Today it would rank only tenth, but when it came to the market in January 1956, Ford’s was the largest initial public offering in US history.

It was a long time coming. The company had been founded over fifty years before and had remained private throughout. Early investors had long since cashed out so there was no clamor for liquidity. Indeed, their success was legend. Everyone knew the story of James Couzens – later Senator Couzens – who scraped together $2,500 to invest in the new Ford Motor Company in 1903; in 1919, Henry Ford bought him out for $30 million. So when the public were finally invited in, the response was unlike anything Wall Street had seen.

The selling shareholder was the Ford Foundation. To mitigate estate taxes, Henry and his son, Edsel, had transferred almost 90% of the company’s stock into a foundation in 1936. Although technically a philanthropic endeavor, the Fords used it to safeguard family control. Henry died in 1947, Edsel before him in 1943, and by the mid-1950s the Foundation was keen to diversify. Its endowment was substantial – by this time, Ford was one of the largest private companies in America – but its income consisted entirely of Ford dividends, too unpredictable to plan around. Selling shares was the solution.

Yet before an IPO could take place, the Foundation needed to overcome a problem. Its economic interest in Ford didn’t extend to voting rights, which remained firmly in the grip of the family. Foundation president Horace Rowan Gaither didn’t think shares were marketable without them – and the New York Stock Exchange agreed. The family and the Foundation turned to Wall Street for help.

A solution took two years to negotiate but Goldman Sachs senior partner Sidney Weinberg, working with assistant John Whitehead, eventually got there. Operating in total secrecy – Ford was never referred to by name; in all correspondence it was simply “X” – they presented over fifty different proposals. In the end, the family gave up their exclusive voting rights, transferring 60% to a new class of common stock in return for an increased equity stake worth around $60 million.

Goldman leveraged this advisory work into a major role in the IPO syndicate. It wasn’t technically lead bookrunner – that role fell to Blyth & Co – but Weinberg retained significant influence over the process. For their part, Blyth & Co were surprised to win the mandate, the firm’s own head of syndicate admitting he had no idea how they’d done it. “What I do know,” he told journalist John Brooks, “is that one day in November, Mr. Gaither called Mr. Blyth, our chairman, who was in San Francisco, and asked him to fly to New York right away. When the head of an organization that’s about to sell something like half a billion dollars’ worth of stock asks an investment banker to come, he comes.”

Including Blyth and Goldman, seven lead underwriters were appointed as part of a syndicate that stretched to 722 firms. The only names not on the list were Morgan Stanley for its ties to General Motors and Dillon Read for its ties to Chrysler. “The syndicate will include just about everybody who’s in the business and who isn’t, or hasn’t been, in jail,” a Blyth vice-president told Brooks.

These days, it would be difficult to identify 700 firms and indeed many have disappeared – including Blyth, which was absorbed first into PaineWebber and then into UBS. John Whitehead, who later became Goldman chairman, kept a framed copy of the tombstone advertisement listing these firms in his office and would cross off names with a red pen as they failed, merged, or changed name. By the end of his tenure, few were left.

On January 17, 1956, representatives from each of the underwriters (bar one, banned from trading in New York over a shady Alaskan securities promotion) filed through Blyth’s offices to sign their underwriting agreements. On behalf of them all, Blyth agreed to pay the Ford Foundation $63 a share for 10.2 million shares, to be distributed to clients at a $1.50 mark-up.

By then, prospectuses had been mailed (half a million copies of a preliminary prospectus plus more than a million of the final prospectus), ads placed (in 120 newspapers), a due diligence meeting convened (where people scrambled to catch a glimpse of Henry Ford II) and demand gauged. It was to be “a landmark in the history of public ownership,” declared the president of the New York Stock Exchange, “as hot as a firecracker,” Blyth’s head of syndicate told Brooks.

Unsurprisingly, the deal was oversubscribed. Around 5-10% was reserved for institutional investors, 10% for Ford dealers and employees, and the rest would go to the public. Normally so disdainful of IPOs, even Warren Buffett bought in. “I haven’t bought an initial public offering since 1955,” he said a few years back. “I bought 100 shares of Ford when it came out. Gus Levy [Goldman’s head of trading] was running it. As a favor, he gave me 100 shares and I have to admit it now – I think the statute of limitations has expired – I took a free ride on 100 shares and made $500 and it’s the only time I’ve ever done that.” (He was making $12,000 a year at the time, he said, and $500 looked very good.)

Ford stock opened for trading on January 18 (ticker: F) with around 300,000 new owners. It traded up to $70.5 that day, handing them an immediate gain of 9.3%. But over the next few months the price drifted down into the forties as Ford dealers, who had overextended themselves to buy stock, rushed to sell.

By then, the banks had made their money. Their $1.50 per share mark-up rewarded them with fees of $15.3 million, equivalent to 2.33% of the funds raised. After expenses, they were left with 2.17%. As a high profile deal this fee rate fell on the low side. A few years later, Blyth brought publishing house Grosset & Dunlap to market for a 5.5% fee. Smaller deals attracted fees as high as 15% and often included warrants and expenses charged to the issuer that could push rates above 25%.

Goldman earned an additional fee of $250,000 for its advisory work and while this, too, was low – the work was thought to be worth $1 million – it set the firm up for a long business relationship with Ford. Weinberg hung a note he received from Henry Ford II on his office wall: “Without you, it could not have been accomplished.” He joined the Ford board and for nearly half a century Ford would become Goldman’s most prestigious investment banking client.

When Goldman itself IPO’d in 1999, Ford played a part. William Clay Ford Jr., then the carmaker’s CEO, was given an allocation of 400,000 shares – the largest allocation to an individual. A Ford shareholder sued, alleging the allocation was a reward for Ford’s business with Goldman Sachs and claiming that any gain on the shares belonged to the company. Ford agreed to settle, receiving $10 million from Goldman Sachs, and Bill sold his shares, donating the $4.5 million profit to charity.

Goldman has done a lot of IPOs over the years. It is leading the upcoming SpaceX IPO and has just been picked to lead on Anthropic. The record-breaking $85 billion secondary offering it organized for Google this week adds to its capital markets pedigree. Some things have changed since Ford – others have not. To see how the IPO business has evolved, and what the SpaceX IPO heralds, read on.

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If Forbes ran a 30 under 30 list in 1957, Gerry Tsai would have been on it. Already well regarded within Fidelity, the young portfolio manager wrote a memo to Ted Johnson, the firm’s founder and his boss, proposing he launch a new fund focused on growth stocks. Johnson handed him $200,000 and told him to go for it.

By the end of 1961, Tsai was managing $160 million, a six-fold increase over the previous 12 months. A market correction in 1962 hurt, but when the Cuban Missile Crisis was resolved that October, Tsai reacted quickly, buying $26 million in stocks over six weeks. His fund jumped 68% in three months, and by August 1963 had recovered all its losses. “All of Wall Street now watched Gerry Tsai’s every move, always certain the young manager was right,” journalist Justin Baer writes in his new book, House of Fidelity. “Tsai was a star, in many respects the mutual-fund industry’s first.”

Reflecting his prominence, Tsai was rapidly promoted. He was named a vice president in October 1960 and was given an opportunity to buy non-voting shares in FMR, Fidelity’s investment management company. In 1963, Johnson upped his shareholding to 20%, equivalent to about half his own stake.

By now the firm was approaching 20 years old and Johnson was nearing retirement. Tsai began agitating for Johnson to name his successor. When it became apparent that Ted would hand control to his son, Ned, Tsai resolved to leave. In October 1965, he sold his FMR shares back to the company for $2.2 million and began preparations to launch his own firm.

Tsai’s new fund was a success. Targeting a raise of $25 million, he pulled in nearly ten times that despite charging a fat upfront fee of 8.5%. Press clippings glowed. Tsai “radiates total cool,” Newsweek reported. After two years, his firm attracted attention from suitors and in August 1968, he sold to CNA Financial for a consideration of $30 million.

Sixty years on, Fidelity remains a family firm. Ned became president in 1972 and chairman and CEO in 1977. In 2014, his daughter Abigail took over, today overseeing a firm with 80,000 employees and $7 trillion under management.

It’s notable that so many large asset managers have stayed in private hands. Two of the top three firms in the world are privately owned; another is not far behind. Abigail and her family own 49% of Fidelity with employees and former employees holding the rest. Vanguard ($12 trillion in assets under management) is mutually owned by its customers. And Capital Group ($3.3 trillion) – older than either of them – is owned by a select group of senior employee partners.

Over the next few months, each of these firms will be asked to participate in some of the largest IPOs in history yet none have been through the process themselves. (Vanguard won’t be asked, but it will participate). They hew to distinct ownership structures that cut against the securities they trade in.

To see how each arrived at its structure – and what that means for how they operate today – read on.

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I haven’t had a chance to visit Citadel’s new global headquarters in Miami, and it’s a while since I visited the firm’s offices in New York, but I’m told that on his elevator doors, CEO Ken Griffin has emblazoned a slogan informing all who enter that his is the “#1 Most Profitable Hedge Fund Manager of All Time.”

The message celebrates Citadel’s position atop LCH Investments’ rolling scoreboard of hedge fund gains. Since founding the firm in 1990, Griffin has delivered net gains to investors of $90.4 billion after fees – over $10 billion more than any of his closest peers. His flagship fund has generated positive returns in more than 80% of the months it has been going, and has grown at a rate of 19.2% a year, again after fees. With $68 billion under management, Citadel isn’t the largest hedge fund manager out there but it is adept at managing cycles and the changes they bring.

Recently, Griffin has been speaking about AI. The finance industry has a long tradition of deploying technology to achieve edge, and Citadel has been at the forefront. It launched a quantitative strategies group in 2012 and employs around 270 PhDs from fields including computer engineering and statistics. Currently, around one in three employees at the firm is a software engineer.1

Yet while the firm was quick to embrace earlier machine learning advances to support its portfolio managers, its approach to generative AI was more tempered. Griffin instructed his team to abandon 195 of the 200 projects they had been working on and a year ago remarked that AI hadn’t been game-changing. As recently as January, he remained unimpressed:

“I was with one of my colleagues who runs our commodities business, and he handed me a report that we generated with an AI engine. Doesn’t matter what the topic was, the first few sentences – wow, that’s really insightful. And then you go down below that and it’s all garbage.”

At a session at Stanford this month, though, he changed his tune.

“In the last few months, there has been a step change in the productivity of the AI toolkit. It is profoundly more powerful than it was just nine months ago.

And for us at Citadel, that has allowed us to unleash a much broader array of use cases for AI. And it has been really interesting to watch, to be blunt, work that we would usually do with people with Masters and PhDs in finance over the course of weeks or months being done by AI agents over the course of hours or days.

… I have to tell you, I went home one Friday actually fairly depressed by this because you could just see how this was going to have such a dramatic impact on society. When you witness it in your own four walls, when you see work that used to be man years of work being done in days or weeks, it’s like, wow, like that’s the first time I’ve seen real impact in our four walls.”

Griffin’s experience reflects a prediction made by Anthropic, the AI lab most focused on finance. In a report on the labor market, it ranks investment analysts as the seventh most exposed profession to AI displacement, up there with data entry keyers and customer service representatives. For a firm built around people – “a culture where talent can thrive,” as Citadel’s website proclaims, and “a team where every mind counts” – this can be jarring.2

To find out how Griffin has built one of the most disciplined talent operations in finance – and whether AI changes the calculus – read on.

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Social media remains a relatively new frontier in investor relations. Barclays is also looking to hire an IR manager and its job spec makes no mention of social media. The successful candidate there is expected to prepare and review presentations, cultivate shareholder relationships and manage events “to effectively communicate the company’s story to investors.”

Payments company Fiserv is another firm looking to hire. Tasks include collecting investor feedback, gathering information on competitors’ earnings, managing the quarterly earnings reporting process, maintaining a record of publicly disclosed information, and representing the company on investor calls. Unlike their counterpart at SpaceX, Fiserv’s investor relations officer won’t be required to “monitor social platforms, retail investor forums, and market commentary to track sentiment, engagement trends, and emerging narratives.” Scrolling is not part of the day job at Fiserv.

Of course, SpaceX is a different kind of company. For a start, it owns its own social media platform, X, where many of its prospective shareholders congregate. CEO Elon Musk already showcased his disdain for traditional investor relations processes back in 2018 when he cut analysts off his Tesla earnings call for asking boring, bonehead questions. “These questions are so dry. They’re killing me,” he said. Instead, he went to YouTube and invited questions from Gali, a 25-year-old fanboy who couldn’t believe his luck (“I’m still basically in complete shock right now,” he told viewers afterwards).

These days, Tesla uses Robinhood-owned Say Technologies to canvass questions from individual investors. On its most recent call, 4,900 participants submitted 86 questions through the platform; nine were answered. That left time for only five Wall Street analysts to ask questions.

When I was a regular attendee on earnings calls, they were heavily choreographed affairs. No investor relations manager wanted to run the risk of inviting Buddy Fox from Geneva Roth Holding Corporation onto their call, or Bruce Wayne from Wayne Enterprises. But the rise of retail participation has changed the landscape. The share of US households that own stocks has surged this decade to nearly 60%. Broadridge, a company that offers investor communications services, helps administer around 1.5 billion shareholder positions, up 15% on last year. For the first time, Americans hold more wealth in stocks than in their homes. Retail trading activity now accounts for roughly 20% of total US equity trading volumes.

The shift comes at the same time as passive becomes more dominant. We talked last week about the demand for SpaceX shares from index funds – a group that the company’s new investor relations manager won’t have to court. Invesco’s exchange-traded fund QQQ alone will be obliged to buy an estimated $2.7 billion of stock whether the role is filled or not. With such a large share of the market impervious to their charms, investor relations officers can focus their attention elsewhere – on retail investors and, increasingly, on audiences inside the company. To understand where the role is headed – and how it got there – read on.

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The Nasdaq-100 index tracking stock launched in March 1999. It was an immediate hit. Listed under the ticker QQQ on Nasdaq’s sister venue, the American Stock Exchange, it accumulated $12 billion in assets in its first year. By the time it transferred to Nasdaq five years later, trading volumes had increased from 6.9 million shares per day to 100.3 million – and a million investors held it.1

As it grew, Nasdaq risked turning into an asset manager. An algorithm ran its investment process, but marketing required specialist resource. “So we looked around for a good partner,” says Jacobs, “and PowerShares was merging into Invesco, and when we talked to the team at Invesco they said we have 400 salespeople. Nasdaq had three. It was easy math to figure out that we would be able to broaden the distribution.”

In partnership with Invesco, the fund continued to flourish. It charged investors 0.20% of net assets and ploughed much of that into marketing. As part of its deal with fundholders, any revenues left over after paying expenses such as licensing and trustee fees had to be used exclusively for marketing. With Nasdaq taking a licensing fee of around 0.08% of net assets and Bank of New York Mellon a trustee fee of around 0.04%, that left a lot to spend on ads. “I’ve been watching college basketball and have seen 10+ QQQ commercials. I don’t remember ever seeing this many specific investment advertisements, other than the crypto craze a few years ago,” posted one Reddit user.

QQQ now sits on $456 billion of net assets, making it the fifth largest exchange-traded fund in the market. In the past five years, it has spent $749 million on marketing. Invesco recently succeeded in amending its agreement with fundholders to capture more of the revenue for itself. As part of the revised agreement, the fund’s charge falls slightly to 0.18%, but Invesco captures more of what remains – committing to a marketing budget of $60-100 million and retaining a revenue stream of around 0.04% of net assets.23

For Nasdaq, it has been a profitable endeavor. QQQ was its first exchange-traded fund – and remains its largest – but its index now sits inside multiple products listed all over the world. In the past 12 months, it earned $854 million in licensing fees, of which around a third are from QQQ. Licensing overtook cash equities trading as a source of earnings some time ago; now, for the first time, it has overtaken data and listings too. In the company’s core business of capital access and market services (excluding the newish financial technology businesses we discussed in Nasdaq’s Pivot) index licensing makes up a quarter of revenue – and the opportunity is still expanding. Nasdaq recently gave BlackRock and State Street permission to launch funds on the same pricing terms as QQQ, adding their distribution networks to Invesco’s.4

“A new chapter of growth and expansion for the Nasdaq-100,” said CEO Adena Friedman on her recent earnings call.

The ascendancy of indexing is part of a broader trend as passive gains an increasing stranglehold over markets. Passive now accounts for 39% of total assets among the world’s largest 500 asset managers and over a third of US equity market trading. Add in active assets that use the Nasdaq-100 and other indices as a benchmark for performance and their influence grows.

Now that influence is reshaping listings. Nasdaq talks often about flywheel effects – executives mentioned the idea 22 times at their investor day earlier this year. Listings were always meant to be the engine. But listings have stalled. Now Nasdaq is trying to run the flywheel in reverse – using the index to restart the listings engine. To see how, read on.

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When it changed hands last year, the pub’s former proprietor bemoaned what a difficult business it is to run: “Pub and bar ownership isn’t for the faint hearted,” he said – it “requires energy and focus.” It’s something his patrons might say about their own business. The difference is that while the hospitality industry faces challenges (as I know well – I’ve described my own experiences of owning a pub here before) the arbitrage industry is on a roll: a “golden age,” the Financial Times characterized it this week.

The concept is simple enough. “Arbitrage is when you can do a set of different trades that cancel each other out and make a free profit at the end,” one likely former customer writes in his book, The Trading Game. He was looking at foreign exchange, but the breadth of such trades is currently huge:1

• Disrupted by the crisis in Iran, the spread between oil prices in different parts of the world has rarely been wider. Last month, a barrel of crude oil could be picked up for $78 in Kansas; in Sri Lanka, it cost $286.

• The so-called “basis trade” where traders sell Treasury futures and buy underlying Treasury bonds continues to attract record flows, estimated at over $1 trillion. It profits when the basis between the two instruments converges, often at the futures’ expiry. The International Monetary Fund (IMF) calculates that after a period of low profitability from 2020-23, returns rose to nearly 2% on numerous occasions in late 2024 and 2025. With leverage, that becomes meaningful.

• Fixed income markets provide a venue for other arbitrage trades, too, including the swap spread trade which exploits the difference between the fixed rate of an interest rate swap and the yield of a government bond. Including the basis trade, The IMF estimates that traders have around $2.3 trillion of fixed income arbitrage exposure on their books right now. So far it’s been a good risk-adjusted trade – since September 2022, the Bloomberg Fixed Income Arbitrage Hedge Fund Index is up 32%.

• The growth of private markets creates new opportunities. We’ve discussed the wave of redemptions that has hit private credit funds over the past few months. Some of that is being recycled into publicly traded funds that trade at steep discounts to net asset value.

For those putting on or facilitating these trades, it’s a profitable time. Jane Street, whose legacy business lies in exploiting price differences between the market value of exchange-traded funds and their underlying holdings, earned a record $39.6 billion of trading revenue last year – more than any of the traditional Wall Street brokers. Glencore announced this week that first quarter profits put its trading unit on track to exceed the top end of its long-term guidance for the full year. And as a measure of how hedge funds are sizing the opportunity, their borrowing sits at a record high of $7.42 trillion, up a third over the prior year.

Arbitrage is a broad term and it’s often misused. If you want to sound clever in finance circles, simply describe your latest trade as an “arb”. To dig into what arbitrage really is, and how the opportunity is playing out, read on.

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In the world of finance that Net Interest caters to though, Cook may be remembered for something else: his role in reshaping payments. When Apple shipped the iPhone 6 in 2014 with a near-field communication (NFC) chip embedded inside, it was, in the words of Capital One CEO Rich Fairbank, “a game changer in terms of security.” The chip allowed iPhone users to make contactless payments by holding their phone near a terminal. Crucially, it never transmitted actual card numbers – instead generating a one-time code for each transaction. Combined with fingerprint or face authentication, it was significantly harder to defraud than a physical card.

Cook’s initial motivation was to monopolise what people keep in their pants:

“We’re about making the user’s life better, making the experience better. We saw all the mobile payment stuff that had been done and none of it was making anybody’s life better. It was more about creating a business model for someone else to make money. We started with the user and we said, what do they really want? Well, nobody wants to carry a wallet. You don’t want another thing that you have to remember to put in your pants when you walk out the door. You don’t want another thing to lose. You don’t really want this card with exposed numbers on it that has a huge security risk on it. And so we fixed the security issue. Our system is much more secure than the traditional credit card system is.”

“We kept the thing that people liked, which is they do love their card. And we said, ‘We don’t want any of this data. So we’re not doing what other companies are doing. We don’t want to know what you’re buying. We don’t want to know where you’re buying it. We don’t want to collect all this stuff on Charlie [Rose, his interviewer]. I don’t want to know where you’re spending your nights.’ And so we firewall all the stuff — we don’t keep it, it’s not on our servers. And so we kept what’s great and fixed what wasn’t.”

Today, Apple Pay is used by 785 million people worldwide. It is accepted at over 90% of US retailers where it has a market share of 14.2% in online payments and 5.6% in in-store purchases. Cook said on his latest earnings call that last year alone, it eliminated $1 billion in fraud.

Having nurtured its growth, Cook has used Apple Pay as a springboard into other financial products. In 2019, he launched Apple Card, announcing that by “bringing together our hardware, software and services, we’re going to do…so much more, changing the entire credit card experience.” He also launched a peer-to-peer digital transfer service, a point-of-sale capability directly in the iPhone, a savings product, and he has flirted with Buy Now Pay Later. He has reined in his fintech ambitions over the past couple of years, but his successor may have other ideas.

To explore Apple’s footprint in fintech more fully, and the competitive advantage it has versus pure-plays like PayPal, read on.

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So what are they seeing?

First, on the consumer. Last week, the University of Michigan reported its lowest-ever reading on its consumer sentiment survey. The university has been conducting this survey for 74 years and April’s reading came in below anything registered during the global financial crisis, peak Covid or the period of stagflation in the 1980s. While inflation has fallen from its highs, price levels remain high and many respondents cite this as a reason for poor personal finances. Higher gas prices don’t help.

But what consumers say and how they behave are different. “I don’t know that we can square for you the headline surveys on consumer confidence or small business confidence, which are all not great, how we square that with what we actually see,” said Bill Demchak, CEO of PNC Financial Services Group. “When you look through spending patterns, growth in savings, activity levels, loan growth, like everything we see day-to-day in our business is almost at complete odds with the surveys you see on confidence.”

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Named Bistro – short for Broad Index Secured Trust Offering – the structure bundled 307 credits from JPMorgan’s balance sheet, spanning corporate loans, bonds, and municipal debt. A special purpose vehicle would insure the portfolio’s risk, funded by selling notes to outside investors. If all went well, investors would earn a steady stream of fees paid for by the bank to compensate them for assuming the risk. If things went badly and defaults occurred, investors would be on the hook. Because defaults were expected to be low – Moody’s estimated 0.82% per year – the vehicle didn’t need to raise so much money. On a portfolio size of $9.7 billion, capital of only $700 million was deemed necessary – enough to cover losses in all but the most dire of scenarios.

JPMorgan gave investors a choice. They could sit first in line to take losses in the event of defaults via $237 million of high yielding Ba2 notes, or they could opt for $460 million of safer, though lower-yielding, AAA notes which would only take losses once the Ba2 tranche had been exhausted. The special purpose vehicle invested the proceeds in US Treasuries, guaranteeing the money would be there if called upon. Only if it was used up would JPMorgan need to take a hit on the so-called super-senior risk it retained.1

Within a matter of days, investors snapped up all the notes. JPMorgan didn’t hang about. In early 1998, it conducted a second transaction and soon began marketing the service to others. Regulators gave the fledgling market a boost by agreeing to lower capital requirements on the super-senior slice. Against the standard 8% capital requirement for corporate loans, regulators allowed exposures supported by a Bistro structure to be backed by only 1.6% of capital. Now, not only could banks use the structure to fine-tune credit exposures, they could free up capital as well. In less than a year, JPMorgan printed five deals, transferring credit risk on $29 billion of exposure by selling $2.7 billion of securities.

“The overarching motivation for Bistro wasn’t to open up a new market or sell some funky product, but for JP Morgan to hedge its credit risk,” Bill Winters, former co-chief executive of JP Morgan’s investment bank, later recalled. “It was extremely effective in accomplishing that. It also had the effect of spawning a new industry.”

Over time, the spawned industry morphed. Bistros became known as synthetic collateralised debt obligations. Banks began dumping real estate assets including sub-prime mortgages into them while transparency eroded. Some accumulated huge super-senior positions on their books, blind to the risk building up. Others bought protection from monoline insurers that would prove largely worthless. By the time the financial crisis hit in 2007, outstanding volumes stood at $105 billion.

It took a while following the crisis for the market to recover but in 2017, after a wave of reforms, authorities in Europe published a paper clarifying how transactions would be treated from a regulatory perspective. Rebranded synthetic risk transfers or SRTs (or in the US, simply credit risk transfers) volumes have reaccelerated. Last year, banks issued $41 billion of SRTs, up from $29 billion the prior year and are on track to grow issuance by more than 20% again this year. JPMorgan has done some – in December 2023, it finalised a deal to buy $2 billion of insurance on a $22 billion portfolio – but other banks including Barclays and Santander have embraced the trend more actively.2

Alongside all the focus on private credit, SRTs are attracting scrutiny as a similarly opaque market, growing quickly. Over recent months, the European Central Bank, the Bank for International Settlements and the International Monetary Fund have all weighed in to warn that SRT-related risks could be building undetected.

This comes after the pioneer of the Bistro already sounded the alarm. Now chairman and CEO of PNC Financial Services Group, Bill Demchak ran the department that devised the structure within JPMorgan back in 1997. “I might have invented that product,” he told investors in 2024.

“In today’s world [it] is perhaps the cheapest way to create capital. But a complete arbitrage… If you’re actually executing and a professional takes the other side, you must presume that he’s charging you more for the risk you’re hedging than you would charge yourself internally or you never would have made the loan, you’d never be in the business. So this is a near-term band-aid to free up capital that you can double down and make the next mistake on.”

We’ve discussed emerging asset classes here before – private credit, infrastructure, litigation finance, GP stakes, supply chain finance, GPUs and more. Key to their durability is an equilibrium between supply-side factors and demand-side factors, with regulation often a pivotal catalyst.

To dig into those factors and explore how they shape the growth of SRTs – and the risks regulators fear are building inside them – read on.

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This week, I’m joined by Adam Shapiro, partner and co-founder of Klaros Group. Klaros is a specialist advisory firm that helps financial institutions navigate banking regulation from applying for a bank ch…

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An experienced investor, he’d done his due diligence. Among his calls was one to a senior executive of Visa. The company would never be able to maintain a competitive advantage, the exec told him. The big players would copy whatever it built. Encouraged by his own experience of the product – and his daughter’s – he ignored the advice and wrote a cheque in the company’s seed round, becoming a 3.3% shareholder.

Today, Revolut does much more than free currency exchange. Its product range spans savings, lending, investing and trading, business banking, eSIMs, travel booking and more. It has 70 million customers across 39 countries – up from around 150,000 at the time of that meeting, when it operated in the UK alone. Full-year results released this week show gross revenue of $6.0 billion and net income of $1.7 billion – numbers its founder and CEO Nik Storonsky reckons will grow by at least 50% this year. With a valuation of $75 billion, determined by a secondary share sale last November, Revolut is already worth more than many established banks.1

Not bad for an angel investment.

Ten years on, any scepticism shared by incumbents has vanished:

“We do observe Revolut very carefully,” said the CEO of BNP Paribas in Poland in December. “This is the most successful neo financial institution in history, and they will have their place in the landscape.”

“When you have strong, highly competitive new entrants in the market, you have to pay attention,” said the CEO of Société Générale on his third quarter earnings call.

“Our competition is all back. Wells Fargo is back, Bank of America is back, Goldman Sachs, Morgan Stanley. But we also have Citadel, fintech, Revolut, and that – so we are conscious of that,” said Jamie Dimon in May.

Even Visa has come around. Revolut recently partnered with Visa to launch a premium business card. “Titan for Revolut is a really cool win for us,” the company’s Chief Product and Strategy Officer said this month.

Since my peek inside the dashboard, I have been a happy Revolut user. I signed up immediately after leaving that meeting and – as the app still records – spent £6,438 on my travels through the remainder of that year. As an early user, I also got the opportunity to invest a small amount in the series A.

I’ve written about the company before – in Revolution in the Air in 2020 and Britain’s Newest Bank in 2024 – but, with results just released and a shiny new bank license in the bag, it warrants a fresh look. To dig into the numbers and explore what they say about Revolut’s competitive positioning, read on.

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But this was no gathering of four-star generals. The Leadenhall-based Joint War Committee is made up of senior underwriters in the marine insurance industry, whose job it is to determine regions of the world that present enhanced risk of peril. On March 1, they expanded their map of so-called ‘listed areas’ to incorporate large parts of the Gulf.

For shipowners and charterers, this had implications for insurance cover. All have policies in place to accommodate a range of risks – hull damage, cargo, crew, third-party liability. The unpredictability of war – and its tendency not to hew to standard actuarial trends – means war risk has long occupied a category of its own, but most seafarers have a policy to cover that, too.

When hostilities erupted, those policies came into focus. Commentators saw several leading insurers issue cancellation notices and concluded that war risk cover was being pulled entirely. They suggested that was a reason for the collapse in traffic through the Strait. Donald Trump promptly intervened, announcing that the United States Development Finance Corporation would step in “to provide political risk insurance and guarantees for the Financial Security of ALL Maritime Trade, especially Energy, traveling through the Gulf.”

The reality was more mundane. Reinsurers backing a specific layer of cover for charterers had got nervous and, exercising a contractual right, excluded Gulf claims at 72 hours’ notice. The insurers, their hands forced, duly notified clients. It wasn’t the first time – the same sequence had played out after Russia invaded Ukraine in 2022, and again when Houthi attacks escalated in the Red Sea in 2024. Each time, replacement cover was on the market before the old contracts expired. The Joint War Committee was blunt: “Despite some regrettably incorrect reporting about cancellation, hull war insurance cover remains in place and available in the London market.”

What did change was price. “I think we have had in the last week a 500% increase on war risk insurance,” shipping magnate Nikolas Tsakos told investors on his earnings call a few days into the war. “I think from what we used to do it at $0.15 per deadweight ton, we’re up to close to $1 now or $0.75 to a $1. So that’s a huge increase.”

And that was just the beginning. By mid-March, cover had leaped to around 5% of a vessel’s value – roughly five times even those early-war rates. Insuring a $100 million tanker through the Strait now costs in the region of $5 million.1

But when faced with the risk of a direct hit, crossing the Strait isn’t just a matter of insurance. “Our main concern is the safety of the crews,” the CEO of d’Amico International Shipping told investors on his call last week. “It’s not that of the vessel itself – because the vessel itself can be insured in normal circumstances.”

Through the beginning of this week, there have been 18 direct attacks on commercial vessels in the Gulf, plus another five which have suffered near misses or minor damage. This is not somewhere a prudent captain takes a laden tanker, however much Donald Trump inveigles him to “show some guts”. London’s moment of apparent influence over Hormuz traffic turned out to be a misreading. The key didn’t hang there after all.

The episode, though, is a useful entry point into a market that most people never think about until something flares up. I had flagged last week that I was going to write about marine insurance, and the response from readers persuaded me to weigh anchor. To explore how the market works – and what this crisis reveals about it – read on.

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This week, I’m joined by Kunal Kapoor, CEO of Morningstar. Kunal has spent his entire career at the firm, starting as a data analyst and working his way up to lead one of the key information providers in global finance. Morningstar began as the “system of record” for the mutual fund industry, known for its star ratings, but today it’s a much broader platform spanning credit ratings, indexing, private-market intelligence through PitchBook, and wealth technology.

I’ve written recently about how AI could reshape the financial data industry — potentially unbundling traditional terminals and shifting the competitive focus towards proprietary data and embedded workflows. That makes Kunal an especially interesting person to speak with. Morningstar sits right at the centre of those changes as a firm built on data, research and investor trust.

We cover a lot of ground in this conversation – from Morningstar’s ratings franchise and the push for transparency in private markets to the economics of financial data and what AI might mean for the future of market intelligence. So it’s a pleasure to have Kunal on the show.

We discuss:

• Morningstar’s evolution from mutual funds to financial data platform [02:12]

• Star ratings, Medalist ratings, and the continuing role of human analysts [07:05]

• How AI is changing financial information interfaces [10:18]

• The value in financial information: proprietary data, research and IP [11:06]

• Morningstar’s move into private markets and semi-liquid funds [18:30]

• Private company research and venture valuations [24:00]

• Competing with larger agencies in the ratings business [29:52]

• Morningstar’s push into indexing and the economics of the index business [35:26]

• Why Kunal rejects the idea that retail investors are “dumb money” — and what worries him instead [38:11]

• Crypto, risk-taking and what still matters most in financial data businesses [40:37]

Further Reading

We’ve discussed the rise of retail money in private credit before. By some accounts, vehicles set up to cater to wealthy individuals now make up 30% of the direct lending market. Many of those investors now want out. And as others watch redemption requests go in, they wonder if they shouldn’t ask for their money back too. According to data from Robert A Stanger & Co, redemption requests are running close to 8% this quarter, up from an average 1.3% in 2024.

It’s been three years since Silicon Valley Bank reminded us what a bank run can look like. One of the lessons from that episode is that historic assumptions about the stability of retail funding need updating for the social media age. WhatsApp groups, X/Twitter and the like give retail investors coordination mechanisms with far greater reach and immediacy than ever before. The old logic that a diversified base of small investors was inherently stable no longer holds when information – and panic – spreads instantly.

Private credit is structured differently to banks. Without the blanket of deposit insurance, managers employ other means to push out the duration of their funding. Typically, they impose redemption limits, conventionally 5% per quarter. The problem is that those limits are now being breached. Last week, BlackRock said that it had received requests to repurchase 9.3% of shares outstanding in its HPS Corporate Lending Fund (HLEND) – “exceeding the 5% framework for the first time since inception.” Blackstone announced that redemption requests totalled 7.9% of its Blackstone Private Credit Fund (BCRED). And this week, Cliffwater revealed that investors have asked to pull 14% out of its flagship private credit interval fund.1

Managers are responding to the wave of redemption requests in a variety of ways. Blackstone upsized its offer to 7% and joined with its employees to chip in the rest, declaring proudly that it is “fulfilling all repurchase requests this quarter, as we have done every quarter since inception.” BlackRock, by contrast, stuck to its guns, imposing a 5% limit while thanking investors “for the trust you place in us as your investment fiduciary.” Its decision was applauded by John Zito, co-President of peer firm Apollo Asset Management, who said that these “products are designed to protect redeeming and remaining investors by allowing vehicle liquidity to match natural asset liquidity.” Blue Owl tried a different approach. It sold a portfolio of loans in its Blue Owl Capital Corp II vehicle to fund a one-off 30% payout, telling investors to hold tight for the rest. Rather than stick with its quarterly tendering schedule, management will return capital as and when it can.

Over the next month, other funds will reveal the scale of their outflows. Goldman Sachs estimates that the industry could see $45 billion to $70 billion in net outflows over the next two years. Yet the fear of gates going up before investors can exit may itself accelerate the outflows. Managers reference record redemption requests, but it’s not clear how robustly they have modelled these at the industry level.

For some, recent events have the hallmarks of the Global Financial Crisis. On X/Twitter this week, Jeffrey Gundlach, founder of DoubleLine Capital, posted: “A Private Credit Fund of Funds in 2026 seems to rather closely resemble a CDO-squared in early 2007.”

Many of the echoes are certainly there. In June 2007, Bear Stearns suffered debilitating issues in two of its managed hedge funds; a few months later, Goldman Sachs had to stabilise one of its own. Questions around marks and hidden leverage circulate. Whatever parallels you want to draw, the important question is whether the current issues are systemic. To explore the question with me, read on.2

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In particular, Blankfein was worried about a doom-loop of forced selling. With oil trading 70% below its average price of the prior few years and Iranian supply coming on-stream to push it even lower, energy companies faced acute pressure. Fears of defaults led to a widening of credit spreads which spilled into other sectors. Compared with where they sat 18 months earlier, US high yield spreads had more than doubled, reaching levels not seen since the European debt crisis of 2011. All this after a period of ultra-low interest rates and ample liquidity.

“Higher risk, less liquidity, hard to get out of certain positions,” Blankfein said. “And that feeds upon itself. Sometimes positions are easier to put on than to take off.”

Goldman came out of it fine. After printing its lowest quarterly revenue since 2011, profits swiftly rebounded. So fleeting was it that the period doesn’t even merit a mention in Blankfein’s new memoir (much less his meeting with me).

But the episode highlights Blankfein’s grasp of market dynamics and how to manage a business through them. “Cycles can last a long time, and you can be very severely hurt in a cycle if you don’t respond,” he told me.

Sadly, his book comes out too late for the managers of Blue Owl and others who have grown aggressively in private credit. On his marketing tour, Blankfein sounds the alarm. He thinks markets are due a reckoning and identifies private credit as a possible source. “Horses are starting to whinny in the corral,” he told one interviewer, reprising an image he uses in the book to describe the events in summer 2007 that presaged the financial crisis.

He’s smarting, of course – he recognises that private credit and private equity financiers have usurped him as kings of Wall Street. There were four of us in that meeting room in Miami. One, his chief financial officer, went off to become CEO of Carlyle; the other, his head of investor relations, became chief administrative officer at KKR. In his book, Blankfein acknowledges the flow of talent to firms like these – though he warns that their recruiting advantage will last only until the next crisis, “when the younger institutions will come under the yoke of regulation and the next generation of unregulated financial firms begins its rise.”1

Still, there’s a lot in the book for his former colleagues to digest. Blankfein talks about the mark-to-market “theology” that was core to Goldman’s risk management framework. When dedicated risk controllers came up with marks that were in conflict with what traders thought they should be on illiquid securities, management always sided with the control people. Contrast that with the opaque, sometimes inconsistent marks that exist in private credit. We’ve spoken about private credit vehicles like Ares Capital Corporation (ARCC) and FS KKR Capital Corp (FSK) here before. Last week, a similar vehicle, BlackRock TCP Capital Corp (TCPC), wrote down the value of one of its holdings to zero from 100 cents on the dollar three months earlier. What would the Goldman risk controllers have made of that?23

Blankfein also highlights the elevation of reputational risk as a key focus. In August 2007, he saw that losses were beginning to show in a hedge fund managed out of his asset management business. In order to handle redemptions, he decided to put more money in. The firm ended up investing $2 billion of its own capital and raising an additional $1 billion from independent investors. It’s a tactic Blackstone has cloned, first in its private property fund, BREIT, when it brought in University of California money to help out; more recently in its private credit fund, BCRED, when the firm and employees put more money in. In neither Goldman’s nor Blackstone’s case was there an obligation but, as Blankfein notes, it’s not a good look to be high-fiving your way through a record year at the parent company while investors struggle.4

He doesn’t dwell on it in the book, but there’s another risk in private credit his experience attunes him to: expansion into retail. Goldman was traditionally wary of expanding too much into consumer segments. On his marketing tour, Blankfein explains why. “The government sector cares, but not that much, if institutional investors lose money – they’re smart, they can afford it… But when you lose money for individuals, for consumers, i.e. taxpayers and citizens, people in government get very, very upset; regulators get very, very upset.” He views the risks in private credit as less about the assets themselves than where they’re ending up, and wonders why private credit firms that have already done so well in institutional segments would take on that risk at this point in the cycle.5

Of course, his successor, David Solomon, may disagree. Goldman itself is now a large private assets firm, managing $420 billion of third-party alternative investments. Indeed, Goldman has changed a lot since Blankfein retired in 2018. Fittingly, days before his memoir appeared, the firm’s latest 10-K dropped – telling its own story of where things stand today. To dig into those changes and explore how Goldman Sachs is positioned – as well as to test Blankfein’s hypothesis that if Goldman Sachs appears in a headline, an article gets a multiple of the number of clicks it would get without a mention of Goldman – read on.

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My guest this week is Sarah Quinn, Associate Professor of Sociology at the University of Washington and author of the book, American Bonds: How Credit Markets Shaped a Nation. I first read American Bonds i…

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When I joined Credit Suisse First Boston in London in the early 2000s, the firm had already been in its gleaming new Canary Wharf office for almost a decade. Most of my first few weeks were spent getting to know my way around the equities floor – meeting colleagues, learning the rhythms of the place. It was only when I ventured onto the fixed income floor that I realised something was off. It was bigger. Noticeably so. At the time, this seemed odd. Equity markets were ascendant, the focus of the firm’s attention. In the few years before I joined, equities had consistently dwarfed fixed income in revenue.

The explanation lay in the building’s history. When CSFB moved in during 1991, bonds were where the money was and the floor plan reflected that. It was the same across Wall Street. Michael Lewis recalls that at Salomon Brothers, “the equity department wasn’t on 41, the principal trading floor, but on the floor below. The fortieth floor had low ceilings, no windows, and the charm of an engine room.” Inside Salomon Brothers, he writes, “the men from equities were second-class citizens.”1

By the time I arrived, status had inverted. The great bond massacre of 1994 wiped an estimated $1.5 trillion off global bond markets – equivalent to almost 10% of OECD countries’ gross domestic product. Meanwhile, equity markets boomed as retail participation grew and a new economy formed. The tenants of the 41st floor at Salomon (and the third at CSFB) had their reckoning.

But tensions persisted across what remained a gaping cultural divide. Bond traders saw themselves as more serious than their lower-floor colleagues. They prided themselves on a less emotional outlook, one grounded in numbers rather than narrative. Their bias was to avoid losing principal while equity traders went in search of upside.

Bill Gross embodied the disposition. Even in his firm’s early days, when he shared a floor with the stocks guys and was yet to become the “Bond King,” the disdain was barely concealed. As his biographer Mary Childs recounts, he could “hardly help himself, looking down his nose at their foolhardiness, their brash optimism. He couldn’t help it; it always came out.”

For an equities guy, I’ve always had sympathy for the bond view of the world. Probably because as a banks analyst, I covered the sector where the two markets intersect. One way of looking at a bank is as a transformation engine for turning debt into equity. Its balance sheet embeds a portfolio of fixed income instruments – loans and bonds – which it funds partly through issuing equity to shareholders. The trope of a bank as a hedge fund isn’t far from the truth.

To understand banks, then, it pays to make the occasional trip to the fixed income floor. So when Matthew Mish, head of credit strategy at UBS, projects that in a tail scenario of rapid, severe AI disruption, high yield defaults could rise to 3-6%, leveraged loan defaults to 8-10% and private credit defaults to 14-15%, it’s worth investigating. For reference, we’re currently at 0.9% in high yield, 1.6% in leveraged loans and 4.5% in private credit, so these estimates reflect quite a shock. They take levered loan defaults back to financial crisis levels, and private credit defaults beyond anything we’ve seen before. “Contagion risk to public credit markets is real and underappreciated,” he goes on. And “this raises concerns about capital adequacy and loss absorption [at financial institutions] in a downturn, particularly if defaults spike and valuations collapse.”

These days, it’s not just banks that are exposed. Credit is disbursed through private credit funds, business development companies and other vehicles, and the equity of some of them has already begun to rupture. Boaz Weinstein, a former resident of Deutsche Bank’s bond trading floor, now founder of Saba Capital Management, a credit-focused hedge fund, reckons “there’s a nasty storm brewing and public credit is oblivious so far.”

We discussed business development companies here last year. The sector has moved on since then – not in a good way. What follows is a closer look at where the cracks are appearing, and what they might portend. To join me on the bigger trading floor, read on.

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Before this month, the last time I wrote a piece of software was 40 years ago. It was a school project to design something linked to the history syllabus. Inspired by a popular TV quiz show, I made a game that allowed players to progress around a board by getting questions right – a kind of 1980s Quizlet, though with fewer questions because memory was scarce back then. It marked the pinnacle of my software achievements. After that, my programming skills atrophied and I spent the next few decades deep in Excel instead.

Until last week.

I’d read about Claude Code, Anthropic’s AI-powered coding assistant, but I previously dismissed it as a tool for engineers. As a newsletter writer, most of my software needs are met: Google Docs for drafting, Substack for email management and website hosting, Stripe for payments.

But one part of the stack that I’ve struggled to leverage is idea generation. Indeed, how I come up with a topic each week is the question I most often get asked by readers. So, freshly installed, I set Claude Code a task: fully index my back catalog of Net Interest issues and then, on a daily basis, skim financial news and research papers and other content across a range of sources and flag anything on brand. For the past few days, I’ve received a morning email with a curated list of stories I should consider. It’s been remarkably well attuned.

I have an advantage here: 250-plus issues going back over five years. They serve as a data repository for my bespoke software application to straddle. The model has learned my patterns – what topics I cover, which angles I take, how I frame financial market events. Could I add a module to get Claude to write the whole thing for me? Perhaps – but it isn’t (yet) able to surface information hidden in private repositories like my personal experiences or those of my network of contacts or draw connections using them. Nor can it write in my voice. (Let that sink in.) That doesn’t stop it from providing assistance in other ways.

For a newsletter writer, I may be late to Claude Code. Tech substack has been all over it since the start of the year. But according to Anthropic, the median session on Claude Code is still only 45 seconds, and for only 0.1% of users does a session last longer than around 40 minutes. And that’s among its active users – of which there may be no more than a million. In fact, within the more regulated financial community, I may be early. In a survey of 150 quants, research analysts and data scientists across Europe and North America, Bloomberg found that 54% had yet to start their “generative AI journey” (at least between April and November last year). Another survey finds that among research analysts at banks and brokers in 2025, 58% use AI “a little” with an average rating of 1.77 on a scale of 1 (none at all) to 5 (a great deal).1

There are exceptions. Norges Bank Investment Management – which we’ve profiled here before – worked with Anthropic to establish AI literacy across 600+ employees through comprehensive training programs. It now claims its employees save more than 20% of their time weekly on AI-assisted tasks.

Multi-manager hedge fund Walleye (also profiled) is another early adopter. “As a hedge fund, we should be ashamed to leave money on the table by ignoring tools that make us faster, smarter, and more effective,” CEO and Chief Investment Officer Will England said on a podcast last year. “There’s a non-applicable idea from academia where using AI to do homework or take tests is actually cheating. In the real world, using AI is like taking a magical elixir that makes you 20% smarter instantly, or a lot more. So why wouldn’t you use it? From the very top, we are building a culture around AI.”

Seems that 20% is the efficient frontier in finance AI.

We spoke about the enduring distribution power of Excel two weeks ago and the challenge faced by data providers as AI enables new channels. My next project is to use Claude Code to build my own Bloomberg knock-off. What does that mean for the terminal’s competitive moat – and for the data providers scrambling to position themselves in an AI-first world? To explore with me, read on.

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I’m joined this week by two guests. John McDonald and Brian Foran are both research analysts at Truist Securities where they cover the US banks sector. I’ve known each of them for a long time. John has bee…

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Most hedge funds cultivate exclusivity. Try getting capacity in Chris Hohn’s TCI without a private bank relationship or an endowment pedigree and you’ll likely hit a wall. Many have skeletal websites or none at all; the one where I used to work didn’t even put its name on the door. Scarcity enhances the brand.

Pershing Square is different. Since losing most of its legacy assets after four consecutive down years between 2015 and 2018, the majority of its funds come from a London-listed entity, Pershing Square Holdings. Of the $16 billion in equity capital the firm currently manages, $14 billion sits in London. And anyone can access it: a single share of Pershing Square Holdings trades on the London Stock Exchange for £44.06 ($60.11). As a result, the firm’s investor base includes everyone from pensioners to pension funds.

This week, hundreds gathered at the firm’s annual investor presentation at London’s Chancery Rosewood Hotel, housed within the former US Embassy on Grosvenor Square. Descending several stories below ground level into what was formerly a CIA safe room, shareholders settled in for a two-and-a-half-hour presentation. Bill Ackman couldn’t attend due to a family medical emergency but he joined remotely, leaving CIO Ryan Israel to lead in person alongside a team of analysts. Having delivered 20.9% after fees last year (even if down 5.4% so far this year), they faced a largely satisfied room.

Yet even as the fund has shed its exclusivity, so has its portfolio. The team presented a largely unchanged portfolio of 13 stocks, all of them known and readily accessible to investors. The latest addition – a 10% position in Meta – adds to Amazon and Alphabet to push exposure to Mag-7 above 30%. No shorts, few special situations beyond stakes in Fannie Mae, Freddie Mac and a 2% position in Hertz. Just a handful of liquid, mega-cap names.

Ackman explained that while mega-caps had historically been out of reach for the fund due to high valuations, sudden selling waves had created opportunities. He pointed to structural changes in markets: the growing weight of index funds reducing tradeable float, and the rise of multi-strategy hedge funds focused on short-term events, both amplifying volatility. His focus on intrinsic business value and what he calls “time arbitrage” gives him an edge when mispricings emerge. They don’t last long, but liquidity in these names means he can act quickly – particularly given the firm’s library of accumulated research. The team bought Alphabet at 16x earnings amid AI disruption concerns, a 40% discount to its current multiple, and Amazon at an all-time low valuation during the tariff sell-off.

Ackman echoes Chris Hohn’s view, too, that bigger can be better. “We believe most of the top ten companies have sustainable competitive moats and long-term secular growth characteristics,” he states. He expects Amazon, Alphabet and Meta to grow earnings at 18-20% over the medium term, versus 8-9% for the S&P equal weight.

But asking investors to pay high fees for this portfolio can be a stretch. The fund charges a management fee of 1.5% and a performance fee of 16% with no hurdle rate of return. Last year, investors paid $700 million in total fees to the Pershing Square management company. That’s a lot to pay for buying the dip. In the eight years since the firm restructured around its listed entity, fees have consumed 4.8% of return per annum. Over the period, that’s the difference between a 7.2x gross return and a 5.3x return net of fees.

In the past, Ackman has argued that the fund wrapper offers sufficient advantages to justify the fees. One is that his positions often pop when disclosed, meaning shareholders capture gains that investors mimicking his portfolio would miss – though after revealing his Meta stake this week, the stock barely budged. Another is his “asymmetric hedging strategy” which paid out handsomely during Covid and when interest rates rose. Here, he concedes that no “black swans” appear imminent, and the market for cheap, asymmetric trades looks thin. Buying the fund does offer the advantage of a discount – it currently trades 22% below the value of its underlying holdings – but there is no guarantee it will narrow and any widening injects further risk.

Since last year, though, an alternative has emerged for those wanting to invest alongside Ackman without paying such high fees. In May, Pershing Square’s management company took a 15% stake in Howard Hughes Holdings, adding to the 32% already owned via Pershing Square Holdings. With effective control, Ackman set out to transform it into a vehicle to operate alongside his listed entity. While it would be subject to management fees, Howard Hughes is exempt from traditional performance fees. “We didn’t do it for free – we are in the investment management business – but we did so on, I would say, the best terms we’ve ever offered an independent pool of capital,” said Ackman.

Initially, Howard Hughes’ primary asset was a real estate business – quite different from the holdings inside Pershing Square Holdings. But, just before Christmas, the company announced the acquisition of an insurance company, Vantage, with some financing from Pershing Square Holdings. And, as students of Warren Buffett know, insurance companies come with capacity to invest in stocks. Ackman plans to grow this new pool of capital without charging additional fees – “the best deal ever in the insurance industry,” he says.

As Warren Buffett steps back from Berkshire Hathaway this year, Bill Ackman is building his own version. The admiration runs deep – Ackman has asked questions at Berkshire annual meetings on at least four occasions and held shares through Pershing Square. We’ve covered this Buffett obsession before, but now he’s put his money where his ambition is: an insurance company acquisition that mirrors Buffett’s 1967 playbook. The structure, though, reveals something more complex than simple imitation – and raises questions about what investors are really paying for. To understand the Vantage deal, the fee mathematics and why similar experiments have failed, read on.

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