TheChek News Flow

Founder of Bertarelli family-backed UK investment business quits

Departure of Jon Little signals change of direction for Northill Capital

Fund industry dealmaker Jon Little has resigned as managing partner of Northill Capital, signalling a change in direction for the acquisitive UK investment business he founded nine years ago.

The business, which invests in boutique fund managers and has grown to $82.5bn of assets under management, is backed by the Swiss-Italian Bertarellis, one of Europe’s richest families.

Northill has spent the past few days informing its affiliate fund managers — which include Longview Partners, Capital Four and Securis Investments — of Mr Little’s decision to leave.

Mr Little, who built BNY Mellon’s international asset management division through a series of acquisitions to a $400bn business, will stay a partner at Northill until the end of the year. Mr Little said he had no immediate plans for when he leaves the business, but he retains his board position at Quilter, the wealth manager.

Gordon McNair, chief financial officer of the Bertarellis’ family office, has been tasked with recruiting a successor to Mr Little.

Northill was set up in 2010 to provide equity and seed capital to small investment companies, with a focus on slow growth. In March it completed its most recent acquisition, buying a majority equity interest in the $26bn Strategic Investment Group.

Ernesto Bertarelli sold his family’s pharmaceutical business, Serono, to Merck in 2007 for $13.3bn. He currently lives in Switzerland with his wife, the songwriter and former Miss UK Kirsty Bertarelli, who is Britain’s richest woman.

Six funds shed nearly 30 per cent of value on concerns over illiquid holdings

The six funds at the heart of H2O Asset Management’s illiquid bond crisis have now lost more than €5bn in value, as investors pull their money on concerns about an outsized bet on debt linked to a controversial German financier.

Fresh data showed shrinkage accelerated on Monday, with six of the Natixis subsidiary’s 18 funds losing close to €2.4bn in a single day, as jitters intensified around H2O’s relationship with Lars Windhorst, a flamboyant entrepreneur with a history of legal troubles. Adding to the strain, H2O is cutting its estimates for the value of some assets linked to Mr Windhorst.

The six funds — named Adagio, Allegro, Moderato, Multibonds, Multistrategies and Vivace — had assets of €17.2bn before the outflows began last week, when the Financial Times reported on their exposure to Mr Windhorst. Their assets have now dropped by close to 30 per cent. The biggest of the funds — Adagio — lost more than €1bn on Monday.

A spokesman for Mayfair-based H2O declined to comment on Wednesday. In a statement on Tuesday afternoon, the asset manager said that “net outflows have slowed significantly” since Monday, adding that its funds had since received “some material inflows”, without providing details of their scale or source.

The fund manager, whose main focus is on government bonds, said in a letter to investors on Monday that it would revalue any of its other debt linked to the German financier at “a very significant discount” to previous calculations. It has also begun to offload hundreds of millions of euros of these illiquid bonds.

H2O told clients on Monday that it sold €300m of the bonds last week, leaving it with a €1bn exposure. It then publicly announced that it had less than €500m of exposure left by the end of Monday. It did not specify what proportion of this was due to revaluations or to sales.

Several traders and distressed debt investors said that a “large holder” had been looking to sell bonds from Italian lingerie maker La Perla and Abu Dhabi brokerage ADS Securities — two of the nine companies with bonds linked to Mr Windhorst that are in H2O’s portfolios. ADS Securities separately said on Monday that its chief Philippe Ghanem was leaving, but also said that the decision was unrelated to the recent events at H2O.

Natixis’s asset management chief last week described H2O’s range of holdings linked to Mr Windhorst as “quite diversified”. The French bank has seen €1.7bn chopped off its market capitalisation since Thursday on the back of the concerns around H2O, which is a large contributor to asset management revenues.

Britain has long complained that equivalence deals can be revoked with little notice

Brussels is growing exasperated with an indecisive government after years of complex negotiations over a third country agreement that can’t pass through its troublesome parliament. The European Commission is now on the brink of cutting off the lucrative financial centre from European market access, sparking a series of tit-for-tat reprisals.

It sounds like a vision of Britain’s strained future with the EU without a Brexit deal. In fact, it’s the current story of how Switzerland is faring in interminable talks with Brussels over how to better arrange its messy trading relationship with the bloc.

The Alpine state — which is outside the EU and European Economic Area — has spent the last four years negotiating a “framework” deal with Brussels that would require Switzerland to automatically adopt some EU laws and court rulings in return for enjoying the benefits of the single market.

But in a tale that sounds all too familiar to Brexit negotiators, the Swiss government has struggled to convince its parliament and public to swallow an arrangement that would push Bern closer to the EU.

To keep the squeeze on the Swiss, the commission has kept the country’s stock traders on a tight leash. Brussels has granted Switzerland short-term “equivalence” deals, granting equity traders temporary access to EU markets depending on how political talks are progressing. But negotiations have gone sour and market access is due to expire this Sunday.

Contingency planning is kicking in. Swiss authorities insist they have been preparing for this “no deal” outcome since January. Brussels officials admit they “don’t know” what happens with the end of equivalence. In a letter to Bern, a senior EU official said the disruption from the loss of market access would “cause no major disruption” to financial stability. We’ll only find out come Monday morning.

The spat over equivalence is being closely watched in the City of London. The UK has long complained that equivalence deals, which are granted at the behest of the commission, can be revoked with little notice. Equivalence is exactly the kind of accord the UK financial services will be relying on after Brexit.

The Swiss meanwhile do not look ready to accept the framework deal any time soon. A federal election looms in October. The longer the process drags on — with EU capitals at the same time hardening towards the Brits — the greater the costs may be for the Swiss.

The likes of Germany, Austria and Luxembourg had been worried about the commission keeping the Swiss tethered to short-term equivalence decisions, fearing for the bloc’s broader financial health. But there’s now broad acceptance among EU governments that Swiss intransigence must be made an example.

“If you always threaten to do something and never see it through, what’s the point?” said an EU diplomat closely following the Swiss file.

“This much is true: we won’t treat the Brits any worse than we treat the Swiss.”

Asian stocks were mostly lower on Wednesday following a sell-off on Wall Street as investor optimism cooled with regard to the Federal Reserve being on the brink of lowering interest rates and the U.S.-China trade talks getting back on track.

Japanese shares slid and benchmarks fell at the open in Shanghai and Hong Kong. Australia and South Korea saw more limited moves, while futures on the S&P 500 Index were little changed. American stocks dropped the most this month after Federal Reserve Chairman Jerome Powell warned the downside risks to the U.S. economy have increased, while not going beyond his previous guidance on rate cuts. Ten-year Treasury yields held around 2%, crude oil prices climbed on supply concerns, and gold gave up some recent gains. New Zealand’s dollar fluctuated after its central bank left rates unchanged.

US After Hours AVAV -9.4%, MU +9%, SNX +4%, FDX +1% following earnings/guidance --> Watch Semi in Europe

Nikkei -0.59% Hang Seng +0.05% CSI -0.19% Shanghai -0.23% Shenzen +0.04%

Eur$1.1360 CNHH 6.8892 CNY6.8886 JPY 107.46 GBP 1.2676 CHF 0.9761 RUB 62.8747 TRY 5.8057 WTI$58.95 +1.92%

S&P -0.05% EuroStoxx -0.35% FTSE -0.26% Dax -0.37% SMI -0.25%

Macro :

- Powell Reiterates Stronger Case for Cut Amid Economic Risks

- Trump Says U.S. Will Use ‘Overwhelming Force’ If Iran Attacks

- Draghi Tests Legal Limits Again With Claim of QE Flexibility

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