Britain braced for Brexit raid on asset management
Fears grow that £8tn UK sector might be key target for rival EU hubs
Theresa May is braced for a possible French raid on Britain’s £8tn asset management industry, amid fears the sector might be the most exposed part of the City after Brexit.
Paris is vying to expand its slice of the European fund management sector along with Frankfurt, Dublin and Luxembourg, raising concerns in the UK government and the Bank of England that this could become the financial front line in Brexit.
The Financial Times has learnt that ministers and BoE officials fear a French-backed move to limit access for British-based fund managers to EU funds in centres such as Dublin and Luxembourg.
“There has been a lot of focus on the impact of Brexit on investment banks, but this is becoming the key issue,” said one member of the prime minister’s Brexit team.
At the heart of the issue is so-called delegation, which allows an asset manager to set up a fund in one country and outsource the portfolio management to investment staff in another country.
Over the past three decades, Luxembourg and Ireland have become the EU’s leading hubs in which to base mutual funds, while investment decisions are typically taken in London, Paris, Frankfurt or elsewhere in the world under “delegation rules”.
The UK’s Investment Association, a trade body, estimates that £900bn is managed from the UK on behalf of funds domiciled in Ireland and Luxembourg. “Safeguarding delegation has to be the government’s key priority for the asset management industry during the Brexit negotiations,” one IA member firm said.
With the UK leaving the EU, there is a new focus on whether delegation rules are strict enough. The fear is that a large proportion of assets regulated in the bloc would be run from a non-EU country, with asset managers having only a token presence in an EU country.
British officials believe President Emmanuel Macron is personally backing moves to increase supervision of delegation decisions.
The European Securities and Markets Authority, the Paris-based pan-European financial watchdog, last year hit out at the establishment of “letterbox” entities employing only a few people in European countries.
It believes national regulators should take a tougher line on policing the sector and the Autorité des Marchés Financiers, the French regulator, has backed Esma’s anti “letterbox” stance.
Xavier Parain, head of asset management at the AMF, said he did not envisage massive changes to delegation.
“In July, Esma clarified that a European-based entity needs to have enough substance in order to delegate — substance in this case can mean people, in particular senior people in charge of portfolio management or risk management,” he said.
“When we give authorisation to new managers, we need to be sure that there are enough people to control the delegation. If you have more and more funds, if you have strategies that are more and more complex, you will need more people,” he said.
Keith Skeoch, co-chief executive of Standard Life Aberdeen, one of Europe’s largest asset management groups, warned “any changes to the current delegation arrangements, however great or small, will have reverberations around the world”.
The British Treasury said: “The UK is the pre-eminent global centre for financial services, and the asset management industry plays a pivotal part. We are determined that the UK remains a global hub to this important sector.” Last month the Treasury launched a strategy to support the sector.
Jacob Rees-Mogg, Conservative MP and chairman of Somerset Capital Management, rejected suggestions the sector was at risk, arguing that changes to the “delegation” rules would be most likely to hurt Ireland and Luxembourg.
He said that if the EU tried to stop fund managers in third countries having access to Irish and Luxembourg funds, it would damage those countries and lead to a fight not just with the UK but with “the US, Switzerland and other jurisdictions as well”.
Kit Maltby, a Conservative member of the Commons Treasury committee, agreed that any change to the delegation rules would be more likely to see funds and managers being brought together in London, not Paris.
Responding to ‘incorrect’ reports, Intel says major flaw affects ‘many different vendors’
Reports this morning that Intel processors are affected by a serious flaw that may reduce performance significantly hit the company’s credibility and stock hard. Intel has now officially responded to these reports, calling them “incorrect” and “inaccurate,” and saying it had planned to discuss this very issue next week.
The flaw makes it possible for ordinary users and processes to access data deep in the inner mechanisms of the processor and architecture — specifically, kernel memory. The possibilities for bad actors taking advantage of such a gaping hole are numerous, and unfortunately there is no easy solution that does not also slow the processor’s operations considerably.
In its statement, issued “because of the current inaccurate media reports,” Intel writes:
Recent reports that these exploits are caused by a “bug” or a “flaw” and are unique to Intel products are incorrect. Based on the analysis to date, many types of computing devices — with many different vendors’ processors and operating systems — are susceptible to these exploits.
In other words, it’s not just them. This may seem like deflection, but it’s also possible that the issue is more widespread than just Intel hardware — and Intel isn’t likely to blow smoke with a claim that can’t be verified. Other major chip and OS companies are almost certainly all already aware of the problem; indeed, Intel says they were about to make a joint announcement:
Intel is committed to product and customer security and is working closely with many other technology companies, including AMD, ARM Holdings and several operating system vendors, to develop an industry-wide approach to resolve this issue promptly and constructively.Intel and other vendors had planned to disclose this issue next week when more software and firmware updates will be available.
Intel downplayed the performance hit: “Contrary to some reports, any performance impacts are workload-dependent, and, for the average computer user, should not be significant and will be mitigated over time,” the statement read.
That’s good, but no doubt the impact will be measured carefully by benchmarks and explained in detail — some setups and applications will surely be affected more than others.
Spotify Files to Go Public Through Direct Listing, Cutting Out Underwriters
Confidential filing with SEC is latest key step in music-streaming giant’s plan to list its shares
Spotify AB has confidentially filed paperwork with the Securities and Exchange Commission to list its shares on the New York Stock Exchange, according to a person familiar with the listing.
This SEC filing is the latest key step in Spotify’s plans to go public using an unusual method known as a direct listing. That listing won’t be an initial public offering, as Spotify won’t seek to raise money as it goes public.
Spotify’s most recent valuation was nearly $20 billion, based on a recent share swap between Spotify and Chinese internet giantTencent Holdings Ltd. While it is unclear how public investors will value Spotify, a $20 billion valuation would make Spotify one of the largest technology companies to debut on a U.S. exchange sinceFacebook Inc. Spotify was valued at $8.5 billion during a private capital injection in 2015.
The Swedish company has been targeting March or April for its debut, according to people familiar with the matter.
If the debut goes well, it could encourage other highly valued and cash-rich startups, such as Airbnb Inc., to pursue direct listings, people familiar with the matter have said.
Late last year, Spotify received approval from the SEC to move forward with a direct listing on the NYSE. The SEC had concerns that Spotify’s direct listing could open the door for other companies with potentially risky financial profiles to access the public markets without giving investors sufficient protection, people familiar with the negotiations said.
Axios reported earlier Wednesday that Spotify had filed confidentially with the SEC.
Launched in 2008, Spotify lets users listen to a library of more than 30 million songs on demand. Subscribers who pay around $10 a month can listen without hearing ads; users of the free version need to sit through ads and have more limited ability to pick the order in which they hear the songs they select. As of June, Spotify said it has 140 million active users world-wide, 60 million of whom pay.
The music industry has widely credited Spotify and other subscription-streaming companies with helping to reverse a long slide in revenue. The three global music companies—Vivendi SA’s Universal Music Group, Sony Corp.’s Sony Music Entertainment and Access Industries Inc.’s Warner Music Group—received equity stakes in Spotify as part of deals to license their catalogs to the Sweden-based company.
Spotify has reported limited financial results, which have shown losses for several years running.
In a direct listing, a company transfers its shares to an exchange without raising money as is done in a typical IPO. Companies have shied away from the unusual process in part because there is a greater risk that the shares could flop since there are no underwriters to set and prop up the price.
The listing is being used as a way for Spotify to give existing investors the chance to cash out but not to raise additional funds. New investors will be able to buy shares once they start trading.
Among the draws of a direct listing: They enable companies to save on the hefty underwriting fees associated with traditional IPOs, and there aren’t restrictions on when insiders can sell shares.
Spotify has been hit recently by a raft of copyright-infringement lawsuits filed by songwriters and music publishers, though a person familiar with the matter said the suits won’t affect the timing of Spotify going public.
One suit, filed by Wixen Music Publishing, which controls compositions by Tom Petty, Steely Dan, Neil Young and others, alleges Spotify isn’t licensed for tens of thousands of songs it streams on its service, and isn't properly compensating the musicians who wrote them. The lawsuit is seeking at least $1.6 billion in damages.
In May, Spotify reached a proposed $43 million settlement in a lawsuit seeking class action that is pending judge approval; Wixen is also leading a move by several major artists to object. The most recent suit, filed Dec. 29 and made public Tuesday, follows a pair of similar suits filed in July.
Big Oil Investors Rethink Their Bets
The industry is challenged by oil demand, regulation and technology
Some big investors and banks are rethinking investments in an oil and gas industry wrestling with uncertain oil demand, government regulation and disruptive technology like electric vehicles.
Sources: Norges Bank Investment Management (fund value); S&P Global Market Intelligence (oil and gas stocks)
The biggest is in Norway, where the government says it will decide this year whether to wind down its $1 trillion sovereign-wealth fund’s investmentsin the oil and gas sector. Its assets include multibillion-dollar stakes in Exxon Mobil Corp. XOM +2.22% ,Royal Dutch ShellRDS.B +1.01% PLC, ChevronCorp. and BP BP +1.13%PLC.
Others, including French insurance giant AXA GroupAXAHY -0.27% and Dutch bank ING Groep ING +0.70%NV, are pulling back from parts of the industry that contribute most to climate change, like Canada’s oil sands. In a world where the heaviest polluting industries could be penalized, some investors say the financial risks of such investments could outweigh the rewards. For instance, Canada is introducing a carbon tax this year to limit greenhouse gas emissions from oil sands.
The moves are distinct from calls from environmentalists and so-called ethical investors for divestment from the oil industry, although those sentiments have been taken up by large, mainstream financial institutions more often since the 2015 Paris agreement to fight climate change. The World Bank said last month it will stop financing oil and gas exploration and drilling by 2019, in support of the Paris goals. French bank BNP Paribas says it will no longer finance some oil projects seen as environmentally damaging.
The trend resembles—on a smaller scale—the early investor movement against the coal industry, which was rocked by an explosion in production of cheap, cleaner-burning natural gas in the U.S. over the past decade. Norway’s parliament decided that the country’s sovereign-wealth fund should stop investing in companies with a heavy exposure to coal in 2015, ahead of the Paris agreement. The decision came against a backdrop of mounting scrutiny on the financial risk, as well as environmental impact, associated with coal.
Similar market forces are now applying pressure on oil.
Renewables—once hampered by high costs—have become cheap enough to compete with coal and gas in some instances. The U.K., France, China and India have signaled they plan to ban sales of vehicles with traditional combustion engines, undercutting a potential source of crude demand.
Norwegian officials say the current debate is entirely pragmatic. The country may be overexposed to a sector undergoing turbulent change by having both a large national oil company,Statoil AS A, and billion-dollar-plus holdings in other international oil companies.
“This is really a question of risk diversification,” Yngve Slyngstad, chief executive of Norges Bank Investment Management—which manages the fund—told The Wall Street Journal. Statoil’s profits and other energy-focused revenue in Norway is plowed into the fund and invested elsewhere.
Mr. Slyngstad said the transition from dependency on fossil fuels to alternatives like solar, wind and other renewables would take several decades. But he said investments in traditional oil companies should come with a “high-risk premium,” considering “all the uncertainty around the energy transition.”
The Norwegian concerns have “put those industries on alert,“ said Matt Christensen, global head of responsible investment at AXA’s asset-management arm. ”The risks which climate change presents are becoming more understood as existential in nature.”
To be sure, wholesale divestment from the oil and gas sector remains rare. The sheer size of oil giants like Exxon and Shell make it difficult for fund managers to say they will exclude them outright. And they have advantages over coal companies because oil is harder to replace quickly and natural gas is viewed by many as an emission-reducing fuel.
Big oil companies say they are doing enough now to manage the financial risk from climate change, moving their businesses more toward natural gas and experimenting with renewables and electricity.
“The current risk from climate change regulation, even in a restricted greenhouse gas scenario, is minimal and manageable over time,” a Chevron spokesman said.
In an interview, BP Chief Executive Bob Dudley said Norwegian officials had been “pretty clear with me” that their concerns weren’t about climate but about diversification. “I can’t argue with that really,” he said.
Norway’s oil fund owns over 2% of BP’s stock, according to S&P Global Market Intelligence. Any Norwegian oil divestment is likely to be carefully managed and take place over a number of years so as not to disrupt markets.
U.S. investors appear committed to the oil industry but have begun pressuring it to change. Last year, a task force—commissioned by the G-20 and including major financial institutions like JPMorgan Chase & Co and BlackRock Inc. —published guidelines pushing for better disclosure of the impact of climate change. Across the U.S., utilities and oil-and-gas companies faced shareholder revolts this summer as investors clamored for more information about how they view climate risk.
“We think we can have more influence from inside the tent,” said Rob Main who sits on the investment stewardship team of Vanguard Group, which holds $4.9 trillion under management.
This summer, it voted against the boards at Exxon and Occidental Petroleum , demanding more disclosure of the potential business risks presented by efforts to limit global warming in line with the Paris agreement.
Last month, Exxon capitulated to shareholder demands, agreeing to publish new details about how climate change could affect its business.
*BLACKSTONE WIEN DOESNT EXPECT TRUMP TO WITHDRAW FROM IRAN DEAL
*BLACKSTONE'S WIEN: UNDERLYING STRENGTH OF US ECO `VERY REAL'
*BLACKSTONE'S WIEN: UNDERLYING STRENGTH OF US ECO `VERY REAL'