On Wednesday, the alternatives subsidiary of Abu Dhabi sovereign wealth fund Mubadala Investment Co. announced it will acquire a major stake in an LA-based credit manager backed by the family office of one of the most cavalier figures of Wall Street’s high-flying 1980s.

Middle East

Mubadala Capital, which manages $27 billion in assets, will take a 42% stake in Silver Rock Financial, which manages $10 billion in assets with a portfolio focused on high-yield debt and structured products. Mubadala has the option of increasing its stake to 50% over time.

The deal sketches out several new frontiers. Mubadala, and by extension Abu Dhabi, adds to a growing portfolio that suggests it wants to manage foreign capital, not just plunk down investments abroad or, like other sovereign wealth funds, let investment managers like Apollo or KKR navigate private markets on its behalf.

Last month, it announced plans to take private one of Canada’s Big Three investment firms, CI Financial, for $8.6 billion, promising the acquisition-happy CI more capital to extend a spree in which it has bought dozens of US-based registered investment advisory businesses — not to mention the backing of its parent, which has $302 billion in assets. Earlier this year, Mubadala completed a $3 billion acquisition of New York investment management firm Fortress, which has $49 billion in assets under management.

The Silver Rock deal will also see Mubadala, for the first time, take on outside investors:

• As part of the deal, paid for with an undisclosed sum of cash and stock, Silver Rock owners will become equity holders in Mubadala. That includes CEO Carl Meyer and the family office of billionaire Michael Milken, which Silver Rock was spun out of in 2016. 
• Mubadala and Silver Rock will continue to operate independently, with Meyer keeping his job and joining the board of Mubadala along with Josh Lobel, the CEO of M-Cor Capital, the Milken family office’s investment unit.

Trash for Cash: The Milken name should ring a bell. He is the (in)famous “junk bond king,” a billionaire who dominated the high-yield securities market on Wall Street in the 1980s (and pleaded guilty to securities violations after being indicted for fraud). He is the rare investment figure well known enough to be name-dropped in one of the most acclaimed episodes of The Simpsons.

When it rains on insurers, it pours — just not in a good way.

A report from major reinsurer Swiss Re published Thursday said that so far this year, hurricanes, thunderstorms, and floods have cost the insurance industry a collective $135 billion in losses. This news comes as global insurance industry regulators finally signed off on rules ten years in the making that just stop short of raising capital requirements for big, international insurers.

Opening the Floodgates

The US in particular felt the sting of natural disaster-induced insurance claims this year, according to Swiss Re. The reinsurer reported that hurricanes Milton and Helene racked up just under $50 billion in losses between them, so 37% of global insurance losses for 2024. According to Swiss Re the increasing frequency and ferocity of natural disasters as fueled by climate change isn’t the only factor driving up costs. “Much of this increasing loss burden results from value concentration in urban areas, economic growth, and increasing rebuilding costs,” Balz Grollimund, the head of Swiss Re’s catastrophe and perils unit, said in a statement.

Swiss Re’s Chief Economist Jérôme Jean Haegeli added that the group predicts insured losses to increase 5% to 7% annually, so insurers will need deeper and deeper pockets. Funnily enough, exactly how insurers should calculate their capital requirements has just been decided:

• A group of international regulators this week signed off on a new set of rules aimed at bringing insurance companies under a single framework so it’s easier to compare how insurers are performing in different countries.
• Bringing the US under that regulatory umbrella has been a sticking point, as insurers are regulated differently depending on which state they’re in. 

Disaster Premium: Don’t worry too much about insurance companies: They know how to bank a few bucks for a rainy day. New analysis of US mortgage payment data by The Guardian found that premiums on homes in counties most at risk from climate change-driven disasters have risen 22% in the three years up to 2023, as opposed to an overall rise of 13%. In some states insurers are fleeing altogether, leaving state-run insurers of last resort to patch up the coverage holes.

OPEC+ is hoping for life by a thousand cuts.

On Thursday, the global oil cartel announced it would be extending its ongoing production cuts through the first few months of next year in a bid to support prices.

Oil Spill

The Saudi Arabia and Russia-led pact spent 2024 extending and extending its production cuts, even as the ongoing production slowdown began to fracture group unity and arguably ate into its global market share. 

But even with the cuts, Brent Crude oil futures have slipped around 17% since a July peak. The only solution, the thinking seems to go, is to double down on the production slowdown to kneecap any risk of oversupply. On Thursday, the group agreed to do just that:

• OPEC+ had previously agreed to increase its production to 300,000 barrels per day starting in January, but now it won’t lift its quotas until April. The ramp-up to fully reintroduce those 300,000 barrels per day won’t be complete until the end of 2026, a full year later than originally planned.
• That means the group will pump 800,000 fewer barrels per day than expected through 2025 if everyone holds to the quotas, analysts told the Financial Times.

“It takes a huge amount of oil out of the 2025 plan,” Paul Horsnell, head of commodities at Standard Chartered, told the FT. “It has been shunted back. Two-thirds of the oil they were expected to bring on [in 2025] is now expected in 2026.”

Divergence: Meanwhile, in the US, the oil industry is experiencing a rare decoupling. The Trump 2.0 administration seems to be angling for deregulation of the industry, while also expressing a desire to keep prices down. It’s all led to the rare occurrence of energy stocks rising while US-focused West Texas Intermediate crude prices fall. Interesting times, to say the least.