Asset management: How Sam Bankman-Fried won over blue-chip investors

A spoon to start: Galois Capitala San Francisco-based hedge fund whose founder is credited with spotting the collapse of the cryptocurrency luna earlier this year, was caught off guard after about half of its assets were trapped on the crypto exchange FTXwhich filed for bankruptcy on Friday.

Track ‘smart’ money?

The disappearance of FTX marks a staggering collapse for Sam Bankman Fried‘s crypto empire which was valued at $32 billion just a few months ago.

Since launching in 2019, FTX has raised $1.8 billion from a shareholder list that reads like a who’s who of the investor world. It comprises Sequoia Capital, Thomas Bravo, black rock, Soft Banksingapore public fund Temasek, world tiger and the Ontario Teachers’ Pension Planas well as some of the world’s most respected hedge fund managers, including Brevan Howard Asset Managementit is Alan Howard, Millennium Managementit is Izzy Englander and the family of Paul TudorJones.

Their collective support helped lend credibility to Bankman-Fried’s business empire before its sudden collapse, prompted by concerns about its ties to its Alameda Search proprietary business group.

Now these investors will face tough questions from their own clients about how they got it so wrong, why they didn’t demand a seat on the FTX board, and whether they really did. understood how the business made money.

Read the full story of how Bankman-Fried won over blue-chip investors here, including the surprise phone call from a former college professor who launched a private equity investor. Orlando Bravo to become one of his most prominent and vocal supporters.

Pension funds are rethinking asset allocation

When Britain’s pension funds began to falter under the turmoil caused by the Truss government’s ‘mini’ budget in September, senior executives at J.Sainsbury didn’t take any risks.

The supermarket group’s pension fund, which has more than 70,000 members, had withstood initial market volatility. But the company, fearing further turmoil once the Bank of England’s stabilization measures were withdrawn, hastily put together a £500million loan facility.

“We have decided to set up a short-term loan if [the pension fund] need,” said Sainsbury’sfinancial director of Kevin O’Byrne. “If there was a peak[in gilt yields]. . . we didn’t want them to have to do anything irrational like sell assets at the wrong time.

In the end, the trustees didn’t need to dip into the money. Shortly after the loan facility was put in place, Britain changed its chancellor and markets stabilised.

But the episode illustrates how the wild swings in government securities markets have taught UK pension funds an important lesson: Assets that cannot be quickly converted into cash can offer higher returns, but in a crisis , pension plans need assets they can sell quickly.

“There will be a new focus on liquidity,” says Andrew Lewischief financial officer of the aerospace and defense group FTSE 250 chemring. “I don’t think people have really understood liquidity risk, which is very different from funding risk.”

The immediate impact of the chaos in the government securities market has been to shine a light on liability-driven investing, which has become a widely used strategy over the past two decades among the 5,200 defined benefit pension plans (PD) of the United Kingdom.

But, as we explore in this great read, as the dust settles, there are likely to be significant repercussions throughout the rest of the investment industry. The market chaos is accelerating the thinking already underway among pension funds about the so-called 60/40 asset allocation between stocks and bonds, which performed poorly in this year’s sell-off.

It’s been “an allocation nightmare,” says Vincent Mortierinvestment director at Amundi. “The 60/40 model has been broken for a while and totally broken for a year.”

And the renewed emphasis on liquidity could reduce the amount that pension funds seek to allocate to private markets, despite government efforts to induce them to invest more in infrastructure projects.

According Michael Eakinsinvestment director at Phoenix Group, one of the UK’s largest savings and pensions companies. “They will be invested less in private markets and more in liquid markets like bonds and gilts.”

What does the LDI crisis mean for asset allocation? Email me: [email protected]

Chart of the week

Binance was going to buy FTX after suffering a liquidity crisis. But then he thought better. One of the biggest crypto trading platforms in the world, Binance has long left its rival – which is primarily a derivatives exchange – to linger in the dust. Don’t miss this profile of the chief crypto raider, founder of Binance Changpeng “CZ” Zhao. And here is FT Cryptofinance’s newsletter on the nascent sector Lehman moment.

Highlights from the FT Future of Asset Management Europe conference

UK repo market crisis exposed ‘conflict of interest’ among investment consultants and they should be regulated, says Schröders general director Pierre Harrisson.

Peter Singlehurstprivate business leader Baillie Giffordwarned that fast-growing private companies would face a balance sheet next summer, and said the Edinburgh-based asset manager, worth £228billion, was “not ready to abandon China”.

Senior fund management executives have expressed concern that fragmented regulation will hold them back. “My big concern is federalization or regulatory fragmentation,” said patrick thompsonManaging Director of EMEA at JPMorgan Asset Management. “Adding complexity to fit a local narrative may not be the best outcome for clients.”

10 stories not to miss this week

Bond fund managers going through one of their worst years in decades say the tide is turning as they position themselves to appeal to investors lured by higher yields. “The fixed income team is now as bullish as I’ve seen it in a long time,” says Stephanie Boucherchief investment officer at a $1.3 billion asset manager Invesco.

Baillie GiffordScottish Mortgage Investment Trust, one of China’s biggest bulls in recent years, has reduced its exposure there, including long-standing investments in tech giants Ali Baba and Tencent.

Millennium Managementone of the world’s largest hedge fund firms, has unveiled a reorganization of its investment operations organization that will see the co-chief investment officer Bobby Jain leave.

Renowned hedge fund managers, including Third pointit is Daniel Loeb, Elliott Managementit is Paul Singer and QCSit is Sir Michael Hintzeare doing well in junk bonds and other segments of the corporate debt market, as they bet a sell-off triggered by the darkening global economic outlook has gone too far.

A major backer of the billionaire Josh HarrisThe new asset management company received a rare public rebuke from Brookfield Asset Managementwho complained that ALEa life insurance company, should not commit funds to a start-up.

Capital of Oaktree sold a large piece of land seized from Evergrande in Hong Kong which was intended for the construction of a mansion inspired by Versailles, forcing the highly indebted Chinese property developer to suffer a loss of 770 million dollars on one of its most important assets.

Losses at Global Tiger Management continued to climb in October after the New York-based hedge fund was rocked by outsized tech stocks in the United States and a sell-off in China. The company’s flagship hedge fund lost 5.4% in October, bringing losses this year to a new low of 54.7%.

Fundraising at Carlyle Group slowed in the third quarter, leading to lower assets under management as the private equity investment group searches for a new chief executive after the abrupt departure of Kewsong Lee in August.

The Investment Associationwhich represents UK fund managers, has asked boards to keep the pay of chief executives and other senior executives ‘under control’ this year to reflect the pain inflicted on many of their staff by the cost of living crisis .

Investment managers are betting the special features of the UK investment trust – an investment vehicle structured like a listed company that is rare elsewhere in the world – can help them weather the storms currently battering the markets. .

and finally

A painter’s retrospective Alex Katz at the Guggenheim, New York focuses on the muse who brought her work to prominence. This painting of Katz’s wife, Ada, also illustrates the cover of a charming short story, Anita by Alain Elkann.