Jane Street and Citadel: the brand new buying and selling kings | USAEMALL.com

One scoop to start: US private equity group TPG is nearing a €7bn deal to acquire the German metering company Techem, in a takeover that would rank among the largest such transactions between buyout groups in Europe this year.

In today’s newsletter:

• Wall Street’s trading giants

• TPG bets on lower-cost streaming rival

• Private equity’s love of leverage

Wall Street’s trading rainmakers

To the general public, working at Goldman Sachs or Morgan Stanley is still largely considered the pinnacle of Wall Street.

Yet a small and secretive cohort of trading firms has spent the past decade snagging market share, revenue and top talent from the traditional banks.

These trading firms — which include Jane Street, Citadel Securities and Susquehanna International Group — leaned into high-frequency trading.

Big banks were slow on the uptake: they didn’t think a low-margin business like electronic market making was worth their time.

But these firms have become major players in almost every corner of the market, even those long thought immune from high-speed electronic trading, the FT’s Joshua Franklin and Costas Mourselas report.

Anything at scale can be lucrative. And the numbers are staggering: Citadel Securities handles $455bn in trades every day, including almost a quarter of all US stock trading.

Jane Street’s first-half trading revenues totalled $8.4bn, while Citadel Securities’ were just under $5bn, according to people familiar with the matter. They were both up about 80 per cent compared with a year earlier. 

These firms were already making inroads prior to 2010, but Dodd-Frank really changed the game. Banks were suddenly heavily restricted on how much they could bet with their own money.

Some warn of risks lurking below the surface. While calls for greater scrutiny of the trading firms have grown louder, critics say relatively little has been done to tackle the issue.

And these financial giants’ ambitions aren’t stopping anytime soon. They’re already expanding into bonds and loans — markets that can be more opaque — and even into foreign exchange.

This is just the first in a series by the FT that will delve into the trading giants that have risen to challenge investment banks. We’ll have more in the coming weeks.

TPG begins profiting from AT&T’s $67bn mistake

The media and telecommunications business has been a bloodbath recently, as new entrants take market share in what’s been dubbed the “streaming wars”.

Now, US private equity firm TPG is entering the mix. On Monday, it struck a $7.6bn deal to buy DirecTV from AT&T and merge the operation with Dish, satellite television’s second-largest player.

The deal will hand over satellite TV operations once worth about $80bn on public stock markets in 2015 for less than $4bn in its own investors’ cash, according to the FT’s calculations and people familiar with the matter.

TPG first invested in DirecTV in 2021 when it paid $1.6bn to buy a 30 per cent stake in the business from AT&T, which five years earlier had paid $67bn to acquire the satellite TV operator. 

AT&T used the buyout group’s investment to begin extricating itself from what MoffettNathanson analyst Craig Moffett called on Monday “one of the worst transactions in American history”.

And the Dish assets TPG is buying are even cheaper. The buyout group will merge DirecTV with the ailing Dish Network, owned by Charlie Ergen’s EchoStar, for a nominal $1 in cash and the assumption of $11.7bn in debt.

The private equity group’s calculation is that it can build budget streaming options to challenge the powerhouses of the entertainment business such as Disney and recent entrants Alphabet, Amazon and Apple.

Already it’s gotten back dividends exceeding its initial investment, people familiar with the matter told DD. 

However, TPG’s plan requires support from Dish’s creditors, which have been locked in a fight with EchoStar. The buyout group plans to cut Dish’s debt by swapping its bonds for those backed by DirecTV at about a 15 per cent discount to their par value.

And while TPG has a 30-year history of fixing broken businesses, its firepower for large complex restructurings was further boosted this year after it bought famed distressed debt investor Angelo Gordon.

Monday’s deal is poised to be the partnership’s first high-profile test after Angelo Gordon agreed to invest $2.5bn to refinance a closely watched debt maturity hanging over EchoStar.  

Leverage on leverage on leverage

It’s hard to say for sure how much leverage there is in the private equity ecosystem, or where it sits.

There’s leverage on the balance sheets of the companies that buyout groups own. There’s leverage on the funds that own those companies. And there can also be leverage on the entities that manage those funds.

But where is it, how much is it, and for how long can it all be sustained in a world without super-low rates? Those questions are hard to answer.

Regulators have been taking notice. In April Nathanaël Benjamin, the Bank of England official responsible for financial stability strategy and risk, said there were “natural questions about . . . the growth in kinds and quantity of leverage, or ‘leverage on leverage’”.

In July we broke it all down in a visual explainer. And now the concerns are being voiced inside the tent — sort of.

David Hunt, chief executive of PGIM, the $1.3tn asset manager, raised “layered leverage” as an issue while he was on the stage at the private equity conference SuperReturn Asia. “My advice to regulators is always follow the leverage,” he said.

Speaking to DD’s Kaye Wiggins after, he said private equity’s layers of leverage were “complicated enough that many people don’t understand it”. He added: “I think [introducing] some common way of understanding how much leverage is in the system is a good idea.”

There will no doubt be howls of protest from the private equity industry.

But the era of super-cheap debt is becoming a memory, and the buyout business is not in the best place.

Speaking at the same conference, Saima Rehman, who leads private equity and venture capital fund investments at the International Finance Corporation, said: “That tide we’ve all been riding for the last decade and a half is out.”

Job moves

• Advent International has hired Carmine Di Sibio as an operating partner. He was previously global chair and chief executive of EY, which shelved its failed Project Everest break-up plan amid internal dissent. 

• Blackstone has hired Aneek Mamik as a senior managing director and head of financial services and Chris Yonan as head of European infrastructure. Mamik previously worked at Värde Partners, while Yonan was most recently at Jefferies.

• Debevoise & Plimpton has hired Gordon Moodie as a partner for its mergers and acquisitions and public companies advisory teams in New York. He was previously at Wachtell Lipton, and most recently worked on an AI start-up backed by OpenAI. 

• EY has appointed financial services boss Anna Anthony as its new UK managing partner. She has been with the firm for 16 years and will become the first woman to permanently run a Big Four operation day-to-day in the UK.

Smart reads

Mega supermarket Regulators say the proposed merger between two of the US’s biggest supermarket chains should be blocked to protect its workers. Not every union agrees, the FT reports.

Antitrust crosshairs The US Department of Justice has gone after tech giants, ticketing platforms and pharmacy benefit managers in recent months, Lex writes. Now, it has set its sights on Visa.

Ivy League laggard Harvard University is one of the richest schools in the world. But in recent years, a series of mis-steps has caused its portfolio’s returns to fall behind rivals, Bloomberg reveals.

News round-up

Peter Thiel’s Founders Fund backs nuclear fuel start-up (FT)

Qatar Airways agrees to buy 25% stake in Virgin Australia (FT)

SoftBank to invest $500mn in OpenAI (FT)

LVMH sells Off-White streetwear brand founded by Virgil Abloh (FT)

Marquee New York property seeks $3.5bn in test for office real estate (FT)

UBS executive seeking recovery of billions lent by Greensill leaves bank (FT)

New York Sun’s Efune is leading bidder for Telegraph (FT)

General Atlantic nears £800mn deal to buy UK’s Learning Technologies (FT)

Frasers Group makes £83mn offer for Mulberry (FT)