Daily Archives: September 18, 2020

In early 2016 billionaire scientist David Harding opened a San Francisco office for his booming London hedge fund Winton Group. It was seen as a bold step by the firm which at the time managed $34bn in client assets to move into the worlds technology heartland. The company, competing with US tech giants such as Google and Facebook for talented staff, was hoping to tap into the Bay Areas huge pool of coders and innovation.

The move was symbolic of the UK firms global ambitions following phenomenal growth in the years after the credit crisis but also of the strength of the industry in London, with many of the star performers based in the upmarket Mayfair district. In 2015, six out of the worlds 10 biggest hedge funds were listed as basing their money management wholly or jointly out of the UK. Winton was 10th largest on the HFM Global Billion Dollar Club list.

Five years later, that number has shrunk to three. Winton has closed its California operation and reduced its presence in New York. Poor performance, particularly during the coronavirus pandemic, and a controversial decision by Mr Harding to move away from a style of investing he pioneered in the 1980s have weighed on the firm, whose assets have recently tumbled to around $12bn. Staff numbers have been cut. And at the start of this year Winton ranked 23rd and is likely to have fallen further after recent losses.

It is not alone. A number of Londons biggest hedge fund firms, including CQS and Lansdowne Partners, have suffered big losses this year. Dissatisfaction with lacklustre performance in the $3.2tn industry which uses bets on rising and falling prices across markets and which once seemed to offer the promise of profits in any environment has led to more than $120bn of client outflows globally since the start of 2018, according to data group HFR. Investor interest has moved on from hedge funds to fast-growing US technology stocks and the private equity and debt sectors.

As growth in the once-booming industry has stalled, London has looked exposed. New York, Connecticut and the wider North American hedge fund sector have been better able to withstand the downturn than managers in the UK, holding on to assets and delivering higher returns.

The share of global hedge fund assets run by UK-based managers has shrunk from 14.9 per cent at the end of 2015 to 12.6 per cent at the start of the coronavirus crisis, according to HFR. The USs share dipped slightly, from 77.2 per cent to 76.9 per cent, with Canada and France both picking up new business. US-based managers made an average return of 56 per cent between January 2012 and July 2020, according to investment firm Aurum Fund Management, while UK-based managers made 40 per cent.

The best firms by and large are in New York and always have been, says Wintons Mr Harding. The UK is slightly little brother to the US.

Now the disproportionate impact of the coronavirus crisis on the London sector, which employs thousands, and uncertainty over the future trading relationship with the EU threaten to further damage the UK capitals prospects, say industry observers. Once the Brexit transition period comes to an end in December, UK firms could lose some marketing privileges to EU-based clients and could eventually also face tougher rules if they want to run EU-based funds.

The US dominates the hedge fund industry. Its been trending in that direction for quite some time, says Troy Gayeski, co-chief investment officer at New York-based SkyBridge Capital, which invests in hedge funds. This has only been amplified by the pandemic. The US has the growth engines.

Primary among those is the US stock market, which is more likely to be traded by US-based hedge fund managers than their European rivals, and has dramatically outpaced European indices this year, continuing a long-running trend. The S&P 500 index has soared to record highs this summer and despite recent falls is still up 3.4 per cent this year, while the Nasdaq has climbed 21 per cent. In contrast, the Stoxx Europe 600 is down 6.4 per cent and the FTSE 100 is down 20.2 per cent, in dollar terms.

Some of the hedge fund winners through this years market turmoil have been huge funds headquartered in the US, albeit with some London operations. While US managers such as Bridgewater Associates and Renaissance have not been immune from market falls, Elliott Management, Millennium Management and Citadel are among those to have come through the crisis largely unscathed and made money by cutting risk levels, and profiting from market dislocations, according to investors.

Travel restrictions during the pandemic are not helping UK managers either. Since the discovery of Bernard Madoffs massive Ponzi scheme in 2008, many investors have insisted upon meeting their money managers face to face and doing extensive on-site due diligence before investing. Now, with coronavirus making that harder, coupled with better performance from US managers, some big American institutions are preferring to invest with easier-to-access domestic firms and are eschewing European funds.

Theres just so much [investor] capital in the US, which benefits the US hedge fund managers on their doorstep, says one London-based executive who has recently left the industry and moved into the tech sector in pursuit of better growth and profitability. Whatever Japanese and European investors have just pales into comparison with the US.

Deadlock in the talks over the shape of the UKs future trading relationship with the EU threatens to further damage the industry, say legal experts. As it stands, from next year UK-based managers face barriers marketing some fund management services to EU-based clients.

A critical issue for the London industry is the system of delegation the extent to which an EU-based firm can delegate the management of a fund to a UK-based manager. Such arrangements are lucrative for many London managers, who use firms in countries such as Luxembourg or Ireland with little in the way of traders or risk managers to delegate back to the UK, where the fund managers sit. However, the European Securities and Markets Authority, the EU regulator, in August wrote to the European Commission to recommend a tightening of the rules, which could mean UK firms having to move more investment professionals to mainland Europe.

We are at a crunch point, says Leonard Ng, a partner at law firm Sidley Austin, who advises on UK and EU regulatory issues. This will be a period of stress for the asset management industry.

Delegation...is about moving the centre of activity away from the UK into the EU, adds Mr Ng, who predicts a splintering around Europe of the expertise that is currently centred in London. A dilution of that expertise in London threatens jobs and tax revenues in the UK.

While some high-profile executives in the UK industry including Crispin Odey and Paul Marshall backed an exit from the bloc, others are now looking at what it means for their business and whether they need to relocate.

London-based H2O Asset Management, which manages 21.7bn in assets and which was co-founded by former Crdit Agricole star fund manager Bruno Crastes, opened an office in Paris last year as a hedge against Brexit and is considering relocating fund managers there, says a person familiar with the firm. Mr Crastes changed his residency from the UK to Monaco in 2017, the year after the UKs Brexit referendum vote, according to regulatory filings.

Last year former GLG star trader Greg Coffey, one of Europes best-known hedge fund managers, moved his hedge fund firm Kirkoswald Capital to New York over concerns about Londons role as a financial centre.

While few believe London will cease to be a hub for hedge funds, an ebbing away of the industry puts further pressure on its place in global finance. As recently as March 2018, London was ranked as the worlds top financial centre, according to Z/Yens Global Financial Centres index. It has subsequently slipped into second place, behind New York. And in the consultancys most recent survey, in March, London suffered the second-biggest fall of any of its top 40 rivals in the score used to determine its ranking. It now sits only marginally above third-placed Tokyo.

Brexit has hurt [hedge fund managers]. A lot are French or Italian, says one former London-based manager now located in continental Europe. Thats scared them, they dont feel theyre welcome.

The upmarket London district of Mayfair once an area of muddy fields before King James II gave permission in 1686 for an annual fair to take place in May has long been synonymous with the UK hedge fund industry. Traders relocated from the City of London in the 1990s and early 2000s to be near the areas private banks and their ultra-wealthy clients, exchanging trading ideas and gossip in trendy hang-outs such as The Wolseley on Piccadilly and The Arts Club on Dover Street.

The arrival of high finance, an influx of ultra-luxury retail boutiques and soaring office rents changed the character of the neighbourhood. Funds such as Lansdowne Partners, based just off Berkeley Square, and GLG Partners, which paid then-record rents for space on Curzon Street, grew to be among the global industrys biggest names.

That growth was helped by the introduction of the euro in 1999, which provided arbitrage opportunities that funds could trade, and a wealth of tech stocks to bet against in the dotcom bubble of the opening years of the 2000s.

When the euro came in, hedge funds absolutely nailed it [the trading opportunity], says Rick Sopher, chief executive of investment firm Edmond de Rothschild Capital Holdings. It was the golden age of European hedge funds.

But many of the trading opportunities that made European traders rich have since shifted to the other side of the Atlantic, particularly as the US tech sector has grown. [European hedge funds] had to look for growth companies, and the companies on their doorstep were not growing that much, adds Mr Sopher.

Some who know Mayfair and its hedge fund occupants well see signs of change. Laurence Davis, owner of Mayfair institution Sautter Cigars on Mount Street expects more of his loyal hedge fund customers to move out of the UK. He has already seen some managers leave, he says, but not yet in the huge numbers that might happen. We havent felt Brexit in terms of hedge funds in central London [yet].

While the impact on the ground is clouded by the effects of coronavirus and the growth of sectors such as private equity, the fortunes of a number of big-name firms have waned.

Lansdowne Partners was once seen as the gold standard in equity investing. But it wrote to investors at the start of the year to describe a disappointing 2019 in which its main fund had made just over 1 per cent while equity markets had soared, according to a letter seen by the Financial Times. The investment group has been further caught out this year, by large bets on airline stocks and on a recovery in the UK. During the summer, it shut its flagship hedge fund, which is down 22 per cent this year.

Close by on Trafalgar Square, Michael Hintzes CQS, known as one of Europes best credit traders, was caught out in this years market slump. A fund that he personally manages, which had one of the sectors best records including gains of more than 30 per cent in 2012 and 2016, lost around $1.4bn in the market turmoil, thanks largely to bad bets on structured credit.

Firms such as GLG, now part of Man Group, GAM and Odey have also faced their own struggles since their heydays. The value of GLG has been written down by more than $1bn since it was bought by Man, GAM suffered a scandal involving a star fund manager that cost it billions of euros in assets, while Odey's assets have also fallen.

Wintons Mr Harding says the performance of his fund, which is down around 17 per cent this year, has been very, very disappointing. However, he adds that does not mean the fund is broken and he does not regret his decision to change trading strategy away from trend-following. Im quietly confident in the longer term, he adds.

Not all London funds are struggling. Man Group manages $108bn and has relocated GLGs traders from Mayfair to the City of London. While Marshall Wace, based a short distance from Mayfair near Sloane Square, has $45bn in assets. Both have grown strongly in recent years.

Yet some in the sector see the London industrys struggles as part of wider problems.

At one point London had a real shot at potentially surpassing New York as the financial hub of the world, says Mr Gayeski. But the eurozone crisis and Brexit [changed that].

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How Brexit and Covid-19 combined to hit UK hedge funds - Financial Times

A man looks into a shop selling face masks in Dublin city centre. The government's failure to properly communicate its Covid-19 public health message has been described as an "abuse of power".

Niall Carson/PA Images via Getty Images

DUBLIN Brexit is back on the agenda for Ireland's small businesses and start-ups, despite the continued threat of the coronavirus pandemic.

Research published on Tuesday from the Economic and Social Research Institute (ESRI), showed that small and medium-sized enterprises (SMEs) lost between 6 billion euros ($7.1 billion) and 10 billion euros from March to June with many companies using up their cash reserves.

Meanwhile, Ireland officially entered recession last week after the economy contracted a record 6.1% between April and June.

Julie Sinnamon, the chief executive of Enterprise Ireland, the agency responsible for developing the country's indigenous businesses and a regular early stage backer of tech start-ups, spoke to CNBC on the impact of Covid-19.

"The immediate impact on companies was liquidity, so a lack of funding," she said.

Enterprise Ireland established a number of funds and mechanisms to provide emergency capital to companies. It has approved 34.4 million euros of funding for Irish companies affected by the coronavirus so far. Much of that has been through the Sustaining Enterprise Fund, which provides liquidity of up to 800,000 euros, with up to 200,000 euros of that being non-repayable.

It hasn't been without challenges. Some companies have complained of a slow process in getting applications submitted and approved during what are emergency times. In June, just five large companies had been approved for the maximum800,000 euros from the Sustaining Enterprise Fund, with a total of 20 approvals at the time. As of Sep. 11, there have been 53 companies approved. Enterprise Ireland said it aims to complete applications in 20 days.

"I think between now and the end of the year we will succeed in supporting and using the funding available," Sinnamon told CNBC. "But this slow start in terms of companies applying is not any different than we would have expected, or would have seen in previous crises when you had similar supports available for companies."

Sinnamon said Enterprise Ireland's attention is now shifting to longer-term efforts. Covid-19 has seen the agency balancing the needs of companies facing an immediate risk of collapse and those that have been forced to pivot into new areas.

"For some of them it has required investing in innovation, changing their products. In some cases, it was really just retracting into their shell in the short term, but in others it was diversification," she said.

At the start of 2020, Enterprise Ireland's priorities were very different. Since 2016 the company's top line messaging has been around Brexit preparedness, developing support funds and grants for those most exposed.

"We are really trying to reactivate the (Brexit) plans for companies who had parked them in the height of the Covid crisis to make sure that they're continuing with their plans," Sinnamon said.

It has been urging Irish companies to reduce their dependence on the U.K. for exports and to diversify into other markets. The U.K.'s Brexit transition period with the EU is set to end on Dec. 31 and there's still a real chance that both sides will fail to agree a trade deal before that date.

Sinnamon said that around 15 years ago, 45% of Irish exports went to the U.K. Enterprise Ireland set a target to lower that to 33% by 2020 and it is now at 31%, she said.

In 2019, according to figures provided by the agency, exports to the euro zone grew by 15% and North America by 16%.

"We're growing exports to the rest of the world at a faster rate and hence our overall dependence on the U.K. market is now down. It's only 31% of our exports and declining," she said.

In February, Sinnamon announced her intention to step down from her role as chief executive of Enterprise Ireland, coinciding with the winddown of the agency's current five-year strategy. Those plans were put "on ice" due to the Covid-19 pandemic, but she said it is still her intention to step down this year.

Clarification: This story has been updated with more information on the amount of approvals for theSustaining Enterprise Fund.

Read more here:

Irish start-ups grapple with dual impact of the coronavirus and Brexit - CNBC

When the cabinet minister Brandon Lewis was asked in the House of Commons whether a new bill designed to regulate trade within the UK after Brexit would break international law, he confirmed it would in a limited and specific way. The comments ignited a firestorm within his party as backbenchers and grandees tore into the government for threatening to damage the UKs reputation for respecting the rule of law.

As the Guardians deputy political editor, Jessica Elgot, tells Anushka Asthana, it is not the only source of disquiet within the party. Some MPs are furious at new restrictions aimed at slowing the spread of Covid-19 that restrict gatherings to six people. Others are exasperated at a summer of repeated U-turns and stories of incompetence.

While Boris Johnsons 80-seat majority has not yet looked seriously under threat, are there signs that his party is falling out of love with the man who led them to their biggest election victory in a generation?

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Brexit, Covid and u-turns: why Tory backbenchers are getting restless podcast - The Guardian

Brexit has been four years in the making, but with fewer than four months to go before the UK leaves the EU single market and customs union, the country is still without the tools to be border-ready, it has emerged.

A leaked government document seen by the Guardian shows key IT systems continue to be under development, some legislation is still needed to allow information on passengers and freight to be shared, and plans for a national network of advice centres for trucks is currently unfunded.

Tourist and business passengers will also be affected, says the Border and Protocol Delivery Group, a cross-departmental command tasked with getting the borders Brexit-ready for 1 January.

Passengers on Eurostar and at airports could face significant disruption at St Pancras station in London if UK nationals are not allowed to use e-gates, the document says. Some may turn up at EU borders without correct paperwork, such as passports valid for at least six months.

Passenger volumes would be lower in January but there would be a risk of significant disruption during peak travel periods, particularly in April and summer 2021, says the document.

The revised planning assumption, according to the report, is that checks will be applied to 100% of all passengers who carry a British passport as they will now be third-country nationals and not eligible for free movement across EU borders.

It is forecasting a worst-case scenario of potential queues of one to two hours in Dover and the Eurotunnel in January. The risk of queues would be greatest at countries that dont lay on extra resources for British arrivals or who insist on extra red tape such as stamps on passports.

In an ideal scenario, the government is hoping to have a Smart Freight website and ultimately a smartphone app running by 1 January. Drivers or their clients need to use this website to demonstrate to the authorities they have completed electronic paperwork before getting the green light to drive into Kent.

In theory this will prevent congestion in Kent and allow an orderly procession of up to 7,000 trucks a day on to the ferries and Eurotunnel shuttles as normal.

But the software for the site is still under development. The design is still in the alpha stage but if approved it will move to a private beta test for further development. It wont be ready for public testing until the end of November, according to an infographic in the document, Managing and Mitigating Disruption.

Only one site, in Ashford, has been bought by the government to hold lorries in the event of congestion. The recently acquired Mojo site will hold 2,000 of the expected 7,000 trucks, the document says. Other sites under consideration are Manston airport, which can hold 4,000 lorries, and the Waterbrook site behind the Mojo site which can hold 950 freight units.

Operation Brock will swing into action if there are delays at Dover and Folkestone, with a one-way system allowing vehicle-only lanes southbound at junctions 8 and 9 on the M20. It can control the movements of 2,000 lorries.

A border impact centre (BIC) will be built for the end of the transition period on 31 December to help national and local authorities get to grips with controls they need to put in place for border-destined traffic.

The scale of the challenge facing the government is underlined in an observation that 26 government departments and public authorities have either operational and/or policy responsibilities in relation to the border, using over 100 IT systems between them. It adds that currently there are legal, technical and cultural barriers hindering effective information sharing between these organisations with an amendment in the trade bill to enable data sharing.

Trucks crossing the border will encounter a range of authorities with Home Office requirements on passports and visas for incoming drivers, Department for Transport checks for driver permits, HM Revenue & Customs for potential tariffs and customs declarations, and the Department for the Environment responsible for animal and food safety checks.

The document notes that not all EU requirements are the same. The Netherlands and Belgium require pre-registration on freight arrivals adding to the burden for drivers.

It also notes that all food and plant products need certification while fish products require health plus UK catch certificates. If they dont have the sanitary certificates, they could be turned back to the point of departure by EU member states.

Original post:

Unfinished IT systems and lorry queues: what leaked Brexit document reveals - The Guardian

In allowing ministers to interpret law-breaking as consistent with the ministerial code, the new cabinet secretary, Simon Case, seems to have fallen at his first hurdle. We must hope its a touch early for Polly Toynbee to write him off as Johnsons ideal lackey (Boris Johnsons push for no deal will harm the country and his party, 14 September). Still, Lord Hennessy, who supervised Cases PhD, may be reflecting on the praise he lavished so recently, saying that Cases appointment is a beacon of hope ... He believes in speaking truth unto power ... He is one of those people ... you dont mess around with because they are a level above (Whitehall chief likely to resist politicisation of civil service, say allies, 2 September).

This puts me in mind of Vernon Bogdanors statement that David Cameron was one of the ablest students I ever taught. Is endorsement from such academic luminaries the kiss of death? Or is there a disconnect between scholarly achievement and real-world performance in the field of government and politics?Robert GreenThames Ditton, Surrey

With reference to your article (Brexit: barristers question selection of legal team leading UK drive to override deal, 15 September), it is interesting to read the following statement by Suella Braverman during a House of Commons debate on the European withdrawal bill on 20 December 2019, as recorded in Hansard: Historically and traditionally, the UK has been viewed around the world as a beacon of justice, a symbol of fair play and the home of democracy. That has been called into question over the last year. Through the enactment of this bill, we will be able to reclaim our reputation as the home of democracy, to seize the opportunity to write our history, of which our successors can be proud, and to restore our credibility as a nation where people can trust their politicians and a nation that does not break its promises.Nicholas VosperLondon

In 1721 the lord chief justice determined that a breach of the law of nations constituted a common law offence. So much for legal advice on the ministerial code. Last year, the court of appeal confirmed that a contract induced by an unlawful act including a threat to breach an existing binding arrangement entitled the threatened party to treat the contract as void. Who could blame the EU for pointing to that principle at some future date should a trade agreement be entered into. So much for legal advice on the implications of legislation breaking a treaty. When the history of the distinguished holders of the office of attorney general including Mansfield, Pollock and Selborne comes to be written, Suella Braverman will be lucky to run to a derogatory footnote.Prof Rob MerkinSidmouth, Devon

In the House of Commons, Boris Johnson variously described the internal market bill as a protection a safety net an insurance policy (Brexit: internal market bill passes by 77 votes amid Tory party tension, 14 September). It would be simpler to call it a backstop a resigning matter, surely.Alec ReidBristol

The photograph of Boris Johnson on the front page of the print edition of the Guardian on 15 September says it all: an arrogant man who has no regard for the rules, sitting in a seat with a prohibited sign.Chris ArrowsmithCam, Gloucestershire

Your front-page photo caption reads Boris Johnson listening in the House of Commons as MPs debated the internal market bill. Surely you missed out the word not.Mark FieldingShipley, West Yorkshire

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Brexit Britain: from beacon of justice to law-breaking state - The Guardian

ByteDance has agreed to list TikTok on a US stock market at some point after its proposed partnership deal with American software group Oracle, and Donald Trump s special envoy to Northern Ireland has warned against creating a hard border by accident. Plus, the FTs Demetri Sevastopulo explains why Democratic US presidential nominee Job Biden is struggling with Latino voters.

ByteDance proposes US IPO for TikTok to woo White House

https://www.ft.com/content/8d2c74d6-d742-4fa9-b7cf-5af9bb85af6b

Trumps Northern Ireland envoy issues border warning

ft.com/content/e71b7301-4b35-4a13-bee2-f9446b438e05

Biden struggles to close enthusiasm gap with Latino voters

ft.com/content/a8d65f78-6656-4ed5-a908-695a8be54f48

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ByteDance pledges TikTok IPO, Mulvaney on Brexit, Biden tries to win with Latino voters - Financial Times