Scott Bessent’s funding document | USAEMALL.com

Two deal scoops to start: BlackRock has a handshake deal to buy HPS Investment Partners, as the world’s largest asset manager looks to bolster its alternative investment business with the addition of one of the biggest private credit groups on Wall Street.

And France’s Natixis Investment Managers, which has $1.3tn in assets under management, and Italian insurer Generali are in early stage talks about a potential tie-up, which may lead to the creation of a new asset management joint venture co-owned by the two groups. 

In today’s newsletter:

• Scott Bessent’s fund made biggest returns with bet against Fed

• Investor Ken Leech charged over alleged $600mn ‘cherry-picking’ scheme

• Traders pay record premium for European gas next summer

Scott Bessent’s record

Some trades are historic. George Soros’s colossal bet against the British pound in 1992, which at the time made $1bn for his hedge fund, is one of them.

That wager has once again become relevant after Donald Trump selected the man behind the trade, Scott Bessent, to be the next US Treasury secretary.

In this article, Amelia Pollard, James Fontanella-Khan and I explore how Bessent’s hedge fund Key Square Capital notched up its best returns with a contrarian bet against the Federal Reserve that the burst of US inflation in 2022 would prove longer lasting than the central bank predicted. The fund gained 29 per cent that year as the wider market fell.

Bessent’s new job will give him huge sway over the world’s largest economy, and with it global markets. He will be tasked with fulfilling Trump’s vow to slash taxes while containing the economic fallout from the president-elect’s plans to deport millions of immigrants and raise tariffs. 

“He’s seen just about everything in terms of issues that could arise, probably more so than anyone who’s filled the job previously,” Stanley Druckenmiller, the billionaire investor who first hired Bessent to Soros Fund Management in 1991, told the Financial Times. “I think he’s a great choice.”

But the blockbuster year of 2022 aside, Key Square’s long-term returns have been more pedestrian.

The firm, which at its peak managed $4.5bn of assets, has recorded average annual returns in the mid-single digits since 2015, according to a person familiar with the matter. Returns were positive in four years, negative in another four and neutral one year, they added.

In a January letter to clients, Bessent outlined his thesis about Trump. The incoming president would “want to create an economic lollapalooza and engineer what he will probably call ‘the greatest four years in American history’”, he wrote. 

Bessent also promoted Trump’s plan for cheapening energy supplies, while playing down his threats of tariffs.

“The tariff gun will always be loaded and on the table but rarely discharged.”

Western Asset Management’s Ken Leech charged

Ken Leech, the former co-chief investment officer of Western Asset Management, was charged with orchestrating a $600mn “cherry picking” scheme last week. The move marks the latest development in a scandal that has plagued owner Franklin Templeton since the summer and led to the biggest outflows in Western’s history, writes Madison Darbyshire in New York. 

The criminal fraud charges, brought by the US Department of Justice, alleged that Leech placed trades with brokers between January 2021 and October 2023, and then waited until later in the day to assign them to specific portfolios. This resulted in $600mn net gains for his Macro Opportunities strategy and corresponding losses to two much larger “core” bond strategies that he also managed, the DoJ claimed.

The US Securities and Exchange Commission also launched a parallel civil case against Leech.

“The statistical probability that this pattern occurred by random chance is less than one in one trillion,” the SEC said. “Leech effectively stole assets from disfavoured portfolios”. The regulator also alleged that Leech “accelerated his scheme” in March 2023, around the same time as he shifted millions of dollars of his own investments to the same accounts he was favouring. 

Western has experienced a record $53bn in net outflows since Leech was put on leave in August, after the investigation compounded investor concerns about years of underperformance. Western performed near the bottom of its class in 2023 and 2022 after betting that inflation would be short-lived. 

Its parent company Franklin’s share price is down more than 22 per cent this year. In response to the charges, the firm said: “We take this matter extremely seriously. The charges are centred on past trading by one individual . . . [The company] is continuing to fully co-operate with the government’s investigations.” 

Leech’s lawyer Jonathan Sack said Leech plans to “defend himself vigorously”. “Ken Leech has an unblemished record over nearly 50 years as a trader and portfolio manager,” he added, calling the allegations “unfounded”.

Chart of the week

European gas traders expect prices next summer to be higher than the following winter, an unusual bet that reflects the steep cost of refilling the continent’s storage facilities as it tries to wean itself off Russian supplies, writes Shotaro Tani in London.

Natural gas in Europe has historically tended to be cheaper in the summer when demand is lower. That has incentivised traders to buy in the hotter months and store gas to sell at a profit during the winter peak heating season.

However, gas for delivery next summer is now being priced at a record premium to the winter that follows. That gap reflects an expectation that Europe will draw heavily on its gas storage during the current winter, and will then have a hard time restocking in the summer months.

The abnormal price relationship “is itself exacerbating worries about how Europe will manage to fill storage in summer 2025,” said Natasha Fielding, head of European gas pricing at Argus Media, a pricing agency.

Expensive summer gas “removes the commercial incentive” to rebuild stockpiles, she added.

In late November, the price of the European benchmark Title Transfer Facility in the summer of 2025, assessed by Argus, traded at a premium of more than €4 per megawatt hour to the winter 2025-26 price, the biggest premium ever to the winter price at this time of year.

Russia shut down the majority of its pipeline gas supplies to the EU in the run-up to and aftermath of the invasion of Ukraine in 2022.

In response, Brussels brought in a rule requiring member states to fill their gas storage to 80 per cent of capacity by the start of each November. Traders say the EU target, which has since been raised to 90 per cent, was pushing summer prices higher.

Five unmissable stories this week

Nick Train, one of the UK’s best-known fund managers, has branded the sale of British chip designer Arm “a mistake” that potentially dissuaded other technology companies from listing in London.

The number of candidates completing chartered financial analyst exams is in stubborn decline as demand slides for a qualification once seen as essential for the profession, according to the CFA Institute.

Mubadala Capital, the asset management subsidiary of Abu Dhabi’s state investment fund, is buying Canadian asset manager CI Financial in one of the largest direct investments into North America by energy-rich Middle Eastern buyers.

Canadian financial services group Canaccord Genuity is working with bankers at Fenchurch Advisory to run a strategic review of its UK wealth management business, in a move that could lead to a sale of the C$63bn ($45bn) in assets division. 

Texas and 10 other Republican-led states are suing BlackRock, State Street and Vanguard, alleging that they conspired to curtail coal supplies to further “a destructive, politicised environmental agenda”.

And finally

Don’t miss the FT’s hotly anticipated Books of the Year selection, where our editors, columnists and specialists share the titles that have inspired them. The 2024 collection is as inspiring and wide-ranging as ever. Top of my reading list right now are my friend Saad Mohseni’s Radio Free Afghanistan: A Twenty-Year Odyssey for an Independent Voice in Kabul, a fascinating memoir about building Afghanistan’s most successful media company during the years when the Taliban were driven from power; and Sonia Purnell’s Kingmaker: Pamela Churchill Harriman’s astonishing life of seduction, intrigue and power, a riveting biography of a woman who was involved in some way with the most of the important people and events of the 20th century.