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 some shoppers gone, he’s scoring on maybe his greatest guess but: President-elect Donald Trump.
Bessent noticed what he known as an anomaly out there: that political and market analysts had been too damaging 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 share revenue to this point in 2024, with November as its finest month, in accordance with an individual acquainted with the state of affairs.
Bessent’s even greater wager is on Trump, the long run president. He is been a donor, financial adviser and booster on TV to Trump, and Bessent is now seen as a possible candidate for a prime financial position within the administration, corresponding to working the U.S. Treasury Division or main the White Home Nationwide Financial Council.
Trump has talked Bessent up as “one of the vital sensible males on Wall Avenue.” Particulars of his fund’s efficiency, reported right here for the primary time, present a blended monitor file 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 robust returns within the late 2000s, informed Reuters that Bessent’s monitor file must be taken within the context of macro investing, the place huge earnings could be adopted by much less enticing returns. So-called macro hedge funds guess on international macroeconomic tendencies and should not open to retail traders.
“In the event you solely have a look at the a part of a monitor file with lean years, it’s like saying Aaron Decide struck out quite a bit final 12 months,” Seides stated, referring the baseball star recognized for hitting house runs. “However he was simply named MVP.”
Bessent’s candidacy within the hotly-contested position of Treasury Secretary or one other financial position within the Trump administration has heightened curiosity within the fund supervisor. If he had been to take a job within the new administration, Key Sq. could possibly be wound down, offered, or put in “sleep mode,” in accordance with the identical particular person.
Trump just lately floated the thought of appointing Kevin Warsh as Treasury Secretary on the understanding that he may later be Federal Reserve Chairman, the Wall Avenue Journal reported on Thursday, citing individuals acquainted with the matter. The report additionally stated Bessent would possibly lead the White Home Nationwide Financial Council after which develop into Treasury Secretary after Warsh. Bessent has lengthy been thought-about a prime contender to run Treasury.
Karoline Leavitt, a spokesperson for Trump’s transition workforce, stated in an e mail that choices on personnel “will proceed to be introduced by him when they’re made.”
BIG START
Bessent, who grew up in a small city in South Carolina and went to Yale School earlier than touchdown on Wall Avenue, began Key Sq. in late 2015. The agency rapidly 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 foremost fund returns surged 13% in its first 12 months, 2016, in accordance with a second particular person acquainted with the agency. That 12 months, it gained on accurately predicting the British pound’s decline round “Brexit,” a vote for Britain to go away the European Union, in accordance with the primary particular person acquainted with the state of affairs.
Later, Key Sq. made cash when Bessent accurately anticipating 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 one in all its traders, 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 beneath 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 traders fell from 180 in December 2017 to twenty by the top of 2023, in accordance with regulatory disclosures tracked by Convergence Inc.
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 acquainted with the matter. Soros now not has any cash managed by Bessent, in accordance with the third particular person. The 2 males haven’t spoken since 2016, Bessent stated in a current interview with Trump ally Roger Stone.
Different massive shoppers who now not have cash with Key Sq. embody Australia’s Future Fund, Morgan Stanley (NYSE:) Different Funding Companions, and the New York Metropolis Police and Hearth pension funds, in accordance with public information and regulatory disclosures.
One massive hedge fund allocator informed 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 massive Key Sq. investor withdrew from the hedge fund final 12 months due to Bessent’s assist of Trump, in accordance with the second particular person acquainted with the agency.
Whereas Key Sq.’s hedge fund belongings have declined, it has different enterprise traces that stay robust, together with offering funding concepts to different cash managers and an advisory enterprise for household workplaces, foundations and endowments, in accordance with the 2 individuals acquainted with the agency. It additionally has plans to launch an ETF, in accordance with a current securities submitting.
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, informed Reuters through e 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 traders on the planet,” a spokesperson for Brevan Howard stated through e mail. “His understanding of markets, public coverage, and the worldwide economic system is basically unmatched.”
Semafor beforehand reported that selective Key Sq. efficiency numbers had been being shared round Wall Avenue chats as Bessent competed for the coveted put up of U.S. Treasury Secretary. The report didn’t reveal the numbers shared.
POLITICAL
Bessent contributed to Trump’s inauguration following his 2016 election win. He was extra concerned throughout the 2024 election cycle, serving as an financial adviser to the marketing campaign along with being a prime fundraiser.
For the reason that election, he has made TV appearances and written opinion items in assist of Trump’s proposed financial agenda. “I used to be all in for President Trump. I used to be one of many few Wall Avenue individuals backing him,” Bessent current stated within the interview with Stone.
In January this 12 months, Bessent predicted a “Trump Rally” in shares so long as the Republican remained forward within the election polls. “We predict 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.”
