TheChek News Flow

St James’s Place hands £5.2bn fund to Schroders in blow to Impax

Wealth manager looks for ‘a more balanced blend of investment styles’

Wealth manager St James’s Place has handed a £5.2bn fund to Schroders after ousting investment manager Impax, which sent shares in the sustainable fund group tumbling.

SJP, the UK’s largest advisory group, will give the Sustainable and Responsible Equity fund to Schroders to run from next month, having dumped Impax at the end of last year.

The decision by SJP, which manages £185bn in assets, sent shares in Impax plunging by more than a fifth immediately after it was axed in December.

SJP said that it regularly monitors the performance and strategy of the external fund managers it uses to help run its clients’ money.

The Gloucestershire-based FTSE 100 wealth manager said the change will mean fees will also drop, though by just 0.01 per cent.

The decision comes after a difficult year for Impax, in which its shares have tumbled nearly 60 per cent, while assets under management fell by 8 per cent over the past quarter. The asset manager has also grappled with short sellers, including hedge fund GLG Partners betting against its stock.

SJP said the fund has also received a special label, Sustainability Focus, from the Financial Conduct Authority, which is aimed at helping investors searching for funds with their ESG goals.

Justin Onuekwusi, chief investment officer at St James’s Place, said the label and appointment of Schroders would provide “a more balanced blend of investment styles for the fund”.

“We continue to see Impax as a leader in investing in the transition to a more sustainable economy and a key partner for us in the future,” he added.

Alex Tedder, co-head of equities at Schroders, said investors “are increasingly focused on bespoke investment solutions that are able to deliver strong risk-adjusted returns together with a comprehensive commitment to sustainability”.

Schroders will manage the SJP mandate through its Global Sustainable Value Equity and Global Sustainable Growth strategies.

The SJP fund returned 12.7 per cent over the past year, underperforming the MSCI ACWI index of large and mid-cap developed market shares, which returned 21.6 per cent.

Impax said: “Our understanding is that St James’s Place wanted to adjust the investment style of the fund to be more ‘value’ oriented.”

Climate targets in peril as Big Tech turns to fossil fuels to feed energy demand

The US is on the cusp of a natural gas power plant construction boom, as Big Tech turns to fossil fuels to meet the huge electricity needs of the artificial intelligence revolution — putting climate targets in peril.

As many as 80 new gas-fired power plants will be built in the US by 2030, said energy consultancy Enverus, adding 46 gigawatts of capacity — the size of the electricity system in Norway and nearly 20 per cent more than was added in the past five years.

The capacity surge is expected to unfold during the second term of Donald Trump, who has vowed to keep fossil fuels at the centre of the US economy, and signals a reversal of earlier forecasts for natural gas capacity to fall in the next five years.

“Gas is actually growing faster now, and in the medium term, than ever before,” said Corianna Mah, a research analyst at Enverus.

The expansion will imperil Biden administration climate targets, which called for greenhouse gas emissions to fall by 50-52 per cent from 2005 levels by the end of the decade and the grid to be 100 per cent carbon-pollution free by 2035.

“For natural gas to have a role in a decarbonised energy system, its emissions must be mitigated to the maximum extent possible,” said Armond Cohen, executive director at the Clean Air Task Force, an environmental non-profit.

US gas power plants emitted more than 1bn tonnes of carbon dioxide last year, up nearly 4 per cent in a year and the highest on record, according to data from Ember, an energy think-tank.

None of the planned gas plants tracked by Enverus will come equipped with carbon capture systems. While the Biden administration required new facilities to include the technology starting in 2032, Trump is expected to scrap or weaken the rule.

Wood Mackenzie and S&P Global Market Intelligence said US capacity growth in total could increase even more quickly, by 35 per cent and 66 per respectively over five years, compared with the buildout in the previous half decade.

The gas boom comes as the US races against China to develop artificial intelligence and tries to bring back manufacturing lost to Asia in recent decades, sparking a historic surge in demand for cheap electricity that can run uninterrupted.

The US is already the world’s biggest natural gas producer thanks to its huge shale reserves. This helped keep domestic prices for the fuel relatively low, even during Europe’s energy crisis, and has underpinned the boom in seaborne exports.

Although clean energy supplies are also rising across the US — boosted by vast subsidies in the Inflation Reduction Act — developers say intermittent renewables, even with new batteries, are not yet adequate to meet the needs of big consumers.

“Your ability to serve that kind of load reliably is very limited with traditional renewables,” said Matt Bulpitt, vice-president of power development at Entergy, a large utility in the south.

In December, Entergy announced a $3.2bn plan to build three gas plants totalling 2.3GW to serve Meta’s $10bn artificial intelligence data centre, the tech company’s largest. Meta will become Entergy’s “single largest customer” once the centre is online, the utility told the Financial Times.

US power consumption, known in the industry as “load”, is already at a record high but will leap by another 16 per cent by 2029, according to think-tank Grid Strategies.

The US Department of Energy says electricity demand from data centres used for artificial intelligence will triple in the next three years.

The forecasts for such growth in gas-fired generation are upending earlier forecasts. As recently as December 2023, the US Energy Information Administration expected a net decrease in gas-fired generation capacity from 2025 to 2030, according to analysis of EIA data shared with the FT by BloombergNEF.

Other companies are now racing to catch up with the US’s gas needs.

“I wish I could’ve predicted it 18 months ago,” said Bill Newsom, chief executive of Mitsubishi Power Americas, a division of one of the world’s largest gas turbine manufacturers. The company plans to invest “hundreds of millions” to expand its manufacturing capacity by as much as 50 per cent in the next three years, Newsom told the FT.

Share prices of utilities and turbine manufacturers, including Siemens Energy and GE Vernova, have risen sharply over the past year.

Big Oil producers, including ExxonMobil and Chevron, are also entering the business, designing plants to supply AI data centres directly, avoiding the grid.

Some producers are keeping ageing gas plants around, while others are building scale through acquisitions. Last year, Wood Mackenzie revised down 2035 expectations for total US gas plant retirements by 10 per cent.

On Friday, Constellation Energy, one of the country’s largest electricity providers, announced that it was buying Calpine, the largest independent power producer of gas, in a deal worth nearly $27bn, marking one of the largest deals in the power sector.

Texas, Tennessee, and South Carolina lead the expansion of new gas capacity, according to S&P. The switch from coal to gas is also fuelling this growth.

“Like everybody else in the world, we want renewables to catch up. We’re all in favour of the cleanest energy possible. The reality is, it’s going to take a long time for that to become more prevalent,” said Bob Warden, managing director at private equity firm Fortress Investment Group, which earlier this week acquired 850MW of mobile gas turbines.

Using government loans to Bulb as a comparison gives exaggerated forecast, experts claim

An independent assessment of the cost of keeping Thames Water afloat during a temporary renationalisation has been exaggerated, according to experts and investors.

A report prepared by advisory firm Teneo, and commissioned by the utility for a court hearing to approve a £3bn emergency loan, estimated that the UK government could charge Thames Water 9.5 per cent interest to lend it money to remain operational during a so-called special administration.

While Teneo calculated this “market rate” based partly on comparisons to the cost of equivalent loans provided to energy supplier Bulb after it fell into special administration in 2021, the linkage has drawn criticism from a range of industry experts and debt investors due to the different risk profiles of Bulb and Thames Water.

Tim Whittaker, research director at Scientific Infrastructure and Assets, said lending to Bulb was a “riskier” proposition than a regulated water company because the energy firm’s only “major asset was its customer book”.

“It [collapsed] during a time of significant energy market turmoil, with significant energy price risk that was difficult to hedge,” he added.

Teneo’s analysis could prove contentious as it forms the basis for Thames Water’s claims that creditors would lose more money in a special administration than in a debt restructuring that is planned after the utility has secured the £3bn from its top-ranking creditors.

One former water company executive, who is close to Thames Water’s efforts to raise new equity, described the claim that the government would charge the utility interest as high as 9.5 per cent as “nonsense”.

“Bulb is in a different sector, had no monopoly, and had no assets,” he said.

Teneo’s report states that Thames Water’s junior bondholders would likely face wipeout through a special administration.

These lower-ranking bondholders — which include London-based credit fund Polus Capital and US investment firm Zimmer Partners — are challenging Thames Water’s £3bn loan deal in court and are offering to lend the utility the same amount of money more cheaply and on less onerous terms.

The group has offered a loan at 8 per cent interest. Teneo’s report dismisses this cheaper deal as having “too many risks and uncertainties”.

Without the emergency loan, Thames Water — the UK’s largest water company that serves 16mn customers in and around London and is struggling under a £19bn debt mountain — will collapse into temporary renationalisation.

Its senior creditors, which include US hedge funds Elliott Management and Silver Point Capital, propose to charge 9.75 per cent interest on the £3bn loan.

The junior creditors have commissioned their own expert report from consultancy firm Interpath, which they expect will show that their debt would not be totally written off in a special administration and that they would be worse off under the utility’s proposed restructuring plan.

Thames Water said in a statement: “The board and leadership team remain focused on turning round the business and continue to believe a market-led solution is the best financial and operational outcome for customers, the environment, UK taxpayers and the UK economy”.

Teneo declined to comment, as did the Department for Environment, Food and Rural Affairs, which would take a key role in any special administration. The UK Labour government has said it favours a private-sector solution to the crisis at Thames Water over special administration.

Matt Cowlishaw, a managing director at Teneo who wrote the report, previously oversaw the special administration of Bulb.

The government lent to Bulb at an interest rate of 4.72 per cent “representing a 4.62 per cent margin on the base rate of 0.10 per cent at the time it was agreed”, Teneo’s report states, adding that the margin would currently equate to a rate of 9.37 per cent.

Teneo’s report also based its calculation on the 9.67 per cent yield on Thames Water’s outstanding bonds and the 9.75 per cent rate on the planned £3bn loan.

Teneo claims that an 18-month period of special administration could require between £3.4bn and £4.1bn of government funding.

The report argues that part of the added cost of temporary renationalisation could come from the company’s suppliers demanding better terms, and from rising bad debt levels as customers use the administration process as an excuse not to pay their bills.

Teneo also assumed that wage bills at the company would rise 20 per cent during a special administration, as “retention of people (particularly those in critical roles) becomes more difficult”.

One class B bondholder said these assumptions had little basis in reality and that there was “no comparison” between Thames Water and Bulb.

One person close to the higher-ranking class A bondholders said that it was “wrong to single out Bulb from the multiple data points used by Teneo”, however.

The person added: “The calculations reflect the significant deterioration of market sentiment and the highly complex operational turnaround and restructuring needed by Thames Water, which would be much more difficult and costly to deliver in [special administration]”.

AfD candidate for chancellor uses party conference to try and ride wave propelling populists in Europe and US to power

Alice Weidel could not have hoped for a better backdrop to her coronation as the candidate for chancellor of the far-right Alternative for Germany.

Fresh from a much-hyped online chat with new fan Elon Musk, she thanked the Tesla chief executive and ally of incoming US president Donald Trump for his willingness to live-stream the AfD conference on his social media platform X.

“Freedom of speech!” she proclaimed in English, before launching into a fiery anti-immigration speech at the gathering in the small east German town of Riesa this weekend.

Weidel’s courting of the world’s richest man is part of an effort to tap into a global populist wave that propelled the hard-right Giorgia Meloni to power in Italy in 2022, Marine Le Pen’s National Rally to a first-round victory in French elections last summer and delivered Trump’s re-election in November.

Senior AfD party members were also fizzing with excitement at the far right’s historic breakthrough in Austria, where the leader of the Freedom party was last week given the chance to form a government.

“It is part of a tectonic shift in western democracies,” said Andreas Rödder, a historian at the Johannes Gutenberg University of Mainz. “The pendulum is moving towards the right and this is what the AfD has connected itself to.”

At home in Germany, the party has already secured a string of historic successes. It came second in European elections in June, and last autumn won as much as 33 per cent in regional votes in a strong performance in three eastern states — including in Saxony, where Riesa is located — even after allegations about links between senior party members and Russian and Chinese espionage.

Polls now suggest that the AfD — which rails against Muslims, lambasts “woke” culture and wants to lift sanctions on Russia — is on course to claim its first ever second place finish in federal elections on February 23 with a record 20 per cent of the vote.

Weidel, 45, does not fit the stereotype of a rightwing radical. She is married to Sri Lankan-born Swiss film producer Sarah Bossard, with whom she lives together with their two adopted children in Switzerland. After graduating, she spent time as an analyst for Goldman Sachs in Frankfurt and later wrote a doctoral thesis on the Chinese pension system.

Analysts see Weidel as the party’s attempt to present a more palatable face to the public in a country where many still attach great seriousness to avoiding repeating the mistakes that led to its dark Nazi past. During smiling television interviews or in videos posted on TikTok, her appearance is often deliberately softer than some of the ultra right-wing radicals in her party.

But there was little of her lighter side on display during her fist-pumping, 20-minute speech in Riesa, where she appealed to the party faithful by lambasting the “leftist mob” of protesters who delayed the start of the conference by two hours. 

She embraced the highly charged term of “remigration” as she promised “large scale deportations of immigrants” and railed against a string of attacks in recent years by migrants and asylum seekers.

Many saw her inflammatory language as a concession to the firebrand Björn Höcke, who led the party to victory in regional elections in the eastern state of Thuringia in September and has been convicted for invoking the nationalistic language of Adolf Hitler’s storm troopers.

In the latest attempt by the party to reference the Nazi era without falling foul of the law, another regional party chief encouraged the crowd to chant “Alice für Deutschland” — a pun on the forbidden slogan “Alles für Deutschland”, meaning “everything for Germany”.

Those who knew Weidel during her stint in finance two decades ago struggle to reconcile that woman with today’s far-right leader.

Jim Dilworth, a US banker living in Germany who worked with her at Goldman and later at Allianz Global Investors, said that she did not display any rightwing views at the time. “The most ‘radical’ thing about her views was her scepticism about the euro as a common currency,” he said.

Dilworth added that when he later expressed surprise at her decision to join the AfD, she told him that “it would take me 20 years” to make the same progress in the more centre-right Christian Democrats. “So that’s basically why she chose this party. I think there was a lot of opportunism there.”

The AfD co-leader denied having made such a remark. She told the Financial Times via a spokesman: “I never said that. It doesn’t make any sense. Nobody, and certainly not back then, joined the AfD for the sake of their career.”

Weidel’s political persona is one of carefully controlled conservatism. She wears crisp white shirts, often with pearls, and her hair in a neat low bun. She argues that her party is not right-wing extremist but rather conservative liberal.

Asked to explain the apparent incongruity between her private life and her party’s opposition to “gender and woke ideology” in 2023, she said: “I am not queer. I am just married to a woman who I have known for 20 years.” Or, as one senior party official put it: “She is just gay by biology but not by political conviction.”

Kay Gottschalk, an AfD member of parliament who first met Weidel around the time that she joined the national executive committee in 2015, said she was “perfect” for reaching out to groups where the party has traditionally unperformed, including women voters.

Her critics warn it is an act. The co-leader of the ruling Social Democrats, Lars Klingbeil, has described her as “a wolf in sheep’s clothing”.

Analysts and even some of her own allies within the AfD argue that, even as the party looks set to double its support from 10 per cent in the last federal election in 2021, Weidel can only take part of the credit.

Deep public discontent with Angela Merkel’s 2015 decision to welcome around 1mn migrants and asylum seekers helped the AfD expand from its 2013 origins as a single-issue party opposed to the euro.

The deep unpopularity of SPD chancellor Olaf Scholz’s three-way “traffic light” coalition, which collapsed in November, has also been vital in sending new voters to the AfD. So too have lukewarm attitudes towards the election frontrunner, Christian Democrat leader Friedrich Merz, as well as widespread angst about the stagnating German economy and the future of the country’s manufacturing industry.

“The dissatisfaction with the other parties is huge,” said a senior AfD official. “We are profiting from that.”

Yet Weidel, who has been AfD co-leader since 2019, has also proved to be a survivor in an outfit notorious for infighting. Insiders say she has been deft at managing the party’s radical flank.

No matter how well it performs, the party has almost no hope of taking power in Berlin after next month’s vote due to the “firewall” erected by Germany’s mainstream parties, which have all ruled out forming a coalition with the AfD.

But its officials are already looking to the next set of elections, scheduled for 2029, when they hope an even stronger showing might force other parties to drop their resistance to cooperating. They take particular inspiration from Austria’s Herbert Kickl, who last week was asked by the country’s president to form a government after attempts by centrist parties to form a coalition that excluded his Freedom party failed.

“It looks like a pattern, and they are exploiting it,” said Rödder, the historian. “They are pointing to Austria to say: ‘It is Germany in four years’.”

The scale of global mining required as part of the ‘energy transition’ has staggering environmental implications.

Mining is having a moment. Pundits and politicians have rediscovered the reality that extracting minerals from the earth is both critical for a modern economy and an inherently dirty business. Journalists writing about the industry often invoke both its strategic importance and William Blake’s “dark satanic mills.”

Rhenium, for instance—the last of all naturally occurring stable elements to be discovered, some 100 years ago—is what makes possible today’s superconductors and high-temperature alloys for jet engines. We use minerals to create all sorts of magical devices, from lasers and MRI machines to computer chips and, of course, lithium batteries, which power everything from our smartphones to our electric vehicles.

In “Power Metal: The Race for the Resources That Will Shape the Future,” Vince Beiser, a journalist and author whose previous book explored the role of sand in our economy, now turns to the mining implications of an “energy transition”—the push to replace conventional fuels and cars with batteries energized by wind and solar machinery.

Civilization as we know it would not exist without the earth’s minerals. Anthropologists use the terms Bronze Age and Iron Age for a reason. Meanwhile, observers have long raised concerns about mining’s effects on our health and the environment. Writing about land that has been polluted from mining in “On Airs, Waters and Places” more than 2,500 years ago, the Greek physician Hippocrates warned that “good waters cannot proceed from such a soil.”

Our modern strategic worries began shortly after World War I, when military planners realized that the nation and its war machinery were dependent upon imports for many essential minerals. In 1922 Congress established a military board to stockpile 42 strategic metals, including tungsten, vanadium and chromium. The 1939 Strategic and Critical Materials Stock Piling Act, updated in 1979, 1987, 1994 and 2023, was intended to encourage domestic mining and reduce import dependencies.

The past century has seen countless government studies about America’s reliance on imported minerals. In 1980 President Jimmy Carter signed the bipartisan National Materials and Minerals Policy, Research and Development Act calling for the coequal pursuit of mineral production and environmental protection. In the years since, the latter has crushed the former, stifling the American mining industry. Today the world mines more stuff than ever before—just not in the U.S.

As I’ve written before on these pages, “global mining today involves excavating and moving a quantity of rock each year equivalent to the tonnage of 7,000 Great Pyramids. Transition aspirations would require a tonnage north of 50,000 pyramids annually.” Clearly such scale isn’t only difficult—it’s near impossible. The mere attempt has staggering environmental implications. Mr. Beiser wastes no time uncovering that truth. The title to his introduction: “There’s No Such Thing as Clean Energy.”

Mr. Beiser tells us he wants “to make clear the extent of the damage” that mining inflicts. He concludes his introduction by teasing that “we need a whole new approach.” Spoiler alert: It’s about all of us using far less stuff and especially having far fewer cars of any kind.

The book mostly chronicles the author’s fascinating visits to people at myriad global mine sites. We learn about urban mining and the complex choreography of metal scavengers. On the subject of recycling, the author correctly concludes: “Recycling helps. But as a solution, utterly inadequate.”

He discovers the reality that people who make a living “dealing only with dematerialized abstractions, intellectual ‘products’ that exist mainly on computers” in fact depend on all manner of machines “made with metals.” Echoing the poet Blake, Mr. Beiser calls this a “Faustian bargain.” Here I disagree. Humans are, to use the French philosopher Henri Bergson’s term, homo faber—makers of tools and machines that create near magical productivity and value. It’s a great bargain.

The book’s dénouement and final chapter is devoted to the Netherlands’ love of the bicycle, which Mr. Beiser holds as “the single best way we can reduce the damage done by our consumption of both minerals and energy.” That conviction is shared by many transitionists and the International Energy Agency, which hopes the share of global households without a car will nearly double by 2050. California has similar aspirations.

Mr. Beiser marches through the car prohibitionists’ standard fare, from accidents to land use, offering the usual palliatives for taking away your car, such as the benefits of exercise. “We need, in short, to redesign our cities, to orient them around human beings rather than automobiles.” Never mind those humans who want or need cars.

The author revisits a widely repeated trope that there’s a generational shift away from cars to “micromobility,” the techie term for peddled and battery-propelled bicycles, but he ignores the recent data that shows otherwise. One MIT study found that millennials exhibit “little difference in preferences for vehicle ownership” and “in contrast to anecdotes, we find higher usage in terms of vehicle miles traveled.” Meanwhile, a 14-country survey released last year found that people under 30 “love cars and are neither ready nor willing to live without them.” In the U.S., 75% of respondents expressed an attachment to their cars; across Europe the average was 83% of respondents, while in China the proportion ballooned to 97%.

It’s true, as Mr. Beiser notes, that many cities are embracing the means for making cycling convenient and driving inconvenient. New York City has added nearly 600 miles of bicycle lanes to its roadways in the past decade. And now it has introduced a congestion toll, to further raise the cost of driving in Manhattan. Who benefits? In the U.S. we have data on that too: 0.5% of all commuters use a bicycle. The average age of those who commute by bike is 20 to 30, 70% male, 70% white and 80% with a college degree. Universal and diverse this is not.

One can conclude from Mr. Beiser’s chronicle that we face serious challenges in meeting humanity’s minerals needs. The single best way to help that? Don’t subsidize and mandate energy machines that exponentially increase the demand for minerals. If you’re already in a hole, stop digging.

Private equity-backed petrol station business expected to list as early as this year

Private equity-backed petrol station company EG Group has fired the starting gun on a stock market listing in New York, expected to come as early as this year. 

The initial public offering, which could value the business at about $13bn, would allow TDR Capital to cash out some of its investment more than a decade after first backing Blackburn’s billionaire Issa brothers. 

Zuber Issa, who co-founded EG with his brother Mohsin but stepped back from management last year, told the Sunday Times newspaper that “the road map is starting now” on an IPO, expected to materialise this year or next, having considered various options for the group for some time.

EG would probably float under the name of Cumberland Farms, the American convenience-store operator that it bought in 2019, a person familiar with the matter confirmed.

The decision of two of the UK’s highest profile entrepreneurs and TDR to list their business in the US would be another blow for London’s stock market, which has been grappling with both a drought of new offerings and high-profile defections.

The brothers started out with one petrol station, near to where they grew up in Blackburn, Lancashire in 2001. They have expanded the business at breakneck speed to more than 5,500 sites in nine countries, partly through debt-fuelled acquisitions facilitated by their tie-up with TDR.

TDR and the Issas now own about 50 per cent each of EG.

Zuber said the choice of New York was driven by the fact that despite the business’s roots in northern England, more than half of its earnings were now in the US.

He also cited the presence of other listed rivals in North America, such as Canada’s Alimentation Couche-Tard and Nasdaq-listed Casey’s General Stores, which makes it easier for investors to benchmark performance. In 2022, there was speculation that Alimentation Couche-Tard and EG were in merger talks.

“If we had still had [the majority of] our assets in the UK, we would have had a much closer look at a UK IPO,” Zuber told the Sunday Times.

EG no longer has any UK convenience stores and petrol forecourts, after selling the bulk of them to the supermarket group Asda, a sister business also owned by TDR Capital and Mohsin.

EG, where Zuber remains a shareholder and non-executive director, delivered underlying profit of $1.1bn for the year to December 31 2023, on revenues of $28.3bn. It also cut its net debt burden from about $10bn in January 2023 to $5.3bn at the end of September last year.

Although the brothers only struck the deal to buy Asda from Walmart with TDR in 2020, Zuber sold his stake to the private equity group last year, formalising a split.

Zuber suggested that his reason for taking a step back from EG was driven by TDR’s desire to pursue an IPO at a faster pace than which he was comfortable. Mohsin now runs EG as sole chief executive.

“TDR has backed EG since 2014 and anything that EG decides [to do] is driven by the board and a decision the company makes,” a person close to TDR said.

“The notion this is shareholder driven is quite far-fetched. It’s not about an exit, it’s about setting the business up for [the] next stage of growth.” 

TDR and EG declined to comment.