As a money manager, Scott Bessent's years of inconsistent performance have contributed to a nearly 90% decline in his hedge fund's assets.

Now, with some clients gone, he is scoring on perhaps his biggest bet yet: President-elect Donald Trump. Bessent spotted what he called an anomaly in the market: that political and market analysts were too negative on what a Trump victory would mean, according to a letter to clients in January seen by Reuters.

His Key Square Capital Management put on bets that U.S. stocks and the dollar would gain, helping earn a double-digit percentage profit so far in 2024, with November as its best month, according to a person familiar with the situation.

Bessent's even bigger wager is on Trump, the future president. He's been a donor, economic adviser and booster on TV to Trump, and Bessent is now seen as a likely candidate for a top economic role in the administration, such as running the U.S. Treasury Department or leading the White House National Economic Council.

Trump has talked Bessent up as “one of the most brilliant men on Wall Street." Details of his fund's performance, reported here for the first time, show a mixed track record in the decade since he launched his own hedge fund firm.

Ted Seides, the former president of Protege Partners, an investment firm where Bessent earned strong returns in the late 2000s, told Reuters that Bessent's track record should be taken in the context of macro investing, where big profits can be followed by less attractive returns. So-called macro hedge funds bet on global macroeconomic trends and are not open to retail investors.

"If you only look at the part of a track record with lean years, it’s like saying Aaron Judge struck out a lot last year," Seides said, referring the baseball star known for hitting home runs. "But he was just named MVP." Bessent's candidacy in the hotly-contested role of Treasury Secretary or another economic role in the Trump administration has heightened interest in the fund manager. If he were to take a job in the new administration, Key Square could be wound down, sold, or put in "sleep mode," according to the same person.

Trump recently floated the idea of appointing Kevin Warsh as Treasury Secretary on the understanding that he could later be Federal Reserve Chairman, the Wall Street Journal reported on Thursday, citing people familiar with the matter. The report also said Bessent might lead the White House National Economic Council and then become Treasury Secretary after Warsh. Bessent has long been considered a top contender to run Treasury.

Karoline Leavitt, a spokesperson for Trump's transition team, said in an email that decisions on personnel "will continue to be announced by him when they are made."

BIG START

Bessent, who grew up in a small town in South Carolina and went to Yale College before landing on Wall Street, started Key Square in late 2015. The firm quickly raised $4.5 billion — then one of the largest hedge fund launches in history.

That included $2 billion from famed macroeconomic investor George Soros, for whom Bessent had helped earn billions of dollars over two stints at Soros Fund Management. Key Square's main fund returns surged 13% in its first year, 2016, according to a second person familiar with the firm.

That year, it gained on correctly predicting the British pound's decline around "Brexit," a vote for Britain to leave the European Union, according to the first person familiar with the situation. Later, Key Square made money when Bessent correctly anticipating a U.S. stock and dollar rally when Donald Trump was elected that November, according to the first person.

But Key Square lost 7% in 2017, and then lost money or just broke even from 2018 to 2021, according to the second person and performance disclosures from one of its investors, New York City Police Pension Fund. The hedge fund gained double digits in both 2023 and 2024 and is up "double digits" over its history, according to the second person.

That uneven performance appears to have scared away some clients. Assets under management shrank from a peak of around $5.1 billion at the end of 2017 to $577 million as of December 2023, while the number of institutional investors fell from 180 in December 2017 to 20 by the end of 2023, according to regulatory disclosures tracked by Convergence Inc.

Soros took back most of his capital in 2018, per a previous agreement with Bessent to return the money, according to a third source familiar with the matter. Soros no longer has any money managed by Bessent, according to the third person. The two men have not spoken since 2016, Bessent said in a recent interview with Trump ally Roger Stone.

Other large clients who no longer have money with Key Square include Australia's Future Fund, Morgan Stanley Alternative Investment Partners, and the New York City Police and Fire pension funds, according to public records and regulatory disclosures.

One large hedge fund allocator told Reuters that they pulled their money several years ago from Key Square because the returns had been “too inconsistent.”

Another large Key Square investor withdrew from the hedge fund last year because of Bessent’s support of Trump, according to the second person familiar with the firm.

While Key Square's hedge fund assets have declined, it has other business lines that remain strong, including providing investment ideas to other money managers and an advisory business for family offices, foundations and endowments, according to the two people familiar with the firm. It also has plans to launch an ETF, according to a recent securities filing.

The University of California redeemed its assets from Key Square amid a broader pull back from using hedge funds, but Bessent has remained "deep source of knowledge for us," chief investment officer, Jagdeep Singh Bachher, told Reuters via email.

Another longtime client to stick with Key Square is Brevan Howard Asset Management, the $34 billion macro hedge fund manager co-founded by British billionaire Alan Howard.

"Scott is one of the best macro investors in the world," a spokesperson for Brevan Howard said via email. "His understanding of markets, public policy, and the global economy is largely unmatched." Semafor previously reported that selective Key Square performance numbers were being shared around Wall Street chats as Bessent competed for the coveted post of U.S. Treasury Secretary. The report did not reveal the numbers shared.

POLITICAL BET

Bessent contributed to Trump’s inauguration following his 2016 election win. He was more involved during the 2024 election cycle, serving as an economic adviser to the campaign in addition to being a top fundraiser.

Since the election, he has made TV appearances and written opinion pieces in support of Trump's proposed economic agenda. “I was all in for President Trump. I was one of the few Wall Street people backing him,” Bessent recent said in the interview with Stone.

In January this year, Bessent predicted a “Trump Rally” in stocks as long as the Republican remained ahead in the election polls. “We are expecting an upward trajectory in the U.S. equity markets,” he wrote in the letter to Key Square clients. “Barring (President Joe) Biden pulling ahead in substantial fashion, all pullbacks should be bought.”