Unique-Fund supervisor Bessent scores double on Trump victory

By Lawrence Delevingne and Carolina Mandl

BOSTON/NEW YORK (Reuters) -As a cash supervisor, Scott Bessent’s years of inconsistent efficiency have contributed to an almost 90% decline in his hedge fund’s belongings. Now, with different enterprise traces increasing, he has scored on maybe his largest guess but: President-elect Donald Trump. 

Bessent noticed what he referred to as an anomaly out there: that political and market analysts have been too detrimental on what a Trump victory would imply, in accordance with a letter to shoppers in January seen by Reuters. His Key Sq. Capital Administration placed on bets that U.S. shares and the greenback would achieve, serving to earn a double-digit proportion revenue thus far in 2024, with November as its finest month, in accordance with an individual accustomed to the state of affairs.

Bessent’s even larger wager and apparently win is on Trump, the long run president. He is been a donor, financial adviser and booster on TV to Trump. On Friday night time, information broke that Bessent was Trump’s decide to be Treasury Secretary.

“Scott is extensively revered as one of many World’s foremost Worldwide Buyers and Geopolitical and Financial Strategists,” Trump wrote on Fact Social.

A consultant for Bessent didn’t instantly reply to a message looking for touch upon the nomination.

Trump has talked Bessent up as “one of the vital good males on Wall Road.” Whereas elements of Bessent’s enterprise have expanded, corresponding to advising different household workplaces and cash managers, particulars of his fund’s efficiency, reported right here for the primary time, present a blended monitor document within the decade since he launched his personal hedge fund agency.

Ted Seides, the previous president of Protege Companions, an funding agency the place Bessent earned sturdy returns within the late 2000s, instructed Reuters that Bessent’s monitor document must be taken within the context of macro investing, the place huge earnings may be adopted by much less engaging returns. So-called macro hedge funds guess on international macroeconomic tendencies and should not open to retail buyers.

“If you happen to solely take a look at the a part of a monitor document with lean years, it’s like saying Aaron Choose struck out quite a bit final yr,” Seides mentioned, referring the baseball star recognized for hitting residence runs. “However he was simply named MVP.”

Bessent has lengthy been thought of a high contender to run Treasury and his candidacy within the hotly-contested function has heightened curiosity within the fund supervisor. If he have been to take a job within the new administration, Key Sq. may very well be wound down, offered, or put in “sleep mode,” in accordance with the identical particular person. 

BIG START

Bessent, who grew up in a small city in South Carolina and went to Yale School earlier than touchdown on Wall Road, began Key Sq. in late 2015. The agency shortly raised $4.5 billion – then one of many largest hedge fund launches in historical past. That included $2 billion from famed macroeconomic investor George Soros, for whom Bessent had helped earn billions of {dollars} over two stints at Soros Fund Administration.

Key Sq.’s important fund returns surged 13% in its first yr, 2016, in accordance with a second particular person accustomed to the agency. That yr, it gained on appropriately predicting the British pound’s decline round “Brexit,” a vote for Britain to depart the European Union, in accordance with the primary particular person accustomed to the state of affairs. 

Later, Key Sq. made cash when Bessent appropriately anticipated a U.S. inventory and greenback rally when Donald Trump was elected that November, in accordance with the primary particular person.

However Key Sq. misplaced 7% in 2017, after which misplaced cash or simply broke even from 2018 to 2021, in accordance with the second particular person and efficiency disclosures from considered one of its buyers, New York Metropolis Police Pension Fund. The hedge fund gained double digits in each 2023 and 2024 and is up “double digits” over its historical past, in accordance with the second particular person.

That uneven efficiency seems to have scared away some shoppers. Property underneath administration shrank from a peak of round $5.1 billion on the finish of 2017 to $577 million as of December 2023, whereas the variety of institutional buyers fell from 180 in December 2017 to twenty by the top of 2023, in accordance with regulatory disclosures tracked by Convergence Inc.

Whereas Key Sq.’s hedge fund belongings have declined, it has different enterprise traces which have expanded, together with offering funding concepts to different cash managers, with as much as $1 billion to attract from and make investments for a big macro funding agency; an advisory enterprise for household workplaces, foundations and endowments, together with one consumer with $11 billion in belongings; and costs from a spin-out agency, $3.4 billion Ghisallo Capital, a part of Key Sq.’s incubation enterprise, in accordance with the 2 individuals accustomed to the agency and regulatory filings. It additionally has plans to launch an ETF, in accordance with a latest securities submitting. 

Soros took again most of his capital in 2018, per a earlier settlement with Bessent to return the cash, in accordance with a 3rd supply accustomed to the matter. Soros not has any cash managed by Bessent, in accordance with the third particular person. The 2 males haven’t spoken since 2016, Bessent mentioned in a latest interview with Trump ally Roger Stone.

Different giant shoppers who not have cash with Key Sq. embrace Australia’s Future Fund, Morgan Stanley (NYSE:MS) Various Funding Companions, and the New York Metropolis Police and Fireplace pension funds, in accordance with public information and regulatory disclosures. 

One giant hedge fund allocator instructed Reuters that they pulled their cash a number of years in the past from Key Sq. as a result of the returns had been “too inconsistent.”

One other giant Key Sq. investor withdrew from the hedge fund final yr due to Bessent’s help of Trump, in accordance with the second particular person accustomed to the agency.

The College of California redeemed its belongings from Key Sq. amid a broader pull again from utilizing hedge funds, however Bessent has remained “deep supply of information for us,” chief funding officer, Jagdeep Singh Bachher, instructed Reuters through electronic mail.

One other longtime consumer to stay with Key Sq. is Brevan Howard Asset Administration, the $34 billion macro hedge fund supervisor co-founded by British billionaire Alan Howard.

“Scott is among the finest macro buyers on the planet,” a spokesperson for Brevan Howard mentioned through electronic mail. “His understanding of markets, public coverage, and the worldwide financial system is basically unmatched.”

Semafor beforehand reported that selective Key Sq. efficiency numbers have been being shared round Wall Road chats as Bessent competed for the coveted publish of U.S. Treasury Secretary. The report didn’t reveal the numbers shared.

POLITICAL BET

Bessent contributed to Trump’s inauguration following his 2016 election win. He was extra concerned through the 2024 election cycle, serving as an financial adviser to the marketing campaign along with being a high fundraiser.

For the reason that election, he has made TV appearances and written opinion items in help of Trump’s proposed financial agenda. “I used to be all in for President Trump. I used to be one of many few Wall Road individuals backing him,” Bessent latest mentioned within the interview with Stone.

In January this yr, Bessent predicted a “Trump Rally” in shares so long as the Republican remained forward within the election polls. “We expect an upward trajectory within the U.S. fairness markets,” he wrote within the letter to Key Sq. shoppers. “Barring (President Joe) Biden pulling forward in substantial trend, all pullbacks must be purchased.”