One thing to start: The campaign against Edinburgh-based Baillie Gifford has left festivals struggling to adapt to a new age of protest. In this FTWeekend essay, Henry Mance and I explore the question: if Baillie Gifford isn’t “clean” enough to fund the arts, who is, exactly?
And one eye-watering pay package: Tesla chief executive Elon Musk has secured an emphatic victory in shareholder votes on his $56bn pay package and a proposal to move the company’s domicile from Delaware to Texas. Key to Tesla’s success in the vote was persuading Vanguard, its largest shareholder, to flip its stance on pay, having opposed it in 2018.
In today’s newsletter:
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The tentative turnaround of Janus Henderson
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Why France’s far right is spooking markets
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Private equity amasses $1tn in carried interest
Ali Dibadj: “Not all AUM is creating equally”
In 1979, the fall of the Shah of Iran stranded Ali Dibadj, then four years old, and his immediate family in Canada. His father, who had been working there, lost his job, and they had to move out of their home and seek emergency visas to stay in the country. Dibadj’s mother went to work at a clothing boutique where she had once shopped, supporting her husband and two children, with the family living in a one-bedroom apartment.
Watching his parents pick up and start again without asking for special treatment was a formative experience for Dibadj, now 49 and chief executive of asset manager Janus Henderson — a storied brand that has fallen on hard times.
“It taught me that you’ve just got to roll with the punches and work hard and solve the problems,” Dibadj tells my colleague Brooke Masters in New York. “I always think about integrity and that it will eventually pay off.”
Dibadj faced problems galore when he took over Janus Henderson two years ago this month. The group, which has about $350bn in assets under management, was created by the 2017 merger of Denver-based Janus with London-based Henderson.
Often described as a case study of how not to do a merger, the deal aimed to cut costs and help two active managers combat competition from cheap index tracking funds. But its co-chief executive arrangement flopped, leaving the combined company racked by internal dissent. By the time Dibadj arrived in June 2022, Janus Henderson had endured 18 straight quarters of net outflows, assets were falling towards their low of $275bn and the firm was under pressure from activist investor Nelson Peltz.
Read the full story here of how Dibadj, a former top-rated consumer sector analyst at AllianceBernstein, is slowly righting the ship at Janus Henderson. Part of this means encouraging the company to fixate less on total assets under management and more on those that carry higher returns and higher fees.
“Not all AUM is created equally,” he said on Janus’s first-quarter earnings call. “We’re very mindful about delivering value to our clients and delivering value to our shareholders, and not in search of so-called low-calorie AUM.”
Why France’s far right is spooking markets
It’s often said that a week is a long time in politics. Given recent events in France, this is a big understatement.
It’s just over a week since French President Emmanuel Macron dissolved parliament and called a snap two-round election on June 30 and July 7 — a shock response to his centrist party’s drubbing by Marine Le Pen’s Rassemblement National in the European elections.
Le Pen’s big-spending, populist plans to help poorer and working class voters with tax cuts and promises to lower the retirement age may have been easy to tout when her French far-right party was in opposition.
Now the RN is waking up to the reality that those economic pledges may be difficult to enact if it takes power following snap elections — and could turn into a “Liz Truss-style” liability on the campaign trail.
Rivals from Macron’s party have already pounced, warning that a debt crisis such as the UK gilt market turmoil in 2022 could ensue if they end up in a power-sharing situation with the RN, similar to the fallout from the former British leader’s plans for billions of unfunded tax cuts.
Analysts have said it could be even worse: the impact from the RN’s spending would be twice as painful as what might have happened under Truss, blowing out France’s deficit to economic output ratio by an extra 3.9 percentage points a year, according to consultancy Asterès.
Markets are already rattled by the idea of a far-right government running the Eurozone’s second-largest economy with a protectionist and costly programme, at a time when public finances are already under strain. The gap between French and German government borrowing costs has widened to its furthest level since October.
Since 2017, Le Pen has rowed back on her plans to pull France out of the EU. Analysts say that the widening of the spread this time should be less intense in the coming months, but warned that France’s presidential elections in 2027 could pose a bigger risk to markets should Le Pen remain far ahead in the polls.
“In a nutshell, the key issue for markets is the possible fiscal implications from a Le Pen majority rather than an existential one such as potential Frexit,” said Meera Chandan, global FX strategist at JPMorgan Chase.
Chart of the week
The world’s largest private capital firms have avoided income taxes on more than $1tn in incentive fees since 2000 by structuring the payments in a way that subjected them to a much lower levy, according to new research from the University of Oxford.
Ludovic Phalippou, a professor at Oxford’s Saïd School of Business, found that fund groups dedicated to private investment strategies such as buyout firms, venture capital, infrastructure and distressed debt had earned more than $1tn in so-called carried interest pay since the turn of the century, writes Antoine Gara in New York.
Such performance fees have for years drawn political scrutiny in the US and Europe, and Phalippou’s calculation comes as fund groups face a wave of renewed calls to close what prominent politicians characterise as a “loophole”.
The savings amount to hundreds of billions of dollars at current tax rates. The fees are charged at long-term capital gains rates that are substantially lower than income tax rates. For publicly traded firms, as much as half of the fees are paid to shareholders in the form of dividends.
The UK’s Labour party is pledging to close the loophole in a push led by shadow chancellor Rachel Reeves, who has previously called the tax treatment “absurd”. In 2021, she said she hoped to increase taxes on the private equity sector by £440mn annually.
Earlier this year, Reeves vowed to push ahead with a plan to charge the top 45p rate of income tax on profits that private equity firms earn on successful deals amid growing pushback from industry lobbyists. At present, “carried interest” payments are taxed at the 28 per cent rate of capital gains tax.
In the US, recent presidents, including Barack Obama, Joe Biden and even Donald Trump have vowed to end the special tax treatment, but ultimately retreated amid industry pressure. In the UK, critics of Labour’s plan say increasing tax rates will cause successful investment groups to leave London just as the need to attract foreign capital is paramount.
Five unmissable stories this week
Hedge fund Segantii Capital Management bet against Canada Goose after speaking to a Morgan Stanley banker whose desk knew of an impending share sale that threatened to hit the clothing brand’s stock price.
Marshall Wace plans to open an office in Abu Dhabi in the coming months, joining groups including Winton Capital Management, Brevan Howard Asset Management and Chris Hohn’s TCI in establishing a presence in the United Arab Emirates.
Stephen Lansdown, one of Hargreaves Lansdown’s co-founders and top shareholders has warned that “price is not the main consideration” if private equity firms make a firm takeover offer for the investment platform this week.
Invesco is closing its standalone UK equities team, formerly led by stockpicker Neil Woodford, and merging it with its European division amid an industry-wide drop in interest for British stocks.
Consulting group Mercer has agreed to buy pension manager Cardano, which oversees more than £50bn in assets, in an attempt to expand its business in the UK and take advantage of rising demand for workplace pensions.
And finally
The City of London is an anachronistic and little-understood beast, from its mayoralty and shrievalty to the alderman and masons. Don’t miss deputy editor Patrick Jenkins’s fascinating magazine feature that tries to understand the inner workings of the Square Mile.
Read the full article here