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If we had to sum up hedge fund performance for 2019 it would be that the majority did well but the S&P 500 did better.

With the exception of Bill Ackman, below, who had a banner year (and got married!) with a 58.1 per cent return, after a four year-long run of negative performance, many major US and European funds lagged the broader market. 

It’s a comparison that has come to plague a lot of managers. Those that trade across a wide range of strategies — and aren’t solely stockpickers — tend to say it’s an apples and oranges comparison because it doesn’t take into account other asset classes like bonds or cash. 

Others say, so what? It’s a good gauge for performance for investors who want to know whether they can make more money in a passively managed fund, with much lower fees, than investing in a hedge fund. And you don’t hear much complaining when the industry does beat the S&P, as was the case in 2018

Lest we forget, Warren Buffett made a cool $1m by betting that the S&P 500 would outperform a basket of hedge funds chosen by Jeff Tarrant, the founder and chief executive of Protégé Partners over a 10-year period. It did, by a lot.

A more compelling argument may be that hedge funds shouldn’t be benchmarked against the S&P 500 because they serve a different purpose: to protect capital when markets are down. But that has also recently proven to be untrue, as seen during the two volatility spikes in 2018. The real test will be in a downturn. 

This is a very contentious point and DD isn’t looking to give a final answer. But hedge funds that have succumbed to pressure to lower fees haven’t done so because they’re feeling particularly generous, it’s because investors arguably have better options out there that cost them less money.

That being said, last year the industry delivered its best performance* since 2013. Big names like Ken Griffin’s Citadel saw its Wellington Fund rise 19.4 per cent last year, trumping rival Steve Cohen’s Point72 Asset Management, which was up 16 per cent. 

Quant funds like Renaissance Technologies, the $60bn firm founded by Jim Simons, and DE Shaw, continued their winning streak. 

The Renaissance Institutional Equities fund was up 14.2 per cent while its institutional Diversified Alpha fund returned 4.7 per cent. DE Shaw’s flagship multi-strategy fund was up 10.9 per cent last year and its global macro fund Oculus returned 12.2 per cent.

Ray Dalio’s Bridgewater had a rare blip in the group’s flagship Pure Alpha fund which ended the year almost flat. Its All Weather strategy was up 16 per cent. 

DD readers can find the full round-up here

*all numbers are net of fees. 

The ups and downs of buying a lift business

The lift business doesn’t exactly scream excitement but some of the world’s largest buyout firms are lining up for a chance to snap up Thyssenkrupp’s most coveted asset.

The German conglomerate hasn’t yet decided whether it will sell all of the business, part of it, or list the division on the stock exchange. Nevertheless, bidders are already circling. 

Everyone from Blackstone to Carlyle is eyeing up a rare opportunity to snap up the company’s crown jewel in a deal that could potentially be worth as much as $20bn, which if successful, would set the record of Europe’s largest private equity deal. 

Capturing Thyssenkrupp’s elevator business would be a huge coup for the private equity industry and symbolise a shift in power from Europe’s once-mighty industrial conglomerates to some of capitalism’s more recent winners. 

Here’s who is in the race, from DD’s Kaye Wiggins: 

  • Blackstone is bidding in a consortium with Carlyle and the Canada Pension Plan Investment Board.

  • A rival trio of Advent, Cinven and the Abu Dhabi Investment Authority is expected to bid. 

  • Brookfield Asset Management, the Canadian asset manager and one of the world’s largest real estate investors, is also interested.

  • Kone, the Finnish lift manufacturer has expressed interest in the business. 

  • The Brazilian-backed private equity group 3G Capital is also in the running.

It’s too early to say who is likely to triumph, but the war of words has already begun. Kone seems to be playing to Germany’s historical disdain of buyout funds, infamously likened to a “plague of locusts”.

Elliott Management: eyes on the prize

Activist hedge fund Elliott Management has acquired a taste for European football. 

After taking control of Italy’s AC Milan last year, Paul Singer’s firm has set up a complex debt arrangement worth $140m with Gerard Lopez,below, owner and president of French football club Lille.

The FT’s Murad Ahmed reported that Elliott provided the loan to Lopez in 2018 as the club owner was trying to shore up Lille’s finances. The interest rate is said to be in the “low double digits”. 

Don’t get any ideas about Elliott taking control of the French club, though. Lopez, who was previously owner of the Lotus Formula One team, is adamant that Lille will not suffer the same fate as AC Milan. 

According to Lopez, Elliott has bought into Lille’s player-trading model. The club has made a net transfer profit — sales minus acquisitions — of almost €200m over the past two years, he says. 

And unlike Li Yonghong, who lost control of AC Milan to Elliott after he failed to repay €300m in high-interest loans, Lopez told the FT that he is personally liable for the loan rather than the club itself, which has had its debts cleared. 

Lille credits itself with having one of the best youth programmes in French football with alumni like Eden Hazard, Benjamin Pavard and Divock Origi. It’ll have to continue producing top players if Lopez is to pay off his debt to Elliott. 

If you missed last year’s deep dive by Murad and Arash into how Elliott came to own one of Italy’s most revered clubs, you can read it here

Job moves

  • Willie Walsh is stepping down as chief executive of British Airways owner International Airlines Group after 15 years, handing the top job to Iberia’s Luis Gallego. Full tale here + (Lex)

  • Dutch bank ABN Amro has named Robert Swaak as its new chief executive. The former chairman of PwC Netherlands will succeed Kees van Dijkhuizen, to guide the company through a criminal investigation into potential money laundering and financing of terrorism. More here + (Lex)

  • The Carlyle Group has hired former Pfizer chairman and chief executive Ian Read to pursue deals in the private equity firm’s global healthcare team.

  • Ares Management has hired Stephane Etroy as head of European private equity. He was formerly executive vice-president and head of private equity at pension fund Caisse de Dépôt et Placement du Québec.

  • London Stock Exchange has hired Murray Roos as group director for capital markets and a member of its executive committee. Roos joins from Citigroup, where he was most recently global co-head of equities and securities services.

  • Sidley Austin has hired Parthiv Rishi as a partner in its global M&A and private equity practice in Singapore. Rishi joins from Linklaters

  • Pinsent Masons added Hans Jürgen Meyer-Lindemann to its competition, EU & trade group in Düsseldorf. He was formerly a senior partner at Dechert.

Smart reads

Bitter medicine Private equity firms Blackstone and KKR have landed themselves in hot water for bankrolling a $50m advertising campaign effort by a mysterious group to stop legislators from putting an end to surprise medical billing, which saddles unsuspecting patients with enormous fees even if they go to an in-network provider. (BBG)

Full speed ahead Japan has seen a wave of shareholder activism over the past year but one company has managed to evade the changes sweeping the country’s corporates. Toyota’s success has made the company an emblem of resistance to corporate governance reform, writes the FT’s Leo Lewis. (FT)

The real M.B.Z Mohammed bin Zayed, the leader of the United Arab Emirates, lurks behind the scenes but is arguably one of the most powerful figures in the Arab world. Little is known about him outside the region but he has a prominent voice in Washington and is one of, if not the richest, men in the world. This rare profile and interview with a western journalist is unmissable. (NYT)

News round-up

Scoop: Voya Financial held talks over sale to insurance groups (FT)

Santander to repay capital bond one year after spooking market (FT)

Oyo business model under pressure in China (FT)

Former head of tax at Freshfields charged over illegal rebate scandal (FT)

Equinox closes in on new funding to challenge Peloton in at-home fitness (BBG)

Football Association’s streaming deal puts funding at risk (FT)

Citic to sell stake in McDonald’s China unit in push to cut debt (FT) 

JPMorgan applies to take control of its China futures business (FT)

Walmart, other grocers are considering acquiring Grubhub (NY Post)

Yacht-builder Princess taps Arnault-backed firm for funds (Sky News)

Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Lindsay Fortado and Mark Vandevelde in New York, Miles Kruppa in San Francisco and Don Weinland in Beijing.

Please send feedback to due.diligence@ft.com

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