Sunday Scaries Vol. 17

Warsh used his first Jackson Hole keynote to retire forward guidance, refused to say the word hike, and the market priced one anyway. Plus Victory Capital's $7 billion move on First Eagle, and two deals with full advisor lists.

Two weeks of news in one issue, and the biggest piece landed Friday morning in Wyoming. Warsh told the market the Fed is done guiding it, then let it price a September hike on its own. Three sponsors also got paid inside a week, each a different way. Ammo for Monday.

Top Stories of the Week

1. Warsh used his first Jackson Hole to retire forward guidance, and the market priced a hike anyway.

Kevin Warsh gave his first Jackson Hole keynote as Fed chair at 10am ET on Friday, and he spent it on how the Fed talks instead of where rates go next. Forward guidance as a regular practice, he said, has overstayed its welcome. Transparency about future decisions "is not a virtue unto itself," and a central bank that overcommits "risks creating ambiguity in the name of clarity." He would commit to "a discipline, not to a decision." On inflation he was blunt without promising anything. Over the past twelve months 54% of the goods and services in the PCE basket rose more than 3%, against 32% in the two decades before the pandemic, and he said inflation is unlikely to get back to target on its own. The rest of it was a decent argument that the economy could take a hike: unemployment at 4.1%, business capex up 9% with more than half of it AI buildout, corporate profits up more than 20%. He never used the word hike, or raise, or tighten. Futures went from roughly a one in three chance of a September increase to about a coin flip anyway. The two-year finished the week near 4.35% and the ten-year near 4.72%, with the short end doing most of the moving, so the market repriced the Fed and not the economy. Stocks took it fine: the S&P 500 slipped 0.25% Friday to 7,711.76 and still ended the week up 0.5%, with the Nasdaq up 0.9% and the Dow up 0.5% for its first winning week in three.

Why you care: We ran three hike dissents on August 2, then a negative jobs print killed that trade a week later. It is back, and this time the chair put it there without saying so. September 16 brings the decision and a fresh dot plot.

Interview angle: "Warsh's first Jackson Hole was as much about process as inflation. He killed standing forward guidance, so the market has to price the path off data and tone instead of being handed it, and you saw that live: he never signaled a hike and September odds still went from a third to a coin flip. It changes the modeling too. You cannot anchor a forward curve to Fed guidance that no longer exists, so you widen the rate sensitivity on any LBO or DCF and say why."

2. Goldman said the sponsors were about to move. Eight days later, three of them did.

On August 19 Goldman's global co-head of investment banking, Matt McClure, told Bloomberg that the confidence carrying dealmaking to $3.5 trillion this year was starting to spread from corporate buyers to private equity, which had spent the year on the sidelines with roughly $2 trillion of undeployed capital. Then the week happened. Blackstone sold Precision Medicine Group to McKesson on Tuesday, Genstar sold First Eagle to Victory Capital on Wednesday, and on Thursday Apollo bought into Atlantic Aviation at a valuation near $10 billion, with Singapore's GIC alongside. Two of those get full advisor lists below. Atlantic is the odd one. KKR did not leave. It bought the fixed-base operator business for $4.5 billion in 2021 and it now marks near $10 billion across more than 100 airport locations. Instead of selling outright, KKR brought Apollo in as a co-controlling partner and stayed a substantial shareholder. The advisor list gives away how it got done: Apollo hired Evercore and Morgan Stanley, KKR hired no bank at all, just Kirkland & Ellis on the legal side, and no new debt was expected. That is a negotiation between two firms, not an auction.

Why you care: Sponsor activity is what fills the pipeline in financial sponsors groups and leveraged finance. Three exits in a week, after a year of corporates carrying the market, is the signal those desks have been waiting on.

Interview angle: "Atlantic Aviation is a partial exit. KKR more than doubled its 2021 basis, got liquidity by selling co-control to Apollo, and kept its upside in an infrastructure asset it still likes. That covers you when someone asks why a sponsor would sell half of a business that is working: the fund owes LPs a distribution, the asset is not done compounding, so you take money off the mark and keep the platform."

3. Anthropic is stacking its IPO syndicate, and Citi took the last seat at the top.

Bloomberg reported on August 20 that Citigroup is set to join Morgan Stanley, Goldman Sachs and JPMorgan at the top of Anthropic's underwriting group, with more banks expected underneath them. The company has been weighing a filing as soon as the end of August, so it could come any day. Citi currently sits first in Bloomberg's 2026 US IPO league table, and Anthropic is separately expanding a pre-IPO credit facility beyond its roughly $10 billion target. We flagged the confidential S-1 in June, when it went in the same week as OpenAI's. Anthropic is still expected to reach the market first.

Why you care: This is the ECM mandate of the cycle, and the positioning around it will come up in every capital markets interview this fall.

Interview angle: "The seat order matters more than the size here. Four banks at the top means the economics get split thin, so what everyone is fighting over is lead-left and the allocation control that comes with it, because that drives league-table credit and the next mandate. Citi is number one in US IPOs this year, and joining a listing this big at the last minute is how it defends that."

Deals of the Week

Victory Capital is paying $7 billion for First Eagle, and it says the deal is 35% accretive. Announced Wednesday. Victory buys 100% of First Eagle Investments from Genstar Capital and First Eagle employees for roughly $7.0 billion: about $4.4 billion in cash, $2.0 billion in newly issued Victory stock, and the assumption of $575 million of First Eagle's 7.25% senior secured notes due 2032. First Eagle ran about $222 billion of AUM as of July 31 against Victory's $348.8 billion, so the combination is roughly $571 billion and about $3.2 billion of revenue. It closes by the end of Q1 2027. The 35% is worth pulling apart: only $2.0 billion of the $7.0 billion is stock, so the share count barely moves while all of First Eagle's earnings show up, and management is underwriting about $280 million of net expense synergies on top. The cash leg is funded with a new $3.5 billion term loan B, roughly $950 million of new secured notes and an upsized $200 million revolver.

Buy-side (Victory Capital): PJT Partners (lead financial, fairness opinion), RBC Capital Markets (financial); Willkie Farr & Gallagher (legal); debt arranged by BofA Securities and RBC Capital Markets
Sell-side (First Eagle, Genstar Capital): UBS Investment Bank (lead financial), BofA Securities (financial); Ropes & Gray (legal); Davis Polk & Wardwell (legal to management)

McKesson is buying Precision Medicine Group from Blackstone for $2.25 billion. Announced Tuesday. Precision is a Bethesda, Maryland pharma services business: biomarker intelligence, lab services, a global contract research organization, market access consulting and commercialization support. It goes into McKesson's Oncology and Multispecialty segment, which the company called a meaningful step in advancing that strategy. Nothing beyond the price was disclosed, so no revenue, no EBITDA and no accretion figure came with it. Note the exit route. Blackstone built the business up and sold it to a strategic instead of floating it or passing it to another sponsor.

Buy-side (McKesson): Citigroup (financial); Davis Polk & Wardwell (legal)
Sell-side (Blackstone, Precision Medicine Group): Centerview Partners (financial); Simpson Thacher & Bartlett (legal)

Pro tip: Three sponsors took money off the table this week, three different ways. Blackstone sold Precision to a strategic and took the full control premium in cash. Genstar took part of its First Eagle price in Victory stock. KKR sold Apollo co-control of Atlantic Aviation and stayed in. Blackstone got the most certainty, KKR kept the most upside, Genstar split the difference. That is your answer if someone asks how a fund gets money back to LPs. One more: BofA advised First Eagle on the sell side and is helping arrange the buyer's debt. Last issue it was Barclays doing both on Nielsen.

Recruiting Pulse

Your markets answer changed on Friday. Fix it before Monday. If you rehearsed a view on rates in July, it is stale. A month ago the line was that a soft labor print had taken September off the table. As of Friday a hike is roughly even money and the chair has said plainly he will not be guiding you to it. Short version to have ready: breadth is the problem, with 54% of the PCE basket running above 3% against 32% before the pandemic, unemployment is holding at 4.1%, and September 16 brings a fresh dot plot. Then say what it does to a model. Higher for longer widens your discount rate and squeezes sponsor returns.

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