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FirstFT: Hedge funds muscle in on Silicon Valley

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Hedge funds are elbowing their way into Silicon Valley at an unprecedented rate, with a record $153bn worth of investments in private companies in the first six months of 2021.

A report from Goldman Sachs has found that hedge funds have done 770 deals so far this year, beating the record number set in the whole of 2020. Just under three-quarters of this year’s deals were so-called “venture” bets on infant companies.

The data highlight how hedge funds, known for investments in publicly traded assets, have been drawn to private markets in an effort to fire up largely lacklustre returns.

The hedge funds getting into this space are some of the most high-profile names in the industry, including Tiger Global Management, Coatue Management and Altimeter Capital Management.

The push into private investments coincides with a broader revival in the hedge fund industry, which last year reported its best returns since the aftermath of the financial crisis in 2009 after years of weak performance.

Line chart of Hedge funds in 2021 have already broken the record for private investments in a single year showing Hedge funds make more investments in private companies

Six more stories in the news

1. ‘Failure is not a crime’ Elizabeth Holmes’s failure to make her blood-testing technology start-up Theranos a viable business was not a crime, her lawyers told a federal jury yesterday, at the beginning of a closely watched trial that will scrutinise her mental state and Silicon Valley’s promotional culture.

  • Go deeper: Legal analysts say the trial could boil down to a notoriously tricky concept in US law, writes Miles Kruppa who is covering the case in California.

Elizabeth Holmes arrives at court for her trial
‘Elizabeth Holmes did not go to work every day intending to lie, cheat and steal,’ attorney Lance Wade told jurors during opening arguments © AP

2. Yellen: US Treasury could run out of cash Janet Yellen has warned that the US Treasury risks running out of cash next month unless Congress increases its borrowing limit, as President Joe Biden’s administration grows increasingly worried about a possible debt default.

3. Cathie Wood’s Ark cuts China positions Cathie Wood, one of the world’s most closely watched investors, said her fund had “dramatically” reduced its exposure to China. Meanwhile, shares in Tencent and NetEase, two of China’s leading gaming companies, fell heavily today after authorities said approval for new games had been suspended.

4. US justice department to challenge Texas abortion law The justice department lawsuit could be filed as early as today, according to two people familiar with the matter, and follows comments from US attorney-general Merrick Garland earlier this week that his agency was “urgently” exploring “all options” to challenge the Texas abortion law.

5. Bill Gates’s Cascade buys $2.2bn stake in Four Seasons Cascade, the investment firm run for Microsoft co-founder Bill Gates, has cemented control of the Four Seasons luxury hotel group after buying shares from a Saudi royal, in the technology billionaire’s first big deal since he split his fortune with Melinda French Gates earlier this year.

6. EY to invest $2bn on improving audit quality The accounting firm has revealed it will invest about $2bn over the next three years to improve the quality of its audits as part of a record $10bn plan following scandals including the collapse of German payments group Wirecard.

Coronavirus digest

  • Royal Dutch Shell is considering whether to mandate jabs for employees and fire those who refuse to comply, according to an internal memo.

  • The Chinese foreign minister said his country would donate 3m Covid-19 vaccine doses to Taliban-ruled Afghanistan.

  • An Oxford start-up has secured funding to develop artificial intelligence to design antiviral pills that could stop potential pandemics in their tracks.

  • Covax has slashed its forecasts for Covid-19 vaccine deliveries to the developing world by about 25 per cent this year.

Follow our live coverage and sign up to our Coronavirus Business Update for a regular briefing on how the pandemic is affecting the global economy.

Plus, the FT is hosting a special event on the future of American healthcare on September 14. You can register for the digital conference here.

The day ahead

Biden to outline Covid strategy Joe Biden will today outline plans for curbing the surge in Covid-19 cases across the US. The president’s plan to administer booster shots later this month has been mired in confusion.

European Central Bank meeting Investors expect the EU’s central bank to announce a slowdown in the pace of bond purchases when policymakers meet today in response to an improvement in the economic outlook and a drop in financing costs for governments, businesses and households.

Economic data The US labour department releases its latest weekly jobless claims data, which are expected to show another drop in the number of people claiming state unemployment benefits as the labour market tightens.

Thank you for emailing your thoughts to me about the labour market, keep them coming — Gordon.

What else we’re reading

From 9/11 to Covid: How one developer spurred the reinvention of New York Larry Silverstein, who owned the Twin Towers, has become the unlikely embodiment of downtown New York’s transformation, 20 years after Islamist terrorists hijacked and slammed two passenger jets into the World Trade Center. “Every step of the way at the Trade Center, the story comes back to Larry and courageous decisions he made,” said one property developer in the city.

If you have any 9/11 memories you would like to share, email them to me at gordon.smith@ft.com. I plan to publish some in tomorrow’s newsletter.

Wall Street’s crypto whisperer Joseph “Joe” Lubin is not only an expert in blockchain technology — the databases underlying nearly all cryptocurrencies — but also an ardent proponent of decentralised finance. Gillian Tett meets ethereum’s co-founder, an increasingly powerful influence in the development of digital money.

Thanks to all those readers that voted in yesterday’s poll. Most of you — 77 per cent — thought El Salvador was making the wrong decision adopting bitcoin as legal tender.

This is just the start of Apple and Google’s app store wars Why has the issue of Big Tech abusing power in their app stores caught fire recently? Part of it, writes Brooke Masters, is about money. Powerful, well-funded opponents, like Epic chief executive Tim Sweeney and Spotify, are helping make the case for change.

Views from on high If the impact of any business executive’s words is a combination of tone, content and the height of the pulpit from which they are delivered, then Sir Richard Branson and Jeff Bezos set new standards in their space race. It is all too easy to dismiss CEO-speak as flannel or hype. It is often all that. But you ignore it at your peril, writes Andrew Hill.

Cinema

A riveting documentary about the remarkable story behind the discovery and sale of ‘Salvator Mundi’ and the Aretha Franklin biopic Respect are two of this week’s film releases.

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