Business

➚ BUY: Fancy toys. Ferrari just finished a record year, strong sales of Dior perfumes and Louis Vuitton bags kept sales growing at 10% for LVMH, and mansion prices are rising twice as quickly as starter homes. France’s lux-heavy CAC 40 index hit an all-time high on Tuesday. Soft landing, indeed.

➘ SELL: Fancy jobs. Deutsche Bank is the latest Wall Street firm hit by layoffs. Financial firms announced 23,238 job cuts in January, the highest monthly total in more than five years. There goes demand for those fancy toys.

Tech CEOs in the hot seat: “Your product is killing people”… U.S. sets record $70B Treasury auction… Bank of England, slow to raise rates, disappoints by holding steady… DeSantis v. Disney dismissed… Walmart is growing again… Julius Baer exits private-debt gold rush… Arc’teryx IPO goes straight to the discount rack...

Dry Jain-uary

THE SCENE

Since Bobby Jain left his hedge fund job to hang his own shingle after decades of minting money for others, Wall Street just watched and waited for the money and talent to follow him. They’re still waiting.

Expectations of Jain’s fundraising target has steadily, if quietly, shrunk from $10 billion to perhaps half that, and has been struggling to hire more star traders before its July launch, according to people familiar with the matter.

At resort hotels up and down Palm Beach and Miami Beach this week, talk regularly turned to Jain, who spent more than 20 years at Credit Suisse and seven at Millennium Management, which flagged in late 2022 Jain would be leaving, during a second golden age for hedge funds. The perception — confusing to many who’d envied Jain’s magic touch for years — was of an industry giant passing an empty hat.

Money once flowed into funds founded by big name portfolio managers at big name funds striking out on their own, like Jain’s fellow Millennium defector Michael Gelband, who launched ExodusPoint Capital Management in 2018 with $8.5 billion under management. But things have changed.

Investors pulled more than $100 billion out of hedge funds in both 2022 and 2023, and the average shop returned about half the S&P 500. And Jain is trying to hire in the shadow of established multi-manager giants — known as “pod shops” — like Millennium, Citadel, Point72 and ExodusPoint.

Meanwhile, The Financial Times reported that Jain has cut his performance fees to 10% for investors looking to funnel more than $250 million, and has steadily lowered his fundraising goal.

Pod shops are finance’s version of The Borg from Star Trek, a hive-mind organism in which competing traders serve the larger collective. A manager — here, Jain, raises money and doles it out on terms only he knows to investing teams running their own angles.

Those who make money are rewarded with more capital to trade, which means more fees to collect. Those who lose money threaten the health of the collective and are usually fired. That structure requires, even more than investor dollars, a constant stream of top talent.

LinkedIn profiles show about 50 people now working at Jain Global, though another 30 or so are committed but still legally tethered to their old jobs for now, a person familiar with the firm said. ExodusPoint added 35 portfolio managers last year alone.

THORNTON’S VIEW

Jain would have been shooting fish in a neon barrel two years ago, when there seemed to be no bad ideas and attendees of Miami Hedge Fund Week spent their sunny days talking about cryptocurrencies, NFTs, and the metaverse. But with interest rates topping 5% and very few hedge funds beating the market, allocators are now thinking differently.

Jain in 2024 also is suffering from an unrealistic apples-to-apples comparison to Gelband in 2018. Millennium founder Izzy Englander was infamously displeased when his former protégé founded the not-so-subtly named ExodusPoint, but Gelband managed to pull some talent and investors from his former mentor and still raised $8.5 billion — at the time the largest launch in hedge fund history.

The perception that Jain, who is widely liked in the industry (a very rare thing) and not as much of a public apostate as Gelband, would raise more than $8.5 billion created expectations that Jain would set a new record launch at $10 billion. But Englander is not handing talent over to his most recent ex-CIO, and Jain wasn’t allowed to start raising from Millennium clients until Jan. 1, which might explain why he was in attendance at Morgan Stanley’s invite-only event at The Breakers this week, meeting with as many as he could at once.

In an uneasy echo of last spring’s turmoil, another regional bank stock is tanking. New York Community Bank, which was a net winner last year when it scooped up the remains of Signature Bank at a government auction, is down by 44% after it set aside hundreds of millions of dollars for bad loans.

Last time, the culprit was wrong-way bets on interest rates. To some degree, the banks that failed were a victim of the Federal Reserve’s unprecedented inflation-battling policies. This time, it appears to be bad credit decisions and a quickly deteriorating commercial property market.

The bank’s troubles haven’t yet turned contagious. Bank stocks are holding steady, and about half of lenders are giving rosier projections on loan losses than they did in October. “Oddly, credit feels a bit like less of an issue than it did 90 days ago,” analyst R. Scott Siefers wrote in a recent research note.

But with $1.5 trillion in commercial property loans that need to be either repaid or refinanced in the next two years — and 40% of it sitting at U.S. banks, mostly midsized lenders like New York Community — “challenges lie ahead,” said Greg Friedman, CEO of Peachtree Group, a real-estate finance firm in Atlanta.

Higher interest rates are squeezing lenders — deposits are a lot more expensive than they used to be — and banks are selling off loans, writing fewer new ones, and being stingier about extensions that were once routine. Friedman, whose firm manages $10 billion, doesn’t expect another 2008-level property crash thanks to “significant dry powder” at private investment funds like his and insurance companies with cash to invest. Bargain hunters are also coming in to survey the wreckage.

Dark money: Families of American victims of Hamas’ attacks sued cryptocurrency platform Binance, saying it helped finance the terrorist group. Binance acknowledged in November, as part of a $4 billion settlement with U.S. authorities, that extremist groups illegally used the exchange

Semafor’s Jay Solomon says the lawsuit is “a snapshot into what’s likely going to be an ugly — and protracted — period of legal recriminations,” similar to cases against global banks after the Sept. 11 attacks for helping to finance terrorist organizations and rogue states. Barclays, Credit Suisse, HSBC and others paid out billions of dollars in fines.

Red notice: KKR raised a record $6.4 billion pot to invest in infrastructure in Asia — but is likely to avoid China, where it’s been investing for decades and has one of the largest portfolios among Western investors. An executive told the Financial Times it would focus on India, Singapore, South Korea, and other lower-temperatures zones.

Elon Musk, who is threatening to move Tesla’s legal home from Delaware to Texas after a court rejected his $56 billion pay package, isn’t the first corporate bigwig to take aim at the tiny state’s grip on corporate machinery. It never works.

“If you’re a rational, economically oriented shareholder, I don’t know why you’d support this,” said Lawrence Hamermesh, a professor at Widener University’s law school in Delaware, noting that the state’s courts just saved Tesla’s shareholders billions of dollars.

But lots of investors in Musk’s companies aren’t rational or economically oriented. And keeping Musk happy is a defensible corporate priority, lest his attention wander to another of his other companies. Musk threatened as much last month, saying that unless the board gives him more stock, he would “prefer to build products outside of Tesla.”

In the 1970s, the U.S. Senate considered legislation to establish a national corporate charter in an effort to end a race-to-the-bottom competition for corporate leniency. In 2008, activist investor Carl Icahn backed an effort to reincorporate companies in shareholder-friendlier states like North Dakota.

In the mid-2010s, a perceived shift in the sympathies of Delaware’s special corporate courts away from company managers and toward aggrieved shareholders gave rise to a small corporate mutiny. (Dole threatened to take both its corporate registration and its multimillion banana contract at Wilmington’s port elsewhere.)

These flare-ups set off a bout of soul-searching in Delaware, which gets one-quarter of its revenue from corporate fees and far more from the legal machinery — check your next credit-card bill; it was almost certainly sent from Wilmington — around it. But they never go anywhere: In 2022, eight out of every 10 companies that went public chose Delaware as their legal home.

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