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The Zephyr has a wingspan of 25m but weighs just 75kg and uses solar panels to fly and recharge its batteries

Airbus is planning to spin off Zephyr, its high-altitude drone programme, with the aim of creating a standalone telecoms and earth observation business that will start commercial operations by the end of next year.

The European aerospace and defence group has hired Morgan Stanley to find external partners to help accelerate the commercialisation of the unmanned, solar-powered Zephyr aircraft, which operate at the edge of space.

Samer Halawi, a former executive at Intelsat and OneWeb who has been leading the programme at Airbus since last summer, said the Zephyr was “now at a final design stage”. The company, he added, was “ready to monetise this aircraft” and build a “full business” around it.

Originally designed by engineers from defence group Qinetiq, the current Zephyr Z8 has a wingspan of 25m but weighs just 75kg. It uses solar panels to fly and recharge its batteries.

It is designed to fly at an altitude of around 70,000 feet at the edge of space in the stratosphere — above weather and commercial planes but below conventional satellites.

The business, which will operate under the brand name “Aalto”, is already in talks with a range of commercial customers as well as potential strategic partners. It will need to raise funds to help with its commercialisation.

“Airbus is not a company that offers telecom services,” Halawi told the Financial Times. “The idea of the carve-out is to bring like-minded partners to the equation and to be able to scale this business.”

Airbus confirmed that it had hired Morgan Stanley, adding that it planned to “maintain ownership in Aalto, where the Zephyr programme resides, but will consider outside investment to help accelerate the company’s objectives”.

Industry executives say that high-flying, solar-powered drones offer advantages over conventional satellites including lower costs and greater flexibility.

The Zephyr, Halawi said, offered a “nice mix of capabilities” to customers such as mobile operators looking to extend broadband coverage to remote or disaster-stricken areas. By being close enough to Earth it was able to “talk directly to end-user devices” while at the same time it had the persistence of a satellite and offered greater coverage than terrestrial infrastructure, he added.

The company plans to set up “Aalto ports” at 5 or 6 locations around the world, including in the US and Middle East.

Zephyr already has some revenues from earlier customers, notably government customers including the UK’s Ministry of Defence. The company currently has ten aircraft at its site in Farnborough in the UK.

Last year the latest system, the Zephyr Z8, flew 64 consecutive days before crashing. Halawi said that a component had failed during bad weather but that the design was now complete.

“It’s a mature programme. It needs a bit of [commercialisation] in order for us to . . . offer services.”

Ken Griffin’s hedge fund charged its investors $12bn in fees and expenses in 2022

Ken Griffin’s Citadel made a $16bn profit for investors last year, the biggest dollar gain by a hedge fund in history and a haul that establishes his firm as the most successful of all time.

Citadel, which manages $54bn in assets, made a 38.1 per cent return in its main hedge fund and strong gains in other products last year, equating to a record $16bn profit for investors after fees, according to research by LCH Investments, run by Edmond de Rothschild.

The profit, which was driven by bets across a range of asset classes including bonds and equities, surpasses the roughly $15.6bn made by John Paulson in 2007 through his bet against subprime.

Last year’s huge sell-off in government bonds provided a highly attractive trade for many macro managers, helping them to their biggest gains since the onset of the global financial crisis.

Citadel, which Griffin set up in 1990, made a total gross trading profit of about $28bn last year, meaning that it charged its investors — one-fifth of whom are its own employees — roughly $12bn in expenses and performance fees.

The huge fee highlights how many investors tolerate hefty so-called pass through expenses — variable charges covering a range of items including trader pay, technology and rent — if net returns are still high.

The $16bn of gains for investors means Griffin’s Citadel replaces Ray Dalio’s Bridgewater, which for seven years had been the all-time most successful hedge fund, at the top of LCH Investments’ list of the top money managers. Citadel declined to commen

The record profits come in a turbulent year for financial markets, and the hedge funds that trade them, as stocks and bonds both tumbled.

Multi-manager funds such as Citadel and Millennium, which run money across a wide range of strategies, and macro funds such as Brevan Howard and Rokos that bet on falling bond yields, thrived. But many equity funds were badly damaged by the sell-off in technology stocks as interest rates were raised sharply to combat soaring inflation.

Most striking was the 56 per cent loss suffered by Chase Coleman’s Tiger Global, the most famous of the so-called “Tiger cub” funds spawned from legendary investor Julian Robertson’s Tiger Management.

Coleman’s hedge fund was one of the biggest winners from the bull market in technology stocks and two years ago entered the list of the top managers of all time in 14th place, with an annual gain of $10.4bn.

But it was one of the highest-profile casualties when markets reversed, making $18bn of losses across its funds last year and dropping out of the top 20. According to LCH, this ranks as the biggest annual loss in hedge fund history. LCH’s research does not include Tiger’s private equity business. Tiger Global declined to comment.

Meanwhile fellow Tiger cub Lone Pine lost $10.9bn last year, pushing its ranking down from sixth to 11th in the all-time list. And Sir Christopher Hohn’s TCI slipped from ninth to 14th as it lost $8.1bn, wiping out much of the $9.5bn it made for investors in 2021.

There had been “a tremendous divergence” of results, said LCH chair Rick Sopher. “The divergences mainly reflected whether the strategy sought to benefit from trading opportunities around the significant volatility, or were caught holding high growth equities whose valuations compressed sharply.” 

Overall the top 20 managers of all time in LCH’s list made $22.4bn in gains last year, while hedge funds overall lost $208bn for investors.

Israel Englander’s Millennium, which gained about 12 per cent last year, made $8bn for investors, and Steven Cohen’s Point72 made $2.4bn thanks to a 10.3 per cent return. Both are multi-manager funds that employ tens or even hundreds of teams of traders. They specialise in controlling risk by quickly cutting back losing bets, but increasing the size of winning trades.

Citadel, which suffered badly in the 2008 financial crisis but has gone on to post returns well ahead of the S&P 500 and its peers, was last year able to put on risk when many other investors were running for cover. It achieved records in four of its five business units last year, with its fixed income strategy making 32.6 per cent, ahead of many specialist macro funds.

“Ken Griffin learned much about hedging in the 2008 financial crisis and has an extremely disciplined approach to risk,” said David Williams, founder of outsourced equity trading firm Williams Trading.

Point72 did not respond to requests for comment. TCI, Millennium, Lone Pine and Bridgewater declined to comment.

Elliott takes multibillion-dollar activist stake in Salesforce

Pressure mounts on Marc Benioff’s software group after Starboard Value fund calls to boost profit margins

Elliott Management has built a multibillion-dollar position in Salesforce, as another big activist investor joins the shareholder roster of a software group facing calls to cut costs and improve its stock price.

The New York-based firm joins fellow activist Starboard Value, which disclosed a stake in Salesforce in October with a call to increase profit margins. It was unclear what Elliott’s position on the company is and whether it has made recommendations to the board.

The activist stakes will raise pressure on Salesforce and its co-chief executive and co-founder Marc Benioff. The company has shed about $170bn in market value from its peak in late 2021 amid retrenchment in the technology sector following a pandemic-driven boom.

“Salesforce is one of the pre-eminent software companies in the world, and having followed the company for nearly two decades, we have developed a deep respect for Marc Benioff and what he has built,” Jesse Cohn, managing partner at Elliott, said in a statement. “We look forward to working constructively with Salesforce to realise the value befitting a company of its stature.”

Salesforce declined to comment. Elliott’s stake was first reported by the Wall Street Journal.

Earlier this month, Salesforce announced it would cut around 10 per cent of its workforce in a reversal of a pandemic hiring spree. The company added nearly 17,000 employees in 2021. The group is one of a number of Big Tech companies, including Alphabet, Amazon, Microsoft and Meta, to have announced sweeping job cuts in the past few weeks amid a slowdown in growth across the industry.

“We hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that,” Benioff wrote in a letter to staff at the time. The company said it expected to incur $1.4bn to $2.1bn in charges associated with the lay-offs and restructuring.

The San Francisco-based enterprise software group has also had several high-profile departures from its management ranks. Co-chief executive Bret Taylor announced in November that he would be stepping down this month. Stewart Butterfield, the chief executive of workplace tool Slack, which Salesforce acquired in July 2021, also confirmed last month that he would be departing.

Elliott is one of the best-known activists on Wall Street with a reputation for tackling technology companies. Under Cohn’s oversight, the firm has become one of the largest and most active software investors in the world.

Last year, Elliott helped to assemble takeovers of enterprise software specialist Citrix Systems and media ratings group Nielsen, two of the largest leveraged buyouts of the year, through its private equity unit Evergreen Coast Capital.

Elliott has the flexibility to build large activist public shareholdings as well as to help arrange and participate in large private equity deals. Along with buyout firm Francisco Partners, it acquired non-core assets from Dell Technologies in 2016. Elliott has also worked with a number of large private equity firms to assemble LBOs outright.

Luxury boom shows the staying power of the ultra-rich

Many of our expectations about the spending patterns of the wealthy are being confounded

We may be heading for a global recession, but there’s one group of people who can’t seem to stop spending — the world’s richest. While retail sales in general have been falling, and the stock market was down by 20 per cent last year, spending on luxury goods and experiences actually grew by roughly the same amount in 2022, as wealthy individuals unleashed their animal spirits.

The data, which comes from a new Bain & Company study of the luxury market, challenges much of our conventional wisdom about luxury spending and the rich in general.

For starters, last year’s boom in the €1.38tn market was driven almost entirely by Gen Z and Y, who dominated the personal goods market (including luxury clothing, bags, jewellery, etc). “The spending of Gen Z and even the younger Generation Alpha is set to grow three times faster than other generations through 2030,” according to Bain. So much for youthful worries about the materialism of their predecessors.

Further confounding our assumptions, this luxe boom wasn’t fuelled by China, which was still in lockdown for much of last year, but by the US, which led the market. And within America, it was New York that doubled down on its status as the luxury capital of the world. Despite all that Wall Street and Silicon Valley money moving to places such as Miami or LA or Austin, the Big Apple is still where people go to drop big bucks on things like jewellery, watches, handbags and luxury tourism. (You need look no further than the opening of the opulent new Aman New York, where room prices can reach $15,000 a night). 

I have to say, I wouldn’t have expected much of this. I thought that even high net worth individuals would be somewhat more sensitive to the steep fall in asset prices, given that these are usually people whose money comes largely from assets rather than income. Perhaps they would spend, but not in a way that actually mirrors the equity dip, only on the upside.

But luxury experts say that there’s simply been so much wealth created over the past two decades that even a 20 per cent stock market price correction is a blip for the top 5 per cent of the market. And it is this top 5 per cent that represents 40 per cent of overall luxury market sales, according to Milton Pedraza, CEO of the New York-based Luxury Institute.

“OK, so the market is down — maybe if I have a family office, the checks I send out in a given month will be for $80,000 instead of $100,000,” says Pedraza, who analyses the premium goods and services industry. But many families haven’t blinked, he says. “There’s still a lot of wealth out there.”

And wealthy people have more time in which to spend their money, since they now live roughly a decade longer than their low-income counterparts, thanks to better healthcare, diet, nutrition and rest. Pedraza believes the notion of the rich as workaholics is a myth. For them, he says, “it’s a sprint not a marathon. Maybe they are working hard to close a deal, and then they go on a long holiday.” He estimates the UHNW individuals he interviews regularly work about six hours a day, “so they are less stressed.”

Not only are the rich living longer, there are more of them than there used to be, because of the continued growth of an asset-owning class in developing countries. And after half a century of turbocharged growth, there is also more intragenerational wealth, notes Bain partner Claudia D’Arpizio. “You’ve now got five generations” of luxury consumers buying into brands like Vuitton, Hermès or Chanel, which they’ve literally grown up with.

It is brands like these that have done the best of late. They have managed this by remaining extremely upscale rather than trying to appeal to the bigger but more economically vulnerable part of the market, the lower 80 per cent of consumers. “They’ve targeted a mindset, rather than a demographic,” says Pedraza. And the mindset is “‘Grandma (or Great-Grandma), can I borrow that Kelly bag?’”

That gets to another reason behind the luxury boom — the growth of a secondary market. High-end vintage purveyors are ubiquitous in the cities where clients live and the places they vacation. But there are also mass-market online resellers, such as The RealReal, which provide a venue for working professionals to resell used items of upmarket clothing or jewellery.

One of the most interesting differences between the post-Covid luxury boom and the post-2008 market is that, this time around, there seems to be no worry about conspicuous consumption. Perhaps this is a hangover from the “greed is good” Trump era. Or perhaps it reflects different policy responses to the respective crises. After the global financial crisis, governments bailed out companies. After the pandemic, American consumers got $2tn in stimulus. They’ve clearly been spending it.

Will this last? I suspect as inflation (which also enlarged the luxury market in 2022 by increasing prices) begins to bite, you’ll see the lower 80 per cent of luxury consumers fall off. They might be willing to buy a Chanel bangle or an Hermès scarf once a year, but they also carry debt, which is getting more costly.

As for the world’s richest, their money — and their lifestyles — really do seem to reflect a new Gilded Era. I can’t help but wonder when, and how, it will all end.

US fund managers turn away from China and look to Europe for growth

American groups are embarking on a hiring spree as they look to expand their operations in the region

Top US investment management firms are going on a hiring spree in Europe as draconian anti-Covid measures and rising geopolitical tensions have pushed them to redouble their search for growth outside China.

Major American firms — such as Capital Group, JPMorgan Asset Management, T Rowe Price and BlackRock — are planning to expand longstanding offices in Europe as they hunt for growth outside their home market.

China may be reopening but its fierce anti-Covid measures, the EU’s push into sustainable investing and worries over tensions between Beijing and Washington had all favoured doubling down on Europe, said Jonathan Doolan, partner at consultancy Indefi.

“That 1-2-3 punch . . . meant that a lot of firms that had a global footprint are starting to re-examine Europe as a core area for them to succeed,” Doolan said.

“Europe remains an attractive market . . . it is the largest institutional and wholesale market outside of the US. It also has a strong responsible investment focus, supported by the regulatory regime,” said Saker Nusseibeh, chief executive of Federated Hermes, the London-based affiliate of the American firm, which has $624bn under management.

Bigger American firms, which often have established offices in London and distribution networks on the continent, are being selective in their push further into Europe.

Germany, Austria, Switzerland, the UK and Nordic countries are particular targets, as is the region’s growing wealth market, say people familiar with the matter.

While regional competitors with deep roots offer specialised local products, US firms think they have an edge because of their ability to sell access to global strategies.

Until recently, big US firms looking to expand simply paid up — BlackRock bought Barclays’ investment arm BGI for $13.5bn in 2009 and Goldman Sachs Asset Management acquired Netherlands-based NN Investments in 2021.

Now, however, “there’s an acknowledgment that a lot of it is going to need to be done organically or with small acquisitions”, Doolan said.

In order to bulk up, PGIM in December announced two senior hires in London, including a new role for a London-based global head of distribution.

Retail giant T Rowe Price, which has $1.23tn under management, has grown its European operation from about 300 people in 2012 to more than 1,000 now.

Capital, which has $2.2tn under management, has almost doubled its European staff in the past decade from 430 to 750 and will double its space in London when it moves to a new office from next year.

Pimco also announced it would open its first office in France this month.

Senior executives at Capital Group and T Rowe said that while they were keen to invest in Europe they had never invested heavily in building onshore businesses in China.

“What we do in the US is we distribute mutual funds to ordinary investors through financial intermediaries, that’s the bedrock of the business. So the fact that we didn’t do it outside the US always looked a bit odd,” said Hamish Forsyth, president for Europe and Asia at Capital Group, which first started building a business outside the US about a decade ago.

Robert Higginbotham, head of global distribution at T Rowe Price, said the firm was hiring client-facing roles first in Europe and that Germany and Spain had been particularly profitable markets.

“We’re realistic — we’ve been on the ground on our own steam for 22 years but we know . . . we’re not in the top five considerations in most markets. So our plan now is really to double down on where we already exist. It’s about going deeper rather than broader,” said Higginbotham.

For JPMorgan Asset Management, sub-advisory services — where products are sold to savers via banks and other intermediaries — have driven growth in Europe, while the firm sees opportunities in alternatives and sustainable investing.

“Our European business is a core part of our business and growth strategy,” said Patrick Thomson, chief executive for Europe at JPMorgan Asset Management. Nevertheless, he said, China remained key. “We have a long-established presence in China and we’re very committed to it. If you’re a global investor you can’t ignore China, no matter what the politics are.”

The top tier of American alternatives managers, such as KKR and Apollo, which have very successful wealth management businesses, are also looking to Europe and actively hiring as they expand private assets capabilities.

“Those . . . shops are saying: we’ve already been in Europe for long enough, we know all the institutions that matter. Our next leg of the stool is going to be wealth, and we are not going to be encumbered by euros or dollars or pounds in terms of how much we can hire. We’re going to throw bodies at the problem until it solves itself,” Doolan said.