BlackRock comes to Coinbase’s rescue

One bit of programming to start: school’s out for summer. I’m clipping an Apple AirTag to my suitcase, snapping up a couple of books from our summer reading list and heading to the beach. This newsletter will be back for the autumn term on September 5. Until then . . . happy holidays.

Coinbase forges deal to give BlackRock clients access to crypto

“Bitcoin just shows you how much demand for money laundering there is in the world. That’s all it is.”

Larry Fink, chair and chief executive of BlackRock, seems to have changed his tune a bit since he uttered those words back in October 2017. QED: on Thursday the world’s largest asset manager announced a deal with Coinbase to give its clients more seamless access to digital assets markets.

Coinbase will connect to Aladdin, BlackRock’s increasingly ubiquitous investment technology platform. The system, which supplies essential plumbing to the global investment industry, will give the asset manager’s clients access to crypto. The first token available will be bitcoin, but others may come later.

The tie-up arrived at an opportune moment for Coinbase, which has come under intense pressure since its direct listing last year as a result of tumbling crypto prices and falling trading volumes. This forced it to abandoned its growth plans in June and cut a fifth of its workforce — more than a thousand people. Adding to its woes, US prosecutors last month charged a former employee and two of his associates with insider trading.

It also shows how, despite the turbulence in crypto markets this year, some institutional investors are more actively considering allocations in digital tokens.

“Our institutional clients are increasingly interested in gaining exposure to digital asset markets and are focused on how to efficiently manage the operational lifecycle of these assets,” said Joseph Chalom, global head of strategic ecosystem partnerships at BlackRock.

Does the deal represent or a watershed endorsement of the digital assets industry? How does it reconcile with BlackRock’s ESG credentials? Email me: harriet.agnew@ft.com

Hedge funds’ varying fortunes

How have hedge funds fared this year? Well, it depends on the type of fund you picked.

For investors who had the foresight or luck to put their money with global macro managers or computer-driven “managed futures” funds, which latch on to market trends, then this year has probably been fantastic.

Strong, clear trends in bonds, commodities and currencies have yielded big gains for both groups. Macro funds overall made an average of 8.5 per cent in the first half of the year, according to Hedge Fund Research, with Ray Dalio’s Bridgewater and Andrew Law’s Caxton Associates among those profiting. Managed futures funds are doing even better, with Man Group benefiting from strong first-half performance at its AHL unit. (Although the record performance fees for Man’s trend-detecting algos were clouded by the performance of its long-only funds.)

But for investors who picked equity hedge funds, it is probably a very different story. Such funds are having one of their worst years on record, and while the average is ahead of the market’s fall, a host of big names including Chase Coleman’s Tiger Global and fellow Tiger cub Glen Kacher’s Light Street have posted big losses.

There are signs that, after the losses, managers may be turning more cautious. The number of disclosed short positions in Europe, for instance, has now jumped to its highest level since May 2020, according to SEI Novus data.

But as our hedge fund correspondent Laurence Fletcher writes in this analysis, long/short funds have so far provided little sanctuary to investors who held them to help in times of market falls. Frustration among clients is growing. “Some funds should have dropped the term ‘hedge’ a long time ago,” says Andrew Beer, managing member at Dynamic Beta.

Overall, hedge funds were down 5.6 per cent in the first half. Compared with how equities have performed this year, some see that as a decent result. “Strategy selection is always key, and those investors that have avoided long short and invested in diversifying strategies instead have reaped the rewards and significant positive returns year to date,” says Patrick Ghali, managing partner at Sussex Partners.

But the $3.8tn industry is nevertheless on course for its second worst year on record. After last year’s optimism that the end of ultra loose monetary conditions would kick start another golden age for hedge funds, many managers have so far fallen well short.

Meanwhile here’s Lex on why private equity appears to be a superior model to hedge funds. Capital is locked up for years. Owners control companies. Choppy cycles can be ridden out.

Chart of the week

The European Central Bank is using reinvestments from its pandemic-era bond-buying programme to ease the pressure on Italy and other highly indebted countries that are at greater risk of facing a debt crisis.

Between June and July this year, the ECB’s pandemic emergency purchase programme, known as PEPP, reinvested €9.8bn in Italy, and €5.9bn in Spain, according to ECB figures, while significantly reducing holdings from more financially stable countries such as Germany, France and the Netherlands.

The reinvestments highlight the ECB’s eagerness to control bond yields and prevent a eurozone debt meltdown as it pulls back from the stimulus programmes that have supported the bloc since the debt crisis a decade ago. It comes as Brussels raises interest rates for the first time in a decade in an effort to tame scorching inflation and as record energy prices push the bloc to the brink of recession.

Investors are worried that tightening financial conditions may impact eurozone countries differently and risk widening the difference in borrowing costs between heavily debt-laden countries such as Italy and Spain, compared to Germany.

“The deviation now is very large,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, about the ECB’s reinvestments. “It looks like the ECB has been very active by reinvesting almost all the proceeds from core countries into peripheral countries.”

10 unmissable stories this week

Pimco, the world’s biggest credit-focused investment manager, was hit with €29bn in net outflows in the second quarter as a sweeping sell-off in the bond market sent investors racing for the exit.

July’s market rally delivers hard lessons for fund managers, writes markets editor Katie Martin. Too much money was tied up in the safe hidey hole of cash before stock prices bounced back.

The crypto industry has been put on notice by the US Securities and Exchange Commission that it will be prosecuted for insider trading and fraud with the same vigour it pursues it in traditional financial markets.

Tiger Global blames inflation after a 50 per cent drop in its flagship hedge fund. Chase Coleman’s group, one of the best performing investment firms in recent years, says it “underestimated” the effect of rising prices.

Apollo Global has raised $13bn for its first flagship buyout fund since co-founder Leon Black left the private equity group last year over his long association with convicted sex offender Jeffrey Epstein.

Inside venture capital’s silent crash. Investors of all stripes have crashed the clubby world of VC, drawn by the potential of technology start-ups. But there are signs the party is over.

Increasing barriers to achieving financial security have led a younger generation of investors to say, “F@$K it”. Here’s my colleague Madison Darbyshire discussing the rise of “generation moonshot’‘ on the latest episode of the Behind the Money podcast. Listen here.

Robinhood is laying off almost a quarter of its staff as the company that rode the coronavirus pandemic-era retail trading boom and promised to revolutionise stockbroking contends with a decline in customer activity.

The office real estate market is facing a triple whammy, writes deputy editor Patrick Jenkins. Rising interest rates, remote working and the push for greener buildings suggest a bleak outlook for the commercial property market. As the sector suffers, so might financial markets and city budgets.

Fairfax County Retirement Systems, a $6.8bn Virginia pension fund, is looking to boost its returns by investing in crypto lending markets despite a crisis in the sector that has pushed several companies specialising in the practice, including Celsius Network and Voyager, into bankruptcy.

And finally

The remarkable collection of early Thomas Chippendale furniture was to be the centrepiece of an auction at Christie’s of the contents of Dumfries House in Ayrshire in July 2007. The sale catalogue had been published and some of the furniture was already on its way south when the Prince of Wales intervened at the eleventh hour, mobilising a consortium of charities and heritage bodies to purchase the house and its contents. The Palladian country mansion, designed by Robert Adam, represents one of the Prince’s most successful experiments in “heritage-led” regeneration. I highly recommend a visit — and Scotland is a no brainer if you’re in the UK and cancelled foreign flights, lost luggage and general SleazyJet shenanigans are not your thing.