Hedge Funds: Griffin's Miami, Bets on the Pound
D.E. Shaw is relocating its Midtown headquarters to the far west side of Manhattan. The firm has signed a lease at Two Manhattan West, spanning roughly 283,000 square feet across eight floors. Currently based at 1166 Avenue of the Americas, D.E. Shaw plans to move to the new skyscraper in 2024.
Hedge funds ramped up bullish bets on the pound just days before the UK government’s unexpectedly large tax cuts sent the currency tumbling. Leveraged investors added a net 13,488 long contracts during the week to Sept. 20, the most since March, data from the Commodity Futures Trading Commission show.
The Brazilian hedge-fund managers who posted the biggest profits during the country’s last presidential election are piling into shares of utility companies ahead of this year’s vote. Marcos Peixoto and Joao Braga say domestic stocks look ripe for gains on the back of stable or declining interest rates, better-than-forecast economic growth and historically low valuations.
Insight
Griffin Brings Billions to Miami With Political Wind at His Back
By Amanda L Gordon
In a few years and change, if everything goes to plan, Miami will look far different than it does today.
There will still be nightclubs, Little Havana, perhaps even the crypto diehards. But alongside them: programmers and portfolio managers filling the streets of Brickell and driving breathtaking profits inside the state-of-the-art, built-from-scratch global headquarters of Citadel and Citadel Securities. Plus legions of lawyers, accountants and hedge-fund hopefuls following the money to an enduring Wall Street South that outlives the Covid-19 pandemic.
This is the vision of Ken Griffin, instantly Florida’s richest person after moving his family and financial empire to Miami from Chicago. Depending on whom you ask, his maneuvers conjure Niccolo Machiavelli or Ayn Rand, Robert Moses or David Rockefeller. With a $29.6 billion fortune, he’s a force in business, philanthropy and, especially of late, politics.
Some Miamians are more enthusiastic than others. Proponents point to the multiplier effect on the local economy from thousands of well-paid workers, with everyone from Jeb Bush to Jorge Perez viewing Citadel as a catalyst that turns Miami into a new US capital of high finance and tech, with all the infrastructure and culture that comes with it. Skeptics question which communities will be displaced in the process — and whether Griffin has bigger plans in the works.
The Citadel founder is attempting a rare feat: to pick up and move at the prime of his career, at a time when his business is thriving, to a more malleable city where the wind is firmly at his back. Instead of a foil like billionaire Democrat J.B. Pritzker in the state capitol, he has a like-minded governor, Republican Ron DeSantis, who Griffin said he’d back for president in 2024, even if up against Donald Trump.
Griffin, 53, hasn’t put forth a formal agenda or made splashy donations. The site of Citadel’s headquarters-to-be — a gleaming waterfront tower, with a wish list that includes a helipad, a marina and windows that open to Biscayne Bay — is, for now, a vacant lot. He plans to get his family and colleagues settled and listen to South Florida’s needs before making his presence felt, both professionally and philanthropically, in the region where he was born and raised.But make no mistake: He plans to have an impact.
“We’re not sort of in — we’re all in,” Griffin said in an interview in Miami.
Market Calls
Edouard de Langlade, EDL founder, says the Bank of England will be forced to act to stabilize the UK’s currency and bond markets. He had been betting on a fall in pound and took profits as the currency weakened. He said he has retained a fifth of his wagers against the currency and is betting against UK stocks in expectation of higher interest rates, which he believes could eventually hit more than 10%.
Christopher Yanney and KC Baer, founders of CKC Capital, say that as the Federal Reserve tightens, the economy could swing into recession faster than investors are prepared for, and they’re focusing on shorter-term bonds for both junk bond and investment-grade debt.
Returns
Returns were compiled from people familiar, investor letters and other Bloomberg News reporting.
Capital Fund Management’s flagship fund has returned about 21% in 2022, set for its best performance in 17 years as inflation-spurred market swings fuel a comeback for quant traders. CFM’s multi-strategy Stratus fund has been boosted by a nearly 40% return from its Discus futures-trading program, as well as by volatility trading and statistical arbitrage in stocks, according to a person familiar with the matter.
H2O Asset Management said its Allegro Fund gained about 8.14% in August. The Vivace Fund was up 5.38% for the same period, the firm said in a statement.
U.S.
Europe
Asia
Why the UK cannot intervene to prop up sterling
The Bank of England does not have a lot of options
Wary of appearing panicked by sterling’s nosedive, the Bank of England has only said it is “monitoring developments” and hinted at a hefty rate rise when policymakers next meet. Unfortunately that is virtually all they can do at this stage.
Some have suggested that the BoE could follow the Bank of Japan in intervening directly in foreign currency markets to prop up sterling and bloody the noses of a few hedge fund magnates betting against it.
The problem — beyond the futility of the BoJ’s own efforts — is that the UK actually has very little firepower to do so. Here is the World Bank’s data for the international reserves of all the G20 countries as of the end of 2021.
As you can see, the UK ranked between Mexico and Indonesia at the time. And the actual level of true, available liquid foreign reserves is even lower, as things like gold (about $17.2bn worth sitting in the BoE’s vaults) and the IMF’s special drawing rights ($38.9bn) aren’t easily used to support sterling.
The latest statement from the BoE indicates that the UK’s gross foreign currency reserves were actually just $107.9bn at the end of August (you can find the full breakdown in an Excel spreadsheet here).
For comparison, Japan’s FX reserves stood at $1.17tn at the end of August. Even Indonesia has $118.9bn of liquid FX reserves — slightly more than the UK’s available firepower.
Given how large and liquid the sterling market is, attempting to intervene directly would likely not just be futile — like shooting a water pistol at a raging fire — it could even backfire, given the paucity of the UK’s reserves. Exante Data’s Jens Nordvig has a good Twitter thread on the subject:
However, in the UK’s defence this is not quite as inadequate as it might seem. There are good reasons for why the UK’s foreign currency reserves are much more modest than countries like Indonesia and Mexico.
The UK might not have the world’s dominant reserve currency any more, but despite a century of relative economic decline the pound remains a reserve currency, as you can see from the IMF’s latest central bank reserve composition data.
That means that the UK is less vulnerable to the vagaries of global capital flows. Sterling also trades completely freely — unlike some of the “crawling pegs” of the developed world — and the UK hardly borrows at all in foreign currencies. Given this, it doesn’t make much sense for the UK to lug around massive amounts of FX reserves.
That said, it does mean that the pressure on any desired support for sterling has to come from the BoE’s monetary policy toolkit, leaving it in a bit of a pickle right now.
An emergency hike would just strengthen the emerging-markets vibe and possibly send sterling lower. Yes, the BoE probably should have raised rates by more than 50 basis points when it met last week, and with hindsight it certainly would have liked to, given the market-shocking “mini-budget” the government unveiled soon after. But acting now would stink of panic.
However, it does mean the BoE is going to have to sound very tough until it next meets in early November, and then meet and possibly exceed expectations for a whopper of an interest rate increase. For context, markets are currently pricing in at least a 150bp rate increase on November 3.
Still, what might be needed for sterling to regain its footing on a more durable basis is a shift in policy from the UK government. Otherwise the danger is that the BoE inevitably disappoints and sterling gets taken to the woodshed again. Here’s JPMorgan’s Allan Monks:
By delaying expectations on when rates will next be set, the BoE is allowing some space for the government to do something in the meantime to stabilise the situation. If successful, that will reduce the amount by which the BoE ultimately has to raise rates . . . Unless something more concrete comes from the Chancellor prior to the next meeting, which . . . there is little indication of at the moment, we think the BoE will be forced to validate market rate expectations or else risk delivering a dovish disappointment which ends up raising longer term inflation expectations.
Goldman Sachs closes $9.7 bln private-equity fund, largest since 2007
NEW YORK, Sept 27 (Reuters) - Goldman Sachs Group Inc has closed a $9.7 billion private-equity fund, its largest since 2007, that seeks to invest in companies with an enterprise value of about $750 million to $2 billion, the bank said on Tuesday.
The fund sits under the Wall Street giant's asset management arm and is known as "West Street Capital Partners VIII." It plans to invest an average of $300 million to take controlling stakes in companies in the financial and business services sectors, as well as healthcare, consumer, technology and climate change transition.
"This fundraise builds on our 30-year history in private equity as we continue to scale the business and make our alternatives offerings available to a wider range of investors," said Julian Salisbury, global co-head of Goldman Sachs Asset Management, in a statement. GSAM, as the business is known, oversees $2.5 trillion in assets, with private equity (PE) accounting for $176 billion.
Goldman's money managers are not alone in raising PE funds. BlackRock Inc (BLK.N) has about $35 billion focused on PE strategies, and last year alone, it raised $3 billion to invest in PE secondary market deals.
Advertisement · Scroll to continue
Investors in Goldman's latest venture include pension funds, sovereign wealth funds, financial institutions, family offices and high-net-worth individuals. The bank, as well as some of its employees, also invested.
The fund has already backed Norgine, a European pharmaceutical company, Nippo Corp, a road pavement company in Japan, and Parexel, a clinical research organization, among others.
Register now for FREE unlimite
Research Calls
- Upgrades:
- Banco Santander (SAN) upgraded to Buy from Neutral at Citigroup
- BRF SA (BRFS) upgraded to Neutral from Underweight at JP Morgan
- China Life Insurance (LFC) upgraded to Buy from Hold at DBS Bank
- Cogent Communications (CCOI) upgraded to Overweight from Sector Weight at KeyBanc Capital Markets; tgt $64
- Hyatt Hotels (H) upgraded to Outperform from In-line at Evercore ISI; tgt $100
- Prologis (PLD) upgraded to Outperform from In-line at Evercore ISI; tgt lowered to $127
- Downgrades:
- CS Disco (LAW) downgraded to Hold from Buy at Loop Capital; tgt lowered to $10
- Douglas Emmett (DEI) downgraded to In-line from Outperform at Evercore ISI; tgt lowered to $24
- Keurig Dr Pepper (KDP) downgraded to Neutral from Buy at Goldman; tgt lowered to $37
- SGS SA (SGSOY) downgraded to Sector Perform from Outperform at RBC Capital Mkts
- Others:
- Arcos Dorados (ARCO) initiated with an Overweight at Barclays; tgt $9
- Cincinnati Fincl (CINF) initiated with a Neutral at BofA Securities; tgt $92
- Core Scientific (CORZ) initiated with a Buy at Compass Point; tgt $4
- Dynavax (DVAX) initiated with a Mkt Outperform at JMP Securities; tgt $22
- EnLink Midstream (ENLC) initiated with a Buy at Stifel; tgt $12.50
- FirstCash (FCFS) initiated with a Hold at Loop Capital; tgt $80
- Grupo Aeroportuario (OMAB) resumed with a Neutral at Citigroup; tgt $56.50
- Guild Holdings (GHLD) initiated with a Buy at Jefferies; tgt $15
- Lucid Group (LCID) initiated with an Overweight at Cantor Fitzgerald; tgt $23
- McDonald's (MCD) placed on 90-day Negative Catalyst Watch at Citigroup