By New York Post (Politics) | Created at 2024-11-27 18:01:36 | Updated at 2024-11-27 20:33:39
2 hours ago
President-elect Donald Trump’s pick for Treasury Secretary operates a hedge fund that reaped a massive windfall two years ago — even as global markets sagged under the punishing weight of inflation, according to a report.
Scott Bessent’s investment firm Key Square Capital saw its flagship fund score a 29% return in 2022 by betting that high rates of inflation would persist longer than what the Federal Reserve predicted.
By contrast, the S&P 500 — the stock market index that tracks the performance of 500 of the largest publicly traded companies in the US — fell 18% that year, when the annual inflation rate rose to a whopping 8.3%, the highest since 1981.
Key Square Capital’s strategy at the time was to short fixed-income assets and tech stocks that were generating low revenue, according to the Financial Times.
“Scott is very cerebral and a global opportunist who does best when there is chaos,” a person close to Bessent told FT.
“He can play multiple [financial] instruments in order to position himself on top of the rest…during peaceful times he can struggle to find a winning angle.”
Bessent’s hedge fund has also raked in double-digit percentage profit so far this year, according to Reuters.
Key Square Capital this year made successful bets that the stock market and the US dollar would rise.
But the hedge fund has also experienced lean years under Bessent’s leadership.
Bessent, who was George Soros’ money manager when the left-leaning, Hungarian-born financier became a billionaire by shorting the British pound during the 1992 “Black Wednesday” sterling crisis, founded Key Square in late 2015.
The company quickly raised $4.5 billion — which included $2 billion from Soros. During its first year, Key Square’s flagship fund scored a 13% return on its investments, according to Reuters.
The hedge fund correctly wagered that the British pound would decline in the wake of the “Brexit” vote which led to the United Kingdom’s departure from the European Union.
Key Square also turned a profit when the hedge fund rightly predicted that Trump would win the 2016 presidential election — a development that sent US stocks and the dollar surging.
But Key Square ended up losing 7% in 2017 and then either lost money or broke even from 2018 until 2021, Reuters reported.
One investor told FT that Bessent was “nowhere near” the status of big-name Wall Street fund managers such as ex-Soros deputy Stanley Druckenmiller, Paul Tudor Jones or Louis Bacon.
“If he had done really well as a hedge fund manager, then his business would be at a size where he couldn’t or wouldn’t take a post in government,” the investor told FT.
Reuters cited a source as saying that the hedge fund gained double digits in both 2023 and 2024 and was up “double digits” over its history.
The inconsistent performance apparently scared off potential clients. As a result, assets under management shrank from a high of around $5.1 billion at the end of 2017 to $577 million as of December last year, according to regulatory disclosures tracked by Convergence Inc.
Aside from hedge funds, Key Square offers other financial services including an advisory business for family offices, foundations and endowments as well as a spin-out firm, Ghisallo Capital, which is said to be worth $3.4 billion.
Brevan Howard Asset Management, the $34 billion macro hedge fund manager co-founded by British billionaire Alan Howard, is a longtime client of Key Square.
“Scott is one of the best macro investors in the world,” a spokesperson for Brevan Howard told Reuters.
“His understanding of markets, public policy, and the global economy is largely unmatched.”
Semafor previously reported that selective Key Square performance numbers were being shared around Wall Street chats as Bessent competed for the coveted post of Treasury Secretary.
The report did not reveal the numbers shared.
The Post has sought comment from Key Square.
