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The crypto faithful’s philosopher king


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‘I got involved with no clue what a blockchain was’

A week is a long time in cryptoland. The $1.3tn cryptocurrency industry was on Thursday hit by one of its toughest challenges when stablecoin Tether — a critical cog in the market — failed to maintain its link with the US dollar.

The plunge in token values and rattling of major stablecoins has left even digital asset enthusiasts speculating about whether this marks the beginning of a “crypto winter” and the end of the bitcoin bubble. Here’s our explainer on what is a stablecoin and why Tether is central to the global crypto market. And don’t miss this Big Read on the week that shook crypto, and markets editor Katie Martin’s column on why this time around what happens in crypto may not stay in crypto.

For critics, the huge sell-off looked more like a return to sanity than an overload of fear. Many remain convinced that crypto tokens have been vastly overheated, and that there’s little fundamental basis for their value.

There couldn’t be a better time then to read my colleague Joshua Oliver’s Lunch with the FT in the Bahamas with Sam Bankman-Fried, the 30-year-old billionaire founder of crypto exchange FTX, who last week revealed a stake in online brokerage Robinhood.

To the crypto faithful, SBF (as he is widely known) is something close to a philosopher king. His meteoric rise shows how crypto has enhanced the power of a new financial elite, which is more tech-savvy than the old one.

“I first got involved with no fucking clue what a blockchain was,” says SBF, who runs FTX from Nassau where he lives in a luxury resort community with his co-founder, whom he met at maths camp, and several former roommates from MIT. “I was just doing arbitrage.”

That may be, but in just three years FTX’s success has catapulted SBF to fame and a roughly $24bn personal paper fortune. By convincing blue-chip investors from BlackRock to the Ontario Teachers’ Pension Plan to back the business, its valuation has soared to $30bn. 

Daniel Craig emerges from the sea in Casino Royale. It’s not every week I get the chance to use an image like this one in the asset management newsletter

In a setting literally borrowed from a James Bond film, SBF talked to Josh about why he plans to give away his fortune, whether crypto is anything like a Ponzi scheme, and what digital assets are actually worth.

Whether crypto lives up to its hype of empowering people, will “come down to exactly what regulation looks like,” says SBF. “It could go either way.”

How black-run funds still have to fight for equality

One depressing statistic to start: while more than 6 per cent of US fund managers across asset classes are now minority-owned, they receive just 0.7 per cent of US dollars under management, according to a 2021 report by the Knight Foundation.

My colleague Madison Darbyshire in New York explored this dynamic in an exclusive interview with John Rogers, the founder and co-chief executive of $15bn fund Ariel Investments, the first black-owned asset manager in the US.

“People are used to thinking of minorities as experts in music or athletics, but not as mutual fund managers or investment bankers,” he said.

Rogers notes that while the “allocation gap” often flies under the radar, it is a “huge problem” for minority owned asset managers because it is detrimental to their ability to scale.

Small firms struggle to afford the same tech, compliance and training to develop future talent, he says, all the things required to be successful and compete against trillion dollar managers.

And the bar for diverse managers is higher than for their peers: not only must they outperform in order to attract capital, they are still often allocated less, or required to demonstrate longer track records.

Meanwhile when racially diverse managers do begin to grow, they are hit with a Catch-22: asset allocators no longer consider them “in need”, and capital allocations dry up, stalling their growth.

The allocation gap is especially pronounced in the mutual fund industry, where more than 9 per cent of firms are minority-owned, yet receive less than 0.5 per cent of the more than $74tn in capital under management, according to the Knight Foundation.

“Years ago everyone told us ‘you need to get to scale for us to hire you, you need a track record and you need all the expensive bells and whistles’. But once you get all the bells and whistles, they say ‘You are too big’,” said Rogers. “It’s so patronising.”

What do you think can be done to improve the allocation gap? Email me: harriet.agnew@ft.com

Chart of the week

Column chart of year on year change in profits (%) showing European corporate earnings rebound from pandemic-induced downturn

Europe’s biggest companies far exceeded earnings expectations in the first quarter, but investors remain worried about the impact of the war in Ukraine and stubbornly high inflation.

Earnings per share grew by 42 per cent for the 452 companies in Europe’s Stoxx 600 share index that reported first-quarter numbers, topping analysts’ expectations of 20 per cent growth. By comparison, companies in Wall Street’s S&P 500 gauge delivered EPS growth of 9 per cent, just four percentage points ahead of consensus estimates, according to FactSet data.

Meanwhile, research by Morgan Stanley showed earnings per share for the MSCI Europe, a narrower regional index, have returned to highs not seen since before the 2008-2009 financial crash. Sales were also their strongest on record, according to the US bank.

Growth in EPS has been driven by buoyant performances for Europe’s energy sector, and it also exceeded expectations in sectors including consumer goods, distribution services, health and transport.

10 unmissable stories this week

Investors should “get ready” to snap up bargain bonds following a bruising sell-off in debt markets last week, according to Dan Ivascyn, the chief investment officer of credit trading house Pimco, which manages $2tn in assets.

Hedge funds focused on US equities are pulling back sharply on their risky bets after the longest stretch of sustained selling in more than a decade has left many managers nursing stiff losses.

Goldman Sachs and Barclays have invested in Elwood, the cryptocurrency group founded by hedge fund billionaire Alan Howard, in a fresh bet on the mainstream adoption of digital assets.

BlackRock says shareholders have gone too far pushing companies for climate action, and will vote against most green resolutions. This is quite the turnround for an asset manager that has been criticised for its meddling stakeholder capitalism, writes Lex. Meanwhile here’s deputy editor Patrick Jenkins on the new ESG realpolitik and the fossil fuel bonanza.

Tiger Global may well be crouching after suffering losses of about $17bn during this year’s technology stock sell-off, marking one of the biggest dollar declines for a hedge fund in history.

US hedge fund Elliott Management, the activist group founded by billionaire Paul Singer, plans to shut its office in Tokyo, its last remaining outpost in Asia, as it continues to shift responsibility for investments in the region to London.

Allianz has set aside an extra €2bn to cover potential fines over funds sold by its asset management division, which were touted to clients as safe but suffered heavy losses during the early stages of the coronavirus pandemic.

Capturing the loyalty of younger plutocrats is key to one of this year’s largest wealth management deals, a merger between London family office Alvarium and New York-based Tiedemann Advisors to create a group that will oversee $54bn of assets.

Retail traders are no longer the ‘buyer of first resort’ in US stocks. Smaller investors have pulled back from bearish markets as they nurse heavy losses from this year’s sell-off.

Brookfield Asset Management is moving forward with a spin-off of its asset management business into a separate public company, setting the stage for one of the largest Wall Street listings of the year.

And finally

West Indian Waitresses by Eva Frankfurther © the Estate of Eva Frankfurther

To the Barbican Centre, for a revelatory new take on art in Britain after the second world war, a period when artists had to make sense of an entirely altered world. Postwar Modern features 48 artists and around 200 works of painting, sculpture, photography, collage and installation. It explores the subjects that most preoccupied artists, among them the body, the post-atomic condition, the Blitzed streetscape, private relationships and imagined future horizons.

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