Asset Management: ‘Tiger cub’ Coatue prepares for market reckoning

Philippe Laffont: from ‘repressed computer scientist’ to top tech investor

As a teenager, Philippe Laffont dreamt of working for Apple but, after graduating from the Massachusetts Institute of Technology, he was turned down five times by the company in which he would later become a prominent investor.

“I’m a repressed mediocre computer scientist,” the now 55-year-old hedge fund manager told me and my colleague Ortenca Aliaj in a wide-ranging interview from his New York headquarters overlooking Central Park. The offices are adorned with various Apple products dating back to 1976 and other once pioneering but now obsolete gadgets.

Laffont, a soft-spoken and publicity-shy Frenchman, cut his teeth as a telecommunications research analyst in the late 1990s at renowned investor Julian Robertson’s Tiger Management. Since striking out on his own in 1999, he has built one of the world’s best-known technology-focused hedge funds, and has a growing business investing in private companies.

As of May filings, Laffont’s Coatue Management has grown to more than $70bn in assets since it launched with $50mn in December 1999. Its flagship hedge fund has gained an average of 11 per cent a year since then, compared to 6 per cent for the Nasdaq Composite.

But growth investors like Laffont, who seek to identify the handful of companies that can make exponential gains by shaping the future, are facing a reckoning. An era of cheap money has come to an end and they are adapting to a regime change of rising interest rates and high inflation.

The technology-heavy Nasdaq Composite Index is down 30 per cent this year. Hedge fund darlings like Tesla and Meta, both of which sat in Coatue’s top-10 holdings as of mid-year, have more than halved in value. And many of Coatue’s private investments have not yet been repriced to reflect the substantial declines in public markets.

Read the full interview here, in which Laffont identifies the tectonic shifts that he thinks will drive the next decade and outlines how the end of cheap money has thrown up a new opportunity: providing funding to cash-strapped businesses.

How FTX ‘accidentally’ lost $8bn

It was all an $8bn accident. Or so says Sam Bankman-Fried.

As FTX, the crypto business led by the 30-year-old, quickly collapsed earlier this month, many of its employees fled the Bahamas, the Caribbean country where the company was based. Some simply abandoned their cars at the airport.

Within the space of a few days, FTX had gone from being the vanguard of a new crypto economy, with a valuation of $32bn and celebrated by celebrities and politicians, to a humiliating bankruptcy.

Now the focus of the investigations and legal battles is on the gaps in the crypto exchange’s balance sheet — and especially $8bn of missing customer deposits.

The most innocent version of events that Bankman-Fried can present is that the missing customer funds were simply an oversight, write my colleagues Joshua Oliver, Nikou Asgari and Kadhim Shubber in this Big Read. The MIT graduate, whose signature look combined unkempt hair and scruffy cargo shorts, acknowledged that FTX sent customer money to Alameda Research, the private trading firm he also controlled.

Bankman-Fried told the FT that the hole in FTX’s balance sheet was largely money shifted to Alameda, but that the move took place “accidentally”. (In a document shared with investors shortly before bankruptcy, the funds were listed as being in a “hidden, poorly internally labelled ‘fiat@’ account”.)

Many will find this explanation impossible to believe. A class-action lawsuit filed on behalf of investors in the US on Wednesday alleged FTX was “truly a house of cards, a Ponzi scheme where [FTX] shuffled customer funds between their opaque affiliated entities”.

Interviews with close associates and former employees portray an organisation that was chronically understaffed and which lacked basic security measures and financial controls.

The business was run more like a feudal court than a modern company, according to the employees. Decision-making and knowledge of the company’s affairs was restricted to Bankman-Fried and a handful of close friends in their late 20s, many of whom lived together in a luxury penthouse in the Bahamas and were in romantic relationships with one another.

Loyalty was prioritised above all else. The initial verdict from John Ray III, the veteran insolvency professional who previously helped wind down Enron and was brought in to run the business, was devastating:

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”

Don’t miss the full story here:

Chart of the week

The wild swings in the nickel price have pointed up the long road ahead for the London Metal Exchange in its efforts to regain the market’s confidence in using its global benchmark for trading the precious metal, writes Harry Dempsey in London.

The price of high purity nickel for delivery in three months under the LME contract fell 15 per cent in the three days to Friday to $25,235 per tonne, after climbing 20 per cent in the five days beforehand and peaking at $31,275 per tonne.

The choppy market conditions underscored how the chaotic events of March still hang over the exchange. One of the nickel market’s biggest traders, China’s Tsingshan, was caught out by the war in Ukraine and a sharp squeeze on prices.

Nickel on the LME doubled to more than $100,000 a tonne, a record, and the outsized margin calls threatened to engulf smaller brokers. LME chief executive Matthew Chamberlain was forced to suspend trading for a week and cancel more than eight hours of trades, causing uproar among many of its users. LME trading volumes have declined since then as many traders have pulled back their activity — the resultant thinner market has exacerbated market moves.

10 unmissable stories this week

Jeremy Hunt has overruled the Bank of England on a key part of insurance reforms intended to unlock tens of billions of pounds of investment into the real economy. The chancellor made a long-awaited decision on revising the so-called Solvency II regime, which governs how insurers are run, including how much capital they must hold and where they can invest.

FTX founder Sam Bankman-Fried told Anthony Scaramucci to buy digital tokens created by his cryptocurrency exchange as a condition for him taking a 30 per cent stake in SkyBridge Capital, in an early sign he was trying to support the coin’s price.

Temasek has written off its $275mn stake in cryptocurrency company FTX, with the Singapore state investor saying its trust in former chief executive Sam Bankman-Fried appeared “misplaced”.

Chris Hohn‘s TCI has a new target in its sights: Alphabet. Google’s parent company faced a call from the activist hedge fund to cut its soaring headcount and slash high salaries paid to non-engineers, in the latest sign of the pressure building on the biggest US tech companies to overhaul their businesses for an era of slower growth.

Muddy Waters, one of the world’s best-known short sellers, has unveiled a bet against dLocal, a Uruguayan payments company backed by major investors including General Atlantic and Tiger Global, sending its shares down as much as 30 per cent.

Warren Buffett’s Berkshire Hathaway purchased a $4.1bn stake in chipmaker Taiwan Semiconductor Manufacturing in the third quarter, vaulting a third tech company into the sprawling industrial conglomerate’s top stock holdings.

Legal & General has detailed the impact of the pension fund liquidity crisis in September, estimating that its profits would be reduced by £10mn as clients sold higher-fee products to meet collateral calls.

UK regulators have ordered Northern Trust to improve its operating systems after the US custody bank was overwhelmed by the demands of processing margin calls during recent pension fund turmoil.

Nikhil Rathi, chief of the Financial Conduct Authority, admitted that the UK financial regulator was not prepared for the threat to pension funds posed by sharp rise in bond yields in the wake of Liz Truss’s “mini” Budget, saying the issue had not been “right at the top of the radar”. 

Long-term thinking, an entrepreneurial mindset and culture are three qualitative reasons that make investing in family businesses appealing, according to Carmignac fund managers Mark Denham and Obe Ejikeme.

And finally

How Americans ruined tequila — and the true believers saving it. Marketed as a wild party drink for too long, the Mexican agave spirit is finally being taken seriously.