Asset Management: Hedge fund billionaires cool on DeSantis

One thing to start: It’s a story of greed, a culture of secrecy and alleged abuse. Don’t miss our latest FT Film, Crispin Odey: the fall of a hedge fund maverick. 

Griffin and Peltz rethink DeSantis support

When US billionaire Ken Griffin ditched Chicago and moved the global headquarters of his hedge fund Citadel and market maker Citadel Securities to Florida last year, he was unequivocal in his praise for the Sunshine State. 

He described Miami as a “growing metropolis that embodies the American dream” and praised Florida governor Ron DeSantis for his “tremendous record” — notably around job creation, expanding school choices and his handling of the pandemic. America “would be well served by him as president,” he said. (Recall the FT Magazine’s cover story from last year: How Miami became the most important city in America.) 

A year on and Griffin has emerged as one of a handful of powerful Republican donors, including billionaires Nelson Peltz and Thomas Peterffy, who are rethinking their plans to support DeSantis’s US presidential bid, as my colleague Ortenca Aliaj and I reveal in this scoop.

They have been discouraged by DeSantis’s interventionist policies, people familiar with their thinking told us. Griffin objects to a recent clampdown on teaching about gender and sexuality and DeSantis’ ongoing fight with Disney, while Peltz and Peterffy have taken issue with a ban on abortions after six weeks, the people said.

DeSantis, 44, was widely seen as the candidate best positioned to challenge Donald Trump for the Republican party’s nomination for president. But recently he has slumped in the polls and is facing mounting doubts about the strategy behind his 2024 White House bid. 

A retreat by donors such as Griffin and Peltz, hedge fund managers who are among the biggest taxpayers in Florida, could further harm the DeSantis campaign. The pair were expected to be among DeSantis’ biggest backers. But neither Griffin nor Peltz has met the Florida governor in months or provided any financial support since DeSantis announced his candidacy in May.

In an effort to outflank Trump, DeSantis has veered sharply to the right on issues ranging from gay rights to abortion and immigration, a move that has started to alienate many of his main backers who believe it could pose a threat to the influx of businesses setting up shop in Florida.

Read our full story here

Blackstone’s march to $1tn

Blackstone surpassed $1tn in assets under management for the first time when it reported second-quarter earnings last week. 

It should be a moment of unabashed celebration for the 38-year-old buyout firm, which was founded in 1985 by chief executive Stephen Schwarzman and investment banker Peter Peterson with just $400,000 of capital, and has subsequently transformed from a small dealmaking outfit with a handful of partners into a mainstream financial institution.

But the milestone risks being undermined by mounting pressures associated with amassing hundreds of billions of dollars in assets during an era of rock-bottom interest rates, my colleague Antoine Gara in New York explores in this deep dive. 

Those pressures burst into the open late last year in an episode that caught co-founder Stephen Schwarzman and his heir apparent Jonathan Gray off guard after investors started to remove money from the New York investment group’s flagship $70bn property fund and it was forced to limit withdrawals to prevent a fire sale of assets.

It was a rare instance of vulnerability for a firm that had seemed all but invincible after increasing its assets more than tenfold since the 2008 financial crisis, a breakneck expansion that turned it into a dominant fixture on Wall Street. 

The growth in the past five years of Breit and Bcred, a sister corporate lending fund, has been fuelled by retail investors, who were attracted to the funds’ returns when interest rates were low. 

The need to reassure a different audience to the sophisticated investors Schwarzman and Gray were used to hobnobbing with has led them to adopt a new playbook, with regular appearances on CNBC, the financial cable TV channel beloved by retail investors and traders alike. Gray even set up a LinkedIn profile that is now followed by almost 25,000 people and read by considerably more.

Gray was upbeat when he spoke to Antoine last week. He said that crossing the $1tn mark was “an important milestone” for the world’s largest alternative asset manager and “a marker” on investors’ push into private markets. “We believe the potential for alternatives is far greater than most people realise,” he said. 

Gray also predicted that the pain of inflation has peaked and that a year-long deal drought might soon come to an end. He told the Financial Times: 

“Markets will normalise and transaction activity will pick back up. It’s possible with the economy slowing you could have another pullback in markets, but we have made it through the inflation shock and most of the way through the interest rate shock. I feel better about the way markets look today than they did 12 months ago.”

In another sign that financial conditions have finally started to ease, CVC Capital Partners said it has raised €26bn ($29bn) for the largest private equity fund in history, eclipsing the $26bn buyout fund raised by Blackstone in 2019, the previous largest.

Chart of the week

UK stocks last week staged their biggest rally since early January, as investors warmed to a market that has missed out on global gains this year, writes George Steer in London.

A bigger than expected drop in UK inflation in June helped London’s FTSE All-Share index rise 3.1 per cent in the week to Friday, its best run since notching a 3.3 per cent gain in the first week of the year, according to Bloomberg data.

Property groups and housebuilders were among the biggest winners, with Persimmon, Barratt Developments and Taylor Wimpey all rising more than 10 per cent over the week as tentative signs of cooling price growth left traders scaling back their expectations of where interest rates might peak.

The FTSE 100 has lagged far behind New York’s benchmark S&P 500 and Europe’s region-wide Stoxx 600 in 2023. But some argue that UK stocks suddenly have the wind at their backs. “I wonder whether we’ll look back at that June [inflation] print and think that was the day, that was the catalyst for a turn,” said Neil Birrell, chief investment officer at Premier Miton.

Five unmissable stories this week

Merger arbitrage hedge funds, which bet on the outcome of mergers and acquisitions, have suffered losses this year as big deals hit regulatory roadblocks and the pipeline for transactions dries up.

Guy Hands, one of the UK’s best-known private equity executives, is stepping down as chief investment officer and chair at Terra Firma Capital Partners, bringing to an end a career in the buyout industry that has spanned about three decades.

Elsewhere in the UK, Sir Nigel Wilson, outgoing chief executive of Legal & General, has said his next move could be into politics. And Sonja Laud, chief investment officer of Legal & General Investment Management, said the UK’s largest asset manager had been buying bonds and selling equities in preparation for a “significant” economic downturn in Britain. 

BlackRock will give retail investors in its biggest exchange traded fund the chance to participate in proxy voting in 2024, as the $9.4tn asset manager moves to rebut Republican claims that it pursues a “woke agenda”. The world’s largest asset manager also named Saudi Aramco chief executive officer Amin Nasser to its board.

The price of carbon permits is set to tumble as Europe weans itself off dirty fuels, according to hedge fund manager Per Lekander, who was once one of the market’s biggest bulls. The founder of Clean Energy Transition, which runs $2.6bn in assets, profited handsomely from calling the 2018 rally in carbon prices.

And finally

Book now for The Motive and the Cue, a highly acclaimed play written by Jack Thorne and directed by Sam Mendes, which transfers to the West End for a 15-week run starting on December 9. The production, described by the Evening Standard as “a love letter to theatre”, is based on the dramatic encounter between Richard Burton and John Gielgud when they were making Hamlet on Broadway.