Ken Griffin calls the top

One thing to start: Welcome back, I hope you had a wonderful summer. It was great to see so many of you at the FTWeekend Festival on Saturday at Kenwood House in London.

I’ve always liked the French concept of la rentrée, when “real life” restarts in September after the country all but grinds to a halt in August, and the ensuing burst of energy and optimism that accompanies it. Are there any stories, themes or scandals that you think we should be prioritising in our asset management coverage this autumn? Email me: harriet.agnew@ft.com

Are multi-manager hedge funds becoming a victim of their own success?

Over the past five years, the multi-manager model pioneered by the likes of Ken Griffin’s Citadel and Izzy Englander’s Millennium Management has emerged as the fastest-growing and most profitable corner of the global hedge fund industry. 

It’s a far cry from the swashbuckling days of yore, when star managers like
George Soros, Julian Robertson and Paul Tudor Jones made their profits and their reputations by taking big thematic bets. In contrast, the multi-manager model relies on specialist traders, overseen by sophisticated risk management technology, and a ruthless approach to hiring and firing by their paymasters. 

But now the model is facing a moment of reckoning as some insiders start to question its infallibility in a rising interest rate environment, as Ortenca Aliaj and I explore in this deep dive.

The multi-managers are confronting challenges wrought by capacity constraints, including a ferocious and increasingly expensive talent war, and with higher interest rates increasing the risk-free returns available to investors, outperformance is now harder to achieve. 

Meanwhile investors have started to question multi-manager funds’ high fees and demands to lock away cash for years. And their growing heft is also putting them under regulatory scrutiny. (Remember March’s upheaval in US government bonds, a market in which multi-manager platforms are big players?)

Performance so far in 2023 has struggled to keep up with the past few years, and even Griffin acknowledges the purple patch cannot last for ever. He told us:

“The stories of markets are always stories of cycles and strategies that come and go in terms of popularity. Clearly right now the multi-strategy managers are very much in vogue. When you’re most popular is probably when you’re reaching the top of the cycle.”

Read the full analysis here and don’t miss FT Alphaville’s take on it too.

How does this story end? Email me: harriet.agnew@ft.com

While you were away . . . 

My colleagues Dan McCrum and John Reed unpicked the paper trail to discover that two of Adani Group’s biggest “public” investors are associates of Vinod Adani, brother of the conglomerate’s founder Gautam, and authorities suspected market manipulation years before short-selling firm Hindenburg Research in January accused the Adani Group of running “the largest con in corporate history.” There’s a Wirecard connection too: the firm which structured a Mauritian shell at the heart of Wirecard’s controversial Indian deal provided the investment structures for Vinod Adani and his associates. Adani shares slid and politicians are now demanding action. 

The Financial Times revealed that Goldman Sachs has used a $2.5bn private equity fund set up with sovereign wealth fund China Investment Corporation to buy a series of sensitive US and UK companies. The deals highlight how private equity funds have helped sovereign wealth funds build up indirect holdings in companies in critical sectors as western governments have increased scrutiny of foreign direct investment, particularly from China. Goldman’s private equity deal with China state fund warrants regulatory scrutiny, argues companies editor Anne-Sylvaine Chassany. Meanwhile US investors are facing an uncertain future in China after president Joe Biden announced a ban on US investment in some of the country’s critical tech industries.

A coalition of private equity, venture capital and hedge fund groups have sued to block sweeping new US regulations they claim would fundamentally and illegally change the $27tn industry. Six industry groups told a Texas-based federal appeals court that the Securities and Exchange Commission overstepped last month when it adopted new rules for private fund managers. The package requires increased disclosure and puts new limits on the way the industry treats customers. The filing sets up an epic legal struggle between a wealthy and powerful industry and an energised SEC, which, under chair Gary Gensler, has hit financial services with the biggest regulatory blitz since the aftermath of the 2008 financial crisis.

FTSE 100 wealth manager St James’s Place’s business model is coming under scrutiny. In the past two years about half its market value — or £3.8bn — has been wiped out as client inflows have slowed, several of its biggest funds have underperformed and last month the UK Financial Conduct Authority ordered asset managers to justify the fees charged on their funds. Mark FitzPatrick, a former chief executive of Prudential, has emerged as the leading candidate to replace incumbent Andrew Croft. As some clients complain about opaque charges, investors worry that a recent reduction in fees — the first in SJP’s 32-year history — could be just the start.

Liontrust’s courtship of struggling asset manager GAM came to a withering conclusion after the Swiss asset manager’s shareholders rejected the UK rival’s takeover. This forced GAM to enter discussions with an activist group, NewGAMe — which is led by French telecoms billionaire Xavier Niel and includes wealth management company Bruellan — as it tries to stay afloat. NewGAMe, which owns 9.6 per cent of GAM, has put forward investment industry veteran Randy Freeman as chief executive, a position currently held by Peter Sanderson, at an extraordinary general meeting in September.

Chart of the week

Hedge funds have upped bets against Argentina’s bonds as the emergence of radical rightwing candidate Javier Milei has sparked investor fears that the country is on course to elect a leader who will struggle to govern in the throes of an economic crisis.

The total value of Argentina’s bonds borrowed by investors to wager on a fall in prices has jumped by 65 per cent since Milei, a self-described “anarcho-capitalist”, won a primary poll last month ahead of a presidential election in October, writes Mary McDougall in London.

His plans to radically cut public spending and dollarise the country’s ailing economy have shaken the country’s fixed income and currency markets. The value of short positions against Argentine bonds lent by international custodian banks is currently $41mn, a sharp increase from $25mn ahead the mid-August vote, according to data from S&P Global Market Intelligence.

While the numbers are small compared with the overall value of Argentina’s debt, the surge comes despite the fact the bonds already trade in deeply distressed territory.

Caution from international investors comes after a period of turmoil for Argentina’s teetering economy. Inflation is running above 113 per cent, foreign exchange reserves are at dangerously low levels and the peso has lost more than half of its value against the dollar over the past 12 months.

August news round-up

Retail investors help lift Warren Buffett’s Berkshire Hathaway to new heights

​Fight over Sculptor hedge fund sale entwined in Daniel Och’s tax affairs

Brics creator slams ‘ridiculous’ idea for common currency

Vanguard’s backing for green and social proposals falls to 2%

BlackRock hit by backlash after fall in environmental and social votes

Soho House teams up with Michael Milken to bring The Ned to Washington

Food companies face investor calls to curb antibiotic use on farms

Top investors attack Italy’s botched windfall tax on banks

Downfall of once-mighty Gars fund offers investors lessons

Lure of sovereign wealth fuels hedge fund rush to Dubai

Boaz Weinstein’s $1.3bn flagship fund stung by stock rally

SEC lawyers subpoena fund managers over ESG disclosures

Exxon nemesis Engine No. 1 drops activism in hunt for new identity

Alternative investments lose steam as fundraising slows down

From biotech booster to Republican contender: the rise of Vivek Ramaswamy

Norway oil fund chief attacks UK backlash against green measures

Private equity firms hand over distressed companies to rivals

Big investors seek damages from Glencore over ‘untrue statements’ in prospectuses

Crypto vs SEC: What Grayscale’s court victory means for bitcoin ETFs

The transfer of wealth from boomers to ‘zennials’ will reshape the global economy

And finally

Night at the Museum. I felt like I had died and gone to Le Corbusier heaven at the Hôtel Le Corbusier in Marseille. Housed in the Unité d’habitation — the most famous of the Swiss-French architect’s modernist housing developments throughout Europe — the 21 bedrooms are a monument to a modernist utopia that might have been. The hotel is also only a 30-minute drive from the fishing port of Cassis, whose clear blue waters and dramatic calanques make for some of the most delightful swimming in the Mediterranean.

---

Future of Asset Management North America

Hosted by the Financial Times, in collaboration with Ignites and FundFire, Future of Asset Management North America is taking place on September 27-28 at etc.venues 360 Madison in New York. It will bring together senior leaders from North America’s leading asset and wealth management firms, including Capital Group, BlackRock and Goldman Sachs. For limited time, save up to 20 per cent off on your in-person or digital pass. Register here