12/17/2024
Paul Singer’s Succession Plan Is Under a Spotlight
Bloomberg (12/17/24) Gopinath, Swetha; Kumar, Nishant; Burton, Katherine
At Elliott Investment Management’s yearly shindig in London this month, Gordon Singer’s speech went big on the beauty of teamwork. Amid the National Gallery’s historic artwork, the football-mad son of the firm’s billionaire founder praised the virtues of people playing together. His own team, however, has suffered an exodus of talent lately. Singer runs the $70 billion activist investor’s London office, and its second-most senior staffer has just jumped ship for another hedge fund behemoth, Citadel. It was only early this year that Nabeel Bhanji was handed the rare honor of becoming a full equity partner in Elliott. He’d won his spurs after a decade helping the firm build European business, including winning wagers on nicotine-pouch maker Swedish Match AB (SWMA) and German startup incubator Rocket Internet SE (RKET). Less than 12 months later he’s gone — the first time a partner has quit the 47-year-old institution for a rival. Elliott has become one of the hedge fund world’s biggest beasts by making punchy bets on everything from depressed Starbucks Corp. (SBUX) shares to Argentina bonds. It’s feared by C-suites and governments alike, and its yearly returns average out at 13%. But senior staff at its European arm have felt themselves increasingly sidelined as the Florida-based firm has gotten larger and more successful, according to people with knowledge of the hedge fund who asked to remain anonymous discussing private matters. Bhanji is the latest in a long line of London colleagues who’ve headed out the door. Big-name financiers James Smith and Franck Tuil left to start their own funds; Sebastien de La Riviere, Mark Wills and Mark Levine followed more recently. Singer is the last senior activist portfolio manager left there. Rumblings about the European HQ’s status feed into speculation about where power resides at Elliott, and who might ultimately take the reins of a firm that was built by Paul Singer from just $2 million of assets in 1977. As Elliott's assets under management have swelled, its thirst for comparatively smaller gambles has dried up, a reason for much of the frustration in Europe, people familiar say. London managers now have to pitch all deals to the United States, they add, putting approval in the hands of people who don’t know the local market — a prime motive for the exodus. One deal that might have made up to $30 million in a few days, and which once would have been signed off by Gordon in minutes, was nixed by the United States for being too small and too risky to bother with. It’s a common complaint. A rush of investments this year in many of the marquee names listed in New York shows the direction of travel. Elliott’s campaigns have engaged Texas Instruments Inc. (TXN), Etsy Inc. (ETSY), Southwest Airlines Co. (LUV), and a host of others. Europe’s opportunities can be small fry by comparison, although a person familiar with the matter says it does still have appetite for supersized trades run from there, pointing to the $1 billion-plus positions taken in Anglo American Plc (AAL) and Japan’s SoftBank Group Corp. (9984). Some staffers have grumbled, too, about a buccaneering firm becoming overly bureaucratic as it tries to plan for life beyond its 80-year-old founder, and imposes the tighter controls to fit its grander heft. Other insiders counter that such changes have made it more successful. Jon Pollock, a 61-year-old Elliott lifer who was made co-chief executive officer by Paul in 2015, is next in line when Singer does exit, even though no one is betting on the older man leaving until he physically can’t work anymore. While he’s entrusted a large share of power to Pollock, he’s still fully engaged. In its most recent multi-billion dollar capital raise, Paul was front and center, people with knowledge of the matter say. Insiders don’t see Pollock, a keen fisherman, sticking around quite as long as the founder, though he’s likely to have a substantial say on who controls the firm when he himself steps down. Colleagues say the prime candidates are Gordon, 50, and Jesse Cohn, 44. Elliott has been at pains to play down the competitive dynamic between the pair, naming them both managing partners. Gordon is a central presence on the firm’s most important global committees, even if decision-making power has been shifting across the Atlantic. U.S.-based Cohn is a “take no prisoners” type who’s on many of those committees as well. He jointly spearheaded the recent campaign at manufacturer Honeywell International Inc., a $5 billion play that was Elliott’s biggest investment in a single stock. Elliott’s position as the global powerhouse of activist investing — where pugnacious funds buy into companies they deem undervalued and try to force change on sometimes unwilling boardrooms — sets it apart from the rest of the elite gang of giant “multistrategy” firms that sit atop the hedge fund industry. But succession planning is an era-defining challenge that they all share. Most of these firms were driven into existence by dominant individuals three or four decades ago. Now, they’re having to show investors what the future will bring when the alpha dogs finally step back from the fray. “Few hedge funds have successfully transitioned beyond their founders,” says Caron Bastianpillai, who allocates money to hedge funds at Switzerland-based NS Partners. “Most struggle to sustain momentum, but some exceptional cases prove it’s possible. Succession takes years in planning and the earlier you deal with it the smoother the transition.” Elliott is far smaller than other multistrat hedge funds, despite having more money than most, and in the past individuals would have been largely left alone as long as they delivered. As of June, it had $69.7 billion of assets and 578 staff, about a quarter in Europe. Citadel has $66 billion and about 3,000 employees; Millennium Management $72 billion and more than 6,000 workers. As Elliott’s assets have mushroomed, and as it has tried to cut dependence on the founder, it has become much more institutionalized — with a management regime to match. A document on its inner workings, seen by Bloomberg, lists six different oversight committees, including a powerful investment committee. They're run mostly by US partners. Top managers in London had been finding it tougher to get buy-in for ideas, people familiar say. Where once they’d have pitched mostly via Gordon, now it goes through a 10-strong group, almost all in the United States. Partners often shoot down European pitches, a person with knowledge of the matter says. In the document, Elliott told investors it had over more than a decade moved away from a heavy reliance on the founder to embrace a team model. As well as promoting Pollock, it has minted 14 equity partners including him, Gordon and Cohn. In a post-Pollock world, Elliott could even be run by a committee rather than an individual, according to people with knowledge of the firm. “Letting go is more difficult than some founders would like to admit but we’ve seen some successful succession cases,” says Anita Nemes, ex-head of a Deutsche Bank AG unit that linked investors with hedge funds, who now owns a leadership consulting firm, Matterhorn. “The key has always been preparing investors for the changes to come well ahead of time.” That explains much of the interest in who, or what, comes after Pollock. The younger Singer is known as a demanding boss by colleagues. One of his standout wins was a roughly $2.5 billion bet on SoftBank during the pandemic, when he pushed the tech conglomerate to sell holdings, buy back shares and improve governance. A huge football fan, he had a lead role in the investment in fabled Italian club AC Milan. The turnaround got off to a rocky start, took years and drew a lot of unfavorable column inches in newspapers. But it paid off in the end. One person who knows Gordon well says he wants to earn the captain’s armband rather than be handed it by his dad, someone not known for playing favorites. Cohn, meanwhile, is a hard charger from a relatively humble background who’s made a name for himself by putting the squeeze on companies in activist campaigns. He was the main mover on one of the firm’s most successful — and aggressive — investments, Athenahealth. A note of caution for frustrated Elliott staffers looking for fresh hedge fund pastures is that it isn’t easy to replicate the success of a firm that’s only had two down years since its 1977 creation — and which produced gains of $47.6 billion for clients between its launch and the end of 2023, according to estimates by LCH Investments, a fund of hedge funds. Since James Roycroft struck out on his own in 2007 to start Lancaster Investment Management, at least nine other ex-Elliott portfolio managers and analysts have set up shop by themselves. Three of these were launched in the last year alone. The exodus sped up in recent years, particularly in London. Still, going solo’s no slam dunk. Balyasny Asset Management has withdrawn cash from Tuil’s hedge fund Sparta Capital Management, within a year of backing the former Elliott trader. The $250 million managed account Balyasny gave to Sparta earlier this year was terminated after a streak of losses including wrong-way bets on Grifols SA and John Wood Group Plc shares. Smith’s Palliser Capital UK has had more joy. With 14% returns in the 12 months to November and $1.1 billion of assets, it has amassed more client money than other Elliott London spinoffs and is campaigning to get mining giant Rio Tinto Plc to ditch its London primary listing. While Sparta and Palliser mimic the activist campaigns popularized by Singer, other UK alumni have been more varied, though none of those funds has amassed more than $1 billion either. Some people familiar with the firm speculate that it may even end up closing in London, and that some partners question why they can’t run wagers like British drugmaker GSK Plc out of the US. Others reject that idea outright, saying that the office remains important to Elliott, that its market positions there have been stable over the past five years compared to the previous five, its profit has tripled on that same timeline and its headcount has grown. Not everyone who quit left of their own accord, they add. Besides Gordon, several top Elliott managers work out of London: James Stott, its global head of real estate; Tom Houlbrook, the commodities chief; and Paul Best, who runs its European private equity unit. What’s not in question is that whoever ends up running the firm, its robust self-belief will remain undimmed. “Paul Singer ‘is’ Elliott, no doubt,” says Jacob Schmidt, who teaches finance at Regent’s University London. “But with son and long-term partners in place, the change will be slow and only over time. The aggressive strategy and distinct approach are unlikely to change.”
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