Investing’s cults of personality

This is an audio transcript of the FT News Briefing podcast episode: Investing’s cults of personality

Marc Filippino
Good morning from the Financial Times. Today is Thursday, May 26th, and this is your FT News Briefing.

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Today, we’ve got a couple of stories about individuals with a lot of influence over investors. One’s a New York hedge fund manager who is cutting ties with tech stocks. The other is a 30-year old South Korean who co-created the cryptocurrency luna and his followers call themselves “lunatics”.

Christian Davies
Many of the lunatics, of course, many of whom were not Korean, felt that his bullish, combative persona was that he was defending the coin, he was standing up for the coin, and in some ways he was standing up for them.

Marc Filippino
Plus, we’ll start with a stark warning from a top UN official about global food supplies. I’m Marc Filippino. And here’s the news you need to start your day.

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The head of the UN World Food Programme says there could be a global food catastrophe. That’s if Russia continues to block Ukraine’s port of Odesa and prevents the country’s grain exports from reaching the global market. Here’s what David Beasley told the FT.

David Beasley
When you take a nation that grows enough food for 400mn people and you pull it off the market, on top of already a food crisis, is creating truly a perfect storm, then a perfect storm. And it literally could lead to hell on earth. Because what we’re going to be facing in the next 10 to 12 months is massive food pricing problems, hunger, starvation, and then possibly and probably in 2023, a food availability problem. So it is a very, very serious situation. Failure to open up the port, in my opinion, is a declaration of war on global food security.

Marc Filippino
Beasley says tens of millions of people were already suffering before this war, and more than 25 per cent of countries depend on Russia or Ukraine for more than half of their grain.

David Beasley
These ports have got to open and they gotta open now.

Marc Filippino
Beasley urged wealthy nations and policymakers to help struggling countries now rather than wait and deal with the most costly consequences of hunger like instability and migration.

David Beasley
It ain’t complicated. You could pay for it one way or the other. And we’ve got solutions. Number one right now is money. And compared to $430tn worth of wealth on earth today, when billionaires are making over five, $6bn a day, come on.

Marc Filippino
David Beasley is the head of the UN World Food Programme. He spoke to the FT’s chief foreign affairs commentator, Gideon Rachman. You can hear the full interview in today’s episode of the Rachman Review podcast.

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The crash in tech stocks this year has forced prominent hedge funds to close down individual funds or slash their holdings. Things got so bad for one of them, Melvin Capital Management, that its founder, Gabe Plotkin, told investors that he’s liquidating the funds and returning clients’ money. The FT’s Ortenca Aliaj told us more about him.

Ortenca Aliaj
So Plotkin is pretty well known in hedge fund circles. Probably not to people who don’t follow the industry. He’s been relatively media shy. He doesn’t do a lot of press, but he was widely known as one of the best performing hedge fund managers.

Marc Filippino
Melvin made headlines last year when it was targeted by Reddit traders. They poured into shares of video game retailer GameStop, a stock that Plotkin’s fund had been betting against. Melvin lost billions of dollars, but this year’s been even worse.

Ortenca Aliaj
They’ve been wrong footed by the Fed’s policy and by other factors as well. The war in Ukraine, you know, that’s had a huge impact on their portfolios. A lot of them have lost a ton of money.

Marc Filippino
So Ortenca I notice that a lot of these well-known hedge funds that invested in high-flying tech stocks, they seem to revolve around a personality, right? There’s Gabe Plotkin at Melvin, Chase Coleman from Tiger Global. Not a hedge fund, but we’ve also got Cathie Wood of Ark Invest and the Innovation ETF, the exchange traded fund. What does this downturn mean for their reputations?

Ortenca Aliaj
I think it hit on something in the sense that, you know, there are a lot of people who follow single name managers. Less so I would say, you know, Gabe Plotkin and Chase Coleman. But definitely, you know, Cathie Wood has a big fan base. She’s also got a lot of critics. And I think the lesson here really is that it’s kind of easy to make money in a bull market. And if you’re not making money in a bull market, that’s a bit of a problem. There’s a very famous Buffett quote, sort of “you see who’s swimming naked when the tide is out”. And I think that’s kind of what’s happened, right? When you’re a hedge fund, emphasis on the hedge, you are expected to hedge your bets if the markets go down. Sure, you lose some money, but you shouldn’t really lose more money than the market. The whole purpose of your being is that you can protect investor capital when markets go down. And what we’ve seen is that hedge funds aren’t really doing that any more. And I think there’s gonna be a lot of soul-searching from these types of managers about what to do next.

Marc Filippino
Ortenca Aliaj covers mergers and acquisitions for the FT.

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Cryptocurrencies have also been plunging along with tech stocks. And what really rattled markets this month is when a kind of cryptocurrency that was supposed to be less risky also got crushed under selling pressure. And there was real-world damage. Many South Koreans had put their real savings into an investment scheme involving the stablecoin, terra. It promised 20 per cent returns.

Christian Davies
This is far above almost any financial products you can get anywhere in the world, but almost any investment in terms of a regular return. And so retail investors piled in.

Marc Filippino
That’s our Seoul correspondent, Christian Davies.

Christian Davies
And there’s a sad irony, which is that many of the investors who bought into luna actually did it as it was tanking, because the assumption of many crypto investors is that although there’s many wild ups and downs, when a coin is on its way down, it’s the best time to get in because it’ll inevitably go up. So what many people did is they saw the ship was sinking. They got on it. And what they didn’t realise is that it was on its way straight to the bottom of the ocean.

Marc Filippino
South Korean government prosecutors are now investigating the company behind terra and its cryptocurrency, luna. One of the co-founders is a 30-year-old named Do Kwon. He’s something of a cryptocurrency populist. Here he is on a cryptocurrency news show.

Do Kwon
You know, one of the things that I believe in is that crypto is one of the best movements that has ever happened to the internet. It’s one of those things where I think I believe that the true purpose of government is protection of private property. And it’s the first time . . .

Christian Davies
We don’t know very much about him. We know that he went to elite Seoul foreign language high school and then on to Stanford University in the US to study computer science. And he partnered with this person called Daniel Shin, who was already a very well-established entrepreneur who had created a company called Ticket Monster, which was a big ecommerce success story.

Marc Filippino
Do Kwon’s followers and investors in terra and luna, who call themselves “lunatics”. They’re drawn to his brash persona, his rudeness. He calls his critics poor. When asked where he’d get the $300mn to shore up reserves that support the 20 per cent yield on luna investments, Do Kwon tweeted “Your mom, obviously”.

Christian Davies
This is not a typical way of discourse in Korea, at least for a public figure. But many of the lunatics, of course, many of whom were not Korean, in fact most of them were not Korean, felt that his bullish, combative persona was that he was defending the coin, he was standing up for the coin, and in some ways he was standing up for them. So this is a very interesting parallel with populist politics. This idea that someone can break the rules of decency and decorum in the way they speak can generate very, very fierce loyalty among supporters. He was seen, I think, by many people as a kind of prophet for the next generation of cryptocurrency. Not only did they invest a really a lot of money in Do Kwon and his company and his coins, but they evangelised very passionately about it as well. And this is one of the reasons why the hype grew so large.

Marc Filippino
Christian Davies is the FT’s Seoul correspondent.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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