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Asset management: an activist’s playground

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Don’t miss it: Next Tuesday we are hosting the inaugural FT Dealmakers Summit. This event on November 10 is the flagship conference of the Due Diligence team, a full-day virtual conference put on with our colleagues in FT Live.

We’ve updated the event agenda, where you will see sessions that feature speakers from top banks, law firms, corporations, hedge funds and private equity groups. Do join us if you can. Use this link to register.

Welcome to the Due Diligence briefing from the Financial Times. Not a subscriber? Sign up here. Drop us a line and join the conversation: Due.Diligence@ft.com.

Nelson Peltz plays matchmaker

Activist investor Nelson Peltz is no stranger to the asset management industry. And that isn’t just because he owns a hedge fund. 

After Trian Partners made a solid return on its investment in Legg Mason following its $6.5bn acquisition by Franklin Templeton, Peltz’s group has now set its sights on Invesco and Britain’s Janus Henderson.

The New York-based firm has a near 10 per cent stake in both asset managers and speculation is rife that Trian is trying to play matchmaker between the two, though not everyone is convinced that would be a great idea. 

Nelson Peltz, chief executive of Trian Fund Management © FT montage/Bloomberg

Regardless of whether the two companies do link up, there is little doubt that Trian wants to see more consolidation in the asset management industry — in fact, it has a fund that is specifically built for this purpose.

And Trian is essentially using the same playbook it did for Legg Mason, where Peltz played a key role in its deal with Franklin Templeton. 

On Thursday Invesco said it had granted Trian three board seats — adding Peltz and Ed Garden, the group’s chief investment officer, as well as Tom Finke, chief executive of the $354bn fund group Barings.

As with Legg Mason, the appointments involve Invesco expanding its board to 12 directors, which helps to avoid a proxy battle. Peltz and Garden’s nominations to the board were obvious. More interesting is the appointment of Finke. 

Barings is a subsidiary of MassMutual, the US insurance company that happens to be Invesco’s largest shareholder. Nominating a board member who will be familiar with the group’s largest shareholder isn’t a bad idea. Plus Finke, who is leaving Barings, has overseen several M&A deals in the industry during his career. 

Invesco’s concession to Trian doesn’t come as a surprise, either. The manager’s longtime chief executive Martin Flanagan is well aware that companies in his industry will struggle to survive if they don’t band together. He told the FT last year that one in three asset managers would disappear as mounting fee pressures and rising costs took their toll.

Martin Flanagan, chief executive of Invesco © Bloomberg

While Invesco, which last year earned the not so coveted title of the worst-selling fund manager globally, and Trian seem to be getting on famously, little has been said about the hedge fund’s plans for Janus. 

The London-based company said it was only aware of Trian’s stake the day before it was officially disclosed and had not given any indication that it was in discussions with the hedge fund. If Trian wants a deal between the two, it’ll probably have to get both companies to play ball. 

Ant Group: stuck in the mud

It was meant to be the best week yet for Ant Group.

But Chinese regulators halted the country’s biggest fintech group in its tracks to achieve the largest initial public offering in history. (Catch up on DD’s coverage of the debacle here.)

Now lawyers involved in the deal and investors say it could be delayed by at least six months and its valuation slashed sharply thanks to new regulations, writes the FT’s Hudson Lockett and Primrose Riordan from Hong Kong. 

Shares in the group, which was set to raise $37bn, were due to begin trading in Shanghai and Hong Kong on Thursday. Shanghai’s bourse suspended the listing on Tuesday night, a day after Beijing announced draft rules that could weigh heavily on Ant’s vital lending business.

Bar chart of Market capitalisation ($bn) showing Ant IPO would have valued it higher than the world’s biggest banks

While Ant currently acts mainly as a high-tech liaison between consumers and financial companies, the new regulations would require the payments platform controlled by Alibaba’s billionaire founder Jack Ma to provide at least 30 per cent of funding for loans.

That could ultimately make its business model more akin to a (highly regulated) bank, and leave Ant’s balance sheet more exposed in the event of loans turning sour.

“If [the new rules] get strictly carried out, Ant would be worth less than half of what it is now,” said a Shanghai-based fund manager who subscribed to Ant’s IPO. And if the Past four days are any indication, the situation could change even more drastically over the next six months.

Ant’s last implied valuation of $316bn — almost a fifth larger than China’s ICBC banking behemoth — isn’t the only thing that risks shrinking as regulators keep the listing at bay, Lex points out. Banks giddily awaiting a payday estimated at $400m will probably see that sum deflate.

Bar chart of IPO and secondary listings, year to date ($bn) showing Ant Group listing was set to deliver windfall to Greater China bourses

It was also a rude awakening for Alibaba investors, who saw shares in the group fall sharply on Wednesday before recovering some of those losses on Thursday.

The highly-anticipated dual listing was thought to illustrate the dynamism of China’s financial system, no matter the political conflicts unfolding in the region. Its suspension may change all that.

H2O Asset Management: cut adrift

Regular DD readers will have closely followed the saga of the ironically named H2O Asset Management and its troublesome illiquid investments.

It has been almost 18 months since DD’s Rob Smith and the FT investigations team’s Cynthia O’Murchu first revealed a startling fact: that H2O, one of Europe’s best-performing fund managers, had loaded up on more than €1bn of hard-to-sell bonds linked to Lars Windhorst, a controversial German financier.

Lars Windhorst © FT montage; Bloomberg

The €20bn investment group’s parent company, the French bank Natixis, initially dismissed the story. The lender’s fund management chief Jean Raby reassured investors shortly after the FT’s exposé that these bonds were in fact “quite diversified”.

And while the Paris-based bank launched an audit into its lucrative fund management subsidiary, Natixis repeatedly refused to disclose the findings.

“This is not something we make public,” Raby told a reporter on the slopes of Davos in January. “This is something that is really for internal purposes.”

But since that interview, H2O has suffered a bruising year of drastic losses and an unprecedented intervention from French regulators over its illiquid assets.

And now it appears enough is enough for Natixis: the French bank is now looking to sever all ties with its controversial subsidiary by offloading its majority stake. Get the full story here.

Job moves 

  • Finsbury has hired Ginny Wilmerding as a partner in its Hong Kong office. She joins from Brunswick, where she was a partner and led the TMT sector in Asia, advising on deals for clients including Alibaba and Ant Group.

  • Blackstone has appointed Eric Duchon to the newly created role of global head of real estate ESG. He was previously global head of sustainability at LaSalle Investment Management.

Smart reads

Popping pills Hims amassed a $1.6bn empire by delivering Viagra, Rogaine and other remedies in sleek, colourful packaging that spared consumers from blushing at the pharmacy counter. But the telemedicine start-up may be a little too generous when doling out prescriptions, potentially crossing legal boundaries in the process. (Bloomberg)

Buyer beware The risky US market for collateralised loan obligations has long been supported by Norinchukin Bank, a Japanese institution investing overseas on behalf of the country’s yield-starved farmers and fishermen. The pandemic infected that route, exposing vulnerable investors to staggering losses by US companies during the height of the crisis. (Wall Street Journal)

It’s a landslide As the US languishes in uncertainty throughout a multi-day election, Silicon Valley executives have already uncorked the victory champagne. The pandemic has concentrated almost every industry into the hands of big tech — the true recipients of power in 2020. (FT)

News round-up

UK insurer RSA in talks to be acquired for £7.1bn (FT) 

US justice department sues to block Visa’s $5.3bn Plaid takeover (FT)

Intesa Sanpaolo chief calls for cross-border European banking deals (FT)

More than £1.1bn in fraud exposed in UK bounce back loan scheme (FT)

Justice Department files antitrust lawsuit challenging Visa’s acquisition of Plaid (WSJ)

Saudi Arabia media group to make play for elite global sports events (FT)

TikTok parent ByteDance seeks to raise cash at $180bn valuation (BBG) 

Commerzbank warns of impact of government Covid support running out (FT)

SocGen swings back to profit as equity trading rebounds (FT)

Iberdrola pledges €75bn to capitalise on energy transition (FT)

Sainsbury’s to close most Argos stores (FT + Lex



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ExxonMobil proposes carbon storage plan for Texas port

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ExxonMobil is pitching a plan to capture and store carbon dioxide emitted by industrial facilities around Houston that it said could attract $100bn in investment if the Biden administration put a price on the greenhouse gas.

The oil supermajor is touting the scheme ahead of the US climate summit starting on Thursday, where President Joe Biden plans to announce more aggressive national emissions targets and hopes to spur world leaders to increase their own carbon-cutting goals.

Carbon capture and storage, or CCS, “should be a key part of the US strategy for meeting its Paris goals and included as part of the administration’s upcoming Nationally Determined Contributions”, said Joe Blommaert, head of Exxon’s low-carbon focused business, referring to the targets that countries are required to submit under the 2015 Paris climate agreement.

Oil and gas producers have sought to highlight their commitments to tackle emissions ahead of this week’s climate talks, which promise to heap pressure on the fossil fuel industry. BP pledged to stop flaring natural gas in Texas’ Permian oilfields by 2025, while EQT, the country’s largest natural gas producer, said it backed federal methane regulations.

The International Energy Agency has called carbon capture and storage, which uses chemicals to strip carbon dioxide from industrial emissions, “critical for putting energy systems around the world on a sustainable path”.

But the technology has struggled to gain traction as costs have remained persistently high. The most recent setback in the US came last year with the mothballing of the Petra Nova project, the country’s largest, which captured carbon from a Texas coal-fired power plant.

Many environmental groups have been critical of the oil and gas industry’s focus on carbon capture, arguing it is used to justify continued investment in oil and gas production and is not economical, especially as the costs of zero-carbon wind and solar power have plummeted.

Exxon said that establishing a market price on carbon — which has been attempted by a handful of US states, Texas not among them — would be important. The US government should “implement policies to enable CCS to receive direct investment and incentives similar to those available to other efforts to reduce emissions”, Blommaert said.

Exxon declined to comment on the carbon price it thought was needed to justify the investment, but said its plan would generate $100bn of investment from companies and government in the Houston region.

The company’s plans call for a hub that would capture emissions from the 50 largest emitting industrial facilities along the Houston Ship Channel, such as oil refineries and petrochemical plants, and ship the carbon by pipeline to reservoirs for storage deep under the sea floor of the Gulf of Mexico.

The project could capture and store about 100m tonnes of CO2 a year by 2040 if developed, Exxon said. That is 2 per cent of the roughly 4.6bn tonnes of US energy-related carbon emissions in 2020, according to the Energy Information Administration.

Exxon has been under intense pressure from investors, including a proxy fight with the activist hedge fund Engine No 1, to bolster its strategy for the transition to cleaner fuels. In February, it created a low-carbon business line that it said would spend about $3bn over the next five years.

Biden’s $2tn clean-energy focused infrastructure plan would expand carbon capture and storage tax credits. The administration said it would back 10 projects focused on capturing carbon from heavy industry, but it did not endorse a price on carbon.

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here 



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European stocks hit record after strong US earnings and economic data

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European equities hovered around record levels, the dollar dropped and government bonds nudged higher on Monday as markets continued to cheer strong economic data while also banking on continued support from the US Federal Reserve.

The regional Stoxx Europe 600 index gained 0.3 per cent during the morning to set a new record, before falling back to trade flat.

This follows a week of upbeat earnings from US banks as investors await results from big businesses including Coca-Cola and IBM later on Monday. Data released last week showed US homebuilding surged to a near 15-year high in March while retail sales increased by the most in 10 months.

The dollar, as measured against a basket of currencies, fell 0.4 per cent as bets on higher interest rates receded. The euro rose 0.4 per cent against the dollar to buy at $1.203. Sterling also gained 0.4 per cent to €1.389.

Federal Reserve chair Jay Powell told the Economic Club of Washington DC last week that the central bank would not taper its $120bn of monthly asset purchases until it saw “substantial further progress” towards full employment.

Haven assets such as government debt remained in demand. As prices ticked up, the yield on the benchmark 10-year US Treasury note fell 0.02 percentage points to 1.557 per cent, while the yield on the equivalent German Bund slid 0.01 percentage points to minus 0.271 per cent.

Investing convention assumes that US Treasuries and global equities move in opposite directions to cushion against falls in either asset class, but both have now rallied in tandem for an unusually sustained period.

The S&P 500, the blue-chip US stock index, has risen for four consecutive weeks to set new records. The yield on the 10-year Treasury has fallen from about 1.74 per cent at the end of March to just under 1.56 per cent on Monday as investors bought the debt. Treasuries and US stocks not have risen together for so long since 2008, according to Deutsche Bank.

Futures markets indicated the S&P would drift 0.2 per cent lower as Wall Street trading opens.

“I am not saying it’s a rational time in the markets,” said Yuko Takano, equity fund manager at Newton Investment Management. A reason for caution, she added, was signs of “bubbles” in alternative assets such as cryptocurrencies and non-fungible tokens. “There is really an abundance of liquidity. There will be a correction at some point but it is hard to time when it will come.”

“Markets may have become temporarily overbought,” strategists at Credit Suisse commented. “For now, we prefer to keep equity allocations at neutral” rather than buying more stocks, they said.

In Asia, Hong Kong’s Hang Seng index closed up 0.5 per cent and Japan’s Topix slid 0.2 per cent.

Global oil benchmark Brent crude fell 0.3 per cent to $66.57 a barrel.



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EU split over delay to decision on classing gas as green investment

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The European Commission is split over whether to postpone a decision on classifying gas generated from fossil fuels as green energy under its landmark classification system for investors.

Brussels had planned to publish an updated draft of a taxonomy for sustainable finance later this week. The document is designed to guide those who want to direct their money into environmentally friendly investments, and help stamp out the misreporting of companies’ environmental impact, known as greenwashing. 

The commission was forced to revamp its initial proposals earlier this year after the text was criticised by member states which want gas to be explicitly recognised as a low-emission technology that can help the EU meet its goal of becoming a net-zero polluter by 2050. 

Now the publication of the draft rules could be postponed again as the commission seeks to resolve the impasse. According to a draft of the text seen by the Financial Times, the commission proposed to delay the decision in order to carry out a separate assessment of how gas and nuclear “contribute to decarbonisation” to allow for a more “transparent” debate about the technologies.

But officials told the FT that some commissioners were pushing for gas to be awarded the green label now, rather than delaying the decision until later this year. 

“There are a sizeable number of voices in the commission who want gas to be included in the taxonomy,” said one official. A final decision on whether to approve the current text or delay it again for further redrafting is likely to be made on Monday.

The EU’s taxonomy is being closely watched by investors as the first big attempt by a leading regulatory body to create a labelling scheme that will help guide billions of euros of investment into green financial products.

But the process has proved divisive, as several EU governments have demanded recognition for lower-emissions energy sources such as gas. 

Coal-reliant countries such as Poland, Hungary, Romania and others that are banking on gas to help reduce their emissions do not want the labelling system to discriminate against them. France and the Czech Republic, meanwhile, are also pushing for the recognition of nuclear as a “transitional” technology in the taxonomy.

A leaked legal text seen by the FT earlier this month paved the way for gas to be considered green in some limited circumstances. That has since been removed along with other sensitive topics such as how best to classify the agricultural sector, according to the latest draft the FT has seen.

EU governments and the European Parliament have the power to block the draft if they can muster a qualified majority of countries and MEPs against it. 

Environmental groups have hailed the exercise, and urged Brussels to stick to science-based criteria in defining the thresholds for sustainable economic activity.

Luca Bonaccorsi from the Transport & Environment NGO said delaying decisions on gas and nuclear risked allowing pro-nuclear countries like France and the Czech Republic to join up with pro-gas member states “to forge an alliance that will obtain the greening and inclusion of both energy sources”.

“Should they ally, it will be impossible to resist the greenwashing of these two unsustainable energy sources,” said Bonaccorsi. 

The delays in agreeing the taxonomy have forced Brussels to abandon an attempt to use it as the basis for EU green bonds that will be issued as part of the bloc’s €800bn recovery and resilience fund. About €250bn of debt will be issued in the form of sustainable bonds over the next few years, which will make the commission one of the world’s biggest issuers of sustainable debt.



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