Hedge funds jump into private credit

One scoop to start: Four in 10 UK people were reported in the media before it was announced this May, sparking concerns at financial regulators that London’s stock market is becoming leaky.

In today’s newsletter:

Why Hedge Funds Love Private Credit

Hedge funds like Millennium and Point72 attract investors to the temptation of returns that are strong enough to predict low volatility.

However, institutional investors are increasingly relying on private credit funds to meet the need for reliable returns insulated from the whims of the market.

According to DD’s Amelia Pollard and Eric Pratt and FT’s Harriet Agnew, some hedge funds are currently infiltrating the realm of private credit.

Among those expanding into the sector are the Millennium, Point 72, and the third point, some of the oldest and largest hedge funds in the world.

The third point was to back up the activist campaign unfolded by founder Dunrove. The $20 million company is currently planning to launch a publicly available private credit fund called Third Point Private Capital Partners to lend directly to the company.

Meanwhile, Izzy Englander’s Millennium is considering launching its first new fund in over 30 years to invest in less liquid assets, including personal credit.

Point 72, a hedge fund founded by New York Mets owner Steve Cohen, employs executives from Blackstone, Carlisle and Brookfield to hire private credit.

For hedge funds like Millennium or Point72, private credits offer interesting draws.

Multi-Managers are run by separate teams as a series of independent “pods.” The model collects a lot of cash with a promise of stable profits. However, even the most talented portfolio managers are often constrained by risk budgets, which limits the amount they can allocate to potentially favorable strategies.

Private credits offer new markets where risk budgets become tighter and allow you to increase your funds from investment Maestros.

Hedge funds could also transform into mainstream financial institutions, giving older founders a valuable legacy.

FT reports that Millennium is in talks to sell minority stakes at a $14 billion valuation.

But it begs the issue of what hedge funds can withstand.

“We’ll see some of these new participants, or what I might call tourists, are unable to produce the same kind of returns as more established platforms,” ​​said the private credit company executive.

“You can’t just raise capital. Hey, we’re open to the business.”

Meta’s massive $29 billion data center transaction

The two most talked about finance stories crossed on Friday.

High-tech companies are pouring their money into artificial intelligence, and private credit costumes are looking for a place to invest in the cash shelves they have raised in recent years.

So it was revealed last week that private credit investors were consulting with Meta to raise $300 million to fund a push for Tech Giant’s AI data center.

Meta is discussing the data centre’s $29 billion funding with private credit investors including Apollo, KKR, Brookfield, Carlyle and Pimco, the FT reports.

Meta is hoping to raise $3 billion in equity and another $26 billion in debt, which will be one of its kind.

This is because technology groups compete to ensure the computing capabilities of resource-hungry AI models.

Companies like Meta and Openai are fighting to build and monetize their AI offerings.

Meanwhile, private credit groups have begun withdrawing money from insurance companies and pension providers that require high-quality investments to satisfy regulators.

As a result, these private credit companies are being loaned to blue chip companies, with large-scale projects such as data centers at the crosshairs.

Last year, Apollo agreed to a $11 billion funding agreement for Intel’s chip manufacturing plant in Ireland.

Recently, in May, Blue Owl agreed to help fund Openai’s $15 billion data center project.

Meta’s latest data center deals are made to bolster AI spending and races to keep up with rivals.

The interesting thing about these transactions is that the tech groups involved could have easily tapped more traditional funding sources, such as the corporate bond market, as pointed out by FT’s Robert Armstrong.

However, for groups like Meta, such private credit arrangements offer unique opportunities. In many cases, transactions are configured to maintain debt-like fundraising from the balance sheet, avoiding leverage and valuation impact.

BP Crown Jewel

For months, BP’s future has been an open question.

The company found itself at the heart of the acquisition speculation in a stock slide.

Last week, potential suitor for BP, Shell, cancelled rumors of a purchase bill for its rival energy major by resolving its intention to pursue consultations and deals.

Under UK acquisition regulations, Shells are unable to approach BP for at least six months, except in certain circumstances.

While it’s unlikely that chatter will disappear due to BP under pressure, one potential obstacle to acquisition is that there are few competitors who really want to buy every company.

Instead, the rivals are seduced by some of the group’s crown gems, including deep water oil operations in the Gulf of Mexico, US Shale Arm BPX, the oil and gas business in Abu Dhabi and Azerbaijan, and the company’s liquefied natural gas assets. BP’s Lubricant Business Castrol is also available for sale.

BP’s CEO Murray Auchincloss tried to ring what he considers as the group’s core assets. The question is whether the company will be forced to go even further than Auchicloss wishes, especially as activist investor Elliott management is hiding in the background.

BP navigates a variety of external factors, but you also need to find an alternative to chair the board.

Sam Laidlaw, former CEO of UK gas owner Centrica, told associates who have withdrawn from the chair selection process because they thought BP would be sold to rivals or require a painful restructuring, the FT revealed last week.

Ken McKenzie, former chairman of mining company BHP, was also approached, but someone nearby confirmed he was not seeking a role. Former Anglo-American CEO Mark Katifani also said he was not interested in him.

BP says that the search for chairs is “moving at a pace.” The company’s next leader will face a long to-do list.

Job movements

Boeing appointed Jesus “Jay” Marav as the new financial director and replaced Brian West. Recently, Malave will be serving as CFO at Lockheed Martin and will be joining Boeing in August.

The American Investment Council has appointed Wildunham as new president and CEO. He was recently the Vice President of Government Affairs at AIC.

Moelis & Company has appointed Mark Milano as Managing Director of London, with a focus on business and industrial services in the EMEA region. He joined from HSBC, where he leads coverage of EMEA Business Services.

Olympus Housing Capital, an Apollo Global Management affiliate focused on home builder fundraising, has launched Andrew Browser as CEO. Blausa established and managed the Brookfield land funding strategy.

Proskauer has appointed Sarah Stasny as partner and head of private equity transactions. She joins from her partner, Paul Weiss.

Smart Lead

Returning to business for some bankers can feel like a demolition, Craig Coven wrote. In his FT column, he explores why some are returning to their profession.

Mystery Man One Fan is for sale, but little is known about its mysterious owner, Leonid Radvinsky. He founded the school’s first adult entertainment business, the Wall Street Journal reports.

The Carry One Private Equity boss has surfed over the years of interest tax cuts despite bipartisan opposition. If Donald Trump’s “big, beautiful bill” passes in its current form, they will once again escape unharmed, Rex writes.

News Round Up

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