Dispatch from Beverly Hills

One farewell to start: Jim Simons, the renowned quantitative hedge fund manager and mathematician, has died aged 86. Known as the “quant king”, Simons was a pioneer of quantitative investing and left his mark on the hedge fund industry with the hugely profitable Renaissance Technologies, which he founded in 1982.

And one scoop: Deutsche Bank’s asset manager DWS Group is facing questions over its financial disclosure for the second time since Desiree Fixler‘s greenwashing allegations. Under former chief executive Asoka Woehrmann, it inflated the amount of money it won from clients by billions of euros through an accounting approach that it failed to disclose for years, and which fed into executive bonus calculations.

Milken conference: ‘it’s a slightly schizophrenic environment’

At David Solomon’s annual Milken Institute conference dinner this week, the Goldman Sachs chief executive hosted one of the event’s biggest names: Elon Musk. 

Fresh from speaking to a packed auditorium in the Beverly Hilton on Monday, the Tesla chief executive joined about 20 investment heavyweights — among them Todd Boehly, co-owner of the Los Angeles Dodgers baseball team, and former Treasury secretary Steven Mnuchin — at a private residence. Musk sat at the centre of the table with Solomon and held court.  

With interest in AI at fever pitch, it was one of the hottest tickets in town during a week when thousands of money managers, bankers and investors descended on Beverly Hills for junk bond king Michael Milken’s annual jamboree. Others included a party thrown by actor-turned venture capitalist Ashton Kutcher and a bash hosted by Leonard Green founder Jonathan Sokoloff which featured English football royalty David Beckham.

The Hilton — once home to Milken’s infamous “Predator’s Ball” — and other nearby hotels were heaving and many of the diaspora of Milken’s failed investment bank Drexel Burnham & Lambert were out in force: among them Leon Black, Marc Rowan and Richard Handler. But the big business is done behind closed doors in hotel suites, at private soirées or in the homes of local tycoons. 

Private credit remained hot. “Private equity is undergoing a reset as tailwinds are now becoming headwinds,” said Scott Chan, deputy chief investment officer at Calstrs, the US’s second-largest pension fund. With sales few and far between, private equity-backed companies were having to refinance loans on tougher terms, he added: “We’re now seeing all of these private credit creditors at the table who are opportunistically stepping in.”

As the event kicked off, PNC Financial Services Group and US asset manager TCW Group announced a partnership to finance middle market companies. 

Meanwhile Boehly, whose investment house Eldridge Industries was the event’s main sponsor, was in final-stage negotiations to buy European private credit firm Hayfin Capital Management. “Consolidation is on everyone’s agenda,” said Mathieu Chabran, co-founder of alternatives manager Tikehau Capital. He’s predicting more deals between asset managers “as scale remains the name of the game.”

Elsewhere Mubadala Capital’s $3bn bid for Fortress Investment Group, a powerhouse investor in credit markets, moved one step closer to completion after both parties agreed to important concessions, clearing a significant regulatory hurdle.

Mubadala is the investment arm of Abu Dhabi’s almost $300bn sovereign wealth fund. Reflecting a shift in power and efforts by big US asset managers to build ties with the Gulf, Middle Eastern investors were very much in evidence. A private poolside cocktail party hosted by Abu Dhabi Investment Council on the roof of the Peninsula Hotel last Tuesday evening boasted an impressive guest list of private equity and private equity billionaires.

The conference was playing out against a backdrop of sometimes violent protests against Israel’s war in Gaza, at universities including Harvard, Stanford and the Massachusetts Institute of Technology, that have pitted wealthy donors against student activists.

I sat down with Citadel hedge fund billionaire and prominent Harvard donor Ken Griffin, who said the turmoil sweeping across college campuses was the product of a “cultural revolution” in US education and called on Harvard to embrace “western values”. 

The delegates came seeking partners and cash for what many were predicting would be a dealmaking resurgence later this year or in 2025. 

“Lenders are back, the strategic bid is back and interest rates have stabilised. A lot of deals will get done this year,” said Connor Teskey, president of Brookfield Asset Management.

But others worried about geopolitical uncertainty around the US election and tensions with China, and warned that the inability to agree on valuations could still put a significant damper on dealmaking. 

“It’s a slightly schizophrenic environment,” Jonathan Hausman, chief strategy officer of the Ontario Teachers’ Pension Plan told me. “On the one hand people see immense opportunities and are relieved that the US economy is popping. But evidence of really big shifts looms larger and larger: we’re living in a world prone to conflicts and this will continue for the foreseeable future.” 

How deep are the problems at St James’s Place?

Change is on the menu at St James’s Place after a torrid 12 months for the UK’s largest wealth manager. 

When thousands gathered at the company’s annual employee and adviser jamboree earlier this year, the mood was different from the glitz and glamour of previous years, write Emma Dunkley and Sally Hickey in London. Back then, guest speakers had included Bill Clinton, Bob Geldof and David Beckham, and top-performing advisers were paraded onstage to huge cheers from their colleagues.

This year’s gathering at London’s O2 arena, however, was an altogether more subdued affair. “It felt this year like there was a change agenda,” says one person who has regularly attended the event.

Shares in the company, which provides financial advice and investment management services to 960,000 well-off clients, have fallen 60 per cent over the past. It has scrambled to overhaul its fee structure after pressure from regulators, was forced to make a £426mn provision for potential refunds to customers who claim they did not receive all of the financial advice they were paying for, and is also tackling a drop in client flows.

New CEO Mark FitzPatrick, who joined last year, thinks the opportunity for the company is huge. One in eight financial advisers in the UK work for SJP, and FitzPatrick believes the overall market for financial advice is likely to grow due to an ageing population and changes to UK pension rules. 

But others are more pessimistic. New regulations which impose a legal obligation on companies to treat their customers fairly have been described as a “complete body blow” for SJP by Richard Buxton, a fund manager who has held its shares in the past.

David McCann, an analyst at stockbrokers Numis, said that “what has become more questionable over the past year . . . for SJP in particular, is how much profit per unit of client assets will firms be able to achieve for shareholders in the future?

“The answer is no longer as clear as it once was.” Read the full story here

Chart of the week

The amount of debt Italy sold directly to its citizens dropped sharply this week in a sign that the government may not be able to rely so heavily on households to meet its borrowing needs in the future. 

Italians bought €11.3bn of so-called BTP Valore bonds in a five-day sale which closed on Friday, much lower than the previous three offerings which raised €18.2bn, €17.2bn and €18.3bn respectively.

Analysts warned that the result meant that Italy may have to rely more on demand from institutional investors to meet its funding needs, especially after the government extended a large tax relief scheme for private investment.

Retail demand has been a key source of funding for Italy’s looming debt pile, with around €75bn sold directly to households since the start of last year. 

“After the very strong demand for Italian government bonds that we have seen in recent months, this could be a first sign that the retail market is becoming somewhat saturated,” said Christian Kopf, head of fixed income at Union Investment. 

Five unmissable stories this week

Bridgewater Associates’ new chief executive Nir Bar Dea said he had overhauled the hedge fund after just a year in charge, in a bid to restore the firm’s investment performance and mark a break from founder Ray Dalio. Bar Dea, a former military officer, is trying to turn the page on the $160bn behemoth’s drawn-out succession plan, high staff turnover and underwhelming performance. 

Argentum Exploration, a company controlled by hedge fund manager Sir Paul Marshall has lost a legal battle with the South African government over $43mn of silver bars recovered from a second world war wreck in the Indian Ocean. The UK’s Supreme Court sided with the government in Pretoria, which had argued it did not owe Marshall’s salvage company payment for the silver bars, which had been purchased by the then Union of South Africa from the Indian government in 1942.

Calpers, the US’s biggest public pension plan, is considering a vote against ExxonMobil chief executive Darren Woods’ re-election to the company board. This comes as shareholder discontent brews over a lawsuit it filed against two climate-focused investors, Dutch shareholder group Follow This and US investment adviser Arjuna Capital, to block a resolution they introduced demanding it do more to cut its greenhouse gas emissions.

Silver Lake, the technology-focused private equity group behind Dell and Endeavor, has raised its largest fund to date as it shifts its focus back to big takeovers and halts the smaller-sized bets it believes have backfired in recent years. The US-based group has raised $20.5bn for its seventh private equity fund, bucking a trend of shrinking fund sizes at large private capital groups as pension funds cut their exposure to unlisted assets.

‘To what end?’: the murky question of Bill Hwang’s motive in the Archegos Capital Management trial, which kicked off last week. Three years on from the dramatic collapse of Hwang’s Archegos fund, which left several banks nursing huge losses, the government is still struggling to pinpoint a criminal motive behind his alleged scheme. Don’t miss the Behind the Money podcast on the “novel” case prosecutors plan to pursue.

And finally

Julie’s, the legendary Holland Park haunt, has reopened just in time for summer. Here’s hoping it’s third time lucky.