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Asset Management: Wall Street’s new titans

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Welcome to FT Asset Management, our weekly newsletter on the movers and shakers behind a multitrillion-dollar global industry. This article is an on-site version of the newsletter. Subscribers can sign up here to get it delivered every Monday. Explore all of our newsletters here.

Does the format, content and tone work for you? Let me know: harriet.agnew@ft.com

One thing to start: It was great to see so many of you at our Future of Asset Management North America event in New York last week. If you missed it, catch up on the video on demand here.

And one scoop: UK chancellor Rachel Reeves is considering dropping an inheritance tax element of her non-dom crackdown after warnings it would cause an exodus of wealthy people and bring in little revenue.

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In today’s newsletter:

  • How trading firms stole a march on big banks

  • Vanguard plans fresh push into active fixed-income market

  • Global egg price surges as avian flu hits supplies

How trading firms stole a march on big banks

After decades of investment banking dominance, a new breed of upstart firms now rule the roost in global markets. 

This must-read analysis by my colleagues Joshua Franklin and Costas Mourselas is the first in an FT series on the trading giants that have risen to challenge investment banks. 

It explores how non-bank trading firms such as Ken Griffin’s Citadel Securities, Jane Street and Susquehanna have seized market share from banks in a number of key markets, including equities, bonds, commodities and derivatives. They have garnered an edge through enormous investments in technology. 

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This new breed of trading titans were generally set up around the turn of the millennium, just as the raucous trading pits in Chicago, New York and London were losing influence and electronic trading was in the ascendant. Regulations after the 2008 financial crisis further hampered the big banks. 

These newer trading firms look very different to the banks they have usurped. They hire legions of PhDs and engineers to develop sophisticated trading algorithms, which buy and sell securities in microseconds.

“The banks just didn’t appreciate how electronic markets and the efficiency of these firms would ultimately make them the dominant force in trading,” said Rob Creamer, president of Chicago-based firm Geneva Trading.

“Banks made big money quoting trades on the phone and didn’t care to prioritise a low-margin business like electronic market making — it was hardly going to pay for the new headquarters in Manhattan.”

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Banks still retain an advantage, controlling the calendar for new issues of securities via stock offerings and debt deals. But non-bank firms are increasingly coming for market share in traditional areas of strength for banks, including foreign exchange and the debt markets, which have been more opaque and slower to electronify. 

Critics wonder if the increasing market share of these more lightly regulated firms may spell trouble for markets in future.

“Regulators need to look at the top 15 players in trading volume, and should be agnostic if it’s a bank or a hedge fund or proprietary trading group, because there is inherent risk when somebody has too big of a market share,” said the head of a proprietary trading firm. “If they go down, they could take liquidity and cause stress in the market.” 

Read the full story here

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Vanguard CEO unveils fixed-income push

Vanguard famously revolutionised the equity market with its low-cost products that track an index, driving down prices and becoming the world’s second-largest money manager in the process. 

Now it is coming for the bond market. At the FT’s Future of Asset Management event in New York last week, Vanguard’s new chief executive Salim Ramji announced the $9.7tn asset manager was planning a push into fixed income investing. 

Fixed income “is going to be more important as people retire . . . it’s going to be more important in, at least our view is, the long term rate environment”, Ramji told my colleague Brooke Masters in a keynote interview.

“If you think of the fixed income market today . . . it’s far more antiquated, it’s far less transparent, far more expensive.” Around 10 per cent of the firm’s assets are already in active fixed income. “I think there’s an opportunity that Vanguard has to change that dynamic,” he added.

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Ramji criticised the fixed-income market for high fees and lack of transparency, which he said benefited firms more than their clients. “The opportunity set is vast when you look at the fixed-income market. It’s twice the size of the equity market and the inefficiencies in fixed income are extraordinary.”

Ramji, the first outsider to lead Vanguard since its founding in 1975, also addressed the technical and service failures that have plagued the manager in recent years as the industry has rapidly modernised, and acknowledged that the firm had “let down” its customers. “We have some work to do,” said the former top executive at BlackRock, Vanguard’s main competitor. 

He also walked a fine line around the firm’s decision to support none of the environmental or social shareholder proposals that it considered in the 2024 proxy season.

Ramji said: “We don’t dictate to companies what their strategy should be, we don’t push a particular agenda.”

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Chart of the week

Line chart of average price of eggs ($ per dozen) showing US egg prices inflation

Prices for eggs have soared as devastating bird flu outbreaks around the world and shifting consumer tastes put pressure on supplies, write Josephine Cumbo and Susannah Savage in London.

Global average prices are 60 per cent higher than in 2019, according to analysts at Rabobank, a rapid appreciation has led to political point-scoring by vice-presidential nominee JD Vance on the US election campaign trail. Egg shortages have also created temporary curbs to McDonald’s breakfast service in Australia.

A key factor in surging prices has been the devastating outbreaks of avian flu in North America and Europe, which have led to the culling of tens of millions of laying birds.

Roughly 33mn commercial laying hens and pullets were culled in the US between November 2023 and July this year, hard on the heels of another bird flu outbreak in 2022 that culled 40mn layers, Rabobank found.

“The lingering effects” of bird flu have been compounded by rising demand, said Karyn Rispoli, managing editor of eggs at Expana, a commodity trading data provider.

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She said consumers were also switching to eggs as a more affordable source of protein than meat. Concerns about the carbon footprint of meat consumption was also driving demand for eggs, added Rabobank.

These factors had led to Americans paying more than three times as much for eggs today than five years ago, Rabobank said. In comparison, South African egg prices had only doubled in the same period while Russia, Japan, Brazil and Europe and India had experienced price rises of between 50 and 90 per cent, it added.

Five unmissable stories this week

David Hunt, the chief executive of $1.3tn asset manager PGIM said he was concerned about “layered leverage” that private equity firms are using to return cash to investors and urged regulators to insist on more transparency about complex forms of debt. 

Legal & General has appointed Eric Adler from US insurer Prudential Financial as chief executive for its newly created asset management division, picking a US executive with expertise in private assets in a signal of how it plans to grow the UK’s largest asset manager. 

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The barbell tolls for fixed income investing, writes Huw van Steenis, vice-chair at Oliver Wyman. A trend long associated with equity investing is now playing out in the bond markets.

Nuveen, the wholly owned subsidiary of US teachers pension fund TIAA with $1.2tn in assets under management, is set to open its first Middle East office in Abu Dhabi, becoming the latest asset manager to bet on the fledgling financial hub.

Steven Fine, the chief executive of investment bank Peel Hunt, has warned of a looming “cliff edge” for UK small cap stocks if the government scraps inheritance tax relief on Aim-listed companies.

And finally

William Dalrymple, speaking about his latest book, The Golden Road © Colin Hattersley

Last weekend I attended the Wigtown Book Festival in south-west Scotland, now in its 26th year. I heard William Dalrymple talk about why India was Ancient Asia’s intellectual and technological superpower; Buddhist monk Gelong Thubten on finding strength in adversity; Pip Thornton speak about how Google sells your words; and a delightful performance by poet and comedian Pam Ayres, which had us all in stitches and rapturous applause. Highlights at Wigtown this week include a series of culinary events hosted by guest curator Coinneach MacLeod, aka the Hebridean Baker. There will also be appearances from National Chef of Scotland Gary MacLean; MasterChef finalist Sarah Rankin; and Sanjana Modha Sanjana, creator of amazing modern Indian cookery. Until October 6. 

Meanwhile the Josephine Hart Poetry Hour returns to the British Library in London on Thursday. The likes of Brian Cox, Nicole Ansari-Cox, Tim McInnerny and Joely Richardson will read aloud the poetry of the natural world. Tickets available here 

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Samsung accused of obstructing Fortnite downloads

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Samsung accused of obstructing Fortnite downloads

Epic Games has accused Samsung of making it too difficult to download its massively popular video game Fortnite on certain mobile devices.

In a legal complaint it said it would file on Monday, it says people have to go through “21 steps” before they can play the game on a new Samsung product, including viewing security warning screens and changing settings.

Epic claims this means 50% of people who try to install the game on these devices give up before they complete the process.

It says this process takes 12 steps, rather than 21, for other Android phones and tablets.

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Epic has blamed a Samsung feature called Auto Blocker for the issue, which is turned on by default on Samsung’s latest products.

The tool is intended to block “malicious activity” and prevent app installations from unauthorised sources.

But Epic claims Auto Blocker is affecting Fortnite downloads, and says that goes against competition laws.

Apps on Samsung or Google’s stores can be downloaded in just a couple of clicks, as the firms have already approved them.

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But Fortnite must be downloaded from Epic’s own store – which triggers Samsung’s Auto Blocker feature to kick in with warnings about it.

Epic claims both Google and Samsung know Fortnite is a legitimate app, and so there should not be any warnings flagged.

That’s because it used to be available on Google Play – the official app store for Android-powered phones – and Samsung has even previously collaborated with it, running Fortnite competitions and creating digital skins for the game’s characters.

The BBC has approached Samsung and Google for comment.

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Fortnite’s developer has previously taken Google and Apple to court over disagreements about the way the tech firms operate their app stores.

The game returned to EU-registered iPhones in August after Apple was ordered to open up its app marketplace, but it still can’t be played on iOS in the UK.

Epic boss Tim Sweeney said he was “very sad” to be initiating more legal action.

“The fight against Samsung… is new, and it really sucks,” he said.

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“I did not think we would end up in this place.”

He claimed Epic would have “made a lot more money” had it chosen not to pursue its previous legal action, but said he wanted to create a “truly level playing field” for developers.

The game developer says it wants Samsung to introduce a process by which all legitimate third-party app developers can apply to be whitelisted from Auto Blocker but is has been unable to reach an agreement.

Fortnite was removed from Apple and Google’s app stores in 2020 after Epic introduced its own in-app payments system.

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And the developer won a lengthy court battle against Google over app store dominance in December 2023, with a jury deciding that Google had been operating a monopoly.

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Rightmove urges REA to submit ‘best and final’ offer as it rejects £6.2bn bid

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Rightmove urges REA to submit ‘best and final’ offer as it rejects £6.2bn bid

“The last few weeks have been very disruptive as well as unsettling for our colleagues,” said Rightmove chair Andrew Fisher.

The post Rightmove urges REA to submit ‘best and final’ offer as it rejects £6.2bn bid appeared first on Property Week.

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Qantas adds A380 to Johannesburg route for the first time

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Qantas adds A380 to Johannesburg route for the first time

The move will add 130,000 seats per year to the route, as well as seeing the return of the carrier’s first class cabin and a doubling in the number of premium economy seats available

Continue reading Qantas adds A380 to Johannesburg route for the first time at Business Traveller.

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AI is fuelling an Asia grid investment boom

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Renewable energy sources are generating a record percentage of the world’s electricity. With nearly a third of the world’s total coming from cleaner sources, installations of wind and solar facilities are also growing at record rates.

The lack of power grids to support this rate of growth means that a large chunk of this electricity may start going to waste. A surge in power demand fuelled by artificial intelligence-related sectors could supercharge a buildout of the world’s transmission networks — and that will boost key suppliers of the kit needed.

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Almost 3,700 gigawatts of new renewable capacity is expected to come online over the five years to 2028 around the world, according to the International Energy Agency. In Asia, companies are starting to invest heavily to get power grid infrastructure up to speed to meet this new capacity as demand from AI-related sectors offers the prospect of a quick pay-off.

Operating and training generative AI services is highly energy-intensive. AI data processing requires significantly more power than traditional data-centre activities. Some studies estimate that generative AI systems use about 33 times more energy than machines running task-specific software.

Justifying the investment decision to build out grids has become easier, given that near-guaranteed demand. Japan’s largest electric utility company, Tokyo Electric Power Company Holdings, for example, will spend more than $3bn to build up its transmission infrastructure by financial year 2027 through its subsidiary Tepco Power Grid — tripling its level of investment.

This year, it launched a large-scale substation — its first in more than two decades — in Inzai, in the Chiba prefecture east of Tokyo. This coincides with the construction of several data centres in the area including by Google’ and Japanese IT group NEC.

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Line chart of Forward price/earnings showing Powered up by grid investment

A local beneficiary from the investment in power transmission and distribution networks is conglomerate Hitachi, whose power grids business makes hardware for electrical grids and load-dispatching systems. Recent earnings already reflect growing demand for power transmission solutions, with group net profit for the June quarter more than doubling to $1.2bn.

Shares of Hitachi are up 80 per cent this year, and trade at 26 times forward earnings — about triple the levels of two years ago. In the US alone, the grid connection backlog increased 30 per cent last year. As renewable energy capacity continues to grow, grid integration and energy storage solutions will become increasingly lucrative sectors.

june.yoon@ft.com

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Is acting for overseas clients worth it?

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Is acting for overseas clients worth it?

Global Communication From United Kingdom (World Map Credits To NASA)Picture the scene. Mrs Smith, a longstanding client, has just announced she’s moving to Japan.

What do you do? Wish her well and wave sayonara, or continue to manage her investments?

I’m sure most of you will be wondering why on earth you would give up a successful relationship – but have you considered the implications of acting for someone residing outside the UK?

Advising in Europe

Since we left the EU, the ability for UK-based firms to advise clients who live in other countries has essentially been removed.

However, if your client is an EEA/EU resident, there are a couple of exemptions you may be able to utilise to continue to act on their behalf:

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  1. UK soil exemption: Your client may live abroad but if your advice and the regulated activity takes place exclusively during visits to the UK, the exemption is permitted. You need to keep clear records of the client’s location during any contact, as even an email or phone call made while the client was outside the UK could be considered cross-border activity.
  2. Reverse solicitation: A less common and, in some cases, riskier option is to cite reverse solicitation, which, when used correctly, it is valid under EU and UK law. British firms have every right to provide services to EU clients that act exclusively on their own initiative to seek financial advice. However, this exemption has limitations and seeking legal advice is recommended before proceeding on this basis.

An option for clients moving overseas temporarily is to consider giving a trusted person living in the UK power of attorney. The donor decides who to appoint and when it can be used – for example, only for the provision of financial management when they are living or working overseas.

The regulatory position

While the FCA may regulate the product you want to provide the client, if they live outside the UK, they are not within its jurisdiction in relation to your advice.

Therefore, you need to consider if the service can be justified, in terms of the cost to your firm and the client, and the effort required to comply with local legislation.

The problem is that the ‘characteristic performance’ of the service determines where the activity is seen to be undertaken. For discretionary investment management firms, it is slightly easier, as decisions are made by you in the UK, but advisers act on the instructions of the client and, for regulatory purposes, these activities are determined by the client’s location at the time the advice is given.

As a general rule, you cannot market or solicit for business outside the UK unless:

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  • You have written evidence of exemption from the host state
  • You have been granted the relevant local authorisation

Practical considerations

You may be thinking the need to gain overseas authorisations is a mere technicality, but are you prepared to take the risk? Would you have PI cover if a complaint from an expat was to arise?

Although the chances of being caught may be low for one-off or irregular work, the FCA would hold a dim view of firms knowingly operating overseas in breach of local regulations.

There are other aspects to consider, too. For example, if you are providing an ongoing service, can you meet your Consumer Duty obligations? What would happen if you needed to make an urgent change and the client couldn’t come back to Britain? You really need to consider the outcomes for non-UK clients and whether they will receive fair value when judged against your wider target market.

Do your research

If you find yourself in the unenviable position of having to decide whether to continue acting for an emigrating client, it might be worth seeking the opinion of a solicitor or the financial regulator in the country concerned.

They will be able to confirm if there are local exemptions or if authorisation is needed. You also have to track down providers willing to facilitate an investment for clients without a UK base.

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If you determine advice has been provided outside the UK, without the local regulatory permissions, you may need to consider making a declaration to the FCA. You may also need to check if your PI insurer will cover the transaction.

For precise details about serving clients overseas, it is always worth consulting the FCA’s handbook or seeking legal advice.

Vicky Pearce is a director at B-Compliant 

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This Tory conference reads like a familiar story, risking a longer spell in opposition

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This article is an on-site version of our Inside Politics newsletter. Subscribers can sign up here to get the newsletter delivered every weekday. If you’re not a subscriber, you can still receive the newsletter free for 30 days

Good morning from Birmingham. The Conservative party’s first conference since entering opposition finds the party in a state of suspended animation. All four remaining leadership candidates know that a mistake this week, or a particularly good speech, could change the dynamic of the contest. As it stands, though, it looks like a very familiar story.

Inside Politics is edited by Georgina Quach. Read the previous edition of the newsletter here. Please send gossip, thoughts and feedback to insidepolitics@ft.com

Call of the wild

This is the third party conference I have attended in which the party hosting it has just entered opposition: 2010, when Labour’s 13-year period in government had come to a close the previous spring, 2015, when the Liberal Democrats had been reduced to just eight seats in the wake of their five-year stay in coalition, and now 2024.

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And all three of those conferences had a similar mood on their first day. Despite having gone down to a historically bad defeat, each party was surprisingly chipper. All felt that the new government was struggling to find its feet. (And, to be fair, in all of those cases they were right.) All were rather enjoying opposing painful cuts in the new government’s budget. And all hoped that come the next election they would be back in business. (Which they weren’t.)

In 2010 and 2015, the Labour party and Lib Dems respectively picked a leadership candidate who disavowed their record in office and moved the party closer to its activist base. Both parties did pretty poorly in the election that followed. The Labour party lost seats in 2015, and the Lib Dems lost votes.

At Conservative party conference so far, the candidates who are currently leading the pack to succeed Rishi Sunak as Tory leader are offering a similar diagnosis. Robert Jenrick, the bookmakers’ favourite, told party members that they lost the election in part because they lacked “the ballast of knowing what this party believes in”, and said that the Tory party needed to get back “some religion”. His rival Kemi Badenoch is telling members that they lost because they did not lead and became too obsessed with focus groups: the usual message when a party wants an excuse to ignore the voters it lost and vanish into the wilderness. At one fringe meeting, party members were encouraged to purchase hats with the slogan “Make the Tory party Conservative again”.

This is a party that looks pretty set upon doing what first-term oppositions always do: deciding that it lost because it wasn’t sufficiently like itself, and then losing the next election. Now, of course, it’s true to say that this doesn’t always happen. Both Labour in 1970 and the Conservatives in 1974 moved away from the centre and returned to government after a single term in opposition. That happened in part because the 1970s were a period of repeated geopolitical shocks, but you can see how the 2020s might end up being a similar decade.

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At this Conservative conference, and at Labour conferences after their defeats in 2010 and 2015, the success of Margaret Thatcher, whose reaction to defeat was to move the Conservative party away from what was then considered the centre of British politics, has been frequently cited.

But in general, what happens to most opposition leaders who go to bed thinking they are Thatcher is that they wake up and realise they have ended up more like former Labour leader Michael Foot: that their party has lost again and is going to have to wait another five years to get back into office.

Now try this

The trouble with Birmingham is it has any number of terrific restaurants that insist on being closed on Sundays. If it hadn’t been a Sunday, I would have gone to the delightful Adams yesterday, but as it was, I got room service and watched a below-average movie (The Intern) on Netflix.

Top stories today

  • Labour MP resigns over ‘hypocrisy’ | Keir Starmer is to tighten up UK rules on declaring ministerial “freebies” after a Labour MP quit the party denouncing the prime minister’s acceptance of free gifts and his “cruel” decision to cut winter fuel payments.

  • Manoeuvres in the dark | A company funnelling cash to Conservative leadership candidate Tom Tugendhat was set up last November, months before the general election was called.

  • Pension decisions | Rachel Reeves is unlikely to cut pension tax relief for higher earners in her Budget next month because it would hit teachers, doctors and other better paid public sector workers, according to a report released today.

  • Stop the fighting | Rishi Sunak has used a farewell address to party members to warn that the Tories will be consigned to the margins of politics for good unless they end their internecine feuding. The speech came as it emerged Sunak’s key lieutenant Oliver Dowden, former deputy prime minister, has been interviewed in the official investigation into betting on the date of the general election.

  • Row over Kemi comments | Tory leadership contender Kemi Badenoch has suggested that maternity pay in the UK is “excessive” and that people had more children before it was widely introduced, before rowing back on her position.

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