The biggest hedge fund launch ever falls short

One scoop to start: Caxton Associates, one of the oldest and best-known global macro hedge fund managers, lost money in its two main funds in 2023.

In today’s newsletter:

• Challenges for the big hedge fund launch of 2024 

• BP’s new boss faces Shell speculation

• New money pours into venture capital

Jain Global pares back its fundraising ambitions

Hedge fund managers planning to launch a new firm typically have to walk a delicate tightrope. You want to create enough buzz so that investors and potential employees hear about you but not raise expectations so high that you might end up falling short. 

Bobby Jain has learnt that it can be an almost impossible challenge. 

The former co-chief investment officer of Millennium Management was widely expected to raise as much as $10bn for his new fund Jain Global. That would top the $8bn with which Michael Gelband, another Millennium alumnus, launched ExodusPoint Capital Management in 2018. 

But the fundraising environment for new funds isn’t what it used to be and Jain Global will now likely launch with about $5bn or $6bn. 

As Jain can tell you, it has become increasingly difficult to part investors with their cash. The former Credit Suisse executive has had to offer sweeteners to those willing to sign letters of intent, which is different from money coming through the door.

Clients who invest $250mn or more will pay a performance fee of 10 per cent indefinitely, people familiar with the situation told DD’s Ortenca Aliaj and the FT’s Costas Mourselas and Harriet Agnew. That’s about half the industry standard. Commitments with lower sums will pay a slightly higher performance fee. 

Jain’s hedge fund is coming to the market at a more sober time for multi-manager firms, which have been on a precipitous rise over the past five years. Their assets increased 150 per cent between 2018 and 2022, according to Goldman Sachs, against 13 per cent growth for the rest of the hedge fund industry. 

But the multi-manager business is by definition built on talent, and the battle to secure the best traders has become a costly exercise that is eating into returns. At the same time, investors can now earn a better risk-free return by putting money in safer assets like US Treasuries, which has put more pressure on hedge funds to justify their place in portfolios. 

That being said, there is still half a year to go until Jain Global officially launches. Jain has been able to tap more investors as of January 1, the deadline to which he was not allowed to solicit any of Millennium’s clients, and raising $5bn is nothing to be laughed at. 

What will really matter is how things go after Jain Global is up and running — performance numbers for multi-manager firms have come down across the board and investors are increasingly focused on cutting costs. 

BP seeks to quell takeover fears

Speculation has swirled around London that BP, an icon of British business, could become a takeover target this year amid churn in its top leadership.

On Wednesday, the company’s board sought to steady the group by appointing interim chief executive Murray Auchincloss as the energy group’s permanent leader.

The change came after the previous CEO Bernard Looney resigned in September over his failure to disclose past relationships to the board.

Appointing Auchincloss, who previously was BP’s chief financial officer, should provide a steadying hand to the group and make it less at risk in the immediate term to an outside bid.

“I don’t feel vulnerable, in fact I feel quite confident,” he told the FT last October while he was still the interim leader. Presumably that confidence has only grown now that his role has been cemented.

However, picking a continuity candidate when BP’s share price has underperformed competitors in recent years still leaves fundamental issues unresolved, like a valuation gap with US rivals.

BP now trades at a market capitalisation of less than £80bn, while Shell is worth nearly double and Chevron is closer to three times that valuation.

A wave of consolidation in the oil and gas industry over the past six months that has seen mega deals from the likes of ExxonMobil and Chevron further fuelled the hypothetical deal scenarios for BP.

One thing that remains unclear is who might be willing to step up for BP.

While domestic rival Shell would be the most obvious acquirer, chief executive Wael Sawan has said big acquisitions were not a priority between now and 2025. Then there is the political scrutiny that any deal would be sure to face.

“So far it’s been exciting only to the media,” writes FT Alphaville.

And as for BP’s own M&A strategy, Auchincloss hasn’t given the impression he’s on the hunt for his own big deals.

While a smaller £254mn deal the group agreed in November to take control of a solar power developer has earned industry kudos for savvy, it will take quite a few of those to bulk up enough to fend off any determined supermajors.

Venture firms begin tapping secondaries for needed cash

Early employees who receive company stock at the hottest Silicon Valley start-ups have (in theory) a golden ticket. But thanks to a severe market downturn, they have few places to cash it in. 

Public listings and M&A have all but evaporated, robbing early employees as well as venture investors of their main exit routes. Increasingly, stockholders are turning to the murky secondaries market as a release valve, stoking expectations of a boom in 2024. 

“The main exit for VCs is primarily IPOs and M&A, and neither of those are happening,” says Tom Callahan, chief executive of Nasdaq Private Market, a trading venue. “It creates this immense pressure . . . [and] incredible opportunities for investors coming in and buying companies at deep discounts.”  

Secondaries trading is likely to surge this year because private company valuations, which have defied gravity for far longer than their public market competitors, are finally dropping to earth, according to various market participants.

Specialist secondaries investors, including Lexington Partners and StepStone, are among those raising multibillion-dollar funds to hoover up discount start-up stakes from venture firms, limited partners and employees. As each of those groups grow more desperate for liquidity, investors are sensing a “generational” opportunity. 

“We’ve been successful in putting in low-priced bids [where] we’re the only person in the market,” said Marcus New, chief executive of trading platform InvestX. “I think the next few months will be the best time to be a buyer of these types of securities in the past half decade.”  

Job moves

• Sheryl Sandberg, the former chief operating officer of Meta Platforms, is leaving the tech giant’s board of directors.

• Former Rolls-Royce chief executive Warren East will be chair of carbon capture developer C-Capture, which has been spun out of the University of Leeds and is backed by companies including UK power generation business Drax and oil major BP.  

• UBS’s Changhao Chen, a financial institutions managing director in Asia Pacific investment banking, has left the group.

Smart reads

Cambridge to California Executives atop Harvard’s $51bn endowment made an unusual tour of Silicon Valley to ease relationships with top venture investors, reports The Wall Street Journal.

Barclays to brokers A dozen years ago, Bob Diamond and Rich Ricci stood at the pinnacle of British finance atop Barclays. Now the two men have turned their focus to a smaller corner of London’s banking sector, the FT reports.

Banker to billionaire Former investment banker Adam Waterous assembled one of Canada’s largest oil producers from scratch through a flurry of acquisitions, writes Bloomberg News.

News round-up

Manchester United cuts profit forecast after Champions League ejection (FT)

Saudi Aramco beefs up venture capital arm to diversify from oil (FT)

Ola Electric heads for two-wheeler IPO in India’s first EV listing (FT)

Fashion giant faces new IPO hitch: China’s cyber security police (WSJ)

Uber shutting down alcohol delivery service Drizly (Axios)

GSK raises $1.24bn from latest Haleon stake sale (Reuters)