most, frustration is mounting. Fundraising is feeling the pinch, see the chart below for buyout fundraising trends. Exit activity is a leading indicator—and right now, that indicator is flashing yellow. Fundraising was always going to be challenged in 2025. Now, recovery may be deferred even further. So what can GPs do? It’s back to basics (again) with portfolio companies: secure the balance sheet, conserve cash, and avoid covenant or financing issues in the near term. There’s also renewed urgency to get EBITDA up—quickly—through pricing, cost reduction, and working capital optimization. Anything that opens the door to a liquidity event in the near term. This is also a time for firms to solidify their long-term strategy. Some are asking whether it’s time to double down on what they do best and exit non-core strategies. Consolidation is no longer theoretical—it’s a daily conversation, especially for firms caught in the increasingly challenging middle market. This isn’t a crisis. But it is a moment of reckoning. In a market defined by scarcer capital, talent, and investment opportunities—not everyone wins. Knowing what you do best, doubling down on it, and charting a clear path forward for your firm are more essential than ever. #privateequity #privatemarkets #privatethoughtsfrommydesk

📢 𝗨𝗽𝗱𝗮𝘁𝗲𝗱 𝗘𝗨 𝗢𝗺𝗻𝗶𝗯𝘂𝘀 𝗔𝗻𝗮𝗹𝘆𝘀𝗶𝘀 – 𝗠𝗮𝗷𝗼𝗿 𝗦𝘂𝘀𝘁𝗮𝗶𝗻𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝗦𝗵𝗶𝗳𝘁𝘀 𝗖𝗼𝗻𝗳𝗶𝗿𝗺𝗲𝗱 The Omnibus proposal is officially out, with some major regulatory rollbacks for corporate sustainability in Europe. With changes spanning the CSRD, CSDDD, Taxonomy, and CBAM, the reporting landscape has just changed dramatically. 🔍 𝗪𝗲’𝘃𝗲 𝘂𝗽𝗱𝗮𝘁𝗲𝗱 𝗼𝘂𝗿 𝗰𝗼𝗺𝗽𝗮𝗿𝗶𝘀𝗼𝗻 𝘁𝗮𝗯𝗹𝗲 𝘁𝗼 𝗿𝗲𝗳𝗹𝗲𝗰𝘁 𝘁𝗵𝗲𝘀𝗲 𝗱𝗲𝘃𝗲𝗹𝗼𝗽𝗺𝗲𝗻𝘁𝘀—𝘄𝗵𝗶𝗰𝗵 𝘄𝗲 𝗵𝗼𝗽𝗲 𝗮𝗿𝗲 𝘂𝘀𝗲𝗳𝘂𝗹 𝗳𝗼𝗿 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀𝗲𝘀 𝗻𝗮𝘃𝗶𝗴𝗮𝘁𝗶𝗻𝗴 𝘄𝗵𝗮𝘁’𝘀 𝗻𝗲𝘅𝘁. 🚨 𝗪𝗵𝗮𝘁’𝘀 𝗖𝗵𝗮𝗻𝗴𝗶𝗻𝗴? 𝗔 𝘀𝘂𝗺𝗺𝗮𝗿𝘆: 1️⃣ CSRD – Reporting Scope Slashed 🔹 Two-year delay for many companies that haven’t yet reported. 🔹 80% of companies removed from mandatory reporting 🔹 Sector-specific standards scrapped 🔹 ESRS under review for streamlining 2️⃣ CSDDD – Weakened Due Diligence Rules 🔹 Focus only on direct suppliers – removal of full value chain due diligence 🔹 Assessment frequency cut – Required every 5 years instead of annually 🔹 Penalties softened – No references to fines related to global turnover 🔹 Civil liability removed 3️⃣ EU Taxonomy – Reporting Becomes Optional for Most 🔹 Only “very large” companies must report (>1,000 employees) 🔹 80% of companies exempted from Taxonomy alignment 🔹 Partial alignment reporting introduced 4️⃣ CBAM – Simplification and exemptions 🔹 Exemption threshold introduced for importers 🔹 Implementation delayed to 2027 instead of 2026 🔹 Product coverage remains the same for now but may expand in 2026 🔹 Emissions tracking requirements simplified 👉 What is your take—necessary streamlining or a retreat from sustainability leadership? Can a balance be struck between sustainability and competitiveness? I think it can. In fact, I don't think they even should be contradictory. The big question is whether this omnibus strikes that balance. I'm not so sure. #CSRD #CSDDD #EUTaxonomy #CBAM #Sustainability #ESG #SustainabilityReporting #EURegulations #ClimateFinance #CorporateResponsibility

The Irish Government has just announced plans to introduce the Regulation of Artificial Intelligence Bill in its Spring 2025 legislative programme, a pivotal piece of legislation aimed at giving full effect to the European Union’s Artificial Intelligence Act (EU Regulation 2024/1689). Even though the AI Act as a regulation has direct effect, this move is set to shape the national regulatory framework for AI governance in Ireland and establish national enforcement mechanisms in line with the EU’s approach. At the heart of the bill is the designation of Ireland’s National Competent Authorities: the entities that will be responsible for enforcing compliance with the AI Act. These authorities will oversee risk classification, conduct market surveillance, and impose penalties for violations. Given Ireland’s role as the EU base for major technology firms including Google, Anthropic, Meta, and TikTok, the effectiveness of its enforcement regime will be closely scrutinised across the EU and beyond. The Irish Government’s approach will be particularly significant due to the country’s track record in regulating the digital sector. Ireland’s Data Protection Commission (DPC) has wielded considerable influence over EU-wide enforcement of the GDPR, given the presence of multinational tech firms within the state. The DPC was designated as one of ireland’s nine fundamental rights authorities under the AI Act in November 2024. The bill will include provisions for penalties, though details remain unspecified. Under the EU AI Act, non-compliance can result in fines of up to €35 million or 7% of a company’s global annual turnover, whichever is higher. For Ireland, the challenge will be ensuring its enforcement framework has sufficient resources and expertise to oversee AI systems deployed within its jurisdiction. Tech industry leaders and legal experts will be closely monitoring how Ireland structures its national framework. The AI Act imposes strict obligations on high-risk AI applications, including those used in healthcare, banking, and recruitment. Companies will be required to maintain transparency, conduct impact assessments, and ensure that their AI systems do not lead to unlawful discrimination or harm. Ireland’s legislative initiative comes at a time of growing regulatory scrutiny over AI’s impact on society, innovation, and human rights. The AI Act represents the world’s most comprehensive attempt to regulate artificial intelligence, at a time other jurisdictions such as the USA are moving in the opposite regulatory direction. The Regulation of Artificial Intelligence Bill is still in its early stages, at the “Heads in Preparation” point. In the Irish legislative process, the Heads of a Bill serve as a blueprint for the eventual legislation. As Ireland moves toward full implementation of the AI Act, the government’s decisions on AI oversight will have significant implications for businesses, consumers, and the broader EU regulatory landscape.

BREAKING: the rating agency Fitch just downgraded the US! So, what now? The key point is that US Treasuries now have their second-best rating at AA+ instead of AAA given that only Moody’s preserved its top rating for the US. US Treasuries are the most widely used form of collateral in the world due to their high rating, liquidity, deep repo market and solid democratic foundations/rule of law: does the downgrade affect that?   Let’s have a quick look at the rating requirements that different institutional players must adhere to when investing in safe government bonds to explore whether a downgrade to AA+ makes the difference. Commercial banks are huge buyers of Treasuries: they use them as regulatory liquid assets (HQLA), as collateral and also sometimes as an asset to hedge interest rate risk on their liabilities.   The Basel regulatory framework introduced 10 years ago has 0% capital requirements for government bonds rated between AAA and AA- for its standardized approach: the downgrade to AA+ wouldn’t make any difference (chart attached). Most banks actually choose an internal-rating based (IRB) approach based on internal models and in that case most jurisdictions apply an exception for any investment-grade rated domestic government bond which automatically assigns them a 0% risk weight.   Bottom line: for banks this downgrade makes no difference at all. Pension funds and insurance companies are also large buyers of Treasuries: they use them as a long duration asset to match their long liabilities (life insurances payouts, pension payouts etc) and as collateral.   For a pension fund AAA-rated or AA+ rated US Treasuries would still fall in the hedging camp or in the defensive asset allocation camp and a one-notch downgrade wouldn’t make the difference. Big buyers of US Treasuries also include FX reserve managers: Chinese or Brazil corporates selling stuff for USD will deposit these US Dollars in the domestic banking system and so the Bank of Brazil and PBOC would be in charge of investing these USDs in safe, liquid assets – you guessed it: US Treasuries. For FX reserve managers rating considerations are important, but again most countries put AAA-AA rated governments in the same risk bucket. More importantly, as 70%+ of global transactions are still in USD there will always be structural demand to recycle these USDs in safe US Treasuries. What’s the alternative anyway? JGBs with no free float? Europe with a smaller AAA-AA bond market? BRICS with no liquid bond market and democracy/rule of law issues? As you can see, for most institutional players out there this downgrade has no material impact that would make them a force-seller of US Treasuries. Markets can still overreact, and it will be important to check price action and sentiment: if you are an institutional investor I have a dedicated BBG live chat service for you - ping me directly on Bloomberg if interested!

The House Budget Bill explained… for utility-scale solar developers. This week, I’m sharing sector-specific explainers of the House-passed reconciliation bill to help each business and worker understand the impact. Yesterday, I covered the manufacturing provisions in the bill. Today, I’ll talk about utility-scale solar and tomorrow will be on the residential sector.   For large-scale solar developers, the biggest and most important provision is the functional elimination of the 48E and 45Y tax credits.   Instead of phasing out the credits, the text of the House bill requires that projects begin construction within 60 days after enactment of the bill AND be placed in service before January 1, 2029.   This effectively eliminates the credits for all new grid-scale solar energy projects going forward. As well as hundreds of projects already under development. Remember, if construction doesn’t begin within 60 days of President Trump signing the legislation, then the investment tax credit won’t be available. Full stop. This has implications for other aspects of the tax credit regime. The other provisions that restrict these credits — like ending transferability and the Foreign Entities of Concern (FEOC) rules — wouldn’t end up applying to 48E or 45Y because the credits would be eliminated before those restrictions would go into effect at the end of the year. Communities across the nation would lose $286 billion in local investments and 330,000 American jobs would be gone.   By 2030, America would produce 173 fewer TWh of energy annually (That’s about the size of Illinois’ energy consumption each year).   That’s the OPPOSITE of American energy dominance.   Let’s keep up the pressure: https://lnkd.in/evBBCp4h

The European Commission has introduced a new carbon tax on imported goods called the Carbon Border Adjustment Mechanism (CBAM). This is meant to make sure that European companies and companies from other parts of the world are on the same page when it comes to carbon pricing and environmental commitments. Here are the main changes: 🔴 Emissions Reporting: Starting in October this year, companies have to start keeping track of how much carbon is linked to the goods they import. They need to start reporting this data by January 2024. This reporting will continue until the end of 2025. 🔴 Carbon Leakage Prevention: CBAM is a way to prevent companies from moving their production to places with weaker environmental rules to avoid carbon costs. It makes sure that European products and products made outside of Europe have similar carbon costs. 🔴 CBAM Certificates: Importers have to get CBAM certificates to match the carbon pricing between EU and non-EU products. They need to provide details about the product's carbon footprint, where it's from, how it's made, and its emissions data. This includes emissions during production and indirect emissions, like electricity use. 🔴 Covered Sectors: CBAM applies to industries with high carbon emissions like iron and steel, cement, fertilisers, aluminium, electricity, hydrogen, and some downstream products like screws and bolts. It also covers certain indirect emissions under certain conditions. Importers mainly need to report emissions during the transition phase until 2026. To help importers and producers outside of the EU adapt, the EU Commission is providing guidelines and tools to calculate emissions. They're also offering training materials and webinars. Some important data points to consider: 🟢 Carbon Leakage: A study by the European Environmental Bureau warns that unchecked carbon leakage could cause a 15% increase in global emissions, undermining climate efforts. CBAM aims to prevent this. 🟢 Emissions Differences: The World Trade Organization says that different countries have different emissions rules, leading to different carbon costs. CBAM aims to make this fairer. 🟢 Economic Impact: The European Commission estimates that the global carbon allowance market could be worth €4.5 billion per year by 2030. CBAM will significantly affect international trade and revenues. 🟢 Industry Shift: A study by the European Parliament Research Service shows that without CBAM, high-emission industries might move to places with weaker rules, leading to job losses and less competitiveness in the EU. 🟢 Green Transition: The International Monetary Fund says that well-designed carbon pricing like CBAM can encourage industries to become more environmentally friendly, contributing to a greener global economy. 🟢 Regulatory Challenges: CBAM's reporting requirements might be tough for importers initially. However, the long-term benefits of fair carbon pricing are expected to outweigh the challenges.

Consulting sells AI, but bills like 1990. Reality caught up to the narrative. Booz Allen's latest results beat expectations: → Revenue: up 12.4% to $12 billion → Adjusted EPS: up 15.5% to $6.35 → GenAI revenue: nearly $800 million, up 30% → Record backlog: $37 billion, book-to-bill of 1.39 Yet the stock crashed 20% in the last 10 days, erasing $3.5 billion in market value. Why? Because beneath strong headline numbers, Goldman Sachs' May 28 downgrade exposed a critical vulnerability: Despite claiming to be an "advanced tech company" with $800M in AI revenue, Booz Allen still derives 98% of its business as a government contractor billing by the hour. The company recently announced 2,500 job cuts (7% of their workforce) due to the Trump administration’s crackdown on federal contracting. I dug into their yearly report to learn more. How Booz Allen Actually Makes Money: The Revenue Reality: → 98% from U.S. government ($10.5B of $10.7B total) → Defense (47%), Civil (34%), Intelligence (17%) → Only 2% commercial revenue 79% of revenue ($8.4B) comes from billing hours: → 55% cost-reimbursable contracts → 24% time-and-materials → Only 21% fixed-price CFO Matt Calderone confirmed their historical growth formula on their earning call: "headcount growth plus 3%". Despite AI claims and the CEO pushing outcome-based contracts for years, only 21% of revenue is fixed-price. Government procurement keeps them billing hours. The Labor Reality: → 36,000 employees driving revenue → 2,500 layoffs (7%) announced after DOGE reviews → Revenue explicitly tied to headcount → When contracts shrink, people get fired The math doesn't lie. You can't justify tech multiples when: → Your entire business depends on one entity → Growth requires hiring more people → Government owns rights to most developed IP  → Margins collapse when contracts face pressure Every firm claiming AI transformation faces this reality: → They pitch cutting-edge technology → They showcase AI capabilities → They demand premium valuations → But their economics remain tied to billable hours When CEO Rozanski said they're "restructuring to match anticipated demand," he revealed the core problem: Revenue directly tracks headcount. Tech companies scale through IP. Traditional consulting scales through hiring - and shrinks through firing. The 20% crash wasn’t about a single quarter. It was Wall Street repricing Booz Allen’s reality - a government contractor at the mercy of federal budgets, not a tech innovator building scalable IP. First, the narrative cracks. Then, the analysts notice. Finally, the market reprices. Booz Allen completed the cycle in 10 days. For consulting firms still betting their "AI story" covers their hourly reality: You're not different. You're just next.

Tight as a Drum (+76 bps) Investment Grade Corporate Credit Spreads trade at the 0 percentile, a spread of +76 bps vs. UST, the tightest spread since 1997 (see table below). A-rated bonds trade at +62 bps, while BBBs are +96bps. Reasons why spreads are so tight: - Credit risk and balance sheets has improved for IG issuers - Credit conditions in the financial markets are at its easiest level since pre-COVID - The Fed will soon embark upon an easing cycle - Corporate earnings are strengthening - The risk of recession is low - Investor Demand is robust (higher UST yields allows the absolute yield level to remain ~50%, despite tight spreads) These strong fundamentals paint a supportive picture for IG credit; however, historically tight spreads suggest that much of the positive outlook is already reflected in current pricing. Investors should remain disciplined and selective, with no reason to sell IG at the current juncture as our favorable credit conditions should remain intact. Since diversification and intelligent asset allocation decisions remains paramount to long-term wealth creation, capital allocators can identify compelling non-IG and Private Credit that will continue to offer higher IRR/MOIC profiles as yield premiums for higher yielding assets should continue to meaningfully enhance portfolio income, just as it has over the years.

RBI has announced a cut in CRR But what is CRR? A Simple explainer on reserve ratios When we deposit money in a bank, the bank is supposed to put aside some part of this as a couple of mandatory reserves CRR – Cash Reserve Ratio SLR – Statutory Liquidity Ratio CRR is to be maintained in the form of cash balances with RBI, and is calculated on a fortnightly basis. The bank does not get any interest on CRR. SLR is to be maintained in the form of liquid bonds (Government securities) and Gold. Something that can be easily liquidated for cash. India currently has a CRR of 4.5% (this will be cut to 4%), and SLR of 18%. So out of Rs 100 we deposit, Rs 22.5 will go towards these reserves. One may ask why? Let's understand. The bank works on other people’s money. If the depositors come back asking for their money, the bank needs to be able to give it to them. Even there the assumption is that only a certain percent of the depositor base will come asking for withdrawals. If more people come asking for money, there is trouble for the bank, since the money is not with them, they have loaned it out. And usually the loans may have longer tenures – like home loans. If such a situation arises, this may lead to a term called Bank Run. So back to Reserve Ratios. If the RBI decreases the Reserve Ratios, the Bank has to put aside less money. Now the banks have more to lend, this increasing money supply. RBI estimates that the CRR cut will add about Rs 1.1 lakh crore to the banking system. Of course part of this will counter the money coming out of the banking system due to advance tax collections in December. But hope this explains the need of CRR, the impact of the CRR cut, and reasons behind that. Please do share this post if you found this useful ----- Peeyush Chitlangia, CFA