For more than a decade, Hong Kong bankers seeking to sell large stakes in the company have been vying for the attention of Blackpool businessman Simon Sadler.
Sadler’s $6 billion hedge fund, Segantii Capital, bought the biggest deals and earned hefty commissions for banks, making him a “priority client” on Wall Street, according to a former chief broker in Hong Kong.
“For years he was ready to be big, consistent, aggressive, really risky on the blocks,” said a second World Bank colleague in town. “Even during market cycles, he never backed down. I knew if I had something to sell [Segantii] give me their price. ”
A modest but lucrative sector of the financial industry, package deals are stock sales large enough to drive down a company’s share price, meaning banks arrange them privately, away from the stock exchanges. Hedge funds typically buy blocks at a discount, creating an opportunity to take profits if the stock trades well after a sell-off and a loss if it doesn’t.
Since founding Segantii in 2007, Sadler has become one of the biggest block trading players in Asia and has quickly spread his reputation across the London and New York marketplaces.
Blocking transactions required careful study of how information is transferred between buyers and sellers prior to transactions.
US authorities are investigating how Wall Street banks are making private sales, disrupting a market not used to being in the spotlight. All of a sudden, banks are becoming more and more risk-averse.
Last week, the Financial Times reported that two Segantii banks had shut down their once-valued client, preventing the hedge fund from trading shares with them globally. One of the banks also closed all of its accounts, including prime brokerage and trading in other financial products.
Early 2021 concerns from market watch group Bank of America in New York over Segantii trading around stakes placed on public markets by other banks led to a global internal directive to sever ties with the hedge fund, according to two sources. . with business. © Gina Moon/Bloomberg
At Bank of America, early 2021 New York-based investment banking watchdog concerns about Segantii’s trading in publicly traded stocks by other banks led to a global internal directive to cut ties with the hedge fund. two people who understand this issue. The decree was “extremely rare for a fund of this size with a big name,” according to one bank insider.
Meanwhile, Citigroup has suspended all share trading with Segantii to reduce its exposure to the fund as block deals are the focus of US authorities, two other people said. He continued to trade other products such as derivatives with Segantii while other Wall Street banks such as Goldman Sachs continued to operate as usual.
Segantija has not been charged with any wrongdoing and it is unclear if he has been contacted in connection with the US wholesale investigation, but wire transfers have been a rare hurdle for the 52-year-old Sadler, whose ambitious risk-taking paid off big, as in his hedge. Foundation and elsewhere.
In 2019, Sadler bought struggling hometown football club Blackpool for £10m after years of relegation struggles and financial troubles. The club has since been promoted to the Championship, a division just below the Premier League.
“All of a sudden, out of nowhere, I own a football club, I’m walking down the field and people are chanting my name. I’m soaking in champagne,” he said last year.
When Sadler bought Blackpool Football Club, The Guardian called him “a local boy who did good.” Born in the seaside village of Bisham, on the outskirts of Blackpool, he earned a summer job renting deckchairs before embarking on a financial career in the City of London. He then moved to Moscow and then to Hong Kong, where he was later responsible for stock trading in Asia for HSBC Securities.
In 2019, Simon Sadler bought struggling hometown football club Blackpool for £10m after years of financial difficulties. The club has since been promoted to the Championship © Ekaterina Evill / Getty Images
But he stayed true to his hometown: when he launched Segantii in Hong Kong in 2007, he named it after a pre-Roman tribe based in Blackpool and designed his logo in the same tangerine color as Blackpool Football Club’s jersey. In 2014, he bought an FA Cup medal from Sir Stanley Matthews, a former Blackpool player, at an auction for £220,000.
Sadler and his family moved from Hong Kong to London during the pandemic, according to three people who know him. In the past few years, he has “walked away” from Segantii’s main base in Hong Kong, one source said, partly to focus on his football team.
According to media reports, in the United States, investigators were looking for communications between Morgan Stanley – Wall Street’s largest equity seller – and a number of its hedge fund counterparties, including a former Segantii employee.
In Hong Kong, Segantii is a “platform” for strongholds of various trading strategies, but with a “lead dog that follows everything,” according to a broker who works with the fund in London.
The corporate culture is harsh, according to half a dozen contractors and former employees interviewed by the FT, and one person close to the fund called it “very political and very territorial.”
At times, the “inhospitable” environment extended to Segantii’s trades with some of its brokers, according to several interviewees. Two senior global bank executives said they received emails from Sadler containing insults and swear words. “My last conversation with him was about him telling us we were crap,” one executive said.
A third executive, a former senior chief broker, said that Sadler had a “tough temper, but I find him very fair. I go with him to every negotiation thinking, “How little can I lose?” ”
Seganti and Sadler declined to comment for this article.
On blocks, Segantia is a force of nature. According to his latest filings with the SEC, his portfolio is valued at $3.5 billion. It’s buying big and fast: In just two days in May, the fund acquired a 3.6% stake in cybersecurity provider Avast and a 2% stake in aerospace group Meggitt, both listed on the FTSE 100.
Block trading is one of the few businesses on Wall Street where transactions still live or die based on personal relationships. “If you represent a hedge fund and I don’t answer your call, you’re in trouble,” said a former bank colleague. “If you have a dialogue with the trade union office, you have an informational advantage. »
This “advantage” hides a potential risk. To negotiate a discount on a bulk deal, bankers conduct interviews with potential buyers in which they do not reveal the company involved, the identity of the seller, or the structure of the deal.
Such talk can always be a warning to investors who may decide to sell shares. Technically, there was no transmission of significant non-public information – the red line from which laws are violated – but the legal gray area is vast.
Hedge funds that take a lot of blocks from bankers often look to gain “color”—information that is not insider information but nonetheless provides useful context—to gain an advantage in trades or expect reciprocity when banks list shares in a hot market. initial public markets. transactions, according to the bankers’ union.
Block trading is a profitable business. In 2021, banks completed more than $70 billion worth of block transactions in the US, according to Dealogic.
The risk for Sadler is that the US investigation is only just beginning to cool the block trading industry, in which Segantii has built a huge reputation.
“A lot of hedge funds have blocks now, but for Segantii, it’s their bread and butter,” said a Hong Kong portfolio manager.
Additional report by Arash Massoudi