Hedge funds get their first prime minister in UK’s Rishi Sunak

In many ways, Rishi Sunak won his new job because investors used the markets to push for change. Sunak is quite familiar with that game.

The 42-year-old incoming UK prime minister spent the bulk of his private sector days working for hedge funds, including one of the financial industry's most prominent activist investors, known for building large stakes in companies and agitating for action to boost the stock price.

Now, Sunak's arrival is adding value to UK bond markets hoping for some calm after a wild month.

Sunak became Conservative Party leader unopposed on Monday in a dramatic turnaround in his political fortunes less than two months after he lost the runoff with Liz Truss.

He'll take on the responsibility to fix a crisis facing the economy, one that was exacerbated by a fiscal plan from Truss that was roundly rejected by investors. Sunak spoke Monday of a "profound economic challenge" amid double-digit inflation and rising interest rates.

"Rishi understands the working of financial markets and levers that generate wealth for an economy," said Crossbridge Capital chief investment officer Manish Singh, who has met Sunak. 

Sunak, whose first name means a sage in Hindi, will become the UK's youngest prime minister in more than two centuries and its first from an ethnic minority. He'll also be the first former hedge funder to hold the post. 

After his MBA from Stanford University and a stint at Goldman Sachs Group, Sunak broke into the hedge fund industry by joining billionaire Chris Hohn's The Children's Investment Fund. He spent his late twenties at TCI working as an analyst, according to a colleague who recalled Sunak as bright and sociable.

It was there that he experienced the financial crisis. In 2008, TCI suffered the only annual loss in its history, dropping 43% as market turmoil rocked its stock investments. 

"Living it was stressful," Sunak said during a BBC podcast in 2019. "You are responsible for people's savings and when that's all kind of evaporating in front of your eyes, that's quite a stressful thing to live through."

At TCI, Sunak supported senior portfolio managers in their activist campaigns, an approach that made Hohn and his investment firm famous. But it was an unsuccessful one that was among the most prominent Sunak worked on.

In 2007, he helped TCI partner Snehal Amin build a position in US railroad CSX Corp., where TCI pushed for management change. The battle ended up in court and TCI exited the losing bet in 2009. 

Sunak, married to Akshata Murthy, the daughter of Indian billionaire and Infosys Ltd. co-founder Narayana Murthy, left TCI in 2009. He followed Amin to Theleme Partners, a hedge fund started by former TCI co-founder Patrick Degorce in London. 

Hedge funds - which in Hohn and Michael Platt have produced two of Britain's five wealthiest individuals - have been the source of several prominent donors to the Conservative Party. They've also at times served as a symbol of soft political power and a shorthand for critics of the ruling party's policies that benefit the wealthy. 

Sunak left the industry to launch his own political career, becoming a Member of Parliament in 2015. He rapidly ascended to become Chancellor of the Exchequer just weeks before the pandemic hit the nation, forcing him to unleash unprecedented financial support. But Boris Johnson's government was consistently hit by controversy over everything from parties during Covid lockdowns to the way refurbishments to Johnson's apartment were paid for.

Sunak quit Johnson's government in July. He then fought and lost out to Truss in the last Tory leadership contest over the summer. But his repeated warnings that her plans would trigger economic chaos proved correct and put him in pole position when Truss's premiership imploded.

"Rishi is a safe pair of hands but is he inspirational or visionary as leaders are expected to be? Or is he too much of a mandarin? Only time will tell," Singh of Crossbridge said. "On the plus side, he can afford his own wallpaper." bloomberg



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