TheChek News Flow

Tyres release many more polluting particles than an exhaust pipe but rarely come under scrutiny

Eat lettuce and you are eating tyres. Your diet may still be vegetarian, but not as green as you think.

We know this from a recent study that traced how a particular chemical was drawn up through the roots and into the leaves of a lettuce plant as it grew. This chemical is overwhelmingly found in vehicle tyres. 

As we drive, our tyres wear down and release invisible particles that we inhale and ultimately ingest. Strikingly, the rate of release of these particles is almost 2,000 times greater than the mass of particles from a modern exhaust pipe. It looks likely, then, that these apparently mundane yet economically vital and technically sophisticated products are a source of pollution that will make Dieselgate — the exhaust emissions cheating scandal of 2015 — look minor. The difference? No rules are being broken, yet current US and EU polices promoting battery electric vehicles through subsidies are set to make the problem worse.

Tyres work hard. They are the only points of contact between a vehicle — which often weighs more than two tonnes — and the road. Those on battery vehicles, which often weigh an extra half tonne compared with conventional vehicles, are usually even bigger and wider to compensate. Add to that the sharper acceleration potential of battery vehicles, and you have a recipe for up to 20 per cent higher tyre emissions. 

Very soon, if not already, the total tyre emissions from all vehicles in the US will exceed exhaust mass emissions. By the time sales of new internal combustion engine vehicles are banned in 2035, tyre emissions will be many times higher. We shouldn’t stop electrification, but we should recognise that battery vehicles are far from emission free. Car weight matters when it comes to the climate.

When we think of products of strategic national significance, we rarely consider tyres. Without them, though, economies would hardly function. Cement kilns are powered by burning tyres as cheap fuel. Asphalt roads contain pieces of them to reduce noise. Clever tyre formulations can deliver lower rolling resistance to vehicles, giving a carbon dioxide emissions benefit to the manufacturer. Even football pitches often rely on ground up old tyres. With their use, however, come adverse environmental impacts, such as deforestation in Asia, the deaths of salmon as a result of ingesting road run-off and lives lost to cancer from football pitch fumes.

Leading players in the tyre industry are already working to mitigate these effects, in advance of looming regulation. Modifying the ingredients and formulas for tyre-making can reduce the potential toxicity of particles released, although this puts the price up. When those tyres are worn out, drivers often replace them with the cheapest option. Therefore, the electrification of cars must come hand in hand with the regulation of replacement tyres.

European authorities are racing to develop the “Euro 7” regulation, part of which seeks to reduce tyre emissions on all vehicles by limiting the rate of rubber loss through abrasion, based on a standardised test. The flaw in the European approach, however, is that it only focuses on reducing the rubber mass shed by tyres, with little consideration for how to control the quality of replacement tyres, and of the chemical composition. The price of lower wear may be greater toxicity.

Tyres are all around and inside us — yet none carry an ingredients list. If there is any doubt about their potential damage, consider the Chinese subjects of a recent peer-reviewed scientific study, who had their urine tested. An average of 709 nanograms of the very same tyre preservative found in the lettuce were passed per person daily. That may seem a tiny amount, but zero nanograms would be preferable, given what we know about the toxic effects in fish. To avoid our decarbonisation mission backfiring, we must take the tyres problem seriously.

Rising rates are draining money away from an investment that comes with worries about rising debt costs and empty offices

Investors in UK property funds have had their ups and downs since the Brexit vote. Now they are losing patience.

Last week, fund manager M&G announced plans to close its £565mn property fund and return cash to clients, citing declining interest from retail investors. A day later, St James’s Place suspended trading in its £829.5mn property unit trust after a surge in redemption requests.

A third property fund, run by Canada Life Asset Management, at the beginning of the month announced plans to close for the same reason. “Following recent redemption requests from investors, we have concluded . . . the fund will not be commercially viable,” said Michael White, head of UK property at Canada Life Asset Management.

It is not the first time UK investors have had this experience. Property funds have lived through rushes for the exit and temporary closures on and off since 2016.

But rising interest rates have caused a marked shift in investment away from these funds, which come with worries about rising debt costs and empty post-pandemic offices, and towards fixed income and cash products which look more attractive and safer.

Max Nimmo, a real estate analyst at stockbroker Numis, pointed out the particular problems for “open-ended” property funds, which allow daily dealing when the underlying asset is inherently illiquid.

“After several fund gatings in recent years, confidence in the open-ended vehicles has continued to dwindle,” he said. “We are surprised it has taken this long for the market to accept this.”

Redemptions from UK property funds have been consistently high over the past year, with between £50mn and £190mn taken out on a net basis each month, according to Morningstar.

Some £1.4bn has left the market in that period, cutting its total value to £10.4bn at the end of September, compared with a peak of £35bn in April 2016.

This “dripping tap” of constant redemptions makes it harder for fund managers to fulfil requests as the cash in the fund shrinks, said Oli Creasey, head of property research at investment management group Quilter Cheviot.

“If [funds] have sold properties that are liquid and desirable, you start looking down the list to properties that would take six months to sell,” he said. This includes shopping centres and big office blocks, for which buyers are few and far between.

The past few months have driven a further chill in the commercial real estate market. Global central bankers have said that even if interest rates are not raised further, they are likely to remain high for some time.

Keith Breslauer, managing director of real estate fund manager Patron Capital, said that for real estate owners “this implies that they will have to deal with a high cost of debt for a long time, and if you have a high cost of borrowing, valuations will drop”.

Open-ended funds give retail investors options to put money to work in commercial property, an asset class that would otherwise be very hard to access. The structure allows investors easily to buy into or sell out of the fund, however this is at odds with the months it can take to buy or sell underlying properties.

Open-ended property funds are particularly popular in the UK, so UK investors have been more affected if withdrawals are blocked because of market turbulence and a sudden rise in redemption requests. But property funds elsewhere have also been hit by investor withdrawals.

At the end of 2022, Blackstone, the world’s biggest alternative asset manager, limited investors’ ability to withdraw from its closed-end $66bn Real Estate Income Trust after receiving a high number of redemption requests, although the company said there had been a sharp decline in requests since then.

In the UK, Financial Conduct Authority rules require property fund managers to consider suspending funds during extreme market conditions, which happened in 2016 after the Brexit vote, in 2020 during the pandemic, and at the end of last year as a result of the “mini” Budget.

There have been calls for more action to protect UK property fund investors, with the FCA launching a consultation in August 2020 on reducing the potential for investor harm.

One of the next steps is the outcome of a separate government consultation on how a 90-180 day notice period for redemptions, proposed by the FCA consultation, would affect “individual savings accounts”. These tax-efficient savings accounts are required to allow customers access to their funds or transfers to another Isa within 30 days of a request. 

HMRC, which is running the Isa consultation, told the Financial Times it was still considering the results.

Regulators elsewhere have also turned their attention to the problem. The European Central Bank in April called for reforms to commercial property funds to reduce the potential risk to “wider financial stability”, if investors rush to withdraw their money en masse.

The Financial Stability Board and International Organization of Securities Commissions said in July that fund managers investing in illiquid assets should charge clients for withdrawals to discourage investors from rushing for the exit if there was market turbulence.

But all this comes too late for investors in the recently suspended UK funds.

M&G has told customers there will be a wait of up to 18 months to get all their money back. “We considered various options, but believe this is the right decision for our investors,” said Neal Brooks, global head of product and distribution at M&G.

Meanwhile, SJP director of investments Tom Beal said previously in a statement that the company was: “Assessing market conditions and closely monitoring valuations of properties within the fund. We are committed to resuming dealing as soon as we are satisfied that conditions are right.”

Cathie Wood faces ‘tough nut to crack’ as Ark sets sights on Europe

Armed with messianic conviction and social media savvy, Cathie Wood has built a lucrative career pitching disruptive companies to US retail investors, write Chris Flood and Emma Boyde in London.

But even the 67-year-old acknowledges that her quest to bring Ark Investment Management, the Florida-based firm she set up in 2014, to Europe is a daunting one.

Europe is a “tough nut to crack,” Wood told the Financial Times. “We knew, as an American company, that Europe and the UK is the most complicated region in the world. We needed local talent and local leadership.”

Wood has long harboured ambitions to break into the $1.5tn European exchange traded fund market, but it was only last month that Ark took its first step with the acquisition of London-based Rize ETF, which manages more than $450mn.

The decision by Martin Gilbert’s AssetCo to sell Rize barely two years after acquiring it points to the obstacles in breaking the dominance of the 10 players — among them BlackRock, Amundi and DWS — who control more than 90 per cent of the ETF market in Europe.

Alongside Ark’s poor performance and questions over whether her evangelism could misfire in Europe, Wood and Ark will need to overcome several hurdles.

In many European countries, asset managers can pay financial advisers a commission to recommend an actively managed mutual fund. ETF providers do not pay any similar incentives, which has slowed their adoption by financial advisers in Europe.

ETF trading in Europe is conducted across multiple exchanges, dividing liquidity and increasing transaction costs. Meanwhile, distribution channels for selling ETFs also vary across the continent, which will require Ark’s salesforce to win orders from a mix of fund supermarkets, banks, brokers, wealth managers and financial advisers, alongside individual retail investors. And unlike in the US, ETFs do not offer tax advantages in Europe.

Amin Rajan, chief executive of the consultancy Create Research, cautioned that almost every small ETF manager had failed to gain critical mass in Europe, before adding that “if there is anyone that can, then it is Cathie Wood”. Read the full story here

Top general’s comments at Xiangshan security forum come ahead of possible Biden-Xi meeting

China’s most senior military official has delivered a veiled rebuke of the US as he pledged to seek renewed military exchanges with Washington.

The remarks by Zhang Youxia, vice-chair of the Central Military Commission, China’s top military body, at the Xiangshan security forum on Monday, highlighted the challenges for the global powers to restart dialogue amid growing tensions.

“We will deepen strategic co-operation and co-ordination with Russia, and we are willing to develop military relations with the US based on mutual respect, peaceful coexistence and win-win co-operation,” Zhang said.

But Zhang, who is second only to Chinese leader Xi Jinping in commanding the People’s Liberation Army, also accused “certain countries” of “continuing to stir trouble around the world”, criticism that was widely seen as aimed at the US. He said these countries “deliberately create turmoil, interfere in regional issues, interfere in other countries’ internal affairs and instigate colour revolutions”.

Zhang’s list of grievances, which echoed rhetoric Xi has used in the past, followed talks by Chinese foreign minister Wang Yi with US president Joe Biden, secretary of state Antony Blinken and national security adviser Jake Sullivan in Washington on Friday.

Wang and the US officials discussed a possible meeting between Xi and Biden on the sidelines of the Asia-Pacific Economic Cooperation summit on November 11 in San Francisco.

Zhang also addressed tensions over Taiwan, one of the most sensitive issues in US-China relations. Beijing claims the country as part of its territory and has threatened to attack if Taipei refuses unification indefinitely, or if an external force takes action to cement the island’s separation from China.

“No matter who tries to split Taiwan from China, the Chinese military will not allow that under any circumstances,” the general said. “[We] will show absolutely no mercy.”

Beijing invited US defence secretary Lloyd Austin to attend the Xiangshan Forum, which is being held in person for the first time since 2019, in a move that observers interpreted as a signal for the resumption of communication between the countries’ armed forces.

China had cut off military dialogue following then-US House Speaker Nancy Pelosi’s visit to Taiwan last August. Washington sent Cynthia Xanthi Carras, China country director in the office of the under-secretary of defence, to the Xiangshan Forum in Austin’s place.

Beijing declined a meeting between its then-defence minister Li Shangfu, who is subject to US sanctions, and Austin at the Shangri-La Dialogue security forum in Singapore in June.

Li was later removed as a defence minister and cabinet member. His successor in the post, who oversees military diplomacy and would normally lead the Xiangshan Forum, has not been named.

China has used the conference to boost its ambitions of a more powerful role in the global community.

Zhang and other top Chinese military officials promoted initiatives launched by Xi, such as the Global Security Initiative, which aims to portray China as a benevolent power in contrast to the US.

Donald Trump’s son-in-law and former senior adviser Jared Kushner says Saudi Arabia is a safer place for Jews than college campuses in the US.

“One of the ironies is that, as an American Jew, you’re safer in Saudi Arabia right now than you are on a college campus like Columbia University,” Kushner, who is Jewish, said on “Sunday Morning Futures.”

“They allowed me to speak freely,” Kushner, 42, said of the Saudis after returning from a trip to Saudi Arabia, where he spoke at a conference.

There has been a wave of antisemitic incidents across the US in which pro-Palestinian protesters take their anger out on Jewish students on campus.

Columbia University was forced to postpone its Giving Day fundraising last week as its campus continues to be roiled in tensions over the conflict in Israel. Billionaire donor, Leon Cooperman has threatened to cut off funds to the institution over the anti-Israel activity on campus, including by a professor who has called Oct. 7’s deadly Hamas terror assault on Israel “awesome.”

On Wednesday night, Jewish students also were forced to remain inside a library at Cooper Union in New York City while protesters screamed at them from outside.

Some of the Jewish students heard the demonstrators chant, “Globalize the intifada from New York to Gaza!” according to New York City Councilwoman Inna Vernikov (R-Brooklyn).

Kushner, the scion of a wealthy Jewish American family, has been particularly cozy with the Saudis. After he departed the Trump-era White House, his private equity firm received a $2 billion investment from the Saudi sovereign wealth fund.

During his time in the Trump administration, Kushner tried to help broker normalization between Israel and its Arab neighbors.

A key diplomatic breakthrough came in September 2020, when the United Arab Emirates and Bahrain agreed to normalize relations with Israel.

But a deal between Saudi Arabia and Israel has remained ever elusive.

Polls have indicated that the public in the UAE and Bahrain are leery of the move. The Biden administration had still sought to try to foster good relations between Israel and Saudi Arabia, but since Hamas’ bloody surprise attack on Israel, there are doubts of any warming of tensions between the two countries.

But Kushner was remained optimistic that Riyadh might still play ball.

“Yes, I believe they would like to move forward with the deal with America and with Israel,” Kushner said when asked about whether the a normalization in relations could still happen.

“The deal that’s being discussed isn’t just a partnership with Israel. It’s also deepening their ties with America,” he said of Saudi Arabia.

“We have to keep in mind that, if America is not close to Saudi Arabia, then [the Saudis] will go in the other direction to China. And so I think that the topic is being discussed.”

Before the war erupted in Israel, Biden administration officials mulled giving a mutual defense treaty with Saudi Arabia as well as sharing nuclear technology with Riyadh for civilian purposes, the New York Times reported.

Under the hypothetical mutual defense treaty, which is one of the deal-sweeteners believed to still be in consideration, both the US and Saudi Arabia would agree to militarily support the other if attacked.

The Biden administration has had a somewhat rocky relation with the Saudis. During his 2020 campaign, President Biden suggested the oil giant would be relegated to a pariah status.

He had been vocally critical of the vicious 2018 gutting of Washington Post journalist Jamal Khashoggi in the Saudi consulate in Istanbul.

Earlier this month, Saudi Crown Prince Mohamed bin Salman, who has functioned as a de facto ruler of the kingdom, kept Secretary of State, Antony Blinken waiting for hours for a meeting and didn’t show up until the next morning, The Washington Post reported.

Meanwhile Israel began an expanded ground offensive in the Gaza Strip to root out Hamas members, Israeli Prime Minister Benjamin Netanyahu confirmed Saturday. So far, more than 1,400 Israelis and 33 Americans have been killed in the conflict.

Over 8,000 Palestinians were estimated to have been killed by the Hamas-controlled Gaza Health Ministry. That dataset has been subject to controversy because of Hamas’ track record.

The private equity investor Aurelius Group is in talks to buy the beauty products chain the Body Shop, which has been put up for sale by its Brazilian owner, Natura & Co, a source familiar with the talks has told Reuters.

If completed, the deal is expected to value the Body Shop at a lower price than the £400m-£500m suggested in some media reports, the source said.

The Brazilian cosmetics maker Natura said in August that its board of directors had authorised the company to search for “strategic alternatives” for its subsidiary, including a potential sale of the business. Natura bought the Body Shop from L’Oréal in 2017.

Natura and Aurelius declined to comment and the Body Shop did not immediately respond to requests for comment.