Scott Bessent’s ultimate Trump trade

One big scoop to start: BlackRock has a handshake deal to buy private credit group HPS Investment Partners, as the world’s largest asset manager looks to bolster its private investment business with the addition of one of the biggest lenders on Wall Street.

And another scoop: Donald Trump is considering naming Gail Slater, an aggressive enforcer, to lead the Department of Justice’s trustbusting team, as top Republicans set their sights on alleged anti-competitive conduct by Big Tech.

In today’s newsletter:

• The hedge fund manager leading the US economy

• Brookfield ends talks on Grifols takeover

• Sequoia’s former China business and Kylie Jenner

How Trump’s Treasury pick bet big on inflation

On Wall Street, Scott Bessent is known for breaking central banks. Now, after Donald Trump picked him last week as the next US Treasury secretary, he’ll soon be running the world’s biggest economy.

It’s worth taking a look back at Bessent’s career-defining trades. His first big bet came in 1992, when he was on the ground in London for Soros Fund Management and built a case to short the British pound.

Two decades later, after stints elsewhere, he returned to George Soros’ fund as its chief investment officer. This time, he went after Japan’s yen — the proudest trade of his career, said a person familiar with the matter.

More recently, he made another big wager at his hedge fund, Key Square Capital Management, DD’s Amelia Pollard and James Fontanella-Khan and the FT’s Harriet Agnew report.

In 2022, when the Federal Reserve and economists predicted inflation would be transitory, Bessent took the other side of the wager. He was right: Key Square made 29 per cent that year for its flagship fund as the wider market fell.

The bonanza inflation trade involved shorting fixed-income assets and tech stocks generating low revenue that were buoyed by rival fund managers including Cathie Wood.

His trade in 2022 boosted Bessent’s reputation as an expert in financial turmoil, which supporters say could be critical as he helms Trump’s economy.

The bumper year marked a recovery for Bessent’s fund, which recently drew criticism for lean years when his macro investing strategy — like that of other macro-focused funds — struggled to find an edge in a period of lower interest rates.

“He’s seen just about everything in terms of issues that could arise, probably more so than anyone who’s filled the job previously,” Stanley Druckenmiller, the billionaire investor who first hired Bessent to Soros Fund in 1991, told the FT. “I think he’s a great choice.”

Key Square’s returns — like that of many macro funds in the post-2008 era — have been mixed. Returns were positive in four years, negative in another four and neutral one year, said a person familiar with the matter.

He’s done well since then, too. The firm was up by double-digits again in 2023, and is on track to do the same in 2024, said two people familiar with the returns.

In a January letter to clients, Bessent outlined his thesis about Trump. The incoming president would “want to create an economic lollapalooza and engineer what he will probably call ‘the greatest four years in American history’”, he wrote.

Bessent was quietly teeing himself up for the ultimate Trump trade.

Brookfield ends Grifols talks

Wednesday marked a bleak end to a bleak year for Spanish healthcare group Grifols, after private investment giant Brookfield ended months-long negotiations to take the company private.

Shares in the leading maker of medicines derived from blood plasma haemorrhaged value after the news became public, ending the day 9 per cent lower.

The mood at the Grifols Christmas party is unlikely to be festive. In January, short seller Gotham City Research publicly accused it of artificially manipulating its debt and earnings through transactions with a business related to the company’s founding family.

While Grifols insisted the report was based on “false information and speculations”, the market could clearly smell blood: its Madrid-listed shares halved in value in the aftermath and were still trading about 40 per cent lower during the summer.

Brookfield entered the fray in July, saying it was examining a bid in conjunction with investment vehicles linked to the Grifols founding family.

While some shareholders feared it could be an opportunistic swoop aimed at taking over a storied company on the cheap, Brookfield’s interest at least gave Grifols’ shares a revitalising transfusion of market confidence.

That ended on Wednesday. After months of Brookfield’s dealmakers courting the company, the firm said it was walking away, seemingly unwilling to nudge any higher on a so-called “non-binding indication” of interest it gave valuing Grifols at €6.45bn last week.

One person close to the process told DD there was “a valuation gap” between the two parties. Clearly.

Sequoia’s spun-off China unit looks for global deals

An investment by HongShan, Sequoia Capital’s former China unit, in the Kylie Jenner-backed vodka seltzer company Sprinter might raise some eyebrows.

What is China’s leading venture capital firm doing backing an influencer consumer start-up in the US?

While the investment was small, it underscores the challenges for HongShan, which split from Sequoia last year, in finding companies to plough its capital into.

HongShan raised nearly $9bn across four funds in 2022, but the intervening two years have been brutal for China’s start-up landscape with a wave of bankruptcies and down-rounds.

Two years into its fund, HongShan has only deployed 10 per cent to 20 per cent of its two later-stage funds, both sized at $3.6bn, leading some limited partners to grumble at its sluggish pace of investment, report Eleanor Olcott and George Hammond.

In general, LPs are keen to see early deployment because it gives more time for the companies to grow in value and for the funds to recoup their investment through IPOs or mergers.

The options for HongShan to deploy its USD funds in China are narrowing as Washington’s restrictions bar American investors from financing some high-tech sectors such as artificial intelligence and quantum computing.

This explains why the Chinese VC firm, led by the country’s most influential tech investor, Neil Shen, is scouring the globe for opportunities. It has recently opened a London office and plans to do the same in Tokyo.

For its part, a spokesperson for HongShan said it remains bullish on the Chinese market and “partnering with Chinese founders and supporting their globalisation journeys”.

Job moves

• Citigroup’s wealth management business has hired Kate Moore as its chief investment officer, according to an internal memo seen by DD. She was previously a portfolio manager at BlackRock.

• White & Case has promoted 22 lawyers to local partners and 27 to counsel globally. The promotions span practices including commercial litigation and capital markets.

Smart reads

King of Cantor Howard Lutnick runs his brokerage firm Cantor Fitzgerald like a personal fiefdom, Bloomberg writes. Can he untangle his personal interests and navigate conflicts as the US’s new commerce chief?

Trump threat Mexico’s new President Claudia Sheinbaum is doubling down on the agenda of her predecessor as she confronts the prospect of tough US tariffs, the FT reports.

Consolidation lifeline Europe’s banks need deals to keep pace with a runaway US sector, FT’s Lex writes. Any evidence of consolidation would help.

News round-up

Elon Musk’s Twitter backers gain windfall from xAI deal (FT)

SoftBank to boost OpenAI stake with up to $1.5bn investment (FT)

UK car insurer Direct Line rejects £3.3bn takeover offer by Aviva (FT)

Shares of SoftBank-backed Symbotic plunge after accounting errors (FT)

Republican US states sue BlackRock for ‘destructive’ green agenda (FT)

Just Eat Takeaway to delist from London Stock Exchange (FT)

VW sells plant in Chinese region of Xinjiang (FT)

UK watchdog fines former Wizz Air executive for secret share trading (FT)

National World shareholder calls on board to engage with £56mn takeover bid (FT)