Raphael Stevens

Just a year ago a global crunch in one metal looked likely to single-handedly derail the energy transition. Not only was cobalt, a crucial battery material, being dug up far too slowly to meet soaring demand, but the lion’s share of known reserves sat in Congo, a country rife with instability, corruption and child labour. Fast forward to today and the price of the blue metal, which had more than doubled between summer 2021 and spring 2022, to $82,000 a tonne, has collapsed to $35,000, not far from historic lows. The story is partly one of reduced demand. Most cobalt goes into the battery packs which power smartphones, tablets and laptops. Appetite for these, already strong in the 2010s, exploded during the covid-19 pandemic. It has since waned as people spend less time staring at their screens: as demand for consumer electronics fell, so did that for cobalt. Even a boom in electric vehicles has not been sufficient to counteract this, since manufacturers have done their best to reduce use of the formerly super-expensive metal. At the same time supply is rising, and fast. Susan Zou of Rystad Energy, a consultancy, forecasts that Congolese production will jump by 38% this year, to 180,000 tonnes. Most striking is a surge in Indonesian exports, which are projected to hit 18,000 tonnes this year, up from virtually none a few years ago. The world could find itself swimming in cobalt.In other markets low prices would force producers to shut mines. Not for cobalt. The price has already fallen below many miners’ break-even point. Yet Glencore, the world’s biggest, said on February 15th that it may keep output nearly unchanged this year, having cranked it up in 2022; China Moly, a rival, is about to open a new facility that may yield 30,000 tonnes a year (equivalent to 16% of the world’s output in 2022). Big firms can tolerate low prices because cobalt is a by-product of the extraction of copper and nickel, both of which remain pricey. Electric-vehicle makers the world over are courting Indonesia for nickel, kick-starting projects that will also yield cobalt. China Moly’s monster mine in Congo will produce three times as much copper as it will the blue metal.Prices may still rise a bit this year, as speculators seek to snap up bargains. Beyond 2025, however, another dampener looms. By this time, the first wave of electric-vehicle batteries, which typically last up to eight years, will begin to be recycled, reducing the need for new supply. No matter how fast the energy transition speeds up, the blue gold is unlikely to act as a brake.■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Investors warn a horde of ailing venture capital “zombies” will emerge in the coming years.
Unable to make impressive returns for their institutional backers, such firms will instead focus on managing their existing portfolios before eventually winding down.
The presence of VC zombies won’t be obvious, and it will likely take years before they eventually close shop.

An art exhibition based on the hit TV series “The Walking Dead” in London, England.
Ollie Millington | Getty Images

For some venture capitalists, we’re approaching a night of the living dead.
Startup investors are increasingly warning of an apocalyptic scenario in the VC world — namely, the emergence of “zombie” VC firms that are struggling to raise their next fund.

Faced with a backdrop of higher interest rates and fears of an oncoming recession, VCs expect there will be hundreds of firms that gain zombie status in the next few years.
“We expect there’s going to be an increasing number of zombie VCs; VCs that are still existing because they need to manage the investment they did from their previous fund but are incapable of raising their next fund,” Maelle Gavet, CEO of the global entrepreneur network Techstars, told CNBC.
“That number could be as high as up to 50% of VCs in the next few years, that are just not going to be able to raise their next fund,” she added.

What’s a zombie?

In the corporate world, a zombie isn’t a dead person brought back to life. Rather, it’s a business that, while still generating cash, is so heavily indebted it can just about pay off its fixed costs and interest on debts, not the debt itself.
Life becomes harder for zombie firms in a higher interest rate environment, as it increases their borrowing costs. The Federal Reserve, European Central Bank and Bank of England all raised interest rates again earlier this month.

In the VC market, a zombie is an investment firm that no longer raises money to back new companies. They still operate in the sense that they manage a portfolio of investments. But they cease to write founders new checks amid struggles to generate returns.
Investors expect this gloomy economic backdrop to create a horde of zombie funds that, no longer producing returns, instead focus on managing their existing portfolios — while preparing to eventually wind down.
“There are definitely zombie VC firms out there. It happens during every downturn,” Michael Jackson, a Paris-based VC who invests in both startups and venture funds, told CNBC.
“The fundraising climate for VCs has cooled considerably, so many firms won’t be able to raise their next fund.”

Why VCs are struggling

VCs take funds from institutional backers known as LPs, or limited partners, and hand small amounts of the cash to startups in exchange for equity. These LPs are typically pension funds, endowments, and family offices.
If all goes smoothly and that startup successfully goes public or gets acquired, a VC recoups the funds or, better yet, generates a profit on their investment. But in the current environment, where startups are seeing their valuations slashed, LPs are becoming more picky about where they park their cash.
“We’re going to see a lot more zombie venture capital firms this year,” Steve Saraccino, founder of VC firm Activant Capital, told CNBC.
A sharp slide in technology valuations has taken its toll on the VC industry. Publicly-listed tech stocks have stumbled amid souring investor sentiment on high-growth areas of the market, with the Nasdaq down nearly 26% from its peak in November 2021.

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A chart showing the performance of the Nasdaq Composite since Nov. 1, 2021.

With private valuations playing catch-up with stocks, venture-backed startups are feeling the chill as well.
Stripe, the online payments giant, has seen its internal market value drop 40% to $63 billion since reaching a peak of $95 billion in March 2021. Buy now, pay later lender Klarna, meanwhile, last raised funds at a $6.7 billion valuation, a whopping 85% discount to its prior fundraise.
Crypto was the most extreme example of the reversal in tech. In November, crypto exchange FTX filed for bankruptcy, in a stunning flameout for a company once valued by its private backers at $32 billion.
Investors in FTX included some of the most notable names in VC and private equity, including Sequoia Capital, Tiger Global, and SoftBank, raising questions about the level of due diligence — or lack thereof — put into deal negotiations.
Since the firms they back are privately-held, any gains VCs make from their bets are paper gains — that is, they won’t be realized until a portfolio company goes public, or sells to another firm. The IPO window has for the most part been shut as several tech firms opt to stall their listings until market conditions improve. Merger and acquisition activity, too, has slowed down.

New VC funds face a tougher time

In the past two to three years, a flood of new venture funds have emerged due to a prolonged period of low interest rates. A total of 274 funds were raised by VCs in 2022, more than in any previous year and up 73% from 158 in 2019, according to numbers from the data platform Dealroom.
LPs may be less inclined to hand cash to newly established funds with less experience under their belt than names with strong track records. 
“LPs are pulling back after being overexposed in the private markets, leaving less capital to go around the large number of VC firms started over the past few years,” Saraccino said.
“A lot of these new VC firms are unproven and have not been able to return capital to their LPs, meaning they are going to struggle mightily to raise new funds.”

When will zombie VCs emerge?

Frank Demmler, who teaches entrepreneurship at Carnegie Mellon University’s Tepper School of Business, said it would likely take three to four years before ailing VC firms show signs of distress.
“The behavior will not be as obvious” as it is with zombie firms in other industries, he said, “but the tell-tale signs are they haven’t made big investments over the last three or four years, they haven’t raised a new fund.”

“There were a lot of first-time funds that got funded during the buoyant last couple of years,” Demmler said.
“Those funds are probably going to get caught midway through where they haven’t had an opportunity to have too much liquidity yet and only been on the investing side of things if they were invented in 2019, 2020.”
“They then have a situation where their ability to make the type of returns that LPs want is going to be close to nil. That’s when the zombie dynamic really comes into play.”
According to industry insiders, VCs won’t lay off their staff in droves, unlike tech firms which have laid off thousands. Instead, they’ll shed staff over time through attrition, avoiding filling vacancies left by partner exits as they prepare to eventually wind down.
“A venture wind down isn’t like a company wind down,” Hussein Kanji, partner at Hoxton Ventures, explained. “It takes 10-12 years for funds to shut down. So basically they don’t raise and management fees decline.”
“People leave and you end up with a skeleton crew managing the portfolio until it all exits in the decade allowed. This is what happened in 2001.”

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David Malpass’s presidency of the World Bank started and ended in controversy. When Donald Trump picked the former investment-bank economist and Treasury official in 2019, Mr Malpass was seen as someone who did not believe in multilateralism and might sabotage the bank. On February 15th, when he announced his intention to resign in June, he was dogged by comments in which he appeared to question climate change—a major focus for the lender. Between these dark clouds, though, Mr Malpass was a surprisingly effective leader. He helped stabilise a drifting institution and presided over a big expansion in its lending operations.Mr Malpass’s exit will come nearly a year before his term is due to expire, hinting at differences between him and the bank’s leading shareholders, including, notably, his own country. Earlier this month Janet Yellen, America’s treasury secretary, said the bank needed to move more quickly to reform its operations: for example, changing the way it analyses global challenges such as climate change and stretching its balance-sheet in order to disburse more money. Ms Yellen’s comments had the makings of an ambitious new agenda for the bank—all the more reason for a new president, armed with a five-year term and strong backing from member countries, rather than a lame duck in his final year. Mr Malpass described his early departure as “an opportunity for a smooth leadership transition”.Critics celebrated his exit. “This must be the first step toward true reform that places the climate crisis at the centre of the bank’s work,” said Al Gore, America’s former vice-president. Mr Malpass met with scorn last year when he dodged questions about whether the burning of fossil fuels causes global warming, saying he was “not a scientist”. His response had revived earlier concerns that Mr Trump’s appointee could not be trusted.But his record was better than pessimists feared would be the case. His predecessor, Jim Yong Kim, had been bent on reinventing the bank, bringing in consultants, slashing costs and centralising its structure. Mr Malpass inherited an institution that was demoralised and in disarray. The calls for new reforms, which would involve taking on more responsibilities, reflect the fact that he has helped steer the bank back towards its pre-Kim identity.In 2022 the World Bank’s commitments—a broad measure of the financing it provides—reached $115bn, nearly double the amount in 2019 when Mr Malpass took over. This expansion reflects the bank’s role in helping poor countries overcome the covid-induced recession and the energy-plus-food crisis following Russia’s invasion of Ukraine. Strikingly, the bank also doubled its climate finance, reaching nearly $32bn last year. Despite this tangible progress, Mr Malpass struggled to escape the impression that his heart was not really in it. “I see it more as a missed opportunity rather than a period during which there was major turmoil or the institution failed to deliver,” says Masood Ahmed, president of the Centre for Global Development, a think-tank in Washington.America picks the World Bank’s president as part of an understanding with European governments, which choose the head of the imf. Possible candidates are believed to include Samantha Power, who runs the American agency for international development (usaid), and Raj Shah, a former head of usaid. Whoever succeeds Mr Malpass will do well to heed the lesson that carelessly chosen words can undermine good work. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

The market probability of a further 25 basis point increase at the Monetary Policy Committee’s next meeting nudged up past 73% on Wednesday, according to Refinitiv data.
The U.K. annual inflation rate dipped for a third straight month to 10.1% in January, landing below consensus forecasts, even as high food and energy prices continue to squeeze British households.
Tuesday’s employment figures for December offered little indication that the labor market is beginning to ease.

Andrew Bailey, Governor of the Bank of England, attends the Bank of England Monetary Policy Report Press Conference, at the Bank of England, London, Britain, February 2, 2023. 
Pool | Reuters

LONDON — A tight labor market and comparatively slow return to earth for inflation means the Bank of England is likely to press ahead with a further interest rate hike in March, economists suggest.
The market probability of a further 25 basis point increase at the Monetary Policy Committee’s next meeting nudged up past 73% on Wednesday before sliding back to around 66% by Thursday morning, according to Refinitiv data.

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The U.K. annual inflation rate dipped for a third straight month to 10.1% in January, landing below consensus forecasts, even as high food and energy prices continue to squeeze British households.
Although inflation is coming down, the rate of price increases fell by just 1% between October and January — marking a comparatively small decline compared to those seen in other major economies.
“With the FTSE 100 recently reaching record highs, investors will be somewhat comforted by the direction of travel for prices,” said Richard Carter, head of fixed interest research at Quilter Cheviot.
“However food prices remain a major driver of U.K. inflation, continuing their upwards march in January with an eye-watering 16.8% increase. Food industry bosses have warned that prices will take considerable time to come down.”

Tuesday’s employment figures for December also offered little indication that the labor market is beginning to ease, with unemployment remaining at 3.7%. Growth in average weekly earnings excluding bonuses increased to an 18-month high 6.7% during the final three months of 2022.

Along with the supply-side shortfall, the U.K. is navigating widespread industrial action among public sector workers, as pay increases continue to lag behind inflation.
Bank of England Governor Andrew Bailey last week urged workers and employers to consider the expected downward inflation trajectory when negotiating pay settlements.
“The cocktail of a tight labour market and inflation failing to cool off quickly will remain a cause of concern for Bank of England policymakers, which may mean the Bank’s aggressive strategy stays in place,” Carter added.
The U.K. narrowly avoided recession in the fourth quarter as growth stagnated, but the MPC sees a shallow recession beginning in the first quarter of 2023 and lasting for five quarters.
“Despite a slowing economy, wages are still rising rapidly in a backdrop of stagnant labour supply, which risks keeping services inflation elevated,” said Hussain Mehdi, macro and investment strategist at HSBC Asset Management.

“This means the Bank’s Monetary Policy Committee is likely to deliver another rate hike next month, with some chance of further tightening at subsequent meetings if wage growth measures remain inconsistent with the Bank’s 2% target.”
The 10.1% January inflation figure was exactly in line with the Bank’s projections, with four of the twelve consumer price index (CPI) divisions making downward contributions to the headline inflation rate. The largest came in the form of a 7.2% annual fall in used car prices, while petrol and diesel price inflation also continued to cool.
“The Bank of England will be pleased to see that services inflation is starting to subside, as this tends to be more persistent than goods inflation,” said PwC Economist Jake Finney.
“They will also be reassured by the latest data indicating that private sector wage growth is easing. However, our view is that the Bank of England hasn’t seen quite enough to shift the dial — so we expect them to deliver one last 25bp rate hike in March.”
Market reaction
Despite the increased market pricing for a further 25 basis point hike in March, U.K. government bond yields fell sharply across the yield curve on Wednesday morning before recovering slightly. The 2-year gilt yield was little changed at 3.75% early on Thursday while the 10-year yield hovered around 3.47%.
James Athey, investment director at Abrdn, told CNBC on Wednesday that the seemingly dovish interpretation of the bond market represented a slight relief. But he pointed to the similar pattern of data in the U.S. in recent months, noting that “all it took was a couple of data points really for the market to start to considerably reassess the outlook for policy.”
Athey suggested that gilts positioning had significantly influenced the yield move, with excess positioning at the short end of the curve coming off in recent weeks and causing the front end to underperform.
“So I think we’d got to the stage where positioning was either cleaner or actually a little bit short U.K. rates, and so marginal progress on inflation has seen a pretty strong rally this morning.

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MSCI earlier this month said it will reduce the weightings of Adani Enterprises, Adani Total Gas, Adani Transmission and ACC.
The index provider said the changes will be reflected in the May index review instead of February’s.
Its decision came “in light of potential replicability issues due to impact from price limit mechanisms in specific securities associated with the Adani Group,” MSCI said.

Signage of Adani Group at Adani Defence and Aerospace booth during the Aero India 2023 at Air Force Station Yelahanka in Bengaluru, India, on Monday, Feb. 13, 2023.
Bloomberg | Bloomberg | Getty Images

Index provider MSCI said that it will delay implementing weighting changes for some Adani Group companies until later this year, according to a Thursday announcement.
The change in plans came after MSCI earlier this month said it will reduce the weightings of Adani Enterprises, Adani Total Gas, Adani Transmission and ACC, a major Indian cement company the Adani Group acquired from Holcim last year. The decision was made after MSCI reassessed the number of shares that are freely traded, it had said.

Among the list of Adani companies, MSCI is delaying the measures for two companies: Adani Total Gas and Adani Transmission, according to its Thursday morning notice.
As of the end of January, the four Adani-related companies had a combined 0.4% weighting on MSCI’s Emerging Markets Index, Reuters reported.
MSCI said the changes will be reflected in the May index review instead of February’s. The firm explained the decision came “in light of potential replicability issues due to impact from price limit mechanisms in specific securities associated with the Adani Group.”

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MSCI said it will apply special treatment for all Adani Group’s associated securities, citing “ongoing uncertainty with relation to key input data for index construction.”
As such, MSCI will not make any changes – including additions, deletions and constraint factor changes – in non-market capitalization weighted indexes and custom indexes such as the MSCI Factor, ESG, thematic and capped indexes, it said.

Shares of Adani Group companies mostly traded higher in Mumbai on Thursday, except for Adani Total Gas which fell roughly 2%. Adani Transmission inched 1% higher.
Adani Enterprises rose  2.7%, Adani Port and Special Economic Zone rose 2.3%, Adani Green Energy rose 2.4% and Adani Power rose 5%.

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