Inside the Chicago hedge-fund turf war; Goldman Sachs explores plans to create a Netflix for data

Dear Readers,

Well, that was quick: A week after Lyft’s splashy IPO and shares of the ride-hailing company have already come crashing back to earth. Lyft priced its IPO at $US72 a share last Thursday evening and opened the next day at $US87.24 a share. After a volatile few days of trading, shares closed at $US74.69 as of Friday.

One analyst slapped a sell rating on the company this week and initiated with a $US42 price target, nearly half its IPO price.

“In order to justify its current market valuation, investors need to take a big leap of faith that the millennials and later generations will forego ownership of a car and opt instead for reliance on a ridesharing service,” the research firm Seaport Global Securities said in an investor note.

“Despite the optics of vehicles being an underutilized asset, we believe people will continue to own their own vehicles as primary transportation and instead rely on the ridesharing services as a convenient supplement.”

And in the latest blow to Lyft, investors are already placing bets that shares will fall even further. According to Markit’s analysis of borrowing activity and the associated fees, Lyft has already become the most expensive US-listed stock to borrow with over $US5 million in balances.

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It’s clear there were red flags from the start. During Lyft’s roadshow, prospective investors grilled the company about its path to profitability.

But what’s notable about this particular case is that Lyft’s bankers knew how much was at stake. If Lyft flopped, it might close the window for companies like Uber, Pinterest, Slack and others to go public. Investors I spoke with during the Lyft roadshow said the banks took pains to run a disciplined process and not to push the valuation too high. And despite all this, it’s been a rocky start for Lyft.

To be sure, a number of tech companies including Facebook saw their shares sink following their public market debuts. Facebook is doing just fine now.

It will be interesting to watch Lyft in the coming weeks … I’m still expecting an Uber filing any day now!

To read many of the stories below, you can subscribe to Prime or email me at [email protected] for a free trial. As always, please reach out with any comments, tips, or feedback.

Thanks for reading! Olivia

Ken GriffinCNBC/ Heidi GutmanKen Griffin.

Inside the Chicago hedge-fund turf war between billionaire Ken Griffin and Dmitry Balyasny

The headquarters of Ken Griffin’s Citadel and Dmitry Balyasny’s eponymous hedge fund are separated by one mile, the Chicago River, and plenty of bad blood.

All hedge funds are rivals in some sense, fighting each other for talent, data, and alpha, though Balyasny and Citadel appear to be in different leagues given their asset base and recent performance. But several sources have told Business Insider that the turf war between the two Chicago-based hedge funds has reached new heights.

The clearest example given by sources inside Citadel took place in March during the firm’s all-hands annual meeting when Griffin displayed an internal email that Balyasny had sent his staff in April of last year with the subject line “Adapt or Die.”

A source close to Citadel said that Griffin used the Balyasny email as an example of what “poor culture can do to a firm,” adding that he also mentioned Enron in the same meeting. Yet sources inside Citadel say their takeaway from the meeting was that they needed to beat Balyasny, and that it wasn’t about the benefits of a strong workplace culture.


Goldman Sachs is exploring plans to create a Netflix for data, and it marks a new frontier for Wall Street

At some point in the not-too-distant future, investors may find themselves ponying up monthly subscription fees to Wall Street banks in much the same way they subscribe to Netflix or Spotify.

At least that’s the hope of bankers searching the depths of their institutions for data sources that investors may buy.

And now a job ad from Goldman Sachs provides probably the clearest picture yet for what the business model might look like.

According to a recent LinkedIn posting, the company is looking to hire an entry-level salesperson whose job would include selling internal data, analytics, and risk models as part of a subscription model.

Much like Netflix offers movies and TV shows and Spotify offers music and podcasts, Wall Street bankers have started describing themselves as content creators of a sort, writing research, designing models, devising trade ideas, and coming up with novel ways to fill orders.


Investors are hot on hedge funds again, but old-school stock pickers are getting left in the cold

The hedge-fund industry’s exponential growth over the past couple of decades can be at least partially be attributed to the near-mythological status that the early top stock-pickers enjoyed among investors.

Tens of billions poured into these funds and their spin-offs as investors trusted investors like Tiger Management founder Julian Robertson to win big bets in the stock market.

Now, investors are turning to machines over people for their stock hit, and asking hedge funds still run by humans for strategies that can’t be replicated by a computer.

Despite bounce-back performances from well-known stock-pickers like David Einhorn and Bill Ackman this year, money has flowed out of these funds faster than any other category – bleeding more than $US6 billion through February, while the overall industry is up $US1.6 billion, according to eVestment. Last year, the category saw $US10.7 billion leave in net redemptions.


A ‘hidden asset’ at Citigroup has given the bank a dominant position in the fastest-growing business on Wall Street – but challengers are knocking on the door

A “hidden asset” at Citigroup has given the bank prime position in Wall Street’s fastest-growing business.

The Treasury and Trade Solutions division is Citi’s crown jewel, pulling in $US9.3 billion in revenue in 2018.

While less glamorous, transaction banking is a $US95 billion-a-year market and will continue to be Wall Street’s engine of growth in the near future, according to industry research.

Citi has for years dominated the field, and its treasury unit may be the secret weapon in unlocking the bank’s potential and satisfying investors like the activist ValueAct.

But other big banks are making investments and looking to dislodge Citi’s stranglehold over the top spot.


‘If you pick a favourite and you’re wrong, you’re fired’: Banks are debating how to use Amazon, Microsoft, and Google as they shift to the cloud

Banks and public cloud providers 2x1Samantha Lee/Business InsiderAfter years of hesitancy, Wall Street is finally turning the corner on its acceptance of the public cloud.

After years of hesitancy, owing largely to concerns over security and regulatory compliance, Wall Street is finally turning the corner on its acceptance of the public cloud.

A recent survey of banks’ IT budgets showed that 60% of respondents at large firms believed more than half of their workload would reside in the public cloud within the next three years. As it is, just 20% of respondents said they have moved that much to the public cloud.

It shouldn’t come as a total surprise that banks are finally interested in moving some of their systems off premise and on to shared remote servers. In making the shift, banks stand to save money previously spent to maintain older technology systems. But, more important, the move will allow banks to innovate faster – a key benefit for Wall Street as it competes with fast-moving newcomers looking to steal market share from them.

And while banks are no longer questioning if a move to the public cloud is the right one, they’re worried about how they will do it. With three cloud businesses dominating the space – Amazon Web Services, Microsoft Azure, Google Cloud – the choice either to pick one or to work with several remains top of mind.


Peter Thiel-backed digital bank N26 is considering a cash-back-type offering as it eyes US expansion

N26 has built a successful digital banking business in Europe that’s helped it nab over $US500 million in funding and a $US2.6 billion valuation.

But as it prepares for a launch in the US, the Peter Thiel-backed fintech is considering ways to better appeal to American clients.

Nicolas Kopp, the US CEO of N26, told Business Insider that one nuance between the US and the European markets is American customer’s expectation of some type of points program with their banking products.

N26’s standard account in Europe doesn’t have any points or cash-back programs, Kopp said. N26 Business, which is geared toward freelancers or the self-employed, does offer .1% cash back on purchases made with the account’s Mastercard.

Kopp declined to comment on how exactly N26 would roll out the program beyond saying it would function slightly differently than a traditional points program typical of many credit cards.


Quote of the week:

“Due to their environmental activism, they are reluctant to co-brand with oil, drilling, mining, dam construction, etc. companies that they view to be ecologically damaging. This also includes any religious group/Churches, food groups, political affiliated companies/groups, financial institutions, and more.” -a Patagonia reseller on why the retailer, whose fleece vests have become a staple of the Midtown Uniform, is no longer in the business of branding Wall Street or Silicon Valley.

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