The City’s wish list for Labour government

Hello, I’m Emma Dunkley, asset management reporter, filling in for Harriet Agnew this week.

One thing to start: Asset managers taking part in the TAM charity ride on July 18 are seeking to raise £70,000 for Elizabeth’s Smile, Ruth Strauss Foundation, and Winston’s Wish — charities that help children who lose a parent. Best of luck to the cyclists, who will ride 340km over three days from Brussels to Amsterdam.

And an industry appointment: Alternative fund manager Octopus Investments has hired Lieven Debruyne as executive vice chair, a newly created role aimed at attracting institutional investment. Debruyne has previously held senior positions at Schroders and most recently worked as an adviser with the Boston Consulting Group.

In today’s newsletter:

• Chief executives call on Labour to galvanise UK capital markets

• Blackstone snaps up private equity credit risk

• Record investment into actively-managed fixed income ETFs

The City’s wish list for Labour government

The UK’s Labour party secured a sweeping victory in the UK’s general election last week, with Sir Keir Starmer stepping up to become prime minister.

But before Starmer had even made his way into Number 10, chief executives across the City were quick to offer their thoughts on what they wanted from the new government.

Among the most pressing concerns for asset and wealth managers is the revival of the UK’s equity market, which has suffered from a dearth of corporate listings in recent years and investor outflows from actively managed funds.

Paul Geddes, chief executive of Evelyn Partners, said he “would strongly recommend a focus on improving the attractions of the UK market” which will “not only increase domestic interest but also encourage foreign investors to increase flows to the UK exchanges.”

“A really bold move,” he said, “would be to abolish stamp duty on share purchases, which is a friction cost incurred when buying UK shares.”

Matthew Beesley, chief executive of Jupiter Fund Management, said that “we need a government that is going to be bold and imaginative” to tackle the UK’s capital markets “malaise”.

“They should consider abolishing stamp duty on all UK equities perhaps or create tax breaks for long-term pension assets,” he said. “They also need to provide certainty and stability that the UK is a great place to invest.”

Many wealthy investors are waiting to see if Labour will increase capital gains tax — although some individuals have already started selling certain assets, such as shares.

Nick Ritchie, a senior director at RBC Wealth Management, said there was “a general nervousness [around] the silence on CGT”. He said a minority of clients were selling assets to ensure their gains were taxed “at a favourable 20 per cent”, while others were taking a wait-and-see approach.

Blackstone buys ‘circular’ credit risk deals

Blackstone Group is snapping up a type of bank loan that is leaving it exposed to its own business, write Ortenca Aliaj, Antoine Gara and Eric Platt.

The US firm has become a big investor in so-called synthetic risk transfer products — or SRT for short. These are underpinned by short-term loans used by private equity funds to close deals as they wait to receive cash from their backers.

Due to its large size, Blackstone has assumed risk on credit lines attached to its own buyout funds — although the firm said they only constitute a very small amount of their overall exposure.

Still, such transactions increase the private equity firm’s risk if an investor were unable or unwilling to fund their commitment.

These deals underscore the intertwined and intricate nature of the private capital industry, shining a light on how new pockets of risk can build up within less regulated corners of the financial system.

For banks, these risk-transfer deals allow them to reduce the amount of capital they are required by regulators to hold.

Blackstone has disputed the idea of the risk being circular, noting that its investors were the ultimate counterparty to which it is exposed — adding that investors had never missed a capital call in its 40 years of existence.

“The thing with subscription lines is that it’s an asset class that has no loss historically,” said Frank Benhamou, risk transfer portfolio manager at Cheyne Capital. “They tend to be tightly priced, so investors who engage in this trade often use a bit of leverage to enhance returns.”

Chart of the week

Investors have put a record amount of cash this year into exchange traded funds that invest in a handpicked array of bonds.

Actively managed fixed-income ETFs took in $7bn in June and have garnered $41bn over the first half of 2024, surpassing 2023’s record of $33bn for the entire year, according to data from State Street Global Advisors, writes Will Schmitt in New York.

“I don’t see this momentum slowing,” said Matt Bartolini, head of SPDR Americas research with SSGA. “In fact, I see it building” as they develop longer track records that draw investor interest, he added.

A 2019 rule change by the Securities and Exchange Commission streamlined the process for launching new ETFs — paving the way for active ETFs. For managers of these products, fees are about three times higher than their passive counterparts, according to the Investment Company Institute.

Overall, US ETFs raked in more than $80bn in June, taking the total in the first six months of the year to $411bn, according to SSGA. The annual record is just over $911bn in 2021.

Bartolini said it was possible that the US ETF industry could enjoy its first $1tn flow year, adding that the chances of hitting this level would improve if the Federal Reserve were to cut rates and fuel a late-year “Santa Claus Rally”. He added: “It would need to be a massive December.”

Five unmissable stories this week

Hedge funds Citadel and Millennium have made solid gains in the first half of the year. The flagship Wellington fund of Ken Griffin’s Citadel was up 8.1 per cent, while Izzy Englander’s hedge fund Millennium was up 6.9 per cent.

BlackRock has created a new voting policy to balance the demands of European and US clients on decarbonisation. Funds with specific climate change mandates will vote differently on shareholder proposals than the rest of the $10.5tn money manager’s holdings.

How the investment world is trying to navigate geopolitics. An industry that has been hoovering up mathematicians to devise new trading strategies is now leaning on political scientists for guidance.

The sale of Preqin to BlackRock for £2.5bn has catapulted the data company’s founder Mark O’Hare into the ranks of Britain’s wealthiest people. The deal will extend BlackRock’s reach into private markets, which it estimates will amount to nearly $40tn in assets by the end of the decade.

India’s markets regulator has alleged Hindenburg Research’s report on Indian billionaire Gautam Adani “indulged in unfair trade practices” and said the short seller worked with New York hedge fund Kingdon Capital Management to make its bet.

And finally

The Dulwich Picture Gallery is hosting the Yoshida dynasty of artists, displaying more than 75 prints across three generations. Most of the works by Yoshida Hiroshi are on loan from the Fukuoka Art Museum in Japan, landing in the UK for the first time. Yoshida Hiroshi’s work of woodblock prints showcase American and European landscapes. The exhibition is open until early November.