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In a surprising move, the Geneva-based watchmaker has bought one of the largest watch retailers in the world.

Following the choice made by Jörg Bucherer, in the absence of direct descendants, to sell his company’s business, Rolex has decided to acquire watch retailer Bucherer, which was until now an independent entity.

The purchase price was not disclosed.

The move reflects the Geneva-based brand’s desire to help perpetuate the success of Bucherer and preserve the close partnership that has linked both companies since 1924, Rolex said in a statement.

Bucherer has more than 100 stores worldwide, of which 53 distribute the Rolex brand and 48 distribute the Tudor brand. Rolex said the acquisition is the best solution not only for its own brands but also for all the watch and jewelry partner brands, as well as for all the employees of the Bucherer group.

Bucherer will keep its name and continue to independently run its business. Its integration into the Rolex group will be effective once the competition authorities have approved the takeover transaction.

The move is an unusual one for a major watch group like Rolex, which actually is owned by a charitable foundation. Rolex has benefited from the pandemic boom in luxury watch sales and has become one of the most coveted brands among collectors — as well as, unfortunately, thieves with a recent report in the U.K. saying it was the most-robbed brand.

But the deal also comes as there is increasing consolidation across the luxury world as groups rush to grow in size in a market where increasingly scale matters. Kering in July acquired a 30 percent stake in Valentino, with the option to acquire the remainder, and Richemont bought Gianvito Rossi, while this month there was Tapestry’s blockbuster $8.5 billion deal to acquire Capri Holdings.

Beijing’s offer gives Riyadh leverage in talks with Washington on proliferation

Saudi Arabia is weighing a Chinese bid to build a nuclear-power plant in the kingdom, Saudi officials familiar with the matter said, in a move designed to pressure the Biden administration to compromise on its conditions for U.S. help in the kingdom’s quest for nuclear power.

The U.S. has said American nuclear aid is contingent on the Saudis agreeing to not enrich their own uranium or mine their own uranium deposits in the kingdom—nonproliferation conditions not sought by China, which has been seeking to strengthen its influence in the Middle East, to the consternation of Washington.

Saudi Arabia has asked the U.S. to help it develop a civilian nuclear program as part of a potential deal that would include diplomatic normalization with Israel, which Riyadh doesn’t recognize. Saudi Arabia is also asking the U.S. to provide security guarantees for the kingdom as part of such a deal.

Israel is worried that Saudi Arabia’s goal of developing a nuclear-energy program could pave the way for Riyadh to develop nuclear weapons.

China National Nuclear Corp., a state-owned company known as CNNC, has bid to build a nuclear plant in Saudi Arabia’s Eastern Province, near the border with Qatar and the United Arab Emirates, the officials said.

Saudi officials acknowledged that exploring the issue with China was a way of goading the Biden administration to compromise on its nonproliferation requirements.

The Saudi officials said they would prefer to hire South Korea’s Korea Electric Power Corp., or Kepco, to build the plant’s reactors and involve U.S. operational expertise—but without agreeing to the proliferation controls that Washington generally requires.

The Saudi officials said Saudi Crown Prince Mohammed bin Salman is prepared to move ahead with the Chinese company soon if talks with the U.S. end up failing. China will likely not impose the same kind of nonproliferation requirements, making it a more favorable partner to Saudi Arabia, said Justin Dargin, a Carnegie Endowment for International Peace nonresident fellow who specializes in Middle East energy.

China’s Foreign Ministry said China will continue to cooperate with Saudi Arabia in civil nuclear energy while abiding by international nonproliferation rules. CNNC didn’t respond to a request for comment.

Moving ahead with the Chinese bid would mark another geopolitical shift toward China for a Saudi kingdom that was once solidly in the U.S. camp.

Building reactors for another country is inherently geopolitical, as it locks countries into expensive, long-term contracts. Sun Qin, former chairman of CNNC, once likened such deals to a “100-year marriage,” given the time it takes from initial discussions to signing an agreement and then on to the plant’s construction, maintenance and decommissioning.

China is Saudi Arabia’s largest oil buyer and biggest trading partner, and Beijing this year brokered a deal for Saudi Arabia and Iran to normalize relations. The Wall Street Journal has reported that China has helped Riyadh build its own ballistic missiles and helped the Saudis with a facility for extracting uranium yellowcake from uranium ore, an initial step toward enriching uranium. The Saudi government said it was working with the Chinese to explore for uranium, but the Journal’s disclosure raised concerns among U.S. and allied officials that Riyadh is keeping open the option of developing nuclear weapons.

Even if China only has a long shot, Saudi Arabia could keep CNNC as an option if Saudi Arabia wanted to “put fire under the feet of decision makers in Washington” to speed up a resolution between Kepco and Westinghouse or to facilitate a deal bargain between Saudi Arabia and Israel, said Philip Chaffee from the energy-information company Energy Intelligence.

But Saudi Arabia is also the biggest buyer of U.S. weapons and wants to remain firmly in the American security umbrella, the Saudi officials said. Executing a broad deal over U.S.-Saudi-Israel relations would cement the Saudi crown prince as a geopolitical force.

U.S. officials expressed little concern about Saudi Arabia’s outreach to China for help on its nuclear program, though they have pressed Riyadh to limit its military cooperation with China.

The Biden administration is convinced that U.S. operational and regulatory expertise is better than what China has to offer. Saudi discussions with the bidders have been repeatedly extended, with talks now expected to stretch until at least the end of this year.

The Chinese bid is at least 20% cheaper than offers received from two competitors—Kepco, and France’s EDF—making it attractive to the Saudis, the officials said. Saudi officials have said they view Kepco’s reactors and U.S. management as top of the line.

A legal dispute between Kepco and Westinghouse has held up nuclear discussions with the U.S. Westinghouse claims that Kepco’s reactors contain crucial Westinghouse-owned intellectual property, making the Korean company’s offerings subject to U.S. export controls. Westinghouse and Kepco didn’t respond to requests for comment.

U.S. and Saudi officials are also discussing the possibility of Saudi Arabia accepting the South Korean bid with the Westinghouse technology. The U.S. could relax export controls for the sale. No agreement has been reached.

The White House also has concerns about nuclear proliferation in the Middle East but is looking for a solution that involves U.S. technology. On Tuesday, Jake Sullivan, President Biden’s national security adviser, told reporters that it was likely to take a considerable amount of time to negotiate all the complex details of nuclear cooperation.

“There is still a ways to travel with respect to all of the elements of those discussions, and they get quite technical,” Sullivan said.

The crown prince, Saudi Arabia’s de facto ruler, has made obtaining nuclear power a priority. After a decade of nuclear discussions, the Saudis are pushing to award a contract for the Eastern Province plant, known as Duwaiheen—a two-reactor, 2.8-gigawatt facility—by the end of 2023 and eventually construct 16 reactors at a cost of some $80 billion to $100 billion.

The Saudi push for nuclear power is driven by two potentially existential issues: Iran’s nuclear program and a future in which the kingdom’s main export, oil, is no longer as valuable.

Saudi officials said nuclear plants would provide emissions-free energy for a growing population and reduce its reliance on burning oil—freeing up crude to export today. The Saudis are also worried about Iran’s nuclear enrichment, with the crown prince saying Saudi Arabia would develop nuclear weapons if Iran does.

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Saudi Arabia has also talked with France and Russia about nuclear power. But Saudi officials said that they doubt France’s ability to deliver and they have sanctions concerns about going with Russia.

Of the 31 reactors that began construction worldwide since the beginning of 2017, 17 are Russian designed and 10 are of Chinese design, according to the Paris-based International Energy Agency.

China’s nuclear companies have mostly indigenized the design and components of its nuclear plant, making it less susceptible to sanctions the U.S. could potentially impose.

China also would likely not object to Saudi Arabia mining for its own uranium and selling it abroad, a point of contention with the U.S. The kingdom wants to develop a mega mining industry by 2030 with big-enough uranium deposits to be commercialized.

The U.S. is pressing Saudi Arabia to impose limits on its relationship with China as part of any deal for nuclear help. In June, Saudi Foreign Minister Prince Faisal bin Farhan played down U.S. concerns about the kingdom’s ties with China, saying it would prefer to have the U.S. as one of the bidders.

“I think that partnership has given us and China significant benefits and that cooperation is likely to grow,” he said. “We still have a robust security partnership with the U.S….so I don’t ascribe to this zero-sum game.”

Complicating the talks is a debate in Israel over whether to accept the Saudi demand to be allowed to enrich uranium within the kingdom. “It is clear to everyone that if they start enriching uranium in the Middle East, everyone will want to,” Israeli opposition leader Yair Lapid told Israel’s Army Radio Monday.

Ron Dermer, Israel’s minister for strategic affairs and a key go-between with Washington, in an interview with PBS on Saturday, argued the Saudis could go to China or France to set up a native nuclear enrichment program, and that therefore it would be better to have the U.S., Israel’s most important ally, involved.

Are hedge fund pioneers facing the end of a golden era?

The multi-manager model has generated years of exceptional returns, even after fees. But rising interest rates and an expensive battle for talent are taking their toll

Quantitative funds hit by reversals in government bonds as investors rethink their interest rate expectations

Hedge funds that try to make money by betting on prevailing trends in global markets are struggling to repeat their bumper 2022 as violent swings in asset prices and rapid shifts in investors’ interest rate expectations throw them off balance.

So-called commodity trading advisers (CTAs), including Leda Braga’s Systematica and Stockholm-based Lynx Asset Management, have posted losses of close to 10 per cent year to date, according to numbers seen by the Financial Times, while others have struggled to make money.

Such funds use vast quantities of computing power to find and exploit market trends and patterns and were among the world’s top-performing hedge funds last year, as gains for commodities and sharp declines for stocks and government debt paid off.

But this year investors have struggled to gauge the path for global interest rates, hurting the performance of many trend followers, which tend to need clear, persistent trends in order to profit. Unexpected market moves, such as the spike in European natural gas prices, have also dented profitability.

“Equities, interest rates and commodities have all suffered violent oscillations this year — not a good environment for trend followers,” said Andrew Beer, managing member at US investment firm Dynamic Beta Investments. “One month you look like a genius, the next you feel like a moron.”

That has meant reversals for some of the industry’s biggest names. Systematica, which manages roughly $17bn in assets, has lost 9.6 per cent in its Bluetrend fund this year to mid-August after gaining 30 per cent last year. The firm declined to comment.

Lynx, which runs $7bn, has suffered a 9.3 per cent fall in one if its main funds this year to the end of July, after making 36.8 per cent in 2022.

Another, Quest Partners, which follows short-term trends and manages $1.6bn in assets, is down 12.1 per cent to August 11, having delivered a 25.2 per cent gain last year.

Martin Källström, deputy chief executive at Lynx, said: “Many of the trends that offered good trading opportunities last year reversed in the first half of 2023, leading trend followers like Lynx to give back some of last year’s profits.”

While funds have slightly different trading strategies, many suffered in March when markets quickly dialled down their bets on how much further interest rates would rise following the collapse of banks including Silicon Valley Bank and Credit Suisse.

Trend followers had been positioned for bond prices, which had been pushed lower by central bank rate rises, to fall further. “At the start of March, most CTAs were short bonds and long stock indices,” said Carsten Schmitz, co-chief investment officer of CTA Winton, which manages $10bn in assets.

But turmoil in the banking system boosted Treasury prices, as investors bet that the US Federal Reserve would slow the pace of interest rate raises to shore up financial stability. Yields move inversely to prices.

“We were not overly leveraged at the portfolio level, however, we were near our maximum allowed risk in fixed-income markets,” said Christopher Reeve, director of risk at Aspect Capital.

Even firms that immediately switched strategies and started betting on bond prices increasing and equities falling were immediately punished.

“It didn’t work out for us because Janet Yellen [Treasury secretary] said she would backstop the bank,” said an executive at one trend following hedge fund.

A model portfolio run by Société Générale, which aims to replicate the positions typically taken by computer-driven trend-followers, has suffered its greatest losses in bonds this year, in a sign of the pain suffered by these funds. The two-year Treasury yield, for instance, has moved from above 5 per cent to less than 3.8 per cent and then back above 5 per cent in less than six months.

Some funds have also suffered losses on natural gas prices after European prices unexpectedly spiked this summer on fears over a strike in Australia that could disrupt global supplies of liquefied natural gas. Trade unions will vote to ratify a deal in coming days that would call off the potential industrial action, and natural gas prices have tumbled this week.

“This month has been horrible” because of moves in the gas price, said an executive at one such fund.

Multi-manager hedge funds meet their maker

Three decades ago, when star traders such as George Soros, Julian Robertson and Paul Tudor Jones were masters of the universe, a new generation of firms began to crop up that looked different to their predecessors.

These funds hired a ton of specialist traders who were given their own profit-and-loss accounts and whose survival was predicated on the whims of the markets. While their trading was theoretically overseen by sophisticated risk management technology, any manager who sustained big losses could find themselves jobless.

The so-called multi-manager method was pioneered by Ken Griffin’s Citadel and Izzy Englander’s Millennium Management. The two launched their firms within a year of each other and still dominate the industry three decades later.

But the business model they pioneered is now at risk of becoming a victim of its own success, DD’s Ortenca Aliaj and the FT’s Harriet Agnew report in this Big Read, amid a fierce talent war and rising interest rates that eat into the healthy returns they’ve been able to deliver for investors.

Over the past five years in particular, multi-manager funds have emerged as the fastest growing and most profitable hedge funds on the scene. 

Their diversified portfolios and ability to slash or raise their level of risk quickly gave them a key advantage during the pandemic when markets went into a tailspin.

But multi-managers often use huge amounts of leverage relative to their peers to juice returns — an average of more than five times their assets, by Goldman Sachs’ calculations — on the guise that they can oversee risk.

That hasn’t meshed well with higher interest rates, which have increased the cost of borrowing and forced funds to spend more money on producing the same outsize returns.

And given that these funds utilise a so-called pass-through expenses model, aka when a manager passes on all costs to their end investors rather than an annual flat fee, investors aren’t too jazzed about shouldering the extra costs.

The platforms’ rapid growth in recent years and a scarcity of the kind of specialised risk-takers who can handle the job has also unleashed a fierce battle for talent, driving pay for top traders sky-high and footing investors with the bill.

One hedge fund investor outlined the fate of multi-managers into two scenarios: either “someone gets pummelled . . . or they lose their edge”.

An uptick in “crowded trades” means these funds are inextricably linked whether they like it or not. A trade gone wrong could ripple across the market. Or, in a less dramatic turn of events, the strategies become so mainstream that profits become unsustainable.

Even Griffin, whose last year topped Bridgewater’s Ray Dalio as the most successful hedge fund manager of all time, acknowledged that the end of an era may be on the horizon.

“Clearly right now the multi-strategy managers are very much in vogue. When you’re most popular is probably when you’re reaching the top of the cycle,” he told the FT.