Colony IM Enters Exclusive Negotiations to Acquire Majority Stake in Perrotin Galleries
Perrotin represents major artists including Takashi Murakami and JR, and is looking to use the capital injection to expand to new locations.
PARIS — Perrotin, the contemporary gallery that features artists including Takashi Murakami, Maurizio Cattelan, Sophie Calle, Pierre Soulages and JR, has entered into exclusive negotiations with Colony Investment Management to sell a majority stake in the company.
The real estate and private equity investment firm, headed by Nadra Moussalem, would take a 60 percent stake in the Perrotin galleries, with founder Emmanuel Perrotin staying on and retaining 40 percent of the capital, the companies said in a joint statement.
Terms of the deal were not disclosed. It is expected to be completed in the second half of 2023.
Perrotin has two outposts in the French capital — one in the hip Marais and the other on the tony Avenue Matignon, for nearly 32,300-square-feet of exhibition space.
Colony IM has previously invested in other prime Paris landmark lifestyle locations, including the luxury hotel Le Molitor. The company manages 3 billion euros of assets.
It’s the first time the company has invested in an art gallery, intended to combine Perrotin’s passion for supporting artists with corporate infrastructure with an eye toward long-term growth.
Outside of Paris, Perrotin operates galleries in New York, Hong Kong, Tokyo, Seoul, Shanghai and Dubai. An outpost in Los Angeles is slated to open this fall.
In addition to representing major artists, the gallery has expanded into retail sales of prints, books and additional products, and recently started working in the secondary art market space. It had $151 million in sales in 2022.
“Emmanuel Perrotin and his team have developed an exceptional gallery business over the past 30 years with a presence across three continents, representing a range of remarkable artists. The partnership we are considering today with Perrotin is the result of a shared vision with Emmanuel Perrotin, aimed at long-term growth and expansion of the business. We are convinced that contemporary art represents a highly promising asset class for the future, Moussalem said.
“We are always exploring new investment sectors and thrive on helping companies to achieve their full potential,” he added of moving into the new sector.
“The association we are announcing today is the culmination of more than 30 years’ work by a loyal and committed team in the service of extraordinary artists who have grown up with the gallery. I am convinced that Colony IM is the ideal partner to accompany us in a new stage of this collective adventure, to which I remain more committed than ever. This new impetus will enable us to further strengthen our existing expertise and develop new ones,” Perrotin said.
The injection of capital would increase Perrotin’s ability to expand in new cities, with London, Zurich and Instabul among the potential locations, as well as additional acquisitions of other galleries.
France’s Mistral AI blows in with a $113M seed round at a $260M valuation to take on OpenAI
AI is well and truly off to the races: a startup that is only four weeks old has picked up a $113 million round of seed funding to compete against OpenAI in the building, training and application of large language models and generative AI.
Mistral AI, based out of Paris, is co-founded by alums from Google’s DeepMind and Meta and will be focusing on open source solutions and targeting enterprises to create what CEO Arthur Mensch believes is currently the biggest challenge in the field: “To make AI useful.” It plans to release its first models for text-based generative AI in 2024.
Lightspeed Venture Partners is leading this round, with Xavier Niel, JCDecaux Holding, Rodolphe Saadé and Motier Ventures in France, La Famiglia and Headline in Germany, Exor Ventures in Italy and Sofina in Belgium, First Minute Capital and LocalGlobe in the UK all also participating.
Mistral AI notes that French investment bank Bpifrance and former Google CEO Eric Schmidt are also shareholders. Sources close to the company confirm that the €105 million in funding ($113M at today’s rates) values Mistral AI €240 million ($260 million). To note, this is the same number that was being rumored about a month ago in the French press when people started chattering about the company.
“We could see the technology really start to accelerate last year,” he said in an interview today, most likely in reference to the leaps that OpenAI was making with its GPT model, which was a shot in the arm for a lot of people in AI and the wider world of tech.
But while OpenAI has the word “open” in its name, it felt like anything but. Mensch, Lacroix and Lample felt that a proprietary approach was largely shaping up to be the norm, and they saw an opportunity to do things differently. “Open source is a core part of our DNA,” Mensch noted.
It’s very early to talk about what Mistral is doing or will be doing — it’s only around a month old — but from what Mensch said, the plan is to build models using only publicly available data to avoid legal issues that some others have faced over training data, he said; users will be able to contribute their own datasets, too. Models and data sets will be open-sourced, as well.
And while some believe that open source has created a tricky landscape (and minefield) when it comes to areas like application security, “we believe that the benefit of using open source can overcome the misuse potential,” he added. “Open source can prove tactical in security and we believe it will be the case here, too.”
It’s also too soon to know how well its future products will resonate in the market. But what’s interesting is the startup’s singular focus on enterprise, not consumer, customers, and the idea that there is a gap in the market for helping those customers figure out what they need to do, and how they can do it.
“At the moment we have proof that AI is useful in some cases,” Mensch said. “But there are still too many workers in different fields being asked to be creative [with AI], and we need to figure this out for them. We want to give them tools that are easy to use to create their own products.”
It may seem like a big leap to give funding to such a young company without any customers, let alone a product, to its name — especially since the penny is already dropping in some high-profile cases. Neeva (another startup with a Google pedigree) gave up on its consumer AI search play and sold a chunk of its tech to Snowflake; and recently Stability AI has also been in the spotlight, though not in a good way.
But Antoine Moyroud, who led the investment for Lightspeed (which also backed Stability AI, I should point out), said that he believes it’s a leap worth taking.
“For us at Lightspeed, we didn’t work in isolation,” he said in an interview. “We had a chance to see a few strong tech teams looking to raise funding to build LLM across India, the U.S. and Europe. But what was lacking was while they were strong technically they hadn’t thought about the second order effects of LLM.” That is to say, they were not thinking of where and how they might be applied.
He likens the AI landscape to bigger infrastructure plays like cloud computing and database businesses, not applications. “We think value will accrue here as it has in the cloud, where there will be 5-6 players getting the lion’s share.
“Then we thought who are the most credible here? Then we met with the Mistral founders. It’s a very talented team. We think there are only 70-100 people in the world right now with their expertise for language models and optimizing them.” Lample, as one example, led the development of LLaMA, Meta’s Large Language Model, and he was leading the LLM team at Meta before he left to co-found Mistral AI.
On another note, the fact that AI startups are getting VCs to open their checkbooks is notable. The Googles, Apples, Metas, Amazons, Microsofts, etc. of the world will definitely make their plays in this space, but the fact that startups are being formed and are finding willing recruits is a signal that it’s not all game over just yet.
A mistral is a north wind that blows down Europe, and usually when it blows that is a sign of good weather in the days following. The startup may well be hoping for the same effect here.
San Francisco people often refer to their “uncanny valley,” but at the end of the day, Mensch said he believes that there has to be a credible effort from all around the world to build and take some ownership of how AI will develop. This is Mistral’s play to give France a shot at that.
Its plan is to use the funding to assemble what he describes as a “world class team” creating “the best open source models,” he said, and it will definitely now have some money to blow through to do just that.
Wealthy Buyers Are Turning This Region Into One of Italy’s Hottest Home Markets
Once an impoverished area, Puglia has seen an influx of high-end buyers willing to spend millions on historic farmhouses and villas
In a shaded spot near his new swimming pool, Northern Italian architect Paolo Genta is taking stock of his Southern Italian dream project—a luxurious vacation compound, serving three generations of his extended Turin family, that he created in Puglia, the region running down the heel of Italy’s boot.
On a hot spring day, over a glass of local rosé wine and tomato-and-pasta canapés, Genta, 64, remembers his initial encounter over a decade ago with the sunbaked property, which he bought in stages between 2012 and 2015, for $537,400, and then restored up through 2022.
“A friend took me here,” he says, of the 2/3-acre estate, then in ruins. “But it immediately felt familiar to me—as if I already knew it.”
He has gone on to spend around $1.075 million to realize his vision by renovating three adjacent structures, dating back to at least the 18th century, as well as $236,400 on the lavish landscaping. He and the Genta clan plan to use the compound’s seven bedrooms, spread over two buildings, up to a few months a year. The third building, a deconsecrated Baroque chapel, is the perfect place to have a cool lunch on a hot day.
Genta is one of a growing number of luxury-minded homeowners who are transforming Puglia, once a remote and impoverished corner of Italy, into an outpost of upscale living. Historical stone farmhouses, called masserie, are getting high-tech upgrades, while Puglia’s traditional cone-topped rural structures, called trulli, are being converted into high-end primary suites.
Puglia is one of the few areas of mainland Southern Italy—along with the Campania region, home to Naples and the Amalfi Coast—to develop a reliable luxury real-estate sector. According to Idealista.it, the Italian residential real-estate site, home prices here now average about $121 per square foot, which is higher than in nearby Basilicata, Calabria and Abruzzo.
Luxury properties are clustered in two areas. One, Valle d’Itria, is an agricultural valley between Bari, Puglia’s largest city, and Ostuni, an old, atmospheric hilltop town. This is ground zero for Puglia’s trulli legacy. Thousands of the structures, large and small, mark the hilly countryside, creating a distinctive, rustic skyline. Further south, around the Baroque city of Lecce, lies Salento, where Genta has his compound. Flatter and hotter, with simultaneous access to both Adriatic and Ionian beaches, Salento offers more seclusion.
According to Idealista, Puglia’s Brindisi province, which includes much of Valle d’Itria, is seeing the region’s strongest price increases, up 9.2% between May 2022 and May 2023. The most expensive sale in 2022 was a 6,500-square-foot Salento masseria, not far from the Genta compound, which sold for $3.78 million.
Valle d’Itria is known for its white-stone towns and exclusive hotels, such as Borgo Egnazia, a 40-acre coastal resort, where high-season prices can reach $26,585 a night. Near Ostuni, a restored, trulli-topped stone house dating back several centuries has an asking price of $1.72 million; the five-bedroom home sits on a 7.5-acre lot.
Valle d’Itria appeals to design royalty, such as Milan’s MariaCristina Buccellati, who works with her family’s luxury jewelry label, now owned by Richemont. Salento, meanwhile, attracts Hollywood royalty; local homeowners include actress Helen Mirren and her husband, director Taylor Hackford. In Salento, near the very bottom of the heel, a restored 12-bedroom castle, with a large enclosed garden, has an asking price of $3.56 million.
Canadian couple Alper Ozdemir and Cynthia Liu, who arrived in Puglia from Toronto in late 2021, have bought in the heart of Valle d’Itria. The active retirees, both in their early 50s, left behind Ontario’s cold climate for Puglia’s good food, warm weather and close-to-nature lifestyle, says Ozdemir.
In February 2022, they closed on a 7.5-acre farm with a trulli-topped ruin. They paid $247,000 for the property, and plan to spend about $860,000 to turn the 3,850-square-foot structure into a two-story, three-bedroom home, built around a new swimming pool.
Like many luxury buyers in the area, the couple narrowed their choice between Valle d’Itria and Salento, settling on the former. “Salento is nice in the summer,” says Ozdemir, “but people live around here year round.”
Puglia overall has become increasingly accessible. It is now part of Italy’s high-speed train network, and it has two international airports. Staying in a local rental to oversee their renovation, Ozdemir and Liu plan to use their new home, set to be completed in 2024, as a base for exploring the country.
A new set of buyers from the San Francisco Bay Area, brothers Mark and Peter Alwast, also regard their 2-acre Valle d’Itria homestead, purchased for $355,000 in September 2022, as a convenient toehold, with plans to explore Europe. The brothers, along with Peter Alwast’s life partner and Mark Alwast’s husband, expect to spend about $322,000 to renovate a 3,000-square-foot house for their retirement.
Meanwhile, they will use it as a vacation home. Despite the far longer travel time, the foursome view it as an alternative to Northern California wine country. “In Puglia you get a lot more for your money,” says Mark Alwast, 60, a designer.
Patience is often required from buyers in Puglia. Genta needed to piece together his compound from eight different owners, with some holding out for years. Retired New York attorney Ellen Bonaventura, 62, has spent the past nine years putting back together a Salento palazzo, a 30-minute drive south of Lecce, from a cluster of disparate buildings. “It was always my dream to have a house in Italy,” says the full-time Puglia resident, who estimates that she has spent $495,000 on real estate, about $3.22 million on renovation costs and around $537,000 on furniture and art, including Neapolitan and Sicilian antiques.
To-do lists tend to grow for this new round of Puglia homeowners. In 2021, Paolo Colombo, an architect based in Lugano, Switzerland, paid $1.94 million to buy two multitrulli structures on a 3.7-acre hilltop Valle d’Itria property, and then spent $2.16 million to renovate the two buildings—which required disassembling, cleaning and reassembling the massive stonework. Completed this June, the renovation will be followed soon, says Colombo, by a free-standing, latticework yoga studio and new outdoor sleeping areas, which will give his family of five a total of eight bedrooms in the main house.
Rula Al Amad and James Woods, a Milan-based, Palestinian-American couple, have expanded their Puglia portfolio. Valle d’Itria pioneers, they started in 2006, when they paid a mere $129,000 to buy a derelict set of trulli, then spent $295,000 over the following several years to create a 2,000-square-foot vacation home.
Sensing it had become too small for their family of four, the couple paid $537,000 in 2018 for a nearby derelict masseria. They then spent about $1.57 million on a gut renovation, which wrapped up this spring. The finished compound can comfortably sleep up to 10.
Speaking in her new living room, which emphasizes the 500-year-old masseria’s use of historic local limestone, Al Amad, who first stayed in the house this past Easter, is looking ahead to winter. “We go to Michigan at Christmas but come back to Italy for New Year’s,” she says of the routine of her Midwest-born husband and their two teenage boys. “I can see doing a big New Year’s Eve party here.”
Citadel’s Ken Griffin optimistic on growth in China
Billionaire investor warns it will be ‘ugly’ for the US if the Chinese economy falters
Billionaire investor Ken Griffin said China could prop up the global economy this year, helping avert an “ugly” slowdown in growth if the US suffers a recession.
Speaking to the Financial Times on his first visit to Hong Kong since the Covid-19 pandemic, Griffin said he was optimistic China could beat its growth target.
“Why might one be optimistic on China? They’re very clearly putting economic growth back at the top of their priority list,” said Griffin, founder of the US hedge fund Citadel and market maker Citadel Securities.
China’s growth had been tipped to roar back after disruptive Covid-19 restrictions were fully lifted in December. But the initial surge in global appetite for Chinese stocks that accompanied reopening has since waned, reflecting weak data on industrial output, manufacturing activity and the property sector.
The economy posted year-on-year growth of 4.5 per cent in the first quarter, but that pace trailed the government’s relatively modest annual target of 5 per cent — already its lowest in decades.
Chinese equities are flat so far this year. By contrast, investors have snapped up shares in the rest of Asia where stock markets in Japan, South Korea and Taiwan have notched up double-digit gains, often in excess of 20 per cent. A Bank of America survey on Tuesday showed fund managers continue to revise down their growth expectations for China.
But Griffin remained optimistic that the country could deliver sustained growth, potentially lining it up to bail out the global economy as the US grapples with the threat of recession.
“My economists think China’s GDP growth may be better than expected this year, and I hope they’re right,” said Griffin, whose $54bn-in-assets firm made record profits for investors after fees in 2022, making it the most successful hedge fund firm of all time. It runs global macro portfolios among its other strategies.
“That would go a long way towards helping the US achieve a soft landing. If China hits a speed bump as US consumer spending stops, that would be a really ugly one-two punch,” he added.
Griffin said that China remained an essential destination for global investors and one of two central sources of global innovation along with the US.
“China is really important to investors because so much of what’s going to change [globally] is being driven by what’s happening here,” he said.
Citadel and Citadel Securities are expanding in Asia with new Tokyo offices. Growing capital flows in the region had created a “plethora of opportunities” for market making, Griffin said.
“Every country is its own story — for example, in Japan the story is improving corporate governance and focusing on shareholder returns. In China, the story is the unbelievable size the market has become, combined with innovation that create opportunities.”
Citadel generated returns of 38 per cent in its main hedge fund last year, as Russia’s invasion of Ukraine caused tumult in global markets and created opportunities for commodity trading in particular.
Although markets have stabilised, Griffin — whose firm has developed an expertise in weather forecasting — said there were still opportunities, with the push towards renewables creating “dislocations in commodity markets around the world”.
He said Europe had been fortunate with its weather last winter, which reduced demand for energy more than he had expected, but warned a cold snap could still have “brutal consequences”.
“We’re always looking at how the grid is being reshaped, how that’s going to change the flow of electrons, how it’s going to change the flow of natural gas, and where on the holistic network are prices wrong?”
In the US, Griffin said he anticipated inflation would remain sticky unless the Federal Reserve was willing to accept higher unemployment to drive it down.
“Inflation’s definitely coming down now but we’re not heading to 2 per cent quickly, we’re heading to 3 per cent,” he said. “And with wage growth as strong as it is, it’s going to be hard to get better than the low threes.”
Safran chief says aircraft makers have ‘unprecedented supply crisis’
French jet engine maker warns constraints on production are likely to last into 2024
French jet engine maker Safran has warned that the “unprecedented crisis of supply” in the aerospace industry will stretch into next year as aircraft manufacturers struggle to source the parts and staff they need to keep up with resurgent demand.
Safran’s chief executive Olivier Andriès told the Financial Times there had been no let up in supply chain problems dogging the industry since the Covid-19 pandemic as well as the Russia’s invasion of Ukraine that caused shortages of raw materials.
“We have to fight every day to get the parts. This is true for Safran and also the whole industry,” Andriès said in an interview. “We’ve gone from an unprecedented crisis of demand back in 2020. Now demand is back but we are in an unprecedented crisis of supply. We have never seen this before,” he added.
Others in the industry are also facing similar headwinds, with Airbus warning of supply chain constraints lasting until 2024, as airlines rush to order new aircraft to meet high travel demand.
Andriès added the constraints would likely last into 2024, limiting the speed at which the sector can further increase production. “I would like to say it’s going to be over in three months. But this is not true . . . it is going to last,” he said.
Despite the challenges, Paris-based Safran now expects sales growth of around 20 per cent this year. That would put it on track for revenues to recover to their pre-pandemic 2019 peak of €25bn by next year, according to analysts, and the shares have also rallied 55 per cent in the past 12 months.
The company generates significant revenues from supplying both civil and military engines, as well as from its aircraft interiors business, which together accounted for close to 45 per cent of group revenues in 2022.
In a sign of how Safran is on firmer financial footing, the company is now looking at bigger acquisitions and is also open to further share buybacks, the CEO said.
Safran recently disclosed it was in talks to buy the flight controls unit of US-based Raytheon Technologies, estimated to be worth around $1bn, in what would be its biggest acquisition since 2018.
Andriès said a deal for the division — whose operations are largely based in the UK, France and Italy, and not the US — would “in one step” help Safran become a market leader in an area where it has lagged competitors. “Our DNA at Safran is to be active in critical equipment for which the barriers of entry are high and where there are not too many players,” he said.
Analysts had questioned if the deal would dent Safran’s ability to do further share buybacks, with the current buyback programme, which started in October 2022, nearly completed.
“There’s an openness” to buybacks, said Andriès. “Our balance sheet has become stronger because we’ve been able to have a good cash generation profile in the last two years, and this will continue.”
One of the main issues that remains for the civil and military aviation industry is overcoming severe hiring problems after cutting staff during the pandemic.
Sanctions tied to the Ukraine war have also made it tougher to source materials such as aluminium.
In an effort to diversify some of its raw materials sourcing, it purchased French steel parts maker Aubert & Duval alongside Airbus and Tikehau Capital earlier this year. However, it has no immediate plans to stop imports of Russian titanium, which is not currently covered by sanctions as switching suppliers takes time due to the intricacies of certifying materials needed for critical aeroplane parts, Andriès said.
“We are going to continue to source titanium from [Russia] as long as we are authorised to do so,” he said.
Andriès also reaffirmed the target to deliver in 2023 1,700 Leap engines, which Safran produces together with America’s General Electric. The engines, which power the Airbus A320neo and Boeing 737 Max aircraft, have encountered some durability problems in hot and dusty climates such as India and the Middle East.
Andriès stressed that no airlines have had to ground aircraft because of engine problems. “We keep [their aircraft] flying,” he said.
Lansdowne Partners and Marshall Wace: a tale of two hedge funds
How the London firms diverged in a Darwinian tale of performance, succession and strategy
Born a year apart a quarter of a century ago, Lansdowne Partners and Marshall Wace struck out on the same path, using fundamental analysis to buy and sell European equities.
Now the London hedge funds are very different animals. Lansdowne has struggled to diversify beyond its flagship fund, hamstrung by a static ownership structure that limits incentives for new hires. Assets under management have plunged by two-thirds from a 2015 peak of $21bn and it has shifted from high-margin hedge funds to a long-only business commanding a fraction of the fees.
Marshall Wace, meanwhile, has carved out a position as Europe’s answer to US industry giants Citadel or Millennium Management. Assets under management have swelled to a record $63bn, an anomaly among the region’s equities hedge funds that have largely retrenched. And a dynamic partnership structure has ensured retiring partners make way for the next generation.
The Financial Times spoke to more than a dozen top insiders, investors and rivals about how the firms’ fortunes came to diverge in a Darwinian tale of performance, succession and strategy.
Their trajectories provide a microcosm of the hedge fund sector’s evolution from a cottage industry of boutique managers to a handful of big names running diversified, sophisticated and technologically driven businesses. They also serve as case studies on the need to keep innovating, on whether hedge funds can or should outlast their founders — and on how past performance is no guarantee of future success.
“Like a lot of fund managers, people might be clever and good at investing,” said one investor. “But they’re not always good at getting the strategy of their own firm right.”
In 2017 Lansdowne began discussions with BlackRock head of European credit Michael Phelps over whether the London firm might be able to bring his team on board to launch a credit fund, according to several people familiar with the talks.
It would have been a big departure for Lansdowne, which had carved out a reputation as the gold standard in equity investing, led by portfolio managers Peter Davies and Stuart Roden, who had cut their teeth at Mercury Asset Management.
The cerebral pair, who managed Lansdowne’s flagship UK fund that was later rebranded as the developed markets fund, had prospered by knowing the companies in which they invested inside-out. Chief executives sometimes even cited them as understanding their businesses better than they did themselves.
But the top decision makers at Lansdowne could not agree on its own strategy. While it had launched several other funds over the years, the developed markets fund — a long/short equity strategy that bets individual stocks will either rise or fall — still dominated the firm, accounting for about 80 per cent of its assets and even more of its profit.
Roden, who stopped running money in 2016 to focus on the business, told investors a foray into credit would help diversify the firm and bring on a new generation of talent. But a deal was never struck, with Roden unable to convince its retired founders and controlling shareholders Sir Paul Ruddock and Steven Heinz to dilute their share of Lansdowne to incentivise a new team, according to the people familiar with the talks.
Phelps left BlackRock and in 2019 set up Tresidor Capital Management in one of the more successful European hedge fund launches of recent years, securing $200mn in seed capital from alternatives giant Blackstone and growing to $2.2bn in assets with double-digit annualised returns since then, according to an investor.
Roden left the firm in September 2018 to “pursue other interests”, joining Tresidor as chair the following year. Investors say he was open about the reason for his departure: frustration that attempts to diversify the firm had not come to fruition.
His exit coincided with the $21bn peak of the firm’s assets under management and was followed by a period of mixed performance, investor outflows and organisational upheaval.
Founded in 1998, Lansdowne enjoyed early success as it grew with the European hedge fund industry. By the time it sold a 19 per cent stake to Morgan Stanley Investment Management in November 2006, it was managing $12bn across five different investment strategies: European equities, UK equities, global financials, macro, and emerging markets.
It further cemented its reputation during the 2007-08 financial crisis, when Davies and Roden’s UK equities fund profited from lucrative short positions in financials and housebuilders. They then turned positive on equities and caught the market rebound, ending 2009 up 25.6 per cent.
But the run did not last. The UK equities fund lost 20.1 per cent in 2011 after it was hurt by its long positions in financials. In April 2012 it was renamed the Lansdowne Developed Markets fund to reflect its wider remit.
After Ruddock retired in June 2013 and Heinz stepped back from day-to-day activities the following year, they kept their large ownership stakes and remained Lansdowne’s controlling shareholders, paving the way for some of its later challenges.
“You can’t manage a successful organisation with that percentage of the economics going to non-producing owners,” said one rival.
Lansdowne appointed Alex Snow, founder of UK stockbroker Evolution, as chief executive in September 2013. He brought on Per Lekander, a portfolio manager from UBS and Norges Bank Investment Management, and a team to launch an energy fund.
But within three years Snow had left in an exit also linked to frustration at not being able to expand the firm, he told investors.
“Snow was told to make Lansdowne a bigger asset manager but he was never fully empowered to do that,” one said.
Snow’s departure was followed by the closure of Lansdowne’s financials hedge fund. And in July 2020 the firm announced it was closing the flagship developed markets fund after a long period of poor performance. About half its investors converted to the long-only strategy, which has gained 43 per cent since then. The following year Lekander — once Lansdowne’s great hope for rebuilding its hedge fund business — left to launch his own firm, Clean Energy Transition. CET gained 19 per cent last year, is down a small amount this year, and has grown to manage $2.7bn, according to investors.
Lansdowne’s struggles are symptomatic of an existential crisis that has beset the European long/short equity sector. The rise of passive investing has resulted in big swings in markets as exchange traded funds move in and out of individual stocks. The dominance of large US tech companies has meant markets are increasingly driven by a handful of stocks. And a protracted bull market since the financial crisis, turbocharged by central bank stimulus, has made “shorts” — betting on falling prices — more difficult.
In the past couple of years, peers including Adelphi Capital and Sloane Robinson have thrown in the towel while others such as Egerton Capital and Pelham Capital are running smaller hedge fund businesses than before.
A person close to Lansdowne acknowledged that it had not sufficiently evolved. Once again trying to grow its business and reduce dependence on the developed markets fund, it announced the purchase last month of long-only boutique Crux Asset Management.
The acquisition, for which financial terms were not disclosed, is partly aimed at catalysing the evolution of Lansdowne’s ownership structure, the person close to the firm said. “Over time more of the firm’s equity needs to be in the hands of the current portfolio managers and management.”
Between them Davies, Ruddock and Heinz still own 55 per cent of the firm. Morgan Stanley will retain its 19 per cent stake in Lansdowne and Arkansas-based financial services company Stephens, which last year bought a minority stake in Crux, will transfer its stake to Lansdowne and increase it to 9 per cent.
Lansdowne sees its future in three main revenue streams: its traditional institutional client base, a more recent push into the wealth market, and expanding its hedge fund servicing business where it provides middle and back office services to other managers. It has about $6bn in assets under administration in the servicing business, including Lekander’s Clean Energy Transition, with which it has a profit share, and Patrick Degorce’s Theleme Partners.
“This is a special place built on 25 years of investing patiently in equities and doing so against consensus, transparently and with high conviction,” managing partner Brian Heyworth told the FT. “There is a great group of people here across the whole firm. We think the opportunities available outside of the familiar US large caps are really compelling.”
Marshall Wace was set up by Paul Marshall and Ian Wace in 1997 with $50mn in assets, some of which came from Hungarian-born financier George Soros. Marshall was ex-Mercury while Wace had worked at SG Warburg then Deutsche Morgan Grenfell.
“The best thing we ever did was recognise that Paul’s interest was in markets and my interest was in business-building, and that we allowed each other to develop in those spaces,” Wace told the FT in a rare interview. “A defining characteristic of Marshall Wace is that I spend a considerable amount of time thinking about how to build this business . . . that’s really, really important in building a definable competitive advantage.”
The pair did not start with a grand plan and their strategy has kept evolving, he said, through “constantly sitting there thinking . . . how do you do it? We never had analysis paralysis. We were always pretty ambitious to try to invest in the business systems, processes, controls.”
A crucial development came in 2002 with the invention of Trade Optimised Portfolio System (Tops), a proprietary trading system developed by Anthony Clake that analyses buy and sell recommendations from about 1,000 external analysts. The concept is known as “alpha capture” and the flagship Tops fund is market neutral — generating returns uncorrelated with equity markets.
These strategies keep evolving. “You will never ever be successful mining spent ground,” said Wace.
The Tops Market Neutral fund is up 2.88 per cent this year and has recorded an average annualised gain of 9.31 per cent since its November 2007 inception. Marshall’s Eureka fund, which accounts for about a third of the firm’s assets, is flat this year but has delivered average annualised gains of 11.9 per cent since its 1997 launch, according to investors.
Tops has been the linchpin for Marshall Wace’s quantitative business, which has added scale to the firm and allowed it to diversify beyond its roots in fundamental equities. Two-thirds of its $62bn in assets is run in systematic strategies that use computer algorithms, about a third of its 550 or so employees work in technology-related roles and the firm spends tens of millions of dollars a year on technology.
“In order to try and access these systematic businesses, the first thing is the idea but the other thing is how do you actually optimise and execute that idea,” said Wace. “When you see that competitive advantage, invest in it. But the devil is in that execution.”
As Marshall Wace grew, it also distributed ownership of the company more widely among key personnel. “The root of our success has been partnership,” said Wace. It counts 33 partners and when one retires their holding is diluted to a smaller stake, with the rest of the shares purchased and redistributed.
“Lansdowne and Marshall Wace are two polar opposites,” said one investor. “Marshall and Wace have said that they’re happy to be a smaller shareholder in a bigger group to incentivise the next generation.”
Marshall Wace suffered a near-death experience in 2008 when clients pulled their money and assets plunged from $14bn to $3.95bn in three months, heralding soul searching about the shape of the business.
“When you watch a horrendously large percentage of your assets disappear out of the door within an extraordinarily short period of time, you vow that you would never allow this to happen,” said Wace. This meant rethinking liquidity and fee structures, extending funding terms and increasing the portion of US institutions and sovereign wealth funds in its client base.
As part of the push to stabilise the business, Marshall Wace sold a 24.9 per cent stake to KKR in September 2015. The alternatives giant has since increased its holding to 39.9 per cent and during their partnership Marshall Wace’s assets under management have almost tripled.
Wace said the KKR deal “focused the mind of the partners about the value of partnership, and it focused the investors on the value of investment”.
“I think when you build a business, what you try to do is to build people who build a business,” said Wace. “You don’t build a business, it’s all about people.”
Food delivery apps are getting lost in transit
The pandemic boom encouraged unrealistic expansion and investors now want profits
Grubhub’s new chief executive had “tough” news on Monday for its 2,800 employees. Though the food delivery app had boomed during the pandemic, 15 per cent of workers will now lose their jobs.
“We operate in a highly competitive and constantly evolving industry, and we need to continually look at whether we are set up in the right way,” Howard Migdal wrote in a company-wide email.
The US app, which is owned by Amsterdam-based Just Eat, is not alone. Zomato recently closed down operations in 225 Indian cities, Deliveroo pulled out of Australia and DoorDash cut 1,250 workers, or 6 per cent of its corporate workforce.
Meal delivery was overdue for a reckoning. While Domino’s has been bringing food to customers for decades, today’s apps inserted themselves into what was already a relatively tight-margin business by tapping into excess capacity. They linked stay-at-home diners with drivers and restaurants with the ability to serve more customers than they could attract to dine in or pick up.
Estimates of the global meal-delivery market range from $167bn to $300bn. But revenue leapt up in recent years due to two factors that have since disappeared. Expansion was funded by cheap capital that covered the gap between the true cost of delivery and what customers actually paid. And pandemic lockdowns supercharged growth by limiting competition from dine-in restaurants and other entertainment.
The boom was so extraordinary that existing food service brands, such as US burger chain Wendy’s and UK Indian group Dishoom, tried to capitalise by not only listing their restaurants on the delivery apps but also opening delivery-only “ghost kitchens”.
Now those tailwinds are gone, and the available profits from eat-at-home meals have been eroded by higher food and other costs and squeezed diner budgets. “The whole delivery space is problematic. It’s getting difficult to make money,” says Peter Backman, an independent food sector analyst.
Restaurants have on-site customers again and pandemic-era caps on app charges are expiring. They are now less enthusiastic about partners who siphon off 15 to 30 per cent.
Several restaurants in my New York suburb have shifted to proprietary online ordering systems. One local pizza place even included a note with my recent DoorDash order reminding me that I could save nearly 30 per cent if I contacted them directly. US brands Wendy’s and Applebee’s have also scaled back their ghost kitchen plans.
Jefferies analyst Giles Thorne remains convinced that food delivery apps can create sustainable earnings, particularly as comparisons with the extraordinary pandemic period fade away. “There are large sectors of society that are willing to pay $4 to buy back 45 minutes of their time,” he argues.
But it is going to be a struggle to keep that delivery charge down now investors are demanding profits rather than just growth. Lay-offs will help reduce overheads but they aren’t sufficient. Food delivery apps need to find other ways to cut costs, particularly if they want to expand to new areas without relying on big subsidies.
Some have turned towards “batching” orders, with one courier making multiple stops. This can work in densely populated urban areas filled with busy restaurants. It also explains why DoorDash and Uber Eats routinely offer to make a second stop for diners who have already ordered. But batching done badly alienates app customers who watch in real time as their burgers take a circuitous route and their fries get soggy.
It can be a fool’s errand to promise to deliver everything to everybody. Well-known local restaurants can strengthen their bottom line and preserve their reputation for good food by focusing on dine-in and takeaway.
Realistically, many communities will end up with the latest version of ghost kitchens, which cook multiple cuisines under virtual brands. That makes it easier to attract enough nearby customers to keep delivery affordable. ClusterTruck, an Indianapolis pioneer, aims for entrées to go from stove to front door in less than seven minutes, allowing drivers to make at least four trips an hour.
Foodies may sneer at the idea of ordering pad Thai, pizza and a burrito from the same kitchen. But the current situation isn’t much better: a single Manhattan deli tries to maximise orders by listing itself on Grubhub and the other apps as 27 different restaurants including a taco bar, a bagel store and several burger joints.
The pipe dream of cheap gourmet food on every doorstep is giving way to today’s leaner reality.
Closing Stock Market SummaryToday's trade was decidedly upbeat. The major indices all closed near their best levels of the day, paced by the Russell 2000 (+1.2%). There were a few positive catalysts supporting the upside bias, but this morning's pleasing CPI report was the biggest driving factor.
Briefly, total CPI was up 4.0% year-over-year, versus 4.9% in April, marking the smallest change since the 12 months ending March 2021. Core-CPI rose 5.3% year-over-year, versus 5.5% in April, with the shelter index (+8.0%) accounting for over 60% of the total increase.
That report seemed to corroborate that market's view that the Fed will not raise rates tomorrow and diluted expectations of a rate hike in July. Presently, the fed funds futures market is pricing in a 5.8% probability of a rate hike tomorrow (versus 18.5% just before the CPI report) and a 64.2% probability of a rate hike in July (versus 71.0% just before the CPI report).
The price action today was indicative of a belief that the Fed may not overtighten after all and force a worse economic outcome than necessary to bring inflation back down to its 2.0% target. That belief led to a more pro-cyclical trade in today's session and led to the outperformance of the Russell 2000, which is comprised of mostly smaller, domestically-oriented companies. Additionally, value stocks outpaced growth stocks in today's session.
The cyclical S&P 500 materials (+2.3%) and industrials (+1.2%) sectors saw the biggest gains today. The consumer discretionary sector (+1.0%) and information technology sector (+0.7%), which was boosted by Oracle (ORCL 116.68, +0.25, +0.2%) after its earnings report, were also top performers today. The countercyclical utilities sector (-0.1%), meanwhile, was the lone laggard to close with a loss.
Apple (AAPL 183.31, -0.48, -0.3%) went against the grain today after it was downgraded to Neutral from Buy at UBS. The broader market exhibited decent strength, though. The market-cap weighted S&P 500 rose 0.7% while the Invesco S&P 500 Equal Weight ETF (RSP) rose 1.0%.
Market rates declined immediately after the CPI report, but Treasuries ultimately settled the session with losses across the curve despite a strong 30-yr bond auction in the afternoon. The 2-yr note yield rose 11 basis points to 4.70% and the 10-yr note yield rose seven basis points to 3.84%.
- Nasdaq Composite: +29.7% YTD
- S&P 500: +13.8% YTD
- Russell 2000: +7.7% YTD
- S&P Midcap 400: +6.3% YTD
- Dow Jones Industrial Average: +4.0% YTD
Reviewing today's economic data:
- The May NFIB Small Business Optimism Survey rose to 89.4 from 89.0 in April
- Total CPI was up 0.1% month-over-month in May (consensus +0.2%). Core CPI, which excludes food and energy, increased 0.4% month-over-month, as expected, driven by a 0.6% increase in the shelter index and a 4.4% increase in the index for used cars and trucks.
- On a year-over-year basis, total CPI is up 4.0%, versus 4.9% in April, marking the smallest change since the 12 months ending March 2021. Core CPI rose 5.3% year-over-year, versus 5.5% in April, with the shelter index (+8.0%) accounting for over 60% of the total increase.
- The key takeaway from the report is that inflation rates are moving in the right direction, although core inflation in particular will still be viewed by the Fed as "too high," which is why the prospect of another rate hike in July will be kept alive.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -1.4%)
- 8:30 ET: May PPI ( consensus -0.1%; prior 0.2%) and Core PPI (consensus 0.2%; prior 0.2%)
- 10:30 ET: Weekly crude oil inventories (prior -0.451 mln)
- 14:00 ET: June FOMC Rate Decision ( consensus 5.00-5.25%; prior 5.00-5.25%)
After Hours Summary: Pretty quiet after hours; LOGI -2% lower on news it CEO steps down; MVIS -15.5% lower on mixed shelf; RDNT -7.5% also lower on offeringAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: None
Companies trading higher in after hours in reaction to news: LL +2.6% (Howard Jonas consortium sends letter to LL strongly encouraging offer made by F9 Investments), GOOG +0.2% (EU regulator blocks Bard chatbot from launching in the region, citing privacy concerns, according to Business Insider), O +0.1% (increases dividend), MRK +0.1% (court rules in favor of co relating to patent)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: FITB -2.1% (provides Q2 outlook)
Companies trading lower in after hours in reaction to news: CNVS -28.4% (stock offering), MVIS -15.5% (files mixed shelf securities offering), RDNT -7.5% ($175 mln stock offering), IVAC -7% (to evaluate strategic alternatives, provides sales outlook), KURA -5.7% (commences $100 mln offering), PEPG -2.9% (provides update on planned initiation of Phase 1 study of PGN-EDODM1), UNFI -2.7% (announces regional restructuring), ACAD -2.2% (announces Phase 3 development candidate ACP-101), LOGI -2% (CEO steps down), SR -2% (commences $112 mln stock offering), CVI -1.4% (determines not to pursue a spin-off at this time), DASH -0.3% (CFO sells shares), MITK -0.1% (provides update on Nasdaq listing; reiterates 2022 results and provides 2023 guidance), NCLH -0.1% (CEO sells shares), CFLT -0.1% (updates mid- and long-term targets)