Former U.S. Treasury Secretary Steven Mnuchin thinks the stock market correction has turned positive, especially for tech companies that had “gone crazy” and now present good opportunities. But one overvalued tech bet he never liked was bankrupt crypto trading firm FTX, which crashed dramatically from a $32 billion valuation to filing for bankruptcy and crashing. criminal investigations amid allegations of misuse of client assets.
“We looked at the investment twice and were successful both times,” Mnuchin said at the CNBC Technology Executive Council Summit in New York on Tuesday.
Mnuchin, who has managed private equity investments since leaving the Trump administration, stressed that his decision was unrelated to current allegations that FTX misappropriated client funds, which he called “worrying.” “, but of which he was informed for the first time in the press. “There’s a lot to figure out and I’m just looking out now. I didn’t expect it to happen so quickly, and if client funds were indeed misused, those are issues. very serious,” he said.
Mnuchin wouldn’t go into details related to his decision-making on FTX in a TEC Summit interview with CNBC’s Melissa Lee, but said the second time he made an investment, the trading firm of crypto was “five times the valuation” than it had been before.
“We were a bit surprised by the overall level of valuation,” Mnuchin said.
Last week, venture capital firm Sequoia cut its investment in FTX to zero, among major institutional investors caught in the meltdown. Mnuchin said top investors worried about missing out on the hype cycle is nothing new. “We’ve seen in many tech companies where we had very smart investors invested at ridiculous valuations,” he said.
In the recent bull market, this FOMO has spread far beyond crypto. “You had people investing in technology every day,” Mnuchin said at the CNBC event. “I just don’t see how you can make 300 investments a year and think you can do your due diligence and pick winners from losers,” he said. “The ratings reflected that everything was perfect in the world.”
But now, he added, “it’s a much better environment to invest in.”
The former treasury secretary believes we’ve seen the peak of inflation and the Fed’s rate hike cycle could end a bit lower, at 4.5%, than the market’s worst-case scenario. These rate hikes will still take some time to work their way through the economy and contribute to a potential decline in markets, but the correction in stocks and tech stocks has been a good thing, said Mnuchin, whose private equity Liberty Strategic Capital focuses on technology investments.
Mnuchin, who once held a high-tech position at Goldman Sachs, remains a believer and investor in the underlying blockchain technology, which he says has some interesting applications.
“We focused more on the infrastructure side of crypto than the assets and business side of the business,” he said.
He also believes there is common ground on regulation to be found in the wake of the FTX implosion.
“The problem is that there needs to be more clarity on regulation,” he said, pointing to a current US approach that delegates regulatory authority to entities such as the FTC, SEC and Treasury – where it focused on crypto market transparency and money laundering.
He also pointed to the offshore entities involved in the FTX situation, and said that even though it has a US company, crypto is still an industry where “people move from jurisdiction to jurisdiction” in a game of “regulatory arbitrage”.
The most important finding, Mnuchin said, is that the United States does not go from one extreme to the other, from under-regulation to over-regulation. “There are some very important innovations in this industry,” he said. Although he added that the allegations of misuse of client funds in the FTX case point to a fundamental tenet of financial regulation. “We need to have a segregation of client funds. That’s one of the fundamental principles that we rely on,” Mnuchin said.
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