Trump victory leaves Wall Street giddy

One scoop to start: BlackRock is in early-stage discussions with Millennium Management about a strategic partnership that could lead to the world’s largest asset manager taking an equity stake in one of the most profitable hedge fund managers.

And one event: I hope to see lots of you this week at our Future of Asset Management Europe event at The Carlton Tower Jumeirah, London. The great line-up of speakers includes Patrick Thomson, CEO for Emea of JPMorgan Asset Management, Man Group CEO Robyn Grew, and Mark FitzPatrick, CEO of St James’s Place. Register here 

In today’s newsletter:

• A giddy week on Wall Street

• Is Chicago’s Don Wilson the smartest man in trading?

• Trump victory hands hedge funds $1.2bn win from bet against renewables

A giddy week on Wall Street

Last week Donald Trump defeated Kamala Harris in the US presidential election, sealing an improbable comeback that is expected to pitch American democracy, US alliances and global markets into an era of upheaval.

It was a giddy week on Wall Street. Trump’s thumping victory has bankers and private equity titans dreaming that he will loosen the regulatory reins while driving up demand for dealmaking and financing of many sorts, writes Brooke Masters in New York. 

You can almost hear “ding-dong the witch is dead” playing in the background as executives enthuse about saying goodbye to Gary Gensler as chair of the Securities and Exchange Commission and Michael Barr as head of supervision at the Federal Reserve. 

Private equity firms and traditional money managers are not only welcoming the end of Gensler’s multiyear regulatory blitz, but also hoping that a friendly SEC will give the green light to new financial products more readily. Alternative assets, including crypto, unlisted credit and private equity, could soon be finding their way into individual accounts.

On Sunday Bitcoin hit $80,000 for the first time as Trump reached a clean sweep of the seven swing states for the president-elect, paving the way for a more pro-crypto administration.

Scott Bessent, who has served as an economic adviser to the former president, is widely viewed as a leading candidate for Treasury secretary in Trump’s new administration.

But amid the animal spirits, Wall Street veterans sounded a note of caution. 

“A lot of the enthusiasm is based on a false premise,” a veteran executive told Brooke. “We now risk heading into whatever the next bubble is. Sure as hell it’s coming.” Another long-timer warned: “If you take off too much regulation, more banks fail”, and that will set the pendulum swinging back the other way.

Pimco, one of the world’s biggest bond fund managers, warned that Trump’s economic plans could lead to the economy “overheating” and could halt interest rate cuts, posing a danger for stocks that shot up in the wake of his victory. 

Dan Ivascyn, chief investment officer at Pimco, said US equity markets could suffer a reversal after rising sharply on the Republican candidate’s emphatic win. The S&P and Nasdaq Composite indices both surged to fresh record highs this week in anticipation of tax cuts, looser regulation and trade tariffs. 

But such “reflationary” policies, in a US economy that already has “a lot of momentum”, have the potential to feed through into inflation, he warned. 

“It’s not as simple and easy as just a one-way reflationary trade where risk assets should rejoice,” Ivascyn told the Financial Times. 

How do you think Trump’s election will affect the global asset management industry? Email me: [email protected]

How DRW grew into an industry colossus

Don Wilson’s training for his trading career started with a family card game. He grew up playing a fast-paced version of competitive solitaire called “pounce”, with players frantically racing to place their cards on an eligible deck across the table before their opponents.

“You have to take in a tremendous amount of information and make risk-reward decisions on how to allocate your focus because you can’t possibly take it all in,” Wilson recalls. “[It was] great training for the trading pit.”

Wilson landed his first job in the pit as a University of Chicago graduate in 1989, with the trading firm Letco. At the time, the trading culture in Chicago was such that firms would take a punt on talented college graduates, granting them a small allocation of capital to see how they fared — $100,000 in Wilson’s case. Like the multi-manager hedge funds of today, success would be rewarded with more capital and failure could mean a swift exit.

A few weeks after Letco allocated him his capital to trade, Wilson took a big bet that eurodollar futures would fall — only for an unexpected stock crash to send the prices soaring and landing Wilson with a loss of about $30,000.

In the final instalment of a Financial Times series on the secretive trading firms that now dominate a key part of Wall Street, my colleague Costas Mourselas takes a fascinating look at DRW, which Wilson set up in 1992. 

Since then the 56-year-old billionaire’s sharp trading instincts have become revered within Chicago’s boisterous futures world, his intense competitive spirit underlined by his success as a catamaran sailing champion.

Wilson’s career mirrors the trends that have reshaped trading over the past four decades, from the 1980s “open outcry” pits of Chicago, to electronic trading in the 1990s as telecoms and computing networks exploded, to outcompeting big banks with algorithms that could trade market events in microseconds compared with the seconds it took for rivals.

“Markets are Darwinian,” Wilson told Costas. “They constantly become more efficient and if you can’t evolve at a rate that is at least equal to the market then you become irrelevant.”

Read the full story here

Chart of the week

Investors running bets against renewable energy stocks have racked up profits of more than $1.2bn from the heavy sell-off that swept the sector in the wake of Donald Trump’s US presidential election victory, write Mari Novik, Rafe Uddin and Rachel Millard in London.

Arrowstreet Capital and Qube Research & Technologies were among firms that had built up short positions against companies such as Norwegian hydrogen company Nel and German wind turbine manufacturer Nordex, according to data group Breakout Point. 

Shares in these companies fell sharply on Wednesday amid concerns that the president-elect would “terminate” President Joe Biden’s Inflation Reduction Act, a move that could result in a halt to tax credits, and pull the plug on offshore wind development. 

Hydrogen producer Plug Power and solar developer Sunrun, both of which have been heavily shorted by hedge funds, fell 22 per cent and 30 per cent, respectively, as investors fled stocks likely to be hit by Trump’s plans. The two US stocks together generated about $350mn in profits for short sellers, according to calculations by data group S3 Partners. 

In Europe, Denmark’s Ørsted, the world’s biggest offshore wind farm developer, fell nearly 13 per cent on Wednesday, while Nordex lost close to 8 per cent. 

In total, funds made more than $1.2bn from bets against 20 of the largest renewable stocks in US and Europe, according to S3’s data. 

The clean energy sector has been a popular target for short sellers, as high inflation and interest rates placed strains on businesses whose shares had soared in the early stages of the Covid-19 pandemic. The growing possibility of a second Trump presidency has added to those worries this year. 

“There have been jitters over the prospect of the US election result,” said Deepa Venkateswaran, head of utilities and clean energy research at Bernstein. “It’s only in the coming months we’ll know what the policies actually are.”

Five unmissable stories this week

Peter Hargreaves co-founded Hargreaves Lansdown from his spare room in Bristol over 40 years ago. In this Lunch with the FT interview, he talks about building the UK’s biggest “do it yourself” investment company, his take on the Neil Woodford scandal — and where he invests his own money.

Warren Buffett is unwinding his most profitable trade in history, filling Berkshire Hathaway’s coffers with cash. But it is unclear if the Oracle of Omaha is ready to go elephant-hunting with his recent bounty.

Don’t miss our profile of Schroders’ new chief executive Richard Oldfield, who’s charged with restoring the fortunes of one of Britain’s best-known asset managers. Prudential Financial’s $1.4tn asset management arm is also changing CEO: it has recruited Jacques Chappuis from Morgan Stanley to take over from David Hunt who is retiring.  

Rachel Reeves will use a Mansion House speech this week to set out plans to use the £354bn local government pension scheme to boost the UK economy. Here’s a look at the slow race to build a UK sovereign wealth fund.

How Thames Water became a battleground for hedge funds, including US activist manager Elliott Management. Rival groups of bondholders are vying to extend loans to the ailing UK utility.

And finally

For an artist whose work turned on pursuing transitory effects, London half obscured by fog was tantalising, writes our chief visual arts critic Jackie Wullschläger. From three London visits, Claude Monet took home about 100 canvases, spent years making them a cohesive group, then chose 37 for a triumphant Paris show in 1904. Plans for a London exhibition fell through. Now, over a century later, it is taking place, just metres from the site where he painted: the Courtauld Gallery’s tremendous Monet and London: Views of the Thames gathers 18 works from the original show — borrowed from museums globally — to immerse us in his spectacular vision of the city. September 27-January 19, courtauld.ac.uk

What are the opportunities and challenges facing dealmakers in 2025? Join us on November 20 for a free webinar on the global M&A outlook for the Americas.