In today’s newsletter:

• Goldman’s hedge fund bonanza

• Blackstone’s latest plans at Lloyd’s of London spark firestorm

• US long-term Treasury yields highest since 2004

AI hedge fund Situational Awareness became the biggest prime brokerage client at Goldman Sachs this year. That reveals the fund’s importance before it suffered tens of billions of dollars in losses.

Lending to Situation Awareness made Goldman more than $200mn in fees this year. This topped the amount it earned from any other client in its prime brokerage business financing hedge funds, according to people familiar with the matter, write Joshua Franklin, Jill R Shah and Arjun Neil Alim. 

Having shot to fame following some highly profitable bets on AI, Leopold Aschenbrenner’s fund became one of the biggest overall clients of Goldman’s trading division this year, the people added. 

It is virtually unheard of on Wall Street for a fund such as Situational Awareness, which is barely two years old, to so quickly become such a large client of an investment bank like Goldman, sitting alongside blue-chip hedge funds including Citadel and Millennium. 

The fees for Goldman became so large because of the rapid growth of Aschenbrenner’s fund as well as the types of trades he was making. 

Aschenbrenner, whose firm remains a client of Goldman, told his investors in July that he would no longer borrow money to magnify its bets. That would mean that future fees for Goldman would not be on the same scale as before the losses.

Goldman and Situational Awareness declined to comment.

Aschenbrenner, a 24-year-old former OpenAI researcher with no trading experience, founded Situational Awareness in 2024 with a few hundred million dollars in assets, racking up returns of more than 400 per cent and growing the fund to more than $20bn. 

Blackstone was the hot topic at the insurance industry conference this year in Monte Carlo after its plans to create a new insurance vehicle at Lloyd’s of London leaked, sparking a firestorm of criticism.

“Why the eff is Lloyd’s doing this? They’re bringing the wolf in with the sheep,” one senior insurance broker told the FT. “I don’t know if it’s a late-cycle stupid idea or . . . the future of reinsurance.”

The New York asset manager has held talks with Aon, the world’s largest reinsurance broker, about creating a syndicate that could allow it to earn returns on up to $2bn of premiums annually, people involved in the discussions told the FT.

Tensions have grown between private capital groups that have muscled into the insurance sector, and Blackstone’s move only adds to those. Reinsurers fear that they will lose business to more aggressive investors, writes Lee Harris.

Traditionally, insurance brokers discuss with clients any risks they wish to cover, such as cyber attacks or flooding, and then shop around for the best rates from carriers that will insure those risks.

But brokers have increasingly set up facilities in which they package up risk and send it to pre-selected carriers. This gives the insurers guaranteed business but has proved contentious since they give up control over vetting individual risks and setting prices.

The Blackstone-Aon syndicate would take broker facilities a step further, giving a broker the ability to send risks straight to a private equity backer. This would allow Blackstone, in effect, to substitute its funds for the balance sheet of a traditional insurer.

“All our Lloyd’s investments will continue to be made within the established Lloyd’s approval and oversight frameworks, alongside existing established market participants,” according to Blackstone.

Aon said that its clients “expect our firm to develop . . . solutions that consider all forms of available capital”.

“It’s not generating new business, it’s just more capital for existing business” that could push prices down, Aki Hussain, chief executive of insurer Hiscox, told the FT, at a time when the price of commercial insurance is tumbling.

Nothing seems to be going right for US Treasury bonds this year. Commodities such as crude oil repeatedly trade through the $100 per barrel mark while economic indicators consistently hint at fizzy growth in the American economy.

This week 10- and 30-year bond yields hit heights not seen since the mid-noughties. “There appears to be a lot of pain on the street in fixed income,” said Mohit Kumar of Jefferies, arguing that the yield rises had been exacerbated by hedge funds having to dump bets that short-term debt would outperform, write Ian Smith, Emily Herbert, William Sandlund and Kate Duguid.

A surge in yields since the Iran war has exacerbated worries about a glut in long-term debt supply amid record global issuance and big economies continuing to run big deficits, heating economies further.

Another “underwhelming” buyback operation from the Treasury department added to weakness in the market, said Ian Lyngen, head of US rates strategy at BMO Capital Markets.

Where the world’s largest bond market travels, other fixed-income traders follow. “We are in what I would call a correlated move higher in yields. There’s no escape,” said Eric Robertsen, head of global research and chief strategist at Standard Chartered in Singapore.

Some have theorised that any debt supply problem is not just about too much debt-issuance by the US government and others around the world, but hyperscaler debt offerings. The idea is that the huge issuance by hyperscalers have “crowded out” some Treasury bond demand.

Research by the Dallas Federal Reserve has suggested this, writes Toby Nangle. While the soaring amounts in the graph below do look a bit scary, his conclusion is that the hyperscalers probably aren’t to blame. Instead, it has more to do with US economic strength and geopolitics.

Private equity’s growth was built on a clear bargain with its big institutional investors. That has now broken down.

The Fed and the BoE have stepped up scrutiny of bank exposure to trading firms after the recent Jane Street loss due to AI-focused hedge fund Situational Awareness.

Peter Hargreaves tells the FT that Britain cannot afford to lose more ‘big taxpayers’.

L&G plans to cut a tenth of its workforce

Private equity groups Warburg Pincus and Clayton Dubilier & Rice are in advanced buyout talks to buy Canaccord’s UK wealth division.

The Musée d’Orsay in Paris will mark the 100th anniversary of the death of the American impressionist painter and printmaker Mary Cassatt (1844-1926) with a major exhibition. France’s national museums have never devoted such a substantial show to Cassatt before, even though she spent most of her adult life in the country.

October 6 to January 31 2027