Seduction of a fund manager

One bit of housekeeping to start: I’m heading off to India for a couple of weeks to explore Kerala and attend Jaipur Literature Festival . . . I leave you in the capable hands of our markets columnist Katie Martin for the next two editions. Normal service will resume on February 12.

The ballad of Bruno and Lars

In the final days of 2018, Lars Windhorst’s superyacht criss-crossed the Caribbean, then nestled alongside dozens of other enormous vessels assembled for New Year’s Eve on the shores of St Barts. Windhorst rang in the new year with the two most important people in his life: his fiancée, Christin Bahla, and Bruno Crastes. 

The chief of H2O Asset Management, along with his wife and children, had escaped the dreary European winter for a week in the tropics. As they arrived in Saint Martin for their flight home on Windhorst’s private jet, Crastes dashed off a message thanking their host for the “week of dream” they had spent together. “We feel like having a new family with Christin and you,” he wrote. “And it goes straight to our heart.” 

Family. Windhorst was aware of the tragedy in Crastes’s past and likely knew that the word had added weight for the Frenchman. “I feel exactly the same,” Windhorst wrote back. “It’s more than just close friendship between us. It does feel like extended family for me also!” 

The Caribbean was a picture-perfect ending to the most successful year of Crastes’s career. He had smashed the lights out yet again, notching up annual returns of more than 30 per cent for the fourth time since founding H2O. By the end of 2018, H2O’s assets under management swelled past the $30bn mark. The firm’s profits doubled year on year to exceed half a billion dollars. Crastes would be giving a smaller slice to the taxman though. He had relocated from London to Monaco, the European tax haven that Somerset Maugham once dubbed “a sunny place for shady people”.

This astonishing episode is just one of many in a must-read cover story for FTWeekend Magazine by my colleagues Cynthia O’Murchu and Robert Smith. They take us inside the most mysterious and destructive friendship in finance in high finance. Crastes was one of the most gifted fund managers of his generation with billions at his command and a facility for surviving downturns. Why did he bet so much on the notorious Windhorst? And why did it all end in record-breaking fines, investor lawsuits and investigations by regulators in two countries? Read the gripping tale here

Bobby Jain’s hedge fund launch falls short of $8bn-$10bn target

Hedge fund debuts have been few and far between in the past few years as potential founders have opted to join established platforms like Ken Griffin’s Citadel or Izzy Englander’s Millennium Management rather than take on the cost and risk of setting up a business themselves.

But one high-profile name is set to buck the trend and come to market this year: Bobby Jain, a Credit Suisse veteran and former co-chief investment officer of Millennium, is launching his eponymous Jain Global in July. 

In a sign of just how tough it is to get these launches off the ground, Jain’s new hedge fund is falling short of its original $8bn-$10bn fundraising target, thwarting his ambition for the industry’s largest-ever debut. He has told potential clients he is now aiming to launch Jain Global with $5bn-$6bn of assets, Costas Mourselas, Ortenca Aliaj and I explore in this scoop. 

Jain is facing a delicate balancing act in generating enough buzz around the launch to entice clients and hire portfolio managers without setting expectations at a level he is unable to meet.

One big investor sums up his predicament well: “With a launch like this it’s a race between hiring the people and raising the capital. The people want to know the capital has been raised and the investors want to know who the people are.” 

An added challenge for Jain is that he’s launching just as signs of what one person close to the firm described as “investor fatigue” towards the multi-manager sector are starting to emerge. 

An expensive war for talent is eating into returns, and their “pass through” charging model — where investors pay all the fund’s costs instead of a management fee — is drawing greater scrutiny from clients. Meanwhile, successive interest rate rises have lifted the risk-free return available elsewhere to investors, putting greater pressure on hedge funds to justify their positions in client portfolios. 

Read the full story here

Chart of the week

Big gains by Sir Christopher Hohn’s TCI, Ken Griffin’s Citadel and Andreas Halvorsen’s Viking helped the world’s 20 best-performing hedge fund managers of all time to their biggest profits in more than a decade last year, writes Costas Mourselas in London.

The top 20 managers made profits of $67bn for investors in 2023, according to research by LCH Investments. This is above the previous record of $65bn made in 2021, according to Edmond de Rothschild Group’s fund of hedge funds, which began tracking the top 20 managers in 2012.

The LCH list ranks hedge funds according to the cumulative dollar returns they have made for investors, net of fees, since inception.

Some of the top 20 managers were able to reap large profits during last year’s strong equity bull market, helped by punchy bets.

The standout performer was UK billionaire Hohn’s equity-focused TCI, which was up 33 per cent last year and made $12.9bn for investors. This was the fourth-biggest annual dollar gain by a manager ever, according to LCH.

Citadel remains the most successful hedge fund in history, strengthening its position at the top of LCH’s rankings with $8.1bn in profits last year, after bringing in a record-breaking $16bn in profits in 2022.

US billionaire Bill Ackman’s hedge fund Pershing Square rejoined the top 20 hedge funds after leaving the rankings in 2015. The fund soared 27 per cent in 2023, making $3.5bn. Halvorsen’s Viking meanwhile made $6bn.

Five unmissable stories this week

BlackRock will stress “financial resilience” in its talks with companies this year as it puts less emphasis on climate concerns amid a political backlash to environmental, social and governance investing. Meanwhile, BlackRock’s biggest reorganisation in years reflects a belief that the $10tn money manager must move faster to capture a wave of investment from clients who will be moving out of cash and seeking new products.

UK businesses are expected to offload a record £60bn of pension obligations to insurers this year, after a shift to higher interest rates prompted a surge in dealmaking. Consultancy Willis Towers Watson said it expected the “turbocharged” market to lead to £60bn worth of transactions this year, up from about £50bn transacted in 2023. 

US private equity group General Atlantic has agreed to buy London-based infrastructure fund manager Actis, a combination further underscoring a wave of consolidation gripping private markets. The deal will add $12.5bn to General Atlantic’s $83bn assets under management. 

US public pension plans that manage hundreds of billions of dollars of assets are increasingly turning to risky leverage strategies as burgeoning private market holdings create cash flow strains. At least eight very large US public pension funds, including Calstrs, Calpers and state funds in Wisconsin and Texas, are using borrowed cash or other leverage strategies.

Ardevora Asset Management, a UK-based global equities specialist, has closed its doors after its assets under management fell by almost 90 per cent in two years. The group, co-founded by former Liontrust fund managers Jeremy Lang and William Pattisson in 2010, said it would stop managing money for third parties and would return capital to clients.

And finally

To Lightroom in London’s King’s Cross to see The Moonwalkers, a new immersive show on past and future journeys to the moon, narrated by Tom Hanks. The show tells the stories of the Apollo missions and goes behind the scenes of the Artemis programme, which intends to reestablish a human presence on the Moon for the first time since Apollo 17 in 1972. Don’t miss the Lunch with the FT that my colleague Emma Jacobs did with Hanks in December.