Here’s what you need to know today

• The much-anticipated meeting between US President Trump and Chinese President Xi has ended in a deal. America has agreed to cut China’s tariff rate from 57% to 47% and in return China has agreed to a one-year suspension on its export restrictions for rare earth minerals. (BBC)
  
  

• NAB has promised to lend at least $60 billion over the next 5 years to help improve housing affordability in Australia. CEO Andrew Irvine said $30 billion would be used for real estate development projects and the remaining $30 billion in financing to support first home buyers via the Australian Government 5% Deposit Scheme. (AFR)
  
  

• Big Tech is reporting quarterly earnings. Alphabet, owner of Google, topped $100 billion in quarterly revenue for the first time and profit rose 33% year-on-year which was enough for shares to rise 7%. (Alphabet) Microsoft’s revenue was up 18%, profit was up 12% and its backlog of work reached $392 billion, but that wasn’t enough for investors as shares dropped 4%. (Microsoft)
  
  

• Rounding out the Big Tech reports was Meta, who disappointed investors and saw shares drop 7%. Why? A huge income tax bill saw profit drop 83%. This is a one-off $15.9 billion tax bill from the One Big Beautiful Bill. The underlying business looks strong however, with revenue rising 26% year-on-year. (Meta)
  
  

• Meanwhile, Big Tech peer Nvidia has become the world’s first $5 trillion company. Shares were up 3% on reports that the US would ease restrictions on Nvidia sales to China as part of the US-China trade deal. Nvidia is now as valuable as the GDP of Germany. (Capital Brief)
  
  

• Both of Australia’s major supermarkets delivered mild set of results. Coles shares were down 3% despite a 4% rise in overall sales but investors were disappointed by a 1% fall in alcohol sales. (Capital Brief) Meanwhile, Woolworths delivered 3% sales growth which investors saw green shoots after a period of underperformance, and shares were up 3%. (AFR)
  
  

• Yesterday we wrote about the US Federal Reserve cut interest rates by 25 basis points for the second consecutive month. America’s benchmark interest rate is now 3.75% - 4%. Making the job more difficult, the Fed had to make that decision without the latest jobs and inflation data due to the ongoing government shutdown. (PBS)
  
  

• Boeing’s troubles continue. The plane maker has set aside $4.9 billion to cover delays in its 777X jet, whose first delivery has been pushed to 2027. That setback left it with a $5.3 billion quarterly loss and clouded an otherwise strong quarter with sales up 30% to $23.3 billion. (CNBC)

What the…?

Swiss sneaker brand On, is being sued by U.S. customers who claim its popular CloudTec shoes make an “embarrassing squeak” with every step.

The class action, filed in Oregon federal court, alleges deceptive marketing, saying buyers wouldn’t have paid around $200 if they’d known about the noise.

Plaintiffs argue the company ignored complaints, failed to fix or refund faulty pairs, and cite social media posts showing frustrated customers trying DIY fixes like applying coconut oil to the soles. (BBC)

Investing is a lifelong journey

Here’s what you can learn today

What explains private equity’s outperformance?

This is an excerpt from our interview with Cameron Blanks, Managing Director of Pacific Equity Partners, on Equity Mates Investing (Apple | Spotify | YouTube)

Question: Private equity outperformance. Let's start with the numbers. How has it outperformed public markets? 

Cameron: Over a very long period of time, it's outperformed somewhere between five and 10% on average. Obviously there's some sectors within the industry that have even done better than that, but just as a general rule, public equities over the long term have delivered something like 7 to 8% returns to invest. Volatility is in those numbers and private equity is typically about 5 to 10% above that and with less volatility as well. 

In the area we focus most on - late stage buyouts -  there are three different things that differentiate and enable that outperformance. 

1. Alignment. So this is getting alignment all the way from shareholders, through the board and into the management teams around incentives and strategy and execution.  

2. It’s really about active management. And what that means is spending time with the management teams as a private equity firm to make sure that they're executing the strategy and then helping them to execute that strategy. So that may be some analysis that helps with M&A or bringing in other specialists for other areas of the business. 

3. We can take a long-term approach in private equity. We'd like to sell our businesses after three to five years, but if we need to, we can hold on for longer than that depending on market conditions or where we are on the business execution. So we have that flexibility, that long-term flexibility that doesn't really exist in the public markets. There's always a six month or quarterly reporting that needs to be done and it drives short-termism.   

So we'd put those three aspects down as the reason why particularly late stage buyout outperforms the public markets by a considerable margin. 

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