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First Big Pharma fled the field, and now start-ups are going belly up, threatening to stifle the development of new drugs.

At a time when germs are growing more resistant to common antibiotics, many companies that are developing new versions of the drugs are hemorrhaging money and going out of business, gravely undermining efforts to contain the spread of deadly, drug-resistant bacteria.

Antibiotic start-ups like Achaogen and Aradigm have gone belly up in recent months, pharmaceutical behemoths like Novartis and Allergan have abandoned the sector and many of the remaining American antibiotic companies are teetering toward insolvency. One of the biggest developers of antibiotics, Melinta Therapeutics, recently warned regulators it was running out of cash.

Experts say the grim financial outlook for the few companies still committed to antibiotic research is driving away investors and threatening to strangle the development of new lifesaving drugs at a time when they are urgently needed.

“This is a crisis that should alarm everyone,” said Dr. Helen Boucher, an infectious disease specialist at Tufts Medical Center and a member of the Presidential Advisory Council on Combating Antibiotic-Resistant Bacteria.

The problem is straightforward: The companies that have invested billions to develop the drugs have not found a way to make money selling them. Most antibiotics are prescribed for just days or weeks — unlike medicines for chronic conditions like diabetes or rheumatoid arthritis that have been blockbusters — and many hospitals have been unwilling to pay high prices for the new therapies. Political gridlock in Congress has thwarted legislative efforts to address the problem.

The challenges facing antibiotic makers come at time when many of the drugs designed to vanquish infections are becoming ineffective against bacteria and fungi, as overuse of the decades-old drugs has spurred them to develop defenses against the medicines.

Drug-resistant infections now kill 35,000 people in the United States each year and sicken 2.8 million, according a report from the Centers for Disease Control and Prevention released last month. Without new therapies, the United Nations says the global death toll could soar to 10 million by 2050.

[Read our other stories in our series on drug resistance, Deadly Germs, Lost Cures.]

The newest antibiotics have proved effective at tackling some of the most stubborn and deadly germs, including anthrax, bacterial pneumonia, E. coli and multi-drug-resistant skin infections.

The experience of the biotech company Achaogen, is a case in point. It spent 15 years and a billion dollars to win Food and Drug Administration approval for Zemdri, a drug for hard-to-treat urinary tract infections. In July, the World Health Organization added Zemdri to its list of essential new medicines.

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By then, however, there was no one left at Achaogen to celebrate.

This past spring, with its stock price hovering near zero and executives unable to raise the hundreds of millions of dollars needed to market the drug and do additional clinical studies, the company sold off lab equipment and fired its remaining scientists. In April, the company declared bankruptcy.

Public health experts say the crisis calls for government intervention. Among the ideas that have wide backing are increased reimbursements for new antibiotics, federal funding to stockpile drugs effective against resistant germs and financial incentives that would offer much needed aid to start-ups and lure back the pharmaceutical giants. Despite bipartisan support, legislation aimed at addressing the problem has languished in Congress.

“If this doesn’t get fixed in the next six to 12 months, the last of the Mohicans will go broke and investors won’t return to the market for another decade or two,” said Chen Yu, a health care venture capitalist who has invested in the field.

The industry faces another challenge: After years of being bombarded with warnings against profligate use of antibiotics, doctors have become reluctant to prescribe the newest medications, limiting the ability of companies to recoup the investment spent to discover the compounds and win regulatory approval. And in their drive to save money, many hospital pharmacies will dispense cheaper generics even when a newer drug is far superior.

“You’d never tell a cancer patient ‘Why don’t you try a 1950s drug first and if doesn’t work, we’ll move on to one from the 1980s,” said Kevin Outterson, the executive director of CARB-X, a government-funded nonprofit that provides grants to companies working on antimicrobial resistance. “We do this with antibiotics and it’s really having an adverse effect on patients and the marketplace.”

Many of the new drugs are not cheap, at least when compared to older generics that can cost a few dollars a pill. A typical course of Xerava, a newly approved antibiotic that targets multi-drug-resistant infections, can cost as much as $2,000.

“Unlike expensive new cancer drugs that extend survival by three-to-six months, antibiotics like ours truly save a patient’s life,” said Larry Edwards, chief executive of the company that makes Xerava, Tetraphase Pharmaceuticals. “It’s frustrating.”

Tetraphase, based in Watertown, Mass., has struggled to get hospitals to embrace Xerava, which took more than a decade to discover and bring to market, even though the drug can vanquish resistant germs like MRSA and CRE, a resistant bacteria that kills 13,000 people a year.

Tetraphase’s stock price has been hovering around $2, down from nearly $40 a year ago. To trim costs, Mr. Edwards recently shuttered the company’s labs, laid off some 40 scientists and scuttled plans to move forward on three other promising antibiotics.

For Melinta Therapeutics based in Morristown, N.J., the future is even grimmer. Last month, the company’s stock price dropped 45 percent after executives issued a warning about the company’s long-term prospects. Melinta makes four antibiotics, including Baxdela, which recently received F.D.A. approval to treat the kind of drug-resistant pneumonia that often kills hospitalized patients. Jennifer Sanfilippo, Melinta’s interim chief executive, said she was hoping a sale or merger would buy the company more time to raise awareness about the antibiotics’ value among hospital pharmacists and increase sales.

“These drugs are my babies, and they are so urgently needed,” she said.

Coming up with new compounds is no easy feat. Only two new classes of antibiotics have been introduced in the last 20 years — most new drugs are variations on existing ones — and the diminishing financial returns have driven most companies from the market. In the 1980s, there were 18 major pharmaceutical companies developing new antibiotics; today there are three.

“The science is hard, really hard,” said Dr. David Shlaes, a former vice president at Wyeth Pharmaceuticals and a board member of the Global Antibiotic Research and Development Partnership, a nonprofit advocacy organization. “And reducing the number of people who work on it by abandoning antibiotic R & D is not going to get us anywhere.”

A new antibiotic can cost $2.6 billion to develop, he said, and the biggest part of that cost is the failures along the way.

Some of the sector’s biggest players have coalesced around a raft of interventions and incentives that would treat antibiotics as a global good. They include extending the exclusivity for new antibiotics to give companies more time to earn back their investments and creating a program to buy and store critical antibiotics much the way the federal government stockpiles emergency medication for possible pandemics or bioterror threats like anthrax and smallpox.

The DISARM Act, a bill introduced in Congress this year, would direct Medicare to reimburse hospitals for new and critically important antibiotics. The bill has bipartisan support but has yet to advance.

One of its sponsors, Senator Bob Casey, Democrat of Pennsylvania, said some of the reluctance to push it forward stemmed from the political sensitivity over soaring prescription drug prices. “There is some institutional resistance to any legislation that provides financial incentives to drug companies,” he said.

Washington has not entirely been sitting on its hands. Over the past decade, the Biomedical Advanced Research and Development Authority, or BARDA, a federal effort to counter chemical, nuclear and other public health threats, has invested a billion dollars in companies developing promising antimicrobial drugs and diagnostics that can help address antibiotic resistance.

“If we don’t have drugs to combat these multi-drug-resistant organisms, then we’re not doing our job to keep Americans safe,” Rick A. Bright, the director of the agency, said.

Dr. Bright has had a firsthand experience with the problem. Two years ago, his thumb became infected after he nicked it while gardening in his backyard. The antibiotic he was prescribed had no effect, nor did six others he was given at the hospital. It turned out he had MRSA.

The infection spread, and doctors scheduled surgery to amputate the thumb. His doctor prescribed one last antibiotic but only after complaining about its cost and warning that Dr. Bright’s insurance might not cover it. Within hours, the infection began to improve and the amputation was canceled.

“If I had gotten the right drug on Day 1, I would have never had to go to the emergency room,” he said.

Achaogen and its 300 employees had held out hope for government intervention, especially given that the company had received $124 million from BARDA to develop Zemdri.

As recently as two years ago, the company had a market capitalization of more than $1 billion and Zemdri was so promising that it became the first antibiotic the F.D.A. designated as a breakthrough therapy, expediting the approval process.

Dr. Ryan Cirz, one of Achaogen’s founders and the vice president for research, recalled the days when venture capitalists took a shine to the company and investors snapped up its stock. “It wasn’t hype,” Dr. Cirz, a microbiologist, said. “This was about saving lives.”

In June, investors at the bankruptcy sale bought out the company’s lab equipment and the rights to Zemdri for a pittance: $16 million. (The buyer, the generic-drug maker Cipla USA, has continued to manufacture the drug.) Many of Achaogen’s scientists have since found research jobs in more lucrative fields like oncology.

Dr. Cirz lost his life savings, but he said he had bigger concerns. Without effective antibiotics, many common medical procedures could one day become life-threatening.

“This is a problem that can be solved, it’s not that complicated,” he said. “We can deal with the problem now, or we can just sit here and wait until greater numbers of people start dying. That would be a tragedy.”

Future of finance: the City of London will remain Europe’s primary financial hub

The best way to consider the future of European banking is from 35,000 feet. Empyrean analysis, which conveniently ignores real-world frictions and impasses, is easier from a distance. And at 35,000 feet, there is a good chance you are heading somewhere with better banking margins, such as the US.

The simple prescription from business class would be that the EU should complete banking union, mandate bank mergers, promote bad loan write-offs and prohibit state-sponsored retail lending.

Compared with the US, where lenders recapitalised briskly following the financial crisis, European banks remain in a malaise. Their shares trade at 0.2 to 0.8 times book value, compared with ratios of 1.1 to 2.2 for big US banks. Costs have stayed stubbornly high, bank takeovers provoke reflexive hostility, economies are stagnating and low interest rates are heading even lower. UBS reckons that markets imply that European banks have a cost of equity of almost 12 per cent. That is way ahead of the returns of most lenders.

There are huge obstacles to the completion of banking union. But it is reasonable to hope that in 2020 the EU will take baby steps forward, as advocated by German finance minister Olaf Scholz in a Financial Times opinion piece in November. This would require Germans to agree a deposit insurance scheme covering those supposedly feckless Greeks and Italians. A trade-off could be Greek and Italian acceptance that sovereign debt should no longer be a “risk-free” component in the capital of local banks.

Given that German banking became a worsening nightmare in 2019, Germany can no longer pretend to moral or technical superiority. By the end of the year, national banking champion Deutsche Bank had a market capitalisation of just over €14bn, one-tenth of the value of HSBC. This London-listed bank derives most of its value from Asia, not Europe.

Reformers may reap some impetus from the planned departure of the UK from the EU during 2020. UK politicians would no longer be able to stand in the way of reforms unpopular in the City of London. But continental bankers who imagine Brexit will allow Paris and Frankfurt to steal a march on London would be fooling themselves. Even if some euro-related markets relocate, the City’s critical mass means it will remain Europe’s primary financial hub, however you look at it.

In the year after the former chief was arrested, discord between the companies has stalled cooperation and marred efficiency

It took a year without Carlos Ghosn for the auto makers he once led to realize what he had been doing for two decades: keeping Nissan Motor Co. and Renault SA from coming apart at the seams.

Since Mr. Ghosn was arrested in November 2018, insiders at the companies said the two partners, lacking a chief to impose order, have reverted to the corporate equivalent of a nasty and brutish state of nature.

Renault has pushed a merger that would secure its ties with Nissan, at one point even briefly weighing a takeover in response to the arrest. Nissan has tried to negotiate a sale of part of Renault’s stake in Nissan. Engineers have worked to avoid cooperating on vehicle design, said people at the companies.

The discord is threatening the viability of both car makers. The share prices of both Nissan and Renault have dropped by a third since Mr. Ghosn’s arrest. In the first 11 months of the year, the two companies sold more than half a million fewer cars than they did in the same period the previous year. Both lost money on selling vehicles in the first half of the year.

“We are talking about an issue of survival. There is no question about that,” Renault Chairman Jean-Dominique Senard said in an interview.

Nissan in a written statement said the alliance helped it compete better. “At the same time, each Alliance company has its own business strategy, and naturally there may be instances where there are differences in approach, perspective or opinion.”

At the time of his arrest, Mr. Ghosn oversaw both companies as chairman of Nissan and chief executive of Renault. Renault owns 43.4% of Nissan, while Nissan owns 15% of Renault as part of an auto-making alliance stretching back two decades. Yet there were no formal rules compelling cooperation between the companies. Instead, they would meet regularly to negotiate what they would do together. Current and former executives said Mr. Ghosn fostered a system in which no one could be forced to cooperate, except by Mr. Ghosn himself.

The strife has absorbed management attention and distracted the companies from working together. In the past year, more than a dozen executives have left the auto makers, and both have ousted their chief executives. An alliance meeting this spring nearly didn’t happen because the partners initially refused to share confidential data about their business performance.

The global car market is entering a danger zone, with China shrinking and the U.S. dependent on generous financing for buyers. Companies must spend billions to meet tighter emissions regulations and develop technologies such as electric vehicles.

Nearly a decade after they were introduced, the companies’ flagship electric vehicles—the Nissan Leaf and Renault Zoe hatchbacks—still share few parts. The companies said they are developing electric vehicles with shared components that will be sold in coming years.

“This should have happened before 2010, and it is still planned for ‘soon,’ ” said Louis Schweitzer, a former Renault CEO who was the original architect of the alliance with Nissan in 1999.

A Renault merger proposal advocated by Mr. Senard earlier this year was meant to address those challenges. United under a single post-Ghosn leader, the idea went, Nissan and Renault could more effectively slash costs and combine their technology investments.

Many at Nissan, though, feel they are better off addressing their problems on their own, especially since Renault doesn’t even operate in the U.S., Nissan’s biggest market and the source of many of its problems.

Such skepticism about the value of broad partnerships has widened among car executives. Consumer tastes and vehicle styles vary so widely between the major markets that it is hard to productively cooperate, they said.

Nissan and Renault have bickered constantly over the past two decades, each complaining that the other side slowed down the development process with its demands. Nissan engineers felt that Renault leaned too much on the Japanese company’s technology, said people close to Nissan. Renault engineers felt that their Japanese counterparts were too unwilling to compromise, said people close to Renault.

Both sides regularly blamed delays on the quirks of working with a foreign company, said a former alliance executive. “Every single month there would be a struggle, or a conflict, or different opinions,” the former executive said. It was usually Mr. Ghosn’s job to broker an agreement between the two sides, the person said.

Although Nissan criticized Mr. Ghosn as a dictator, he often curbed the worst of the two companies’ infighting. The globe-trotting executive was initially dispatched by Renault in 1999 to turn around Nissan, and his success there propelled him into the chief executive’s job at Renault as well.

Sensitive to Nissan’s fears of domination from abroad, Mr. Ghosn resisted shareholder pressure for a merger of the two auto makers, although by his final years he had begun work on a plan to combine them.

He tried to cajole Nissan and Renault into cooperating by promising that any joint activities would benefit both sides. He put out annual figures showing how many billions of dollars the alliance was saving thanks to synergies, showing a steady rise to €5.7 billion, or about $6.3 billion, in 2017, the last year for which they released the figures.

A portion of the figures represented savings on parts that the companies ordered together in bulk. But current and former executives said the majority came from a category called cost-avoidance synergies, in which the companies calculated costs that might have arisen if the alliance didn’t exist and then credited themselves for not incurring them.

Mr. Ghosn felt the annual release of the figures was an important carrot to encourage the sides to work together, said people familiar with his thinking.

His arrest and subsequent indictment on charges of financial wrongdoing, which he denies, left no one in the peacemaker role.

Shortly after the arrest, a group of Renault executives, outside lawyers and financial advisers met frequently on the seventh floor of their headquarters near Paris to come up with a response. They called themselves Groupe Orange, a combination of Renault yellow and Nissan red.

The group worked through various scenarios, including a possible hostile takeover of Nissan, but that option was quickly dismissed because any victory would be pyrrhic, said one person involved in Groupe Orange. People at Nissan say any attempted takeover from Renault would create a revolt against French control, likely opposition from the Japanese state and mass resignations from Nissan engineers.

Instead, Groupe Orange decided to push for a merger. Mr. Senard, formerly chief executive of French tire maker Michelin, took on the task of persuading Nissan after he was appointed Renault’s chairman in late January. He quickly ran into resistance from Nissan veterans who wanted the Yokohama company to remain independent. Mr. Senard said the two sides aren’t currently talking about a merger.

The friction spread even to parts of the alliance where the companies had begun to work more closely together.

Renault and Nissan produce some vehicles and parts for each other to save money, particularly in Europe. At its factories in Spain and France, Renault makes engines and commercial vehicles for Nissan to sell under its own brand in Europe. As sales fell, Renault raised the prices it charged to Nissan, people familiar with the decision said, angering Nissan.

At the same time, Renault complained about paying what it views as inflated prices for Renault versions of Nissan pickup trucks that the Japanese company produces in Barcelona.

The tense atmosphere, particularly at the top of Renault and Nissan, made striking deals difficult. “Both leaders at the time built their identity on opposing the other company,” said a person close to Renault, in reference to former Renault CEO Thierry Bolloré and former Nissan CEO Hiroto Saikawa.

The biggest problem at the alliance is a dramatic fall in net profit at Nissan. In its final full year under Mr. Ghosn it earned nearly $7 billion. Now the company estimates it will make $1 billion in the year ending March 31. Those weak results feed through to Renault, which, as a large shareholder of Nissan, records its share of Nissan’s profit on its own bottom line.

In the U.S., Nissan’s largest market, Mr. Saikawa, who was ousted as CEO in September, sought to lift profit by slashing low-margin sales to rental car agencies and raising prices for regular car buyers. Sales did fall—they were down 16% in November—but net profit hasn’t risen.

China, seen as a growth driver until recently, is shrinking, too. In November, Nissan issued its third quarterly profit warning this year.

The situation is no better at Renault, which relies on slow-growing Europe for more than half its sales. A new version of its best-selling model, the Clio hatchback, faced production issues, which delayed its launch in parts of Europe. The Zoe electric car faces a flood of new competitors.

Mr. Senard, who is also chairman of the alliance, called the recent performance at both Renault and Nissan “miserable” and “disgraceful.”

“This cannot go on and everybody understands that,” he said. Mr. Senard said the ousting of some troublemakers calmed tensions and would allow the alliance to fix its problems.

As a group, Renault, Nissan and third partner Mitsubishi Motors Corp. sell more cars than General Motors Co. and are roughly on a par with global leaders Volkswagen AG and Toyota Motor Corp. But size doesn’t mean much in the absence of further cooperation, Mr. Senard said.

“At the end of the day you’re lagging in terms of performance. You’re the worst in terms of the big four,” he said.

Mitsubishi joined the alliance in 2016 after Nissan bought a 34% controlling stake. The deal was praised within the alliance for the added scale a third partner brought, but Mitsubishi currently has few ties to Renault.

When Mr. Saikawa, the Nissan CEO at the time, in July announced a global restructuring that includes 12,500 job cuts, it didn’t include a discussion of the alliance.

This year, the companies ended Mr. Ghosn’s annual tradition of announcing how many billions of dollars were saved through what the companies call synergies. They were concerned it would look foolish when profits at both were plummeting. “I’d rather say nothing than say things I can’t justify,” Mr. Senard said.

People at both companies said they are tired of fighting. Some top executives have jumped ship to take jobs at major competitors. At Nissan, a new triumvirate at the top headed by Chief Executive Makoto Uchida took over on Dec. 1. One of the executives, Jun Seki, resigned weeks into his new job.

“The alliance is essential to our performance recovery and steadfast growth in the future,” Mr. Uchida said on his second day on the job.

When the heads of Nissan, Renault and Mitsubishi met in France in late November, they discussed pooling resources on research, engines and shared factories as well as a joint venture to develop future technologies, said people familiar with the discussions. The three have appointed an alliance general secretary, and they plan further personnel moves in coming weeks. Renault is looking for a new CEO, to succeed Mr. Bolloré, who was fired in October.

Seeing the endless squabbling is galling to Mr. Ghosn, who is living in a Tokyo house awaiting a trial set to start next year, according to a former alliance executive familiar with his views. “There is a point where the Japanese will say, ‘By the way, guys, why are we together?’ ”

Territory’s chief executive condemns renewed violence outbreaks in shopping centres

Christmas in Hong Kong was “ruined” by renewed unrest, according to the city’s embattled chief executive, as pro-democracy activists staged demonstrations and police carried out mass arrests across the city’s main shopping districts.

After several weeks of relative calm, the territory was again rocked by violent clashes between an increasingly aggressive police force and a smaller but radicalising protest movement that spread through shopping malls and crowded streets on Christmas Eve and Christmas Day.

Human rights groups accused the Hong Kong police of a disproportionate response as they carried out random searches of shoppers in busy malls, fired numerous rounds of tear gas and rubber bullets and detained scores of people in indiscriminate mass arrests.

Benedict Rogers, human rights activist and chairman of UK-based non-governmental organisation Hong Kong Watch, said there had been “outrageous” police brutality on Christmas Eve after tear gas was deployed to disperse crowds outside the iconic Peninsula Hotel, where rooms cost as much as HK$21,080 (US$2,706) a night.

The accusation was rejected by the Hong Kong government, which said there had been arson and police had been attacked with petrol bombs.

Carrie Lam, the city’s Beijing-appointed leader, accused the protesters of “dampening” the festive mood. “Many members of the public and tourists coming to Hong Kong were naturally disappointed that their Christmas Eve celebrations have been ruined by a group of reckless and selfish rioters,” she said in a statement.

The demonstrations began eight months ago in opposition to a proposal to send alleged criminals to mainland China to face trial in Communist Party-controlled courts. But they have evolved into a broader demand for democracy and now represent the biggest open rebellion on Chinese soil in three decades.

The Christmas protests suggest the unrest will probably continue into 2020.

The organiser of the marches which brought millions onto the city streets, the Civil Human Rights Front, has applied for approval for a protest on New Year’s Day and demonstrators are discussing plans for New Year’s Eve.

Targets of the protest movement are also broadening. On Christmas Eve, demonstrators vandalised and set fire to a branch of HSBC after the bank was accused of closing an account used to manage proceeds of crowdfunding to assist protesters.

This was the first time the UK-headquartered bank was targeted directly by the protests. In recent months demonstrators have often attacked state-owned Chinese banks and businesses perceived to be sympathetic to Beijing and the Hong Kong government.

Insiders say the protest movement could threaten about a quarter of HSBC’s local revenues.

Rapid expansion of private company debt linked to shadow banking fuels distress

Corporate defaults in China surged to a record high in 2019, raising new questions over how policymakers in Beijing will manage mounting financial distress among large private and state-owned companies.

Onshore corporate defaults hit Rmb130bn ($18.6bn) in the final weeks of the year, breaking the record of Rmb122bn last year, according to data compiled by Bloomberg, as economic growth ground to a three-decade low.

Private companies that expanded rapidly in recent years, accruing large piles of debt, have been at the heart of the explosion in corporate distress. Some of the country’s leaders in sectors such as chemicals and textiles have faced financial pressures in recent weeks.

Defaults on US dollar-denominated bonds, which until recently were closely guarded with implicit state guarantees, have hit $2.85bn this year, according to data from S&P Global Ratings, with the default of state commodities trader Tewoo delivering a shock to markets earlier this month.

“The recent pick-up in defaults adds to broader evidence that corporate balance sheets remain under strain,” Julian Evans-Pritchard, senior China economist at Capital Economics, said in a recent note to investors.

Private sector defaults have been concentrated in industries heavily reliant on shadow bank funding — an area of the Chinese financial system where access to credit has tightened significantly over the past two years — and are now suffering from oversupply.

Yuhuang Chemical, which expanded rapidly over the past five years and opened a large methanol plant in the US in 2017, is among a growing list of large, private groups that have reneged on domestic bond payments this year.

Shandong Ruyi, the owner of UK clothing maker Aquascutum and Savile Row tailor Gieves & Hawkes, narrowly averted a default on a $345m US-dollar bond due on December 19 but the group is still struggling to manage a vast pile of debt that doubled in size between 2015 and 2018.

“Reduced funding access for weaker shadow banks could result in increased credit events and defaults, particularly against the backdrop of a slower environment, which can be particularly acute for private-sector enterprises,” Rowena Chang, an associate director at Fitch, said in a report this month.

State-owned companies and groups controlled by local governments around China have also faced unprecedented financial pressures this year.

Commodities trader Tewoo Group, which is backed by the city government of Tianjin, forced creditors to take deep discounts on a $300m dollar-denominated bond earlier this month, delivering a shock to investors who thought such a high-profile state group would receive full support from Beijing.

Experts are now debating how much support state-backed companies will receive from the government in the new year following a warning from a central bank adviser over a chain reaction in missed payments.

“The 2020 wish lists for China’s local government officials are likely to include new bailouts of local debt,” Logan Wright and Allen Feng of independent researcher Rhodium Group wrote in a report this month. “But the debt levels are just too large at this point.”

Investment house has trounced returns of around 9% in broader industry

BlueCrest Capital, the private investment firm headed by billionaire trader Michael Platt, has chalked up gains of around 50 per cent this year, continuing a run of blistering performance since returning outside investors’ money four years ago.

The publicity-shy firm, which was one of the world’s biggest hedge funds up to 2015, made the gains from trading interest rates as well as emerging-market bonds, said people familiar with its positioning.

BlueCrest declined to comment.

The gains dwarf the returns posted by the hedge fund industry this year. Funds on average have gained about 9 per cent over the first 11 months of 2019, according to data group HFR, lagging a 28 per cent gain in the S&P 500 index. While funds have generally profited from rising stocks and bonds, many were caught out by a reversal in bond yields over the past four months, as they climbed from historic lows.

BlueCrest’s gains this year follow returns of 50 per cent in 2016 and 54 per cent in 2017. Last year, when hedge funds on average lost money in falling markets, the firm still made a 25 per cent gain.

The flagship BlueCrest Capital International macro fund, which bet on moves in global bonds and currencies, returned 45 per cent in 2009 and grew to $14bn at its peak. The firm’s overall assets rose to as much as $36bn in assets in 2012.

But assets later shrank to around $8bn following a period of lacklustre returns and the spin-off of Systematica, the quantitative funds arm. In late 2015 BlueCrest announced it would convert into a family office to manage wealth primarily for Mr Platt and other staff.

At the time Mr Platt said that his bets had been constrained by institutional investors’ demand for lower-risk products, and that converting into a family office would allow him to take more risk.

Mr Platt, whose fortune is estimated at £3bn by the Sunday Times Rich List, hit the headlines this week when a video emerged of him in the back of a New York cab talking about his wealth.

In October the Financial Times reported that a team of emerging market credit traders at BlueCrest’s New York and London offices were in the process of relocating to Geneva.

$5.7bn Oppenheimer deal fails to spur growth while Neil Woodford casts shadow in UK

Speaking to an audience of several hundred investment professionals in New York this autumn, Martin Flanagan, chief executive of Invesco, painted a bleak picture of their industry.

“We are going through a once in a generation change,” the plain spoken head of one of the world’s biggest fund managers said. “Every single client we deal with around the world is using fewer and fewer money managers . . . that just changes the landscape like we’ve never seen before.”

Mr Flanagan was alluding to the pressure on active managers to cut costs in an era of ultra-low interest rates and cheap passive funds — pressures which are forcing many players to fundamentally reassess how they compete.

But compounding these challenges is a set of problems specific to Invesco: the painful integration of its mega $5.7bn acquisition of New York-based OppenheimerFunds, clients pulling back from one of its main investment strategies and the UK arm suffering from an association with its former star stockpicker Neil Woodford.

Invesco’s share price is down more than 50 per cent since the start of last year, and despite a rally in the first few months of 2019 is only back at around $18, its mid-January level.

Pressure is beginning to mount on Mr Flanagan, who has led the Atlanta-based $1.2tn fund house for more than 14 years. His attempts to insulate Invesco from these tectonic pressures have been to expand the business into a greater number of markets and offer a wider range of products.

Yet these moves — including the Oppenheimer deal, finalised this year — have put Invesco at the centre of a perfect storm and made it the worst-selling fund manager globally this year. The group’s funds have bled more than $1bn a week over the past 12 months.

“The market will only give them so much leeway [after the Oppenheimer acquisition],” said Stephen Biggar, an analyst at Argus Research. “They will want to see some tangible benefits soon.”

In recent years Mr Flanagan has moved the business, which was built up through acquisitions in the 1980s and 1990s of successful active managers, increasingly towards cheaper passive products. These now make up a quarter of the group’s total assets, up from just 17 per cent three years ago.

Two years ago, Invesco bought two ETF businesses, Source and an arm of Guggenheim Investments, which brought a total of $54bn of assets. The addition of OppenheimerFunds this year added around $300bn in client assets, sending the group’s total to $1.2tn when the deal closed in May.

In a market that increasingly favours huge scale players or nimble boutiques, swelling in size made strategic sense but integrating Oppenheimer has not been plain sailing.

The combined business has shed 1,300 jobs, helping the group shave an estimated $501m in costs according to its third-quarter earnings results, outpacing the $475m target Mr Flanagan had repeated on quarterly calls with analysts throughout the year.

However, the integration has also caused internal tension and prompted clients to bolt at the prospect of upheaval. The staff cuts amounted to 12 per cent of the combined workforce, according to headcount totals at the end of 2018, and included a Denver office of 850 people that focused on administrative functions.

Invesco avoided firing portfolio managers, whose departures can trigger a red flag for investors and groups like Morningstar, which assign ratings to funds. But large-scale job cuts typically lead to clients withdrawing their money in the fear of disruption to the business, especially when they are centred on back-office and sales roles.

The tie-up has not prevented the enlarged group from losing assets. It has suffered persistent net outflows throughout the year, including $7.8bn shed in November, according to Citi estimates.

These are “substantially deeper” than anticipated, according to Bill Katz, an analyst at Citi. Since the Oppenheimer deal was announced last October, the group has suffered $62bn of net outflows excluding ETFs, according to Morningstar — by far the biggest loss of business of any fund manager globally.

The outflows place fresh pressure on the group’s distribution arm after Mr Flanagan had repeatedly pointed to OppenheimerFunds’ sales team as a prized jewel since first announcing the deal last year.

“On the US distribution side it’s worse than expected — there have been more outflows than anticipated,” said one senior employee. He said the meagre performance of Invesco’s own stock had hit executive morale.

“It doesn’t look very good,” he added. “When you have a share price that has been cut in half, it reduces the firm’s flexibility to grow,” such as through further acquisitions or even incentivising staff with stock-based compensation. He added that despite the challenges in the US, the UK business was facing greater strain due to poor performance in its funds.

One former Invesco executive, who spent close to 20 years at the company’s UK business, said its current challenges integrating Oppenheimer are reminiscent of its teething problems when it took over Henley-on-Thames-based Perpetual in 2000.

“The first two or three years after the Americans came in was a real struggle,” said the former executive, who declined to be named. “It wasn’t until around 2003 that things started to pick up again.”

Up to 40 per cent of Perpetual staff left the business in the first few years under Invesco — including star manager Stephen Whittaker — prompting advisers to take the company’s funds off their best buy lists. But the company roared back, not least due to the popularity of Mr Woodford’s Income and High Income funds.

When Mr Woodford left the company in 2014 to set up on his own, Invesco suffered heavy outflows once again as many longtime clients switched their money to the new business. Mr Woodford’s protégé, Mark Barnett, took over management of his funds and became Invesco’s head of UK equities.

But Mr Woodford’s dramatic downfall this year has been an uncomfortable experience for his former colleagues in Henley, not least Mr Barnett, due to their similar holdings in hard to sell unquoted shares — the source of Mr Woodford’s fall from grace.

Mr Barnett was forced to apologise to investors last month for underperformance of his funds, following heavy investor withdrawals and a warning from influential ratings company Morningstar over the level of liquidity in his portfolios. Invesco later added another of its UK fund managers, Martin Walker, as co-head of the UK equities business with Mr Barnett in an attempt to quell concerns over client departures. 

Mr Barnett suffered further ignominy this month after being fired as manager of the £1.3bn Edinburgh Investment Trust, with the listed fund’s board singling out Mr Barnett’s stockpicking as the main reason behind its poor performance.

Invesco’s Henley office has also been roiled by British investors’ aversion to absolute return funds, products that proved popular after the financial crisis as a way to protect against losses using expensive derivatives-investing techniques, but failed to meet that promise.

Invesco’s Global Targeted Returns fund — which is now the biggest in the market after overtaking Standard Life Aberdeen’s Gars product — dropped by a fifth in the past year to £9.9bn having suffered £2.5bn of outflows. 

The company points to business wins in continental Europe and China as reasons for optimism, as well as a record year of inflows for its European exchange traded funds. But problems in the US and UK — its two biggest markets — have had a far bigger bearing on the company’s health this year. It is also suffering from a problem familiar to its fellow behemoth global fund managers in that clients are switching out of higher-margin active funds and into cheaper index-based funds. In the three months to the end of September, Invesco suffered $15.7bn of outflows from its active funds, which was partially offset by $4.6bn of inflows to passive products.

Despite the challenges analysts have signalled cautious optimism. Six of the 19 analysts tracked by Bloomberg that cover Invesco stock believe it will outperform, with just one signalling the stock has further to fall. Cutting more expenses than forecast after the Oppenheimer deal has improved the outlook, but continued traction on gross sales “in addition to improved investment performance is needed for us to get more constructive,” Daniel Fannon, an analyst with Jefferies, said after third-quarter earnings.

“Invesco is a supertanker,” says the former executive. “It’s a darn sight harder for it to turn around flagging performance than if it was a much smaller business.”