TheChek News Flow

Malgré une facture au plus haut pour le fixe et le mobile, les opérateurs français ralentissent. Menacés par les Gafam, contraints par les investissements qui rognent leurs marges, il leur faut de nouveaux relais de croissance.

Dans le petit monde des télécoms, on n’échappe pas au lent poison de l’inflation. La facture mensuelle des utilisateurs d’Internet croît de 1,50 euro en un an au troisième trimestre 2023, s’établissant à 34,80 euros. « Un niveau jamais atteint en dix ans », note l’Arcep, l’autorité de régulation des télécoms. La facture moyenne des abonnés au mobile, elle, progresse plus lentement, de 20 centimes en un an, pour atteindre 15,20 euros par mois au troisième trimestre 2023. De quoi doper légèrement les revenus des opérateurs, après dix années de recul, à 9,4 milliards d’euros au troisième trimestre 2023 selon l’institution.

L’augmentation de la facture est une « conséquence directe des hausses tarifaires survenues sur le marché », souligne l’Arcep. L’explosion des coûts logistiques, de transport, des semi-conducteurs et de l’énergie ont asséné un coup au secteur. Et impacté « directement le fonctionnement des infrastructures télé­coms », reconnaît Bouygues ­Telecom. Comme Orange et SFR, ce dernier a ajusté ses prix de 1 à 2 euros. Certains ont réduit la durée des offres promotionnelles de 12 à 6 mois, voire les ont supprimées à l’automne dernier, quand d’autres ont multiplié les forfaits avec une consommation réduite de données.

Xavier Niel, lui, s’est engagé à bloquer les prix des deux forfaits phares d’Iliad (Free) jusqu’en 2027, soit les deux offres mobiles de base à 2 euros et à 19,99 euros. Mais pour engranger des bénéfices, Free joue sur l’offre booster, c’est-à-dire les options que le client peut acheter en plus de l’offre de base, dont le prix et les services varient selon les périodes. Des hausses « modérées », tempère Anne-Laure Durand, cheffe de l’Observatoire des marchés à l’Arcep : « Sur le fixe, les prix remontent très lentement depuis la baisse drastique en 2018 ».

Le succès de la 5G

Les tarifs en France restent parmi les plus bas d’Europe, après la ­Pologne sur le fixe et l’Italie sur le mobile, selon la Fédération française des télécoms (FFT). Surtout, ils croissent moins vite que l’inflation : six fois moins entre 2021 et 2022, déplore la FFT. Au-delà des prix, la croissance de la facture globale trouve sa racine dans le succès des abonnements 5G, plus onéreux. Avec 1 million d’utilisateurs de plus par trimestre, la France en compte 12,4 millions. Côté fixe, la fibre optique, plus chère que l’ADSL, séduit de plus en plus, avec 20,6 millions de clients selon l’Arcep.

Pas suffisant pour redonner le sourire à un secteur fragilisé par les guerres de prix à répétition, des investissements lourds et une sempiternelle bataille contre les géants du numérique. Les opérateurs s’inquiètent de marges très étroites et d’une croissance de 2 % en moyenne par an depuis 2018. « C’est la quadrature du cercle », soupire Romain Bonenfant, directeur général de la FFT. En 2022, les opérateurs ont investi 14,6 milliards d’euros dans les réseaux – soit 1,7 fois le budget des jeux Olympiques 2024. Près de deux fois le montant qu’ils investissaient il y a dix ans, en 2012.

Ces dépenses ont été englouties par l’immense chantier de la fibre optique, déployée à vitesse record sur le territoire pour répondre à l’objectif de généralisation du très haut débit en 2025. L’installation de nouvelles antennes 5G a aussi été gourmande en cash, nécessitant 3,8 milliards d’euros en 2022. « Il faut réinvestir massivement tous les dix ans dans le secteur », note Didier Levy, associé au cabinet Roland ­Berger. Pour doper les recettes, les opérateurs cherchent de nouveaux clients. Mais dans un secteur où les taux de pénétration dépassent les 80 %, cela relève de la haute voltige.

Gafam dominateurs

Les groupes de télécoms misent beaucoup sur une « juste contribution » des Gafam. Mais là encore, les perspectives ne sont guère réjouissantes. En utilisant les réseaux, les géants du Net font exploser la facture des opérateurs et captent la majeure partie de la chaîne de valeur. Meta, Apple, Microsoft et Netflix ont monopolisé 55 % du trafic en 2022 selon l’Etno, le lobby européen. D’où le combat de longue date pour faire payer ces géants. Tous les opérateurs attendent de pied ferme les premières conclusions d’une vaste consultation lancée en février par la Commission européenne.

Au-delà du partage de la valeur, se pose la question du devenir même des opérateurs, en perte de vitesse face aux Gafam. L’arrivée prochaine d’un iPhone uniquement compatible avec l’e-Sim, sans tiroir pour carte physique, les marginalisera un peu plus, avec le risque de perdre le lien direct avec leurs abonnés.

Les opérateurs peuvent se consoler avec le segment entreprises, en forte croissance. Historiquement dominé par Orange et SFR, le marché estimé à 10 milliards d’euros aiguise bien des appétits. Dans son plan stratégique, Christel Heydemann, directrice générale d’Orange, a sifflé la fin des projets de diversification et mis le cap sur son cœur de métier, notamment ses services de cloud et de cybersécurité.

De son côté, Iliad vient d’acquérir un supercalculateur pour doter Scaleway, sa filiale de fournisseur de services informatiques dématérialisée, de « la plus grande puissance de calcul » du continent et devenir un « champion européen de l’IA ». « Les opérateurs ont une carte à jouer dans la numérisation et sur le marché des entreprises où il y a de vrais besoins », note Didier Levy. Autant dire un eldorado.

Not a bad week for a big funding announcement, as there were a couple nine-figure rounds in energy and loyalty rewards, but several just slightly smaller ones in a variety of other sectors. As the month wore on, investors seem to be opening their wallets — or at least the announcements were made.

1. Recurrent Energy, $500M, energy: This large round may have gone under the radar for many, but Austin, Texas-based Recurrent Energy secured a $500 million preferred equity investment from BlackRock. The company — a utility-scale solar and energy storage project development, ownership and operations platform — will use the new capital to grow its “high value project development pipeline.” Recurrent is a subsidiary of Canadian Solar, and that company will continue to own the remaining majority shares of Recurrent after the investment closes. Founded in 2006, the company has raised about $1.4 billion, per Crunchbase.

2. Bilt Rewards, $200M, loyalty rewards: Everybody loves loyalty rewards, and investors must know that. Bilt Rewards raised a $200 million round led by General Catalyst at a $3.1 billion valuation — more than double the number after its last fundraising in 2022. The New York-based startup allows consumers to earn rewards on the rent they pay. Bilt plans to use some of the proceeds to expand its network to include local dining, grocery stores, ridesharing and other retail purchases. The company also appointed some big names to roles in the company, naming Ken Chenault, former chairman and CEO of American Express, as its chairman, and Roger Goodell, the commissioner of the NFL, as an independent director. The company reported its annualized member spend is nearing $20 billion. It also became profitable on an earnings before interest, taxes, depreciation and amortization basis last year. Those metrics must have impressed investors, as Bilt has seen its valuation shoot up after raising a $150 million Series B at a pre-money valuation of $1.4 billion in October 2022. Founded in 2021, the company has raised a total of $413 million, per Crunchbase.

3. BillingPlatform, $90M, fintech: BillingPlatform’s revenue lifecycle management platform got a big shot in the arm this week with a $90 million round led by FTV Capital. Every company wants to increase revenue and find new revenue streams, so clearly FTV sees a growing market for the Denver-based startup’s platform. Founded in 2012, the company has now raised $104 million, per Crunchbase.

4. ElevenLabs, $80M, AI: Voice AI startup ElevenLabs raised an $80 million Series B at a unicorn valuation as investor interest in all AI tech remains at an all-time high. The Brooklyn-based company did not release an exact valuation, but did say it had reached “unicorn status.” That represents a significant up round from its Series A in June, when the firm raised $19 million at a $99 million post-money valuation. The Series B was co-led by Andreessen Horowitz, Nat Friedman and Daniel Gross. ElevenLabs allows creators, enterprises and others to use AI software to replicate voices in dozens of languages. Founded in 2022, ElevenLabs has raised $101 million, per Crunchbase.

5. (tied) Accent Therapeutics, $75M, biotech: Another week, another big biotech round. Lexington, Massachusetts-based Accent Therapeutics, a biopharmaceutical company developing small molecule precision cancer therapies, raised a $75 million Series C led by Mirae Asset Capital Life Science. The startup is looking at therapies to address several cancers with large patient populations, including breast and colorectal cancers. The round included participation from some big brand names, such as Bristol Myers Squibb and Johnson & Johnson Innovation. Founded in 2017, the company has raised $178 million, per Crunchbase.

5. (tied) LB Pharmaceuticals, $75M, biotech: Accent wasn’t the only $75 million raise this week, as we had a trio. LB Pharmaceuticals, a schizophrenia biotech startup, closed a $75 million Series C as it began a Phase II trial last month, Endpoints News reported. Founded in 2015, the company has raised more than $133 million, per Crunchbase.

5. (tied) Sion Power, $75M, energy: Tucson, Arizona-based Sion Power, a developer of next-generation batteries for electric vehicles, also secured $75 million in a Series A led by LG Energy Solution. VCs see big potential in EV batteries, so the investment size is not a shock. Founded in 1994, the company has raised $145 million, per Crunchbase.

8. SmithRx, $60M, health care: San Francisco-based SmithRx, a pharmacy benefits management company, closed a $60 million Series C led by Venrock. Founded in 2016, the company has raised nearly $98 million, per Crunchbase.

9. AiDash, $50M, climate: San Jose, California-based AiDash, a SaaS startup helping infrastructure companies be more climate-resilient and sustainable with satellites and AI, raised a $50 million Series C led by Lightrock. Founded in 2019, the company has raised $83 million, per Crunchbase.

10. CheckSammy, $45M, recycling: Dallas-based CheckSammy, a bulk waste operator, closed a $45 million strategic investment led by I Squared Capital. Founded in 2018, the company has raised nearly $66 million, per Crunchbase.

Recurrent’s raise was top globally, but the second largest came from Sweden.

Lightspeed Mulls Selling $1 Billion in Startup Stakes

The strategy, which is more common in private equity, follows a two-year initial public offering drought, which has made it difficult for VC firms to return cash to their investors. Some firms have started to sell parts of their portfolios to distribute funds back to limited partners, the pensions and endowments that invest in VC funds. Continuation funds have emerged as an increasingly popular option, allowing VC firms to transfer their portfolios from older funds into a new fund and return some cash to investors. Other large tech investors such as Insight Partners have also introduced continuation funds over the last year.

Josh Frost has more than 100 Wall Street sources helping him make a big decision on Wednesday. He hopes most of America doesn’t notice.

Josh Frost’s low-profile job is suddenly a Wall Street obsession.

As the Treasury Department’s assistant secretary for financial markets, he sets the mix of U.S. government bonds sold to investors, a process guided by the department’s mantra to be “regular and predictable.”

So he found it odd last year when his phone started lighting up with texts from friends and former colleagues telling him that CNBC’s Jim Cramer had crowned him “the most important man in finance.”

It had been a tough couple of years in the world’s most important bond market. Unprecedented losses sparked a wave of bank failures last year, and investors were skittish about buying debt. Frost, 47 years old, had offered them some relief—and is now at pains to go back to being a humdrum player in the unpredictable, occasionally raucous market.

The latest test of his approach will come next week, when the Treasury announces its quarterly refunding plans, now a key factor not only for the cost of paying for the national debt, but also for Americans looking to borrow to buy cars or homes.

To prepare, Frost and a half-dozen members of his team headed to New York on Thursday and Friday to meet with investors across Wall Street, arriving on a 6 a.m. flight into LaGuardia. (The federal government will pay for coach seats on the morning plane, but not seats on the business-class Acela). As Treasury’s point man for surveilling financial markets, Frost has a list of more than 100 people he says he tries to keep up with regularly, and some investors say they sometimes hear from him two or three times a week.

His goal is to gauge investors’ constantly evolving demand for the suite of securities he can offer them. Longer-term debt typically offers investors a better return over time, but its value is more sensitive to whipsawing expectations about the economy and interest rates. “We need to consider where the market is in terms of structural demand. We control the supply, but we don’t control the demand,” he said in an interview.

The decisions he, Treasury Secretary Janet Yellen and other department leaders make about the composition of billions in short-term bills or long-term bonds available in the market fueled both a bond-market rout and a rally last year. “I think Josh stepped into the role in one of the most complicated moments for debt management in U.S. history,” said Daleep Singh, a former Treasury and White House official.

Frost has been immersed in the plumbing of financial markets for his whole career. After graduating from Rutgers University with a degree in math and psychology, he started in back-office operations at the New York Fed, where he ultimately spent more than 20 years.

There, as he climbed the ranks, he earned a reputation for his attention to detail. When he spotted an error in a more junior staffers’ work, he would be sure to let them know. This became such a frequent occurrence that people at the New York Fed coined the term getting “Frosted” to describe it. Frost said he’s now more mindful about how he delivers feedback to staffers in their 20s—but stands by being a stickler.

“Yes, I place value on attention to detail,” he said. “I think it’s hard to do this job well without that. I think, ‘Meh, we’ll figure it out,’ when the national debt is at stake, is probably not the right attitude.”

After the meetings in New York, Frost returns to Washington, where more than a dozen senior executives from Wall Street’s biggest banks and hedge funds come to convene with him before the decision. The last time the group gathered—on Oct. 31 in Treasury’s Cash Room, built after the Civil War to resemble an Italian palazzo—the bond market was caught in what seemed to be a perfect storm.

Robust economic data had raised the possibility that the Fed would have to hold interest rates high for longer. And the deficit for the prior fiscal year had turned out to be larger than forecasters had expected, meaning Treasury had to sell more debt to pay the government’s bills just as demand was softening.

The result was a rapid run up in long-term rates, which rose as prices fell; the yield on the 10-year note had been scraping 5% in the days before. The group, Treasury’s borrowing advisory committee, debated whether Frost should pull back on the amount of long-term debt he offered the following day.

Frost mostly listened as a minority of the group said he should deviate from the previous quarter’s plans and reduce the size of the increase in long-term debt, according to the meeting’s minutes. The advisory committee recommended that the Treasury stick to a plan similar to the one it made in August.

Then the group broke up in the afternoon to give many of the attendees time to get back to New York to go trick-or-treating with their children. Frost followed suit in Washington, dressing up as a hot dog to join his wife and daughter, who went as characters from the 2015 Disney film “Descendants.”

The next morning, Nov. 1, Frost revealed the Treasury’s decision. He and other Treasury officials had listened to the minority and cut back on the size of increases in 10-year and 30-year debt auctions. He also signaled a willingness to rely more on short-term debt, which investors have been happy to snap up.

The plan, while only a tweak from what most investors had expected, was a pleasant surprise across Wall Street. A bond rally emerged, with the 10-year yield eventually dropping below 4% in December. Cramer, the CNBC host, was thrilled, dubbing Frost the “savior of the bond market.”

Yellen brought up Cramer’s segment in a staff meeting, offering to show other Treasury officials the clip on her phone, according to people familiar with the event. But as she searched in her bag for her phone, Yellen realized it wasn’t there because she was meeting in a secure room where cellphones are barred, according to the people. So she couldn’t actually show the clip.

“It was an odd week,” Frost said. “The refunding is always a big deal to Treasury. The fact that other people are interested in it is more notable, interesting. I don’t know what the right adjective is here, but it’s not really changing what we do or how we do it.”

Some analysts saw something more ominous in the reaction. To them, the minor deviation from expectations raised questions about Treasury’s commitment to its “regular and predictable” strategy, an approach adopted in the 1970s to reduce market volatility and lower borrowing costs over time.

Stephen Miran, a Treasury official during the Trump administration, said a surprise again next week could start to erode market expectations about Treasury issuance. “If they repeat what they did in November then you run the risk of changing the rules of the game,” he said.

Frost rejected the idea that the November refunding moved away from the “regular and predictable” paradigm, saying the decision was well within the range of investor expectations. His team’s commitment to traditional management ideas has not changed, he said.

With next week’s borrowing decision, Frost and the Treasury will be in an easier spot than in November. Investors are now forecasting the Fed to begin cutting rates soon, rather than hold them high for longer, helping support demand for long-term Treasury bonds.

Still, the uncertainty around economic conditions, Fed policy and the growth in the deficit will quickly occupy Frost and his team again. “Right after the refunding ends, we start planning for the next one,” he said.

If luxury spend is set to normalise rather than crash, the shares deserve a second look

When the sea gets choppy, it is better to be on a transatlantic liner than a lifeboat. That is the message from LVMH. The luxury behemoth’s fourth-quarter results have reassured investors that, for megabrands at least, a luxury crunch is not on the horizon.

That lifted the stock by 12 per cent on Friday. The sector as a whole also breathed a sigh of relief, with the S&P Global Luxury index rising almost 3 per cent.

The market was understandably nervous about a potential unravelling of the luxury thread. Burberry recently cut full-year profit expectations on a 4 per cent drop in comparable sales in the last quarter of 2023, highlighting a further deceleration in December. Its troubles are in part homegrown, but updates from Hugo Boss, Swatch and Watches of Switzerland also caused investors to skip a beat.

In this context, LVMH looks all the more comforting. Yes, sales growth slowed compared with a bumper post-Covid period. But a 10 per cent increase in quarterly revenues is nothing to sniff at. Its key fashion and leather goods division, which accounts for more than 70 per cent of the group’s ebit, continues to perform strongly.

Being big has clear advantages. Luxury groups typically spend between 5 and 10 per cent of turnover in marketing, reckons Luca Solca at Bernstein. With €86bn in revenues LVMH has a big budget to play with. Its brands have become so desirable that sales growth comes not so much from volumes but from customers trading up.

That gives even this juggernaut a growth runway without the risk of its bags becoming ubiquitous — and devalued. Moreover, scale brings fat ebit margins, which LVMH managed to hold at 26.5 per cent. Rival Prada is on 22 per cent, Burberry on 15. This strong showing enabled boss Bernard Arnault, who has moved to install more of his children in the business, to rebuff suggestions that LVMH should pursue a break-up.

LVMH made reassuring noises about its December “exit rate”, suggesting that, while 2024 will be a year of slowing luxury spend, the much-feared contraction is nowhere to be seen. That raises the prospect of a soft landing for the giant, which may well return to a reasonable revenue growth rate of 5 to 7 per cent after the Covid-induced spending bonanza.

If luxury spend — at least for megabrands — is set to normalise rather than crash, the shares deserve a second look. LVMH trades on 21 times forward earnings, compared with a post-Covid multiple in the region of 25 times. That is not a bad price for an all-weather outfit.

The most successful funds in recent years have pursued multiple strategies, while avoiding risk.

The stars of the hedge fund world used to take big swings and sometimes hit grand slams, like John Paulson when he shorted the U.S. housing market before the 2007-09 financial crisis and made $20 billion.

But swing-for-the-fence hedge funds haven’t been the big winners in recent years. Instead, the best returns have come from the multistrategy, multimanager hedge funds that rivals derisively call “pod shops.”

Multistrategy shops like Citadel and Millennium Management continuously shift bets around their firms’ roster of strategies and portfolio managers. What they have over single-strategy shops is that they reliably make money.

Annual returns at Citadel have ranged from 15% to 38% in the past five years, as founder Ken Griffin and his colleagues moved capital among dozens of teams—some finding interest-rate plays, commodity speculations, or quantitative patterns, others going long or short on specific stocks. Returns at Izzy Englander’s Millennium ranged from 6% to 26% during the same period.

Ruthless risk controls shield these multistrategy firms from deep losses and broad-market swings. Their combination of strong returns and low volatility has attracted the lion’s share of the new cash flowing to the hedge fund industry over the past half decade. Multistrategy funds now manage some $400 billion.

But lately, Wall Street has been wondering if hedge funds have reached Peak Pod.

Returns dropped markedly at many multistrats in 2023. The average fund in the class returned 5.4%—even as the Nasdaq Composite and the S&P 500 cranked out total returns of 45% and 26%, respectively. For underperforming multistrats, there could be trouble ahead. The category employs a quarter of the hedge fund industry’s head count and pays top dollar for talent, then passes those expenses to investors through high fees. If returns ebb, investors might question those fees.

Pension funds and other asset allocators have become a bit less smitten with multistrategy funds, Goldman Sachs researchers tell Barron’s. While about 21% of respondents to a Goldman survey would like to add to their investments with multistrats, the proportion who would like to reduce their exposure rose to 8% last year, compared with 4% in 2022.

That may make it harder for new multistrats raising capital. When Bobby Jain, a former top executive at Millennium, set out to start his own fund last year, news reports said his Jain Global Management was hoping to start with $10 billion under management. That would have been a hedge fund record. Since starting to raise capital in earnest this year, however, the new multistrat now aims to launch in July with $5 billion to $6 billion.

“Investors are increasingly feeling fully allocated,” says Jon Caplis, CEO of hedge fund research firm PivotalPath. “Not necessarily negative, but less interested in adding to these positions.”

The top performers in the category have no trouble attracting more investors. In fact, they are giving money back. Citadel is returning $7 billion after 2023 gains swelled its assets to $63 billion. The quant multistrat D.E. Shaw Group is returning all of last year’s profit from its largest fund after a 2023 gain of 9.6%.

Since its launch in 1990, Citadel’s flagship Wellington fund has returned 19.6% a year on average, compared with 10.7% for the S&P 500. The firm now manages about $60 billion, as does Millennium. In contrast to daring, single-strategy heat seekers, the multistrats pursue the cold ideal of good returns but low volatility.

“Hedge funds are supposed to deliver diversifying returns regardless of whether the S&P goes up or down,” says David Kabiller, who co-founded the multistrat quant firm AQR. “Multistrategies have been the tortoise to the single-strategy hare. What wins in finance is the more consistent player.” For its part, AQR’s oldest multistrat fund was up 18.5% last year and has been consistent in its gains.

When Griffin and Englander were starting their funds in the 1990s, the preferred approach among hedge funds was for a star investor to start a stand-alone firm and specialize in a favored strategy. Pension funds and endowments built diversified, uncorrelated portfolios by allocating their money among different single-strategy firms. Fund-of-funds firms also spread capital among talented specialist firms, seeding a short seller here and a bond trader there.

“Single-manager firms pioneered deep fundamental research,” says a multistrat executive who started his career at traditional long/short funds. “But they did not think a whit about risk management.” Many stars of the single-manager era eventually suffered losses that scared away investors. Tiger Management’s investors pulled $8 billion from Julian Robertson as his bets soured in the tech bubble of 2000. Amaranth Advisors folded in 2006 after losing $6 billion on natural-gas bets. Paulson’s record since his big short has been uneven.

The money committed to hedge funds in the past decade has largely gone to multistrategy platforms. Along with Citadel and Millennium, there are other notable multistrat shops, including Point72, run by New York Mets owner Steve Cohen; Balyasny Asset Management; Schonfeld Strategic Advisors; Verition Fund Management; Eisler Capital; ExodusPoint Capital Management; and quant-oriented firms like AQR and D.E. Shaw.

While differing in particulars, the multistrat shops share essential traits. They move their capital around teams of in-house portfolio managers. There may be hundreds of these specialized portfolio managers in a single hedge fund, all sharing the platform’s infrastructure for technology, trading, data, finance, and support services. Based on the portfolios’ performance and opportunities, the top bosses add or subtract capital, levering up to press timely bets.

Old-school asset allocators can’t move as adroitly. “On any day we can swiftly pull together a team of experts across a range of asset classes from around the globe and ask, ‘What are you seeing?’” says Gerald Beeson, chief operating officer at Citadel. “We can then move immediately to respond and reposition.”

The bosses at these firms enforce risk discipline that many traditional hedge funds eschew. Portfolios are market neutral—built so returns aren’t moved by the market’s tides—and scrutinized for unintended exposure to a variety of risks. Losses are quickly cut. A 5% drawdown might stop new capital from getting allocated to a portfolio. A 10% drawdown might cost the portfolio manager his or her job.

Some platforms are more tolerant of losses than others, but a word you hear often is “Darwinian.” After a two-year hiring spree, Schonfeld’s returns slowed. When talks of a combination with Millennium broke off, Schonfeld cut 15% of its staff in November. Its main fund ended 2023 up a modest 4.8%.

Loss aversion makes multistrat managers less inclined to the heroics of some old-time hedge fund managers, who stuck by companies like Apple when they were out of favor, or spent shoe leather unmasking firms like Valeant Pharmaceuticals International —which settled Securities and Exchange Commission fraud charges over its disclosures without admitting them.

Having hundreds of portfolio managers on a platform costs money—lots of it. The multistrat shops compete for talent by offering signing bonuses and profit percentages. Strong performers can play the multistrat circuit. Balyasny partner and trader Patrick Staub, for example, came to the firm after stints at Point72 and Citadel.

“It’s a war for talent. These traders are like superstar athletes,” says Mike Karp, who heads the recruiting firm Options Group. “You have to be very mathematical, have a tolerance for risk, and a strong stomach.”

To fund their portfolio managers’ compensation, multistrat firms ditched the traditional hedge fund fee structure that charged a management fee of 1% to 2% of assets to cover expenses, plus 20% of benchmark-beating gains as a performance fee. Multistrats replace the management fee with a “pass-through” expense approach, in which investors cover most of the firm’s operating expenses. When firms spend heavily on recruitment and infrastructure, pass-through expenses can rise as high as 7%.

To cover those expenses and still reward investors, multistrat firms have to achieve strong gross returns. An October 2023 report by Barclays concluded that investors got what they paid for. Firms with a pass-through structure delivered twice the returns and a fraction of the volatility over the past three years, versus hedge funds with traditional fee structures.

The pass-through structure lets a firm make investments in talent and technology that a fixed management fee can’t cover, says David Form, a partner at Sidley Austin, a law firm that pioneered the arrangement years ago. “It’s like a sports team that can spend whatever it costs to get the best players,” he says, “versus one whose payroll is constrained by a budget.”

The Days When Multistrats Could Do No Wrong

Multistrat firms sailed through the choppy markets of recent years, as the Covid pandemic and meme madness tossed investors around.

“From 2018 to 2022, they could do no wrong,” says PivotalPath’s Caplis. In 2020, the multistrats measured in PivotalPath’s Multi-Strat Index returned nearly 13%, which was acceptable as the S&P 500 gained 18.4%. When the S&P tumbled 18% in 2022, Pivotalpath’s index of multistrats still gained about 2%.

But in 2023, that Multi-Strat Index gained only 5.4%, while the S&P 500 rose 26% and the risk-free rate of three-month Treasury bills topped 5%. The funds on the downside of that class average will have trouble retaining investors if their grades don’t improve.

The underperformers include a lot of new shops. In 2015, there were 38 multistrat firms in PivotalPath’s index (which counts only firms with more than $50 million, and a record exceeding 18 months). In 2023, there were 62. In just the past year, the multistrat shops surveyed by Goldman have grown in number by 41%.

A study by Barclays last year concluded that older, larger multistrats—like Citadel and Millennium—have better performance than their new challengers. Even among established firms, there was wide dispersion behind the group average. While AQR was up more than 18%, Balyasny returned 2.7%.

Citadel, for one, has weathered markets’ ups and downs since 1990, turning $1 million invested then in its Wellington fund into $378 million by year-end 2023. A million invested in the S&P 500 over the same span became $29 million.

Multistrat firms that have proven to be champs over many seasons are able to reinvent themselves—drawing performance from different strategies in different years.

“Five years ago, our commodities desks traded natural gas and power,” says one multistrat chief. “Today, they’re trading crude oil and weather derivatives.”

Mexican billionaire Carlos Slim Helú just made a big energy bet in two relatively small U.S. companies.

A firm controlled by the Slim family, Control Empresarial de Capitales, paid a total of more than $300 million for more shares of two energy companies—oil-and-gas producer Talos Energy and refiner PBF Energy —which have market values of about $1.6 billion and $5 billion, respectively. The family is now the largest shareholder of both companies.

Control Empresarial paid $230 million on Jan. 17 for 19.7 million shares of Talos, an average price of $11.70 each. According to a form the family filed with the Securities and Exchange Commission, Control Empresarial now owns 34.7 million Talos shares, a stake of 22.6%.

A spokesman for the Slim family’s businesses declined to comment.

Control Empresarial paid a total of $75 million from Jan. 12 through 17 for 1.8 million more shares of PBF. It now owns 14.3 million PBF shares, a stake of 11.7%.

Slim and his family are loading up on shares that had lackluster performances in 2023. Talos and PBF stock both materially underperformed the broader market, falling 25% and rising 7.8% while the S&P 500 index gained 24%. The relative performance of Talos and PBF peers also lagged behind the market.

Talos stock also underperformed those of peers in the Invesco S&P SmallCap Energy exchange-traded fund, of which it is a component. The ETF tacked on a 2.3% gain in 2023.

PBF stock is a component of the Invesco Energy Exploration & Production ETF, which managed a 4.5% gain in 2023, short of the rise of PBF shares.

Slim, who made a fortune in telecommunications, recently advocated a three-day workweek, albeit at 10 to 11 hours a day.

You really can have too much of a good thing.

That is Chinese authorities’ apparent conclusion with respect to electric vehicles. A ministerial broadside last week promised “forceful measures” to rein in “blind” EV expansion that has led to “disorderly competition behaviors.”

It looks weird at first glance that Beijing is bad-mouthing its most conspicuous good-news story these days. China produces more EVs than the rest of the world combined. Domestic sales jumped nearly 40% last year, despite a lackluster economy.

Internal-combustion car sales may disappear entirely in China within five years, says Ernan Cui, China consumer analyst at Gavekal Dragonomics.

Alarm is spreading globally that cheaper and better vehicles from BYD and other Chinese manufacturers will dominate this industry of the future.

Yet the mandarins are right about the blind and disorderly part. China pushed hard on developing EVs and their supply chain for two decades starting in the early 2000s. It tapered official support as consumers started to buy the vehicles of their own accord. Formal subsidies were phased out in 2022, says Paul Gong, head of China autos research at UBS.

Buyers are picking a few winners and leaving an army of also-rans. “There are probably over 100 companies that have tried to make EVs, but the top 10 have 80% of the market,” says Bill Russo, CEO of Shanghai-based consultant Automobility.

BYD itself gobbled 35% of the market by volume last year. Tesla was a distant second at 8%. Even the leaders engaged in some disorderly price wars.

Just letting 90 no-hope would-be EV manufacturers go broke isn’t so simple in paternalistic China, however. Cooling the sector’s fever runs contrary to Beijing’s broader policy of pumping up manufacturing as former growth driver real estate stumbles, says Niels Graham, associate director for geoeconomics at the Atlantic Council. Bank loans to the industry grew by some $700 billion last year, while property-related flows turned negative, according to his figures.

Industrial projects in China take on a life of their own, gaining patronage from local officials with access to independent funding. Regions will cling all the more tightly to EV investment as internal-combustion plants face a “death spiral,” Russo says.

“You haven’t seen consolidation because a lot of people at the local level keep pouring in money past the point of death,” he says.

Gavekal’s Cui predicts that Beijing will seek “balance,” curtailing new EV construction permits without forcing mass bankruptcy. “Going out of business will take some time,” she notes.

Adam Smith would say, if you make too much of a good thing, start selling it abroad. Substantial Chinese EV exports to the U.S. are probably off-limits, thanks to the generous domestic-content subsidies and stiff tariffs embodied in the Inflation Reduction Act. The big prize that BYD and its rivals have to play for is Europe.

The European Union last October launched an “anti-subsidy” investigation into Chinese EVs. That should wrap up this year, with a tariff hike above the bloc’s 10% levy on all imported cars, Graham predicts.

Beijing’s declaration on reining in production is more for Brussels’ benefit than domestic impact, he thinks. “I’m more inclined to see this as a head fake,” he adds.

Many Western consumers would probably be inclined to buy the best-value EV, regardless of its origin. “The world needs affordable EVs, and China knows how to do that,” Russo says.

But it probably isn’t so simple.