A tale of two hedge funds

One thing to start: EY’s global chief executive Carmine Di Sibio has told partners he plans to retire next year, sparking a race to lead the accounting and consulting firm after the collapse of his plan to split it in two.

In today’s newsletter:

• Lansdowne and Marshall Wace confront changing times

• Glencore’s dealmaking win

• Saudi Arabia’s flexes its gaming skills

Lansdowne Partners and Marshall Wace: a study in contrasts

In the hedge fund world, past performance doesn’t guarantee future success.

London outfits Lansdowne Partners and Marshall Wace have been around long enough to experience both sides of the coin. But over the years, their fortunes have diverged significantly.

Lansdowne has struggled to diversify beyond its fundamental equities business, held back by an antiquated ownership structure that limits incentives for new hires.

Marshall Wace, meanwhile, has taken after US heavyweights such as Citadel and Millennium Management — investing heavily in its quantitative unit. It has also distributed ownership of the company more widely to make room for new talent.

Such contrasts in performance and strategy aren’t reserved to the longtime City rivals. It’s a story happening across the industry, the FT’s Harriet Agnew writes in this deep-dive. Hedge funds transform from a cottage industry of boutique managers to a handful of big names who’ve built highly sophisticated platforms and embrace technology to drive their businesses.

“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.”

Under portfolio managers Peter Davies and Stuart Roden, who cut their teeth at Mercury Asset Management, Lansdowne cemented its reign during the financial crisis wielding lucrative short positions in financials and housebuilders.

But despite the smashing success of its UK fund — chief executives sometimes cited them as knowing their businesses better than they did themselves — the firm’s top brass struggled to agree on how to evolve past the firm’s flagship fund.

The European long/short equity sector was changing fast: the onset of passive investing was disrupting stockpicking and a lingering bull market made shorting difficult.

Meanwhile plans to expand into new areas such as credit to energy would continue to fail as long as Lansdowne’s retired founders and controlling shareholders Paul Ruddock and Steven Heinz were hesitant to dilute their shares to incentivise new teams.

Key shot-callers who campaigned for such changes, including Roden and CEO Alex Snow, packed their bags in frustration.

Marshall Wace has had somewhat of an opposite trajectory.

The firm’s early success nearly crumbled in 2008 when clients pulled their money and assets plunged from $14bn to $3.95bn in three months.

In a push for stability, the firm sold a 24.9 per cent stake to KKR in September 2015. The private equity titan has since increased its holding to 39.9 per cent as Marshall Wace’s assets under management have nearly tripled.

“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,” co-founder Ian Wace told the FT in a rare interview.

The KKR deal “focused the mind of the partners about the value of partnership, and it focused the investors on the value of investment”, said Wace.

Lansdowne appears to be embracing a different path: last month it bought investment boutique Crux Asset Management, signalling it aims to compete among more mainstream asset managers over the Ken Griffins and Izzy Englanders of the world.

Glencore’s first big win of dealmaking summer

Glencore’s busy summer of dealmaking isn’t slowing down one bit.

On Tuesday, the Swiss mining and trading group clinched an $8.2bn deal to sell agricultural trading house Viterra to its US-based rival Bunge.

Glencore holds close to 50 per cent of Viterra, so the deal brings the Swiss mining house a windfall of $1bn in cash, plus $3.1bn in Bunge shares, subject to a 12-month lock-up.

Privately held Viterra’s other shareholders are the Canada Pension Plan Investment Board and British Columbia Investment Management Corp.

Shoring up its balance sheet will be useful for Glencore, which is also in the middle of another even bigger deal as it attempts to buy part or all of Teck Resources, the Canadian mining group.

The latest iteration of that deal is Glencore’s offer on Monday to buy Teck’s steelmaking coal business in cash. While no valuation has been formally disclosed, the number is believed to be close to the $8.2bn valuation Glencore assigned the business earlier this year in its multiple attempts to buy the entirety of Teck.

The Canadian miner seems to be considering the offer with interest and is engaging with Glencore, a big change from Teck’s blunt rejections of its suitor’s previous overtures.

Glencore’s sale of Viterra to Bunge thus comes at an ideal time for the Swiss mining house — its shares enjoyed a five per cent bump on Tuesday. 

However, the valuation — at 3.2 times the grain trader’s 2022 ebitda — is “lower than market expectations”, noted Citigroup managing director Ephrem Ravi.

That’s because Viterra enjoyed bumper profits in 2022, when grain prices spiked because of the war in Ukraine.

Be that as it may, champagne corks will no doubt be popping at Glencore’s headquarters in Zug tonight.

Saudi Arabia levels up its gaming ambitions

There’s nothing subtle about Saudi Arabia’s ambitions these days, whether it’s building a $500bn futuristic city, assuming control over one of the world’s premiere golf tournaments, or — as the kingdom hopes — becoming a dominant force in the world of videogaming.

The latter ambition comes with a $38bn price tag, which is what it has set aside for acquisitions and holdings through its gaming arm Savvy Games Group.

The company, which is chaired by Crown Prince Mohammed bin Salman and wholly owned by the country’s $650bn Public Investment Fund, wants to turn the once-insular conservative kingdom into a global gaming hub by 2030.

It has spent $8bn to that end, including its $5bn acquisition of US-based Scopely in April and purchase of a $265mn stake in Chinese e-sports giant VSPO in February.

Saudi gaming officials say the plans make sense for the kingdom, where about 70 per cent of citizens are under 35, and a similar percentage identify as gamers.

Its young crown prince, who at 37 acts as the day-to-day ruler, is an avid gamer himself (though the gaming officials deny that his personal hobby has morphed into a $38bn spending spree).

The gaming strategy is part of a broader push to diversify the kingdom’s economy past oil revenues. It has caught attention in the growing gaming industry, which according to industry tracker NewZoo is worth $200bn.

But to some, the $5bn Scopely deal showed Savvy would have to overpay to win deals.

“They are pretty explicit about it: there is a premium for everything associated with them,” one industry source told the FT’s Samer Al-Atrush and Tim Bradshaw.

The Saudis were willing to pay above market price, he said. “Nobody is going to move to Riyadh or Jeddah for the nightlife.”

Job moves

• Sally Orton, the chief financial officer of troubled Swiss fund manager GAM, is leaving the firm as it works to cement its takeover by Liontrust. She will be replaced by former CFO Richard McNamara.

• Simpson Thacher & Bartlett has hired Justin Rosenberg as an M&A partner in New York. He joins from Paul Weiss.

• Jean-Claude Rivalland, a founding partner of Allen & Overy’s Paris office, is joining Norton Rose Fulbright’s corporate, M&A and securities practice in the French capital.

• Jones Day’s Alexandra Wilde and Kirkland & Ellis’s Enoch Varner are joining Clifford Chance’s new Houston office where they’ll focus on energy and infrastructure M&A.

Smart reads

Zenned out After their cryptocurrency hedge fund imploded and many of their industry rivals ended up in handcuffs, the founders of Three Arrows Capital have discovered surfing and spirituality in Bali, the New York Times writes.

D-Sol in distress Goldman Sachs boss David Solomon’s love of private planes and DJing isn’t the only thing irking his colleagues as profits, strategy, and bonuses veer off course, the Wall Street Journal reports.

Yer aff yer heid Many in golf’s supposed birthplace of St Andrews aren’t too keen on the merger that will give Saudi Arabia massive sway over the sport, the FT reports.

News round-up

JPMorgan cuts ties with Odey Asset Management (FT)

Credit Suisse seeks to strike out Mozambique ‘tuna bonds’ case (FT)

Sanjeev Gupta’s Australian steel business tests bond investor interest (FT)

Croatian government pressed Allianz over €500mn Sberbank deal (FT)

Big Pharma dealmaking recovers with $85bn M&A splurge (FT)

Big Four accounting firms urged to pay junior auditors more (FT)

Banks’ AT1s: sweetening reheated coco market with higher yields (Lex)

Microsoft/Activision: devil of a fight leaves duo on horns of a dilemma (Lex)