The Really, Really Rich Are Playing It Safe

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If you’re really, really rich, you’ve probably already closed your hedge fund to outside investors and turned it into a family office—which is mostly making more money for you. So what did these major billionaire investors do with their personal funds at the end of last year? They sold stocks, took profits or bought some pretty safe assets.

It’s an important investing rule: the preservation of capital.

Consider the big bet on bonds, for example. Because bonds, as opposed to equities, are higher up in a capital structure, they’re considered safer than stocks. And things like LQD or VGSH—tickers for ETFs associated with investment-grade bonds and short-term Treasury holdings—were in high demand. The first became one of the largest holdings for billionaire George Soros’s family office, while the second is a top-five holding for family offices overall, according to 13F data compiled by Bloomberg for the fourth quarter of 2022.

In another sign of playing it safe: The Soros family office sold out of a whopping 130 securities, while buying less than 30.

Stan Druckenmiller also sold more than he bought. The billionaire’s family office bought Amazon.com Inc. stock last year and sold it before the end of the fourth quarter. The quick trade shows that maybe it’s better to sell early and lock in gains. Although the stock is up more than 10% this year, it’s still trading at less than the $121-a-share peak it had during the fourth quarter. It might be frustrating to be cautious—but it’s better than losing millions in the end.

These trades show us the cleareyed nimbleness of a billionaire versus the anxiety of a hedge fund manager. Hedge funds have been adding risk recently, according to a prime brokerage report sent to clients this week by Goldman Sachs. The bank estimates that long-short hedge funds have risen less than 4% this year, which is less than the increase of the S&P 500.

The hedge funds are adding risk even though there appears to be a rough road ahead. The fast money is worried: What’s going to break this market? The longer the complacency continues, and the faster stock market drumbeats go, the harder the crash could be at the end.

At the end of the fourth quarter, some hedge funds made some huge bets. Maverick, led by legendary trader Lee Ainslie, bought into more than 100 new positions. But there are many other traders who lost a lot more money—meaning they had less to lay out this year for their investors, while their personal fortunes also shrank tremendously.

Stalwarts of the industry faced huge reversals of fortune, as my colleagues Tom Maloney and Hema Parmar report

D1 Capital’s Dan Sundheim, TCI’s Chris Hohn, Lone Pine Capital’s Stephen Mandel and Viking Global’s Andreas Halvorsen incurred the biggest personal losses last year. What many of those firms have in common: big bets on tech stocks, sometimes including VC investments. Many of the managers started their careers at Julian Robertson’s Tiger Management, earning them the Tiger Cub moniker. 

Going back to those really, really rich. One hedge fund manager I talked to made a different point entirely. With a market that always sways one way or another, “the megarich, they’re no different from you and I,” he said. “They’re definitely not much happier.”

Real Estate Jitters

The property market is a perennial concern, especially after 2008 and the 2020 Covid-driven market crash. Real estate has been holding up, but there are some worrying cracks.

Redemption requests continue to mount at a real estate investment trust run by Barry Sternlicht’s Starwood Capital Group. Investors filed notices to withdraw more than $700 million, a total of 5.2% of the vehicle’s net asset value at the end of December, my colleague Miles Weiss reports. The REIT didn’t have this issue prior to last year’s fourth quarter.

For investment giant Brookfield, two Los Angeles office towers are in default. The fund manager had warned months ago that it may face foreclosure on properties. Brookfield is a huge company, and these are only two buildings. But more offices across the country are going vacant and values are dropping. It’s something to watch.

Who’s News

Investors are bailing from a SPAC led by former baseball star Alex Rodriguez, just another black eye for the many blank-check firms that are facing pressures. ... Former star Credit Suisse Group trader Hamza Lemssouguerhis hedge fund surge last month, recovering from a tumultuous period. … JPMorgan’s trading head Troy Rohrbaugh believes “fixed income is in,” even as trading results are trending down from last year. ... A sleepy unit at Citigroup led by Shahmir Khaliq is showing its strength as a “crown jewelSonali Basak, Bloomberg News

Opening Lines

“At the height of the pandemic, when many people in Mumbai were staying home, Ramvinder Singh Gill noticed a strange car parked near the residence of the city’s richest man. A 53-year-old ex-colonel in the Indian special forces, Gill held one of the most important bodyguard jobs on the subcontinent, overseeing a 300-person security force responsible for protecting the billionaire industrialist Mukesh Ambani and his family. The focus of their work was Antilia, the Ambanis’ 27-story vertical mansion, equipped with three helipads, yoga and dance studios, and a ‘snow room’ chilled to frigid temperatures. To avoid exposing their clients to Covid-19, bodyguards would spend 15 days quarantined at a nearby hotel before beginning monthlong shifts inside.”

“The Staged Bomb Scare That Backfired on Mumbai’s Notorious Cops” by Chris Kay and P R Sanjai

A pay-for-play residency program made Lisbon a magnet for millionaires—at the expense of locals.

“Runaway Property Costs Push Portugal to End Golden Era of Visas” by Henrique Almeida

Bw Dailywill return on Tuesday, Feb. 21In the meantime, check out Businessweekfor more! If this has been forwarded to you, click here to sign up