Asset Management: A tale of two hedge funds

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The diverging fortunes of Lansdowne Partners and Marshall Wace

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. Turbocharged by an investment from private equity giant KKR eight years ago, 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.

For this deep dive, I 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.” 

Read the full story here

The unravelling of Odey Asset Management

It has taken just a week for Odey Asset Management to unravel following the Financial Times investigation into its founder, Crispin Odey.

The investigation uncovered alleged sexual assaults spanning decades from 13 women, which Odey strenuously denies.

But the fallout has been sizeable and rapid, writes Emma Dunkley in London. In the seven days following the investigation, prime brokers moved to cut ties with OAM. Morgan Stanley, Exane and Goldman Sachs were among the first movers, followed by JPMorgan, which also serves as custodian for the fund manager’s assets, and UBS.

Rival fund managers with investments in Odey’s funds also reviewed their holdings, with Schroders offloading its remaining stake in the Odey Swan product.

Just two days after the investigation, the partners at OAM ousted the founder and his company, Odey Asset Management Limited, as members of the firm. Management of Odey’s funds were also handed to other partners, including James Hanbury.

As investors withdrew their money, OAM had little choice but to halt redemption requests. The firm also decided to close the Swan fund, which managed €117mn. Other funds that were suspended include the Brook Developed Markets, LF Odey Portfolio and Brook Absolute Return.

OAM is now being broken up. It said on Thursday it was in “advanced discussions” about rehousing funds and managers with rival fund groups — although the names of groups involved in the talks have yet to emerge.

The Financial Conduct Authority has also become embroiled in the scandal. MPs have written to the watchdog demanding to know what action it took after receiving a report from OAM detailing inappropriate behaviour by the founder.

In this explainer, we consider what lies ahead for the hedge fund in the wake of sexual assault claims against its founder. Read all about Odey’s fall from grace in this deep dive: The week the City ditched Crispin Odey.

Then as columnist Helen Thomas points out in this opinion piece, when it comes to harassment, the City must stop protecting its wallet. And deputy editor Patrick Jenkins argues that Odey’s collapse is only partial justice: the founder of the firm is still walking away with the spoils of an investing career made while allegedly abusing employees along the way.

Chart of the week

The S&P 500 index, which measures the performance of US blue-chip stocks and sets the tone for investors around the world, is on track for one of its best half-years in two decades. But this is a rally standing on top of some very slender stilts, write my colleagues Katie Martin and Nicholas Megaw in this Big Read. Strip out just a tiny clutch of companies, all tech heavy hitters, and the index is going nowhere.

“Typically with things like this, when only a small number of stocks are doing well, you get overvaluation and speculative behaviour — everyone pumps money into these stocks, and we have another tech bubble like we did in the late 90s and early 2000s,” says Remi Olu-Pitan, multi-asset portfolio manager at Schroders. “You can argue that maybe we’re sowing the seeds of that.”

Top-heaviness, particularly in US markets, is not new — think of the oil companies in the past, or the so-called Nifty 50 stocks in the 1960s. But by many measures, it has now reached striking extremes, masking a humdrum performance from the vast majority of stocks and complicating investment decisions both for those who pick stocks and those who prefer to track indices. 

Some warn it is unsustainable or a sign of treacherous market conditions ahead. The performance of the S&P 500 index is now the most concentrated it has been since the 1970s. Seven of the biggest constituents — Apple, Microsoft, Google owner Alphabet, Amazon, Nvidia, Tesla and Meta — have ripped higher, gaining between 40 per cent and 180 per cent this year. The remaining 493 companies are, in aggregate, flat.

Meanwhile in Europe, strategists at Goldman Sachs have termed 11 stocks with strong balance sheets that are driving the markets as ‘GRANOLAS’: GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oreal, LVMH, AstraZeneca, SAP, Sanofi.

Read the full story here

Five unmissable stories this week

BlackRock founder Larry Fink has predicted “transformative opportunities” in artificial intelligence could solve the productivity crisis he blames for persistently high inflation. Meanwhile the world’s largest asset manager pushed further into cryptocurrencies by filing an application with the US Securities and Exchange Commission to offer a spot bitcoin exchange traded fund.

Billionaire investor Ken Griffin, founder of US hedge fund Citadel, said China could prop up the global economy this year, helping avert an “ugly” slowdown in growth if the US suffers a recession.

Calpers, the biggest public pension scheme in the US, is planning a multibillion-dollar push into international venture capital as the $442bn fund tilts towards riskier asset classes in a hunt for higher returns after a “lost decade”.

FTSE 100 insurer Legal & General has appointed António Simões as its new chief executive to replace Sir Nigel Wilson, who is retiring after more than a decade in the job. Simões joins from Spain’s Santander, where he has been regional head of Europe since 2020.

Fidelity International is expanding into European business lending as asset managers seek to exploit gaps in the market after rule changes since the financial crisis and the recent banking turmoil. It is launching a fund that will make secured loans to midsized European corporates with annual earnings of around €5mn to €30mn.

And finally

The National Portrait Gallery is reopening this week following a major transformation project. To celebrate this, the enchanting Daniel Katz Gallery has put together a feast of portraiture its Mayfair premises, including works by artists already held in the National Portrait Galleries collection.