FT : ‘Absolute transparency’ needed on private market fees, BlackRock says

‘Absolute transparency’ needed on private market fees, BlackRock says
Fund manager seeks to improve disclosures to pension clients as UK pushes for shift into unlisted assets

BlackRock is seeking to provide “absolute transparency” on private market fees as the UK government pushes pension plans to plough funds into unlisted assets, an executive at the world’s biggest asset manager said.

The comments come as Britain is seeking to ignite an investment “big bang” by convincing pensions and other large asset allocators like endowments and sovereign wealth funds to invest in unlisted UK assets.

“The sentiment is that we need absolute transparency and we need to work towards that,” said Armit Bhambra, head of corporate pensions UK at BlackRock at last week’s Pensions and Lifetime Savings Association conference in Edinburgh.

In the UK, asset managers, including BlackRock, have in recent years been pushed to adopt standardised fee templates, to help pension fund clients understand what they are paying.

Private markets are “notoriously opaque,” said Richard Butcher, managing director of PTL, a UK firm of independent trustees, at the same event. “How do I know what the true cost of investment is?”

Private equity managers generally charge a two per cent annual management fee and a 20 per cent performance fee if a return goal is met. Investors also pay other fees and expenses — such as legal and monitoring costs — that can erode overall returns.

BlackRock said it used the UK industry-designed fee templates to provide private markets data to clients “who asked”, but told the Financial Times it was “actively pursuing an improved way of disclosing” these fees to UK pension fund investors.

In January 2021, BlackRock appeared on a list of investment companies failing to disclose fees adequately to some pension clients, more than three years after the fund manager worked with the UK regulator to improve transparency for the sector.

ClearGlass, the firm which compiled the list, said BlackRock had since improved on the general disclosure of costs but faced issues with private markets. However, ClearGlass added there was a wider industry problem with providing private market fee data for pension plans that used daily pricing.

Global regulators have in recent months also called for greater transparency on fees private capital managers charge to investors. The US Securities and Exchange Commission in February proposed that private equity funds should provide standardised quarterly data on fees, expenses and performance.

The top US securities regulator had pointed out in a January report that it had found examples of private equity companies providing inaccurate or misleading information about their performance and overcharging fees.

The push for greater fee transparency comes as the global private capital industry is booming. Assets under management across private markets hit an all-time high of $9.8tn as of June 2021, up from $7.4bn a year earlier, according to a report in March by consultancy McKinsey & Co.

Asset allocators are seeking investments that can provide returns well into the future as the powerful rally in equity and debt markets since early 2020 pulls sharply into reverse. At the same time, governments are looking for private investment to fund projects as fiscal finances have become stretched because of stimulus programmes put in place at the height of the coronavirus crisis.

Calpers, the biggest US pension scheme with $450bn under management, plans in July to boost its allocations to private equity, shift into private debt and reduce the share of its portfolio in public stocks.

Meanwhile, AustralianSuper and Canada’s Caisse de dépôt et placement du Québec are planning to inject £32bn combined into private markets in the UK and Europe in coming years.

WSJ : FDA Probing Organic Strawberries Linked to Possible Hepatitis A Outbreak

FDA Probing Organic Strawberries Linked to Possible Hepatitis A Outbreak
The potentially tainted fruit was sold at stores including Aldi, H-E-B, Kroger, Trader Joe’s, Walmart and others

Two brands of organic strawberries sold at major chains such as Trader Joe’s and Walmart may be linked to an outbreak of hepatitis A, the Food and Drug Administration said.

The FDA said in a statement Saturday that it is investigating a multistate outbreak of hepatitis A infections in the U.S. and Canada that appears to be linked to fresh, organic strawberries.

The potentially tainted fruit carried a FreshKampo or H-E-B label, the FDA said. Anyone who purchased those brands of berries between March 5 and April 25 and froze them for later consumption should get rid of them immediately, the agency urged.

The products were sold at stores such as Aldi, H-E-B, Kroger, Safeway and Weis Markets, along with Trader Joe’s and Walmart, the FDA said.

The products were sold at stores such as Aldi, H-E-B, Kroger, Safeway and Weis Markets, along with Trader Joe’s and Walmart, the FDA said.

The FDA, which is conducting its investigation along with the Centers for Disease Control and Prevention, said 17 people have been sickened thus far, with 12 hospitalizations.

“The traceback investigations show that cases in California, Minnesota, and Canada report having purchased fresh organic strawberries branded as FreshKampo or H-E-B prior to becoming ill,” the FDA said.

In a statement on its website, Texas-based H-E-B said its strawberries are safe to consume.

“No illnesses from strawberries related to the FDA investigation have been reported at H-E-B or in Texas,” the company said.

“The FDA is conducting an investigation into organic strawberries sold between March 5 and April 25, 2022. H-E-B has not received or sold organic strawberries from the supplier under investigation since April 16,” H-E-B said.

FreshKampo, based in Fresno, Calif., didn’t immediately respond to a request for comment.

Hepatitis A is a contagious virus that in severe cases can cause liver disease. In most cases, it results in a mild illness that includes nausea, fatigue and abdominal pain.

The virus is most commonly spread through close proximity to an infected person. However, it can be contracted through food or water consumption if an infected food handler hasn’t followed proper hand-washing hygiene.

FT : Europe’s unity ‘crumbling’ on Russia sanctions, Germany warns

Europe’s unity ‘crumbling’ on Russia sanctions, Germany warns
EU struggles to find compromise over plan to impose embargo on buying oil from Moscow

Europe’s unity on sanctions against Russia is “starting to crumble”, Germany’s economy minister has warned as diplomats highlight continued divisions over a package of sanctions set to be discussed by member states on Monday.

Robert Habeck spoke as EU ambassadors meeting in Brussels on Sunday failed to agree on the bloc’s latest package of sanctions against Moscow, including a plan to stop imports of Russian oil which Hungary has been blocking for weeks.

Diplomats had hoped to agree on measures to put to EU leaders who are due to start a two-day summit on Monday.

“After Russia’s attack on Ukraine, we saw what can happen when Europe stands united. With a view to the summit tomorrow, let’s hope it continues like this. But it is already starting to crumble and crumble again,” Habeck, who is also deputy chancellor, told reporters in Germany on Sunday.

His comments underline the EU’s difficulties in finding a way to extend punishments on Moscow for its war on Ukraine while not affecting parts of the European economy that rely heavily on deliveries of Russian oil and gas.

“Europe is still a huge economic area with incredible economic power. And when it stands united, it can use that power,” Habeck said at the opening of a trade fair.

EU diplomats tried on Sunday to unite on a compromise plan to impose an embargo on Russian seaborne oil purchases and to exempt imports via pipeline, according to three EU diplomats. That would cover about two-thirds of Europe’s imports of Russian oil but avoiding hitting oil that flows to Hungary and other countries, including Germany.

The potential solution is seen as a way to solve the concerns over security of oil supplies that have been aired by Hungary, Slovakia and the Czech Republic.

“The issues are the same, but the way we are trying to solve it is different,” said a senior EU diplomat, who added it could take another few weeks until a final agreement is reached.

EU diplomats are scheduled to meet again on Monday morning before a European Council meeting in a last-ditch attempt to avoid an acrimonious disagreement during the summit.

Some officials are concerned that treating Russian crude deliveries differently depending upon how they enter the bloc could introduce distortions to the oil market.

“Many countries have made the point that this is such a complicated economic sector, that we have to be careful we preserve the level playing field,” said an EU diplomat with direct knowledge of the talks. “The legal aspects need fine-tuning, so it may take some more time,” the diplomat said.

Among the issues still to be ironed out are technical adjustments needed for central European refineries so they can handle different supplies, as well as construction and financing of alternative oil pipelines so that all Russian oil can be subjected to an embargo at a later stage.

The sanctions package being discussed is the sixth put forward by Brussels since the invasion began in February. The EU has already implemented sanctions on coal but has made it possible for countries to continue to buy gas from Moscow.

Nature : Monkeypox outbreaks: 4 key questions researchers have

Monkeypox outbreaks: 4 key questions researchers have
Researchers are racing to understand the latest monkeypox outbreaks — from their origins to whether they can be contained.

It’s been three weeks since public-health authorities confirmed a case of monkeypox in the United Kingdom. Since then, more than 400 confirmed or suspected cases have emerged in at least 20 non-African nations, including Canada, Portugal, Spain and the United Kingdom — the largest outbreak ever outside of Africa. The situation has scientists on alert because the monkeypox virus has emerged in separate populations across multiple countries, and there is no obvious link between many of the clusters, raising the possibility of undetected, local transmission of the virus.

“We need to act quickly and decisively, but there is still a lot to be learned,” says Anne Rimoin, an epidemiologist at the University of California, Los Angeles, who has studied monkeypox in the Democratic Republic of the Congo for more than a decade.

Nature outlines some of the key questions about the recent outbreaks that researchers are racing to answer.

How did the current outbreaks start?
Since the latest outbreaks began, researchers have sequenced viral genomes collected from people with monkeypox in countries including Belgium, France, Germany, Portugal and the United States. The most important insight they have gained so far is that each of the sequences closely resembles that of a monkeypox strain found in western Africa. The strain is less-lethal — it has a death rate below 1% in poor, rural populations — than another that has been detected in central Africa and has a death rate up to 10%.

Clues have also emerged as to how the outbreak might have begun. Although researchers need more data to confirm their suspicions, the sequences they have evaluated so far are nearly identical, suggesting that the recent outbreaks outside of Africa might all be linked back to a single case with a thorough epidemiological investigation.

The current sequences are most similar to those from a smattering of monkeypox cases that arose outside of Africa in 2018 and 2019 and that were linked to travel in western Africa. The simplest explanation is that the person who had the first non-African case this year — who has still not been identified — became infected through contact with an animal or human carrying the virus while visiting a similar part of Africa, says Bernie Moss, a virologist at the National Institute of Allergy and Infectious Disease in Bethesda, Maryland.

But other explanations cannot be ruled out, says Gustavo Palacios, a virologist at the Icahn School of Medicine at Mount Sinai in New York City. It’s possible, that the virus was already circulating, undetected, outside of Africa in humans or animals, introduced during earlier outbreaks. This hypothesis, however, is less likely because the monkeypox virus usually causes visible lesions on people’s bodies — which would probably be brought to the attention of a physician.

Can a genetic change in the virus explain the latest outbreaks?
Understanding whether there is a genetic basis for the virus’s unprecedented spread outside Africa will be incredibly difficult, says Elliot Lefkowitz, a computational virologist at the University of Alabama at Birmingham who has studied poxvirus evolution. Researchers are still struggling to characterize precisely which genes are responsible for the higher virulence and transmissibility of the central African strain, compared with the west African one, more than 17 years after they identified a difference between the two.

One reason for this is that poxvirus genomes contain many mysteries, Lefkowitz says. The monkeypox genome is enormous relative to that of many other viruses — it is more than six times as large as the genome for the SARS-CoV-2 coronavirus. That means they’re at least “six times harder to analyse”, says Rachel Roper, a virologist at East Carolina University in Greenville, North Carolina.

Palacios says another reason is that few resources have been dedicated to genomic surveillance efforts in Africa, where monkeypox has been a public-health concern for many years. So virologists are flying somewhat blind right now, because they have few sequences to which they can compare the new monkeypox sequences, he says. Funding agencies have not heeded scientists who have been warning for more than a decade that further monkeypox outbreaks could occur, he adds.

Ifedayo Adetifa, the head of the Nigeria Centre for Disease Control says that African virologists he’s spoken with have expressed irritation that they’ve struggled to garner funding and publish studies about monkeypox for years — but now that it’s spread outside the continent, public-health authorities worldwide suddenly seem more interested.

To understand how the virus evolves, it would also be useful to sequence the virus in animals, Palacios says. The virus is known to infect animals — mainly rodents such as squirrels and rats — but scientists have yet to discover its natural animal reservoir in the impacted areas of Africa.

Can the outbreaks be contained?
Since the current outbreaks began, some nations have been procuring smallpox vaccines, which are thought to be highly effective against monkeypox, because the viruses are related. Unlike the vaccines against COVID-19, which take up to two weeks to offer full protection, smallpox vaccines are thought to protect against monkeypox infection if administered within four days of exposure because of the virus’s long incubation period, according to the US Centers for Disease Control and Prevention (CDC) in Atlanta, Georgia.

If deployed, the vaccines would probably be applied using a ‘ring vaccination’ strategy, which would inoculate close contacts of infected people. Andrea McCollum, an epidemiologist who heads the poxvirus team at the CDC, says the agency is not yet deploying a ring vaccination strategy. But in the meantime, CNN reports that the United States plans to offer smallpox vaccines for some healthcare workers treating infected people. It might also be worth considering vaccinating groups at higher risk of infection in addition to close contacts of infected people, Rimoin says.

Even if public-health officials halt transmission of monkeypox in humans during the current outbreaks, virologists are also concerned that the virus could spill back into animals. Having new reservoirs of virus in animals would increase the probability of it being transmitted to people again and again, including in countries that don’t host any known animal reservoirs of the virus. On 23 May, the European Centre for Disease Prevention and Control highlighted this possibility, but deemed the probability as “very low”. Still, European health officials strongly recommended that pet rodents such as hamsters and guinea pigs belonging to people with confirmed cases of monkeypox be isolated and monitored in government facilities or euthanized to avoid the possibility of spillover.

Although the risk is low, Moss says the main concern is that scientists wouldn’t know if such a spillover event occurred until it was too late, because infected animals don’t typically show the same visible symptoms as humans.

Is the virus spreading differently now compared with previous outbreaks?
Monkeypox virus is known to spread through close contact with the lesions, bodily fluids and respiratory droplets of infected people or animals. But health officials have been examining sexual activity at two raves in Spain and Belgium as drivers of monkeypox transmission, according to the Associated Press, raising speculation that the virus has evolved to become more adept at sexual transmission.

Cases linked to sexual activity don’t mean that the virus is more contagious or is transmitted sexually, however — just that the virus spreads readily through close contact, Rimoin says. Unlike SARS-CoV-2, which isn’t thought to linger on surfaces much, poxviruses can survive for a long time outside the body, making surfaces such as bedsheets and doorknobs a potential vector of transmission, Roper says.

Although health officials have noted that many cases have been among men who have sex with men (MSM), Rimoin emphasizes that the most likely explanation for the virus’s spread among MSM groups is that the virus was coincidentally introduced into the community, and it has continued spreading there.

All of the new attention on monkeypox has laid bare just how much scientists have yet to understand about the virus, McCollum says. “When this has all settled down, I think we’ll have to think long and hard about where the research priorities are,” she says.

(ZH) 11 Statistics That Expose The Reality Facing US Consumers In This Rapidly D

11 Statistics That Expose The Reality Facing US Consumers In This Rapidly Deteriorating Economy

Prices are soaring, there are widespread shortages of certain items such as baby formula all over the nation, and at the same time U.S. economic activity appears to be really slowing down. Considering all of that, it makes perfect sense why the American people are feeling so negative about the economy right now. In fact, a whopping 85 percent of all Americans believe that there will be a recession within the next year. These days, it is virtually impossible to get Americans to overwhelmingly agree about anything, and so the fact that 85 percent of us are anticipating a recession is a really big deal.

Just about everyone realizes that economic conditions are going to get worse, but for those of you that still doubt where we are headed here are 11 statistics that show how U.S. consumers are faring in this rapidly deteriorating economy…
#1 According to a Harvard CAPS/Harris Poll that was recently conducted, 56 percent of Americans say that their financial situations are getting worse, and only 20 percent of Americans say that their financial situations are improving.
#2 Another new survey has just discovered that 66 percent of Americans “have avoided social events because they’ve felt embarrassed or uncomfortable” about their financial situations.
#3 The housing bubble appears to be bursting. At this point, sales of new single family homes are falling at a very frightening pace…
Sales of new single-family houses in April plunged by 16.6% from March and by 26.9% from a year ago, to a seasonally adjusted annual rate of 591,000 houses, the lowest since lockdown April 2020, according to the Census Bureau today. Sales of new houses are registered when contracts are signed, not when deals close, and can serve as an early indicator of the overall housing market.
#4 After breaking the all-time national record in March, the average price of a gallon of gasoline in the United States has gone 42 cents above the old record and is now sitting at $4.59.
#5 The average age of a car on U.S. roads has reached an all-time record high of 12.2 years. Many Americans continue to delay replacing their current vehicles because new vehicles have become so unaffordable.
#6 Millions of American families are struggling with rapidly rising food prices…
The index for food away from home increased 7.2% over the last year, the Labor Department reported earlier this month. Food prices were up 9.4% in April from the same time last year — the biggest jump since April 1981, the Bureau of Labor Statistics recently reported. And grocery store prices increased 10.8% for the year ended in April.
#7 U.S. natural gas futures just crossed the nine dollar threshold – the highest level that we have seen since the financial crisis of 2008. That means that much higher energy costs are on the way for U.S. consumers.
#8 Multiple Fed surveys are showing that manufacturing activity in the U.S. is really slowing down…
The slowdown in manufacturing activity on display in reports from the Federal Reserve banks of New York and Philadelphia was confirmed by a survey from the Richmond Fed indicating that factory activity contracted in the mid-Atlantic region in May.
The Fifth District Survey of Manufacturing Activity index dropped 23 points from a positive reading of 14 in April to a minus nine, the lowest reading since May 2020, when much of the economy was still reeling from the onset of the pandemic and lockdowns.
#9 Zero Hedge is reporting extremely depressing news about U.S. macro data: “Other than April 2020 – when the entire economy was closed – May’s serial disappointment in US Macro data is the worst since Lehman”
#10 Thanks to plunging stock prices, approximately 20 trillion dollars in household net worth has been “wiped out” so far this year.
#11 A new CBS News/YouGov survey has found that 74 percent of Americans believe that things are going badly in this country and that 51 percent of Americans actually believe that Joe Biden is “incompetent”.
Right now, conditions are so similar to what we witnessed just before the financial crisis of 2008.
If we had addressed our long-term problems back then, perhaps we would be in a much different place at the moment.
But instead, we appear to be poised to repeat history in a lot of ways.
In fact, many experts believe that the crisis that is staring us in the face will be even worse than what we went through more than a decade ago. For example, just check out what Peter Schiff is saying…
This one is going to be even bigger because the economy has a lot more debt now than it did in 2008. And Americans are less able to pay it when interest rates rise because the balances are much greater. So, we’re in much worse shape as a result of all the bailouts and all the stimulus that papered over the last crisis. So, now the one we’re dealing with is going to be much worse because we kicked the can down the road instead of solving the problem when we had a chance.”
He makes some really great points.
Every time there has been some sort of a crisis in our society, our leaders responded by showering the system with even more money.
In 2008, the U.S. national debt crossed the 10 trillion dollar threshold.
In 2022, the U.S. national debt has crossed the 30 trillion dollar threshold.
Our politicians have been systematically destroying our future, and most Americans didn’t seem to care.
Now a day of reckoning has arrived, and it is going to be immensely painful.
There is no silver bullet that is going to cure inflation.
The Federal Reserve is going to try to tame inflation by hiking interest rates, but that will just destroy the housing bubble and dramatically slow down the economy.
And there is no silver bullet that is going to end the shortages that we are currently facing.
We are now experiencing some of the consequences of decades of mismanagement, and a lot more pain is on the way.

WSJ : Where to Look for the Next Wall Street Blowup

Where to Look for the Next Wall Street Blowup
The tide’s definitely gone out in markets this year, but finance has come through with few problems—so far

When the tide goes out you find out who was swimming naked, Warren Buffett memorably said. The tide’s definitely gone out in markets this year, but finance has come through with few problems. Is it possible that this time not many were skinny-dipping?

The optimistic view is that the typical culprits—speculators using borrowed money—had been caught out already in the past two years and so weren’t up to their usual tricks. The pessimistic view is that the blowups are still to come.

Start with the positive: the list of recent crises that made investors reassess the dangers. The shock of the pandemic in early 2020 revealed serious problems with leveraged trading and overnight borrowing in Treasurys. The Federal Reserve stepped in and backstopped the market, but fixed-income hedge funds that lost big as Treasurys moved in the wrong direction cut back.

In January 2021, short sellers were hit as Redditors piled into meme stocks such as GameStop, driving up their prices and causing multibillion-dollar losses for those betting against them. Melvin Capital, which was heavily short GameStop, finally shut down this year. Other hedge funds took note, and concentrated short positions were rethought.

Then in March last year—when the market was still super-bullish—hedge fund Archegos blew up, causing $10 billion or so of losses to investment banks that had unwisely lent it money. Soul-searching at the investment banks means they have re-examined their hedge-fund lending, while Credit Suisse decided to pull out of the business altogether. Again, greater powers given to risk managers mean there is less risk of a repeat.

Roll forward to the autumn and currency and bond traders began preparing for rate rises, led by surprisingly hawkish talk from the Bank of England. But prices snapped back abruptly in November when the Bank didn’t follow through with the expected tightening, again giving funds that trade on macroeconomic news a dry run for the volatility that has dominated markets globally since.

All of these big but not huge shocks helped ensure that risk-taking was cut back, meaning there were fewer highly leveraged players who might be taken out by the extreme moves of 2022 in stocks, bonds, commodities and currencies.

So far there has been only one true catastrophe in traditional finance, the freezing of the nickel market when the London Metal Exchange foolishly decided to save a Chinese firm caught out by massive wrong-way bets. But bad as that was, it was never going to be enough to take down important parts of the financial system.

There have been some total disasters in crypto, notably the collapse of the Terra “stablecoin,” but the links to traditional finance remain small enough that this matters little to the mainstream.

The other important pillar of support is that banks are significantly stronger than in the past couple of decades, thanks to post-2008 reforms. They can weather bad times more easily as a result.

So much for the good news. The prevailing mood of finance executives I’ve asked about the lack of trouble is summed up by a repeated response: “So far.”

Long before Mr. Buffett discussed naked swimmers, economist John Kenneth Galbraith invented the “bezzle”—fraudulent losses accumulated in the good times that are only discovered when the economy weakens. After a decadelong bull market with only the briefest of interruptions in 2020, there could be plenty of bezzles yet to emerge.

The biggest bezzles in recent history took painfully long to emerge. After the bursting of the dot-com bubble in March 2000, it was 18 months before accounting fraud took down power company and leveraged energy trader Enron in what was then the biggest-ever bankruptcy. After the 2008 financial crisis, scandals continued for years across both finance and real-economy businesses.

The feedback loop from finance to the real economy and back to finance takes time to create serious problems, too. Already the weakest and most indebted developing countries are in trouble, with Sri Lanka in crisis and Ghana imposing fierce austerity to keep finances in order. The rising dollar and higher U.S. bond yields hurt governments and countries that chose to borrow in dollars and have a mismatch of dollar costs and local-currency income.

In 1994 and 1997-1998, it took more than a year for emerging-market crises—in 1994 Mexico’s “Tequila crisis,” in 1997 the Asian devaluations followed by Russia’s domestic-debt default—to feed back to Wall Street. When they did, Wall Street’s financial stability wobbled. More worryingly, the loss for investors in benchmark 10-year Treasurys from their peak is already much bigger than the shock of 1994.

There are two new risks that history doesn’t help with. The first is the unprecedented amount of liquidity that has been pumped into finance by central banks buying bonds. A lack of liquidity is what usually creates financial problems, as it prevents debts being rolled over. As the Fed and other central banks drain liquidity, problems might reveal themselves.

The second is that there’s a massive, and unknown, amount of private debt issued by lightly regulated shadow banks. My worry isn’t mainly that the lending turns sour (although it might). Rather, the danger is that the private-debt boom turns out to be a function of easy money. If investors prove less willing to lock up their money in private-debt funds as interest rates make mainstream investments more attractive, there will be a steady withdrawal of lending capacity. That could hold back the economy and make it harder for companies to refinance loans. These sorts of knock-on effects could take years to feed through into financial trouble.

I suspect there are plenty of underdressed bathers still to be exposed. I hope the crisis practice runs of the past two years mean there is less risk of Wall Street coming to a sudden stop.

FT : Inside EY’s break-up plan: why it could radically reshape the Big Four

Inside EY’s break-up plan: why it could radically reshape the Big Four
Splitting the audit and advisory businesses faces significant hurdles but other firms could follow

When EY’s global chief Carmine Di Sibio boarded the accounting firm’s private jet out of Davos in the early hours of Thursday morning, the Italian-American executive had already embarked on a more daring journey.

Sitting aboard EY One, as the Bombardier jet is known within the accounting firm, the auditor was steering a plan to break up the Big Four group that would reshape the oligopoly that has dominated professional services since their rival Arthur Andersen was brought down in 2002 by the collapse of US energy group Enron.

Di Sibio and his most senior colleagues are weighing a historic separation of EY’s audit and advisory businesses after years of criticism over perceived conflicts of interest between the two. Auditors are tasked with holding companies’ management to account and resisting pressure to sign off on numbers without proper evidence while their advisory colleagues prefer to keep clients sweet to generate fees in areas such as tax, deals and consulting.

“It surprises me that it’s taken this long,” says Fiona Czerniawska, chief executive of consulting sector analyst Source Global Research. “It’s becoming increasingly difficult for any accounting firm to offer a multidisciplinary service, which includes audit . . . I imagine that every other firm is looking into [restructuring] too. ”

Rationale for a break-up
For Big Four advisory practices, restrictions on working for audit clients are a drag on growth while investments in audit improvement have sapped capital investment from their consulting businesses.

“Most non-auditors would love to be free from the independence restrictions on what work we can do,” says one EY partner not involved in the restructuring planning.

Selling advice on digital consulting and M&A has helped drive the Big Four’s revenues to record levels but their advisory arms face competitors that are not constrained by audit conflicts. Accenture, which became independent from auditor Arthur Andersen in 2000, reported revenues of $51bn last year, almost double EY’s advisory sales.


Despite tightening the sale of advice to audit clients the Big Four still face questions over the quality of their audits.

“We feel we’ve been investing in audit quality but it still feels like we’re in the same place,” says a person with direct knowledge of EY’s plans.

A second factor, says the person, is that conflicts have become harder to manage as the Big Four push into multiyear managed service contracts for large corporate groups, which they deliver in tandem with tech companies through contractual alliances.

Auditing a tech provider, or even a private equity fund that invests in it, can throw up fresh conflicts and stifle the consulting arm’s growth in the rapidly expanding digital consulting market.

A partner at another Big Four firm says the problem is more pressing for EY because it dominates the Silicon Valley audit market, checking the accounts of Amazon, Google, Oracle, Salesforce and Workday.

Under the plans being drawn up by EY, its business would be split into an audit-focused partnership and a separately owned advisory operation encompassing most of its consulting and deals advice teams. The options under review include a public listing or the sale of a stake in the advisory business, with Goldman Sachs and JPMorgan advising the 312,000-person firm, according to people familiar with the matter.

The audit business, which would remain as a partnership, retained the EY brand when the firm sold its consulting practice to Cap Gemini for $11bn in 2000 before rebuilding it from scratch. It has not been decided which business would keep the EY brand this time, says the person with knowledge of the plans.

In recent years, the Big Four have opposed a repeat of the break-ups that took place two decades ago, but they have carried out contingency planning in case regulators were to force them to do so, according to senior accountants and consultants.

PwC considered options including an IPO of part of its business in 2019 but decided not to pursue a split partly because of the cost and complexity, says a person with knowledge of its planning.

PwC and Deloitte said on Friday they were committed to keeping their audit and advisory practices while KPMG stopped short of doing so, saying a multidisciplinary model “brings a range of benefits”.

Break-ups would give clients a wider choice of advisers and auditors, by reducing the risk of conflicts of interest but there is debate about whether big clients want this.

“I don’t believe the market wants a pure player,” says a senior auditor at a midsized firm. But a partner at a different mid-tier firm thinks the rest of the Big Four will follow EY’s lead. “This will trigger a series of events, whereby all professional services firms will urgently reconsider and evaluate their structures,” he says.

Selling the split
For Di Sibio and EY’s global leaders the decision on whether to recommend a split to the firm’s nearly 13,000 partners in the coming weeks will rest not just on the attraction of a break-up but on which forms of restructuring are deliverable.

“You can see the strategic wins but they’re not necessarily practically achievable,” says the person with knowledge of EY’s planning. “That’s what we’re trying to work out because if it doesn’t work, we won’t do it.”

A break-up would require approval from hundreds of regulators globally and would take years, say partners at other firms.

The more immediate challenge would be to win backing in a vote by EY partners in different business lines and countries, whose interests will be hard to align.

Partners at other accounting groups say key battle grounds would include the relative valuations of the audit and advisory businesses, whether audit partners believe their income would fall after splitting from the more profitable advisory practice and who would take on liability for lawsuits arising from EY’s alleged failure to raise red flags on frauds at Wirecard in Germany and NMC Health in the UK.

Liabilities arising from the Wirecard audits and other legal claims were not a driver for the planning, says the person with knowledge of the talks.

Auditors question whether a standalone audit business would be viable and could compete for recruits without the promise of varied career options.

The newly autonomous audit arm would retain experts in other disciplines to help with audit work, say people briefed on EY’s planning.

In the meantime, there is a risk of instability. In a note to staff on Friday, Di Sibio said talk of an overhaul “may be distracting” but asked them to stay focused.

“They’ve painted a great big target on their backs,” says a senior partner at a rival firm, who predicted any decision to split would encourage competitors to swoop for EY partners who fear a raw deal in the carve-up.

“[We] are going to go and try and find every single decent partner that they’ve got who is necessarily unhappy with the process over the next 12 months and try and steal them,” he says.

There will be “a bit of limbo” until details are thrashed out but after that, EY’s pitch to recruits will be clear, says the person with knowledge of its plans.

Deals wave?
An IPO would be more difficult to pull off than the sale of a stake to a private equity investor, say partners at several firms. A public listing would be “probably the most complicated deal in history but if the money is big enough, maybe [they can do it],” says a former Big Four partner.

“I can’t see an IPO. This is very attractive to private equity,” says a UK partner at another firm.

Private equity firms funded buyouts of KPMG and Deloitte’s UK insolvency and restructuring practices last year while Clayton, Dubilier & Rice paid $2.2bn for PwC’s global mobility services business in a deal struck in October.


A sale by EY could lead to further activity emulating the big accounting firms’ sell-off of their consulting businesses more than two decades ago. The deals included PwC’s disposal of its consulting division to IBM. KPMG’s consultants were split between Bearing Point and Atos while EY sold to Cap Gemini.

The only holdout was Deloitte, which continued to expand its consulting enterprise. The rest of the Big Four rebuilt their advisory arms but never managed to catch up.

But Czerniawska believes there can be a first-mover advantage for EY this time around.

“Do you really want to be the last firm to do this or would you prefer to be at the front seizing the initiative?” she says.

“If I was running [a firm] I would want to be on the front foot and in some way shaping the agenda in which future changes take place, not waiting to have to react.”

FT : UK Infrastructure Bank criticised for investing in third party funds

UK Infrastructure Bank criticised for investing in third party funds
Institution was set up last year to back projects that support transition to net zero and ‘levelling up’

The UK’s new infrastructure bank has been heavily criticised for channelling millions of pounds of taxpayer money into third party investment funds rather than projects that support “levelling up” and tackling climate change.

Based in Leeds, the UK Infrastructure Bank was set up last June with £12bn in initial funding to draw private sector finance into infrastructure projects that support the transition to net zero carbon emissions by 2050 and boost regional and local economic growth.

It has not yet published a full strategy but has invested in six projects. This includes £50mn as co-lender to the broadband provider Fibrus, which is delivering high-capacity internet in Northern Ireland, and a £107mn loan to the Tees Valley Combined Authority for its South Bank quay development.

However, it is also investing in third party funds, including a £100mn contribution to a new infrastructure fund managed by Octopus Investments, called the “Octopus Sustainable Infrastructure Fund”. It has also signed a deal to invest up to £250mn in NextEnergy Capital’s £500mn solar fund.

Lord Aamer Sarfraz, the prime minister’s trade envoy to Singapore and a former Conservative party treasurer, said he was sure the bank could play a “valuable role”. But he added: “We need UKIB to do the difficult direct deals, not outsource their responsibilities to third party fund managers as once you invest in a fund you have very little influence over it.

“The point of the bank is to address a market gap in infrastructure investing and it’s not at all clear that it is doing that,” he added.

The comments follow the second reading in the House of Lords last week of a bill that will ensure the bank’s “long-term purpose as an enduring institution”. It is intended to guarantee that the bank is not sold off as happened with another government initiative, the Green Investment Bank, which was sold to the Australian infrastructure investor Macquarie in 2017.

Steve Coulter, head of industrial strategy at the Tony Blair Institute, said the bank was a “big bet by government that they throw a bit of public money at the private sector and it will bring in investment when in all likelihood they risk competing with existing investors, which are already willing to put capital into projects”.

At least two groups of potential investors are understood to have expressed their concerns over the bank’s decisions so far to John Flint, the former HSBC boss who is the institution’s chief executive.

One institutional investor described the decisions as “a bit of joke”. “It’s unclear why they would get a third party manager to raise funds to invest in these projects,” she said. “There is plenty of capital to be deployed out there — the Saudis and Australians are queueing to get into the UK as it’s still a good place to invest.”

Infrastructure investors say that they need the bank to act as a broker — finding, developing and reducing the risk in construction projects and producing a pipeline of projects in which they can invest.

UKIB said that it aims to work with project sponsors such as private companies or local authorities to unlock investment and is planning to publish its strategy within weeks.

“We have sought to deploy our capital sensibly and strategically across a range of product sectors and, as you’d expect, we have partnered with established companies with a track record to make an immediate impact and start delivering on our mandate,” it said.

The bank, which already employs about 120 people, is aiming to more than double staff numbers over the next year. Its initial £12bn in funding was made up of £5bn in equity and £7bn in debt from the Treasury.

A further £10bn will be provided through the existing UK guarantees scheme, which has been used to draw private finance into projects such as the Northern Line Underground extension. However, that was criticised by the National Audit Office in 2015 as delivering poor value for money for taxpayers.

Robert Skinner, head of alternative Investments at Octopus Investments, said the bank’s commitment would be match-funded and that there was a “significant funding gap” in emerging sectors, including green data centres, battery storage and electric vehicle charging, which are “currently not seen as core infrastructure investment opportunities for many institutional investors”.

“With our sustainable infrastructure fund, we are hoping to unlock that much-needed capital,” he said.

NextEnergy declined to comment.