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Abu Dhabi’s sovereign wealth fund ADQ held detailed talks to take Wall Street investment bank Lazard private, in a move that underlined the oil-rich emirate’s ambitions to acquire a western financial services company.

The talks were held this year between Lazard, led by outgoing chief executive Ken Jacobs, and ADQ, led by Sheikh Tahnoon bin Zayed al-Nahyan, the fund’s chair and Abu Dhabi’s powerful national security adviser, said people with direct knowledge of the matter.

Negotiations fell apart after both sides walked away from a deal. Lazard, which is best known for its advisory business in Paris, New York and London, had been focused on maintaining operating independence, one person added.

Lazard said: “As you’d expect, we talk to people all the time but we don’t comment on speculation.” ADQ declined to comment.

A deal would have marked the end of a remarkable 175-year run for Lazard as an independent financial house that withstood world wars, massive shifts in the global economy and various tensions between its larger-than-life rainmakers on both sides of the Atlantic.

It would also have followed the Rothschild family’s move in February to take its investment bank private in a step that valued Rothschild & Co at €3.7bn. And in May, Japan’s Mizuho agreed to buy boutique investment bank Greenhill & Co in a $550mn deal to kick-start its ambitions in the US.

Since the talks ended, Lazard has embarked on a succession process with Jacobs, who has led the firm since 2009, set to become its executive chair. Peter Orszag, an economist and former official in Barack Obama’s administration, will take over as chief executive in October.

Lazard announced in April that it had cut about 10 per cent of its workforce because of a deep chill in dealmaking activity and high costs from recruitment during the pandemic. In a separate unit of its business, Lazard manages about $200bn in assets.

Shares in Lazard have fallen 8 per cent since the start of the year, giving the company a market value of $3.7bn.

Beyond his national security brief, Tahnoon has a sprawling business empire spanning both government and private interests. He chairs the Abu Dhabi Investment Authority, the emirate’s main sovereign wealth fund with around $850bn of assets under management; the country’s largest lender, First Abu Dhabi Bank; and state holding firm, ADQ.

He also chairs International Holding Company, the fast-growing conglomerate that has puzzled bankers with its stratospheric rise on the Abu Dhabi stock exchange over the past few years.

The emirate has shown a desire to increase its presence in financial services in recent years as the capital of the United Arab Emirates ramps up its plans to diversify its economy away from hydrocarbons.

The Financial Times reported in March that Tahnoon had expressed interest in buying Silicon Valley Bank’s UK subsidiary, which ended up being acquired by HSBC in a weekend fire sale.

Late last year, FAB worked on an audacious attempt to acquire Standard Chartered Bank, but the Abu Dhabi lender said it was no longer evaluating an offer when news leaked.

FAB could still revive its approach after a cooling-off period ends this summer.

FAB in 2022 launched an unsuccessful bid to acquire a controlling stake in regional investment bank EFG Hermes of Egypt. ADQ has since acquired a $911mn stake in Egypt’s Commercial International Bank, as part of a broader investment package into the troubled economy of the North Africa country, a strong UAE ally.

ADQ has also teamed up with General Atlantic in an attempt to create the largest alternative investment manager in the region, managing money in private equity, venture capital and credit for ADQ, IHC and another Abu Dhabi fund.

The bull run in emerging market currencies can extend

Dollar strength has masked outperformance against other developed economies’ currencies

It might seem counter-intuitive that there has been a bull market in emerging market currencies against the backdrop of one of the most aggressive rate increase cycles by major central banks.

But that is what we have seen and this bull market is likely to extend.

Views of EM performance reflect two common misperceptions. First, they are often coloured by the stories that make it to the top of your news feed — the meltdown in the Turkish lira or the triple-digit-plus inflation in Argentina. These are undoubtedly important developments in what are large emerging economies, but for the past several years, they have barely been representative of the trends across the EM mainstream. More importantly, they make up an insignificant share of most active investor portfolios.

Second, currency performance and broad EM index benchmarks are typically measured against the dollar. As the dollar has unquestionably had a strong run for the past couple of years, EM currency performance, as with that of almost every other currency, tends to look less flattering by comparison. But that is more a statement about the dollar.

Correcting for these two misperceptions is straightforward. Take a basket of the 15 or so most liquid EM currencies that make up the overwhelming majority of active EM investor portfolios — China, India, Indonesia, South Korea, Taiwan, Singapore, Malaysia, Philippines, Poland, Hungary, Czech Republic, South Africa, Israel, Brazil, Mexico and Chile — and an altogether different picture emerges.

An equally weighted basket of this group saw losses against the dollar in 2021 and 2022 but was up in both years when measured against the euro or the yen. In other words, the benchmark or comparator matters — while it is hard to beat the dollar when it is in a bull market, EM currencies outshone most other developed market peers.

But that picture is even better when one takes into account the higher “carry”, or yield, earned from investing in short-term debt instruments in EM currencies relative to similar instruments in developed market currencies. On this “total return” basis, EM currencies were up 10 per cent versus DM currencies (ex the dollar) over 2021-22, and up another 5 per cent year to date in 2023.

What accounts for this bullish performance, all the more remarkable against a backdrop of heightened interest rate and equity market volatility? The key reason is that policymakers across this group of EMs were early and aggressive in raising policy rates in 2021 once inflation raised its ugly head.

Brazil kicked off the EM interest rate rise cycle with a 0.75 percentage point bump in March 2021, with several central banks following suit in the months thereafter. That was about nine months ahead of the Bank of England’s first increase at the end of that year, a year ahead of the US Federal Reserve and nearly 15 months ahead of the European Central Bank.

Given their own history of high inflation and less well-anchored inflation expectations, there was little hand-wringing among these EM central bankers about whether inflation could be transitory or more persistent. And in fact, with broad-based declines in EM inflation across the last couple of months, investors are now wondering if countries such as Brazil — where the headline inflation rate has dropped below 4 per cent — could even start to cut policy rates.

Would such rate cuts start to erode the “bull market” in EM currencies? Not necessarily. EM currencies can continue to deliver positive total returns. With DM economies on a slow but non-recessionary growth path alongside gradual disinflation, major central banks are in the late innings of their monetary policy tightening, so any normalisation in rates in EM is likely to be prudent in the face of rising rates in big developed economies, maintaining a still generous interest rate differential.

Plus, within EM, the steep cuts already priced into market expectations in the near term means that even as rates begin to normalise, it should be possible for central banks to surprise markets on the hawkish side. Finally, with inflation declining across most EM jurisdictions, increasing real rates should continue to support the currencies even as nominal rates normalise.

The real challenge for EM currencies in the months ahead is that they become a victim of their own success. As more investors recognise the potential returns, valuations may become a headwind and warrant a nimbler investment approach. But we are not there yet.

Also in today’s newsletter, UBS faces penalties over Archegos and Adobe’s Figma deal faces EU probe

Abu Dhabi’s sovereign wealth fund ADQ held detailed talks to take Wall Street investment bank Lazard private, in a move that underlined the oil-rich emirate’s ambitions to acquire a western financial services company.

The talks were held this year between Lazard, led by outgoing chief executive Ken Jacobs, and ADQ, led by Sheikh Tahnoon bin Zayed al-Nahyan, the fund’s chair and Abu Dhabi’s powerful national security adviser, said people with direct knowledge of the matter.

Negotiations fell apart after both sides walked away from a deal. Lazard, which is best known for its advisory business in Paris, New York and London, had been focused on maintaining operating independence, one person added.

Lazard said: “As you’d expect, we talk to people all the time but we don’t comment on speculation.” ADQ declined to comment.

A deal would have marked the end of a remarkable 175-year run for Lazard as an independent financial house that withstood world wars, massive shifts in the global economy and various tensions between its larger-than-life rainmakers on both sides of the Atlantic.

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