One thing to start: Microsoft has confirmed a “multibillion-dollar investment” in ChatGPT bot maker OpenAI, making its biggest bet yet that artificial intelligence systems have the power to transform the tech giant’s business model and products.
In today’s newsletter:
Citadel’s record-beating profits
Hedge funds target Salesforce
Bill Ackman bets on luxury watches
Viva La Citadel
In early December, Citadel and Citadel Securities employees flew into Orlando with their families to celebrate a stellar year for Ken Griffin’s hedge fund and market-making business.
Attendees were treated to a musical performance by Coldplay as well as some jokes from its lead singer Chris Martin.
“I’m just riffin’ so I can impress Ken Griffin,’” he told the crowd of some 10,000 people, according to people who attended, and, “If my band ever goes under, maybe I’ll become a hedge funder.”
If Citadel’s performance is anything to go by, that’s not such a bad idea.
Citadel brought in a record $16bn in profits for investors last year, cementing its status as the most successful hedge fund of all time. The last time the industry saw such a big haul was in 2007 when John Paulson made about $15.6bn betting against subprime mortgages.
It’s a huge feat for the soon-to-be Florida-based firm. Particularly since in 2008, when Paulson’s bets were bearing fruit, Citadel had a CNBC deathwatch crew posted outside its building after losing $8bn in the financial crisis.
But perhaps an even bigger accomplishment is that no one really knows how Citadel minted so much money.
Citadel operates what’s known as a multi-manager model — there are hundreds of separate teams of traders and analysts who put on bets in different strategies.
These types of funds typically use more leverage (borrowed money) to place bets because their risk is spread out: if one manager does poorly, it will be offset by another manager’s profits. That’s the idea in its simplest form, anyway. More leverage means higher returns on successful trades.
Even some of Citadel’s own investors say they get little information on the group’s trading.
But few are complaining. There’s a long waiting list for those who want to put money into its funds despite the eye-watering fees. For example, Citadel investors paid about $12bn in expense and performance fees on $28bn of gross profit last year.
Citadel’s performance last year has also helped Griffin surpass Bridgewater Associates founder Ray Dalio as the most successful hedge fund manager of all time on LCH Investments’ list of top money managers.
Things at Griffin’s Citadel Securities are looking pretty rosy too. It brought in a record $7.5bn of revenue last year, up from $7bn the year prior, according to a spokesperson.
This will all be contributing significantly to Griffin’s personal wealth and his rising influence among the Republican party elite who — like Martin of Coldplay — will probably also want to start riffin’ to impress Griffin’ ahead of the 2024 election.
Activists circle Benioff’s Salesforce
For most of Marc Benioff’s rise from seller of arcane corporate software to Silicon Valley titan, he had an obvious target in his former boss, Oracle founder Larry Ellison.
Salesforce spent much of the past decade as one of the best-performing stocks in the valley as sales of its software soared. It eliminated the need for many customers to manage unwieldy in-house databases built by Oracle.
But as Benioff has grown in ambition, buying Time Magazine and building a headquarters that towers over San Francisco, his company’s own performance has slumped and potential foes have increased.
On Sunday, Elliott Management disclosed a multibillion-dollar investment in Salesforce that raised the prospect of Benioff facing a shareholder battle this proxy season.
Two other prominent activists, Jeffrey Smith’s Starboard Capital and Jeff Ubben’s Inclusive Capital, also hold stakes.
The Wall Street pressure comes foremost from Benioff’s decision to buy messaging tool Slack Technologies for $27bn in 2020, which put Salesforce in direct competition with Microsoft.
The deal has been a dud as Benioff struggled to integrate Slack and fend off Microsoft’s Teams product.
It has become an emblem of drift. Salesforce has grown by many multiples in size over the past decade, but profit margins haven’t followed suit.
Benioff has begun to signal that he will rein in excesses. Earlier this month, Salesforce announced it would cut about 10 per cent of its workforce in a reversal of a pandemic hiring spree.
“We hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that,” Benioff wrote in a letter to staff.
Elliott was magnanimous when announcing its arrival. “Salesforce is one of the pre-eminent software companies in the world . . . [We] have developed a deep respect for Marc Benioff and what he has built,” Jesse Cohn, managing partner at Elliott, said in a statement on Sunday.
Salesforce investors are hoping profit margins will increase and Benioff can refocus on his core business. Greater change could also be in play.
Elliott’s power has grown in recent years as Cohn has built an internal private equity unit and cultivated relationships with buyout giants such as Thoma Bravo, Vista Equity and Veritas Capital. It could prove a useful tool if Benioff decides to jettison non-core businesses.
Elliott is learning the challenges of competing against Microsoft for itself after buying rival Citrix Systems for $16.5bn last year.
Ackman enters the watch biz
Five years ago, a letter from Pershing Square founder Bill Ackman would strike serious fear in the hearts of its recipients.
But Giles and Nick English, the founders of watchmaker Bremont, had reason to be happy when they received a note from Ackman.
“I admire your company, I love watches and I would love to learn more,” the billionaire investor wrote to the English brothers after buying several Bremont watches at their Mayfair shop, he told DD’s Ortenca Aliaj.
That has culminated in Ackman taking a minority stake in the luxury watchmaker as it embarks on an ambitious plan to bring watchmaking back to Britain.
Ackman didn’t disclose the exact size of his stake but together with Hellcat, an existing Bremont investor, they have put £48.4mn giving it a valuation of more than £100mn.
That money will come in handy after Bremont’s £20mn expenditure on its recently opened watchmaking facility in Henley-on-Thames, which will be kept busy with orders for watches Ackman plans to give to his Pershing Square employees for the firm’s 20th anniversary.
Intel has named Frank Yeary, a board member since 2009 and a managing member of Darwin Capital Advisors, as independent chair following Omar Ishrak’s decision to step down as chair. Ishrak will remain on as an independent director.
Sir John Kingman, an ex-Treasury official who oversaw the bailout of the British banking system during the financial crisis, will join Barclays as chair of its UK retail division in June as part of a board refresh.
Investcorp has appointed Suhail Shaikh as co-head of its private credit unit, based in New York. He previously led Alcentra’s US private credit business.
Perella Weinberg Partners has promoted managing directors Anthony Giuliano and Cory Hill to partner. They’re based in New York and Los Angeles, respectively.
Simpson Thacher & Bartlett has hired Stephanie Biggs as a partner in London, where she will co-lead the firm’s European financial services and funds regulatory team. She joins from Travers Smith.
Goodwin has hired Jacqueline Eaves as a partner in its private equity and private funds practices, based in London. She joins from Kirkland & Ellis.
Clifford Chance has hired Jill Concannon Christie as a US securities and high yield partner, based in London. She joins from White & Case.
Comeback kid Private equity mogul Robert Smith is attempting to pull off one of the biggest reputational re-sets in buyouts history: raising $20bn for a new fund two years after settling a federal investigation into personal tax evasion, Bloomberg reports.
Toxic positivity Investment bankers are fuelled by optimism, but hopeful forecasts of “dry powder” waiting to boost M&A don’t hold up in today’s market, Frontline Analysts’ Dan Davies writes in an Alphaville post that explains why private equity is in big trouble.
Who billionaire’d it better? Bernard Arnault, newly crowned the world’s richest person, has built LVMH into a luxury empire while his predecessor Elon Musk’s impulsive dealmaking has cost him billions, William Cohan argues in an FT Opinion piece.