One scoop to start: H2O Asset Management’s auditor has warned that the firm’s accounts “do not give a true and fair view” of its financial position, handing the once high-flying investment group a rare “adverse” opinion. H2O, which oversaw more than €30bn at its peak, was engulfed in crisis in 2019 after the Financial Times revealed it had poured its investors’ money into hard-to-sell bonds linked to the controversial financier Lars Windhorst.
‘The best and brightest of a generation’
Last May, Lord Jacob Rothschild hosted a 100th birthday lunch for former US secretary of state Henry Kissinger at Waddesdon Manor, his 19th-century French château in the Buckinghamshire countryside. Among the illustrious guests were former British prime ministers Tony Blair and John Major; private equity titan Stephen Schwarzman; media barons Rupert Murdoch and Michael Bloomberg; and historians Niall Ferguson and Simon Schama.
The gathering reflected Rothschild’s “astonishing convening power” and the “interesting and diverse” nature of the many he counted as friends, Schwarzman told the Financial Times. “Jacob represented the best and brightest of a generation, and occupied a unique position in finance, culture and philanthropy.”
The 4th Baron Rothschild, OM, who has died aged 87, was a dynamic investor, collector and philanthropist with an unparalleled network and an effortless charm, who broke away from the family bank NM Rothschild to create his own financial empire.
In many ways, the milestones in Rothschild’s career reflect how the City and the investment landscape have evolved over the past half century or so.
Inspired by the Mayday deregulation of the US securities industry that began in the mid-1970s, Rothschild sought to enlarge the bank by pursuing ambitious deals, notably a touted merger with British merchant bank SG Warburg. This clashed with his elder second cousin Evelyn de Rothschild’s more conservative vision. Ultimately Evelyn, a major shareholder, prevailed.
Jacob struck out on his own in 1980, selling his 11 per cent stake in NM Rothschild for £6.6mn and building RIT Capital Partners, a listed investment trust combining public and private investments that he chaired from 1988 until 2019. While its share price has struggled over the past five years, its market capitalisation grew from £80mn in 1980 to about £3bn today.
RIT became a vehicle for Rothschild to address his frustrations with the undercapitalisation of the City of London before it was opened up by the Big Bang in 1986. He started to assemble a financial conglomerate, buying stakes in stockbroker Kitcat & Aitken and merchant bank Charterhouse, among others. But he failed to convince the City that the group was a credible international competitor, and ultimately dismantled it.
RIT’s structure allowed Rothschild to invest wherever he saw opportunities, and gave retail investors exposure to deals they wouldn’t normally get access to. He was early to spot the potential of venture capital and was a day-one investor in Sequoia Capital, Benchmark Capital, biotechnology specialist Baker Brothers Advisors and Hillhouse Investment’s Asia-Pacific private equity fund. RIT seeded hedge fund Lansdowne Partners, asset manager GAM and Getty Images, and invested in Julian Robertson’s Tiger Management.
“Jacob was truly a Renaissance man,” says Howard Marks, co-founder of $189bn investment powerhouse Oaktree Capital Management and a longtime friend. “He had a very active mind and great curiosity. He was a very good investor, open to diverse and little-known markets.”
Read the full obituary, in which I explore the extent of Rothschild’s reach across finance, philanthropy and the arts, here
UK boards and investors push for higher CEO pay to bridge gap with US
Transatlantic remuneration wars, coming soon to a boardroom near you.
More UK boards are raising chief executive pay to rival US peers, marking a shift in sentiment among top bosses, chairs and investors.
The London Stock Exchange Group is among the latest seeking to gain shareholder approval for a pay package for its chief executive David Schwimmer that is benchmarked against US rivals, rather than UK companies.
“When you look at standards for compensation around the world, the US is in a different place,” said Schwimmer last week. “And that is an issue companies competing on a global basis from a base in London need to take into account.”
In this analysis, we explore how frustrations among UK board directors about the constraints on offering internationally competitive pay packages to their top executives have been simmering for years. Falling behind on executive pay can hamper a company’s ability to attract and retain the most talented senior management teams, which some say risks exacerbating the decline in the UK’s capital markets.
Now there are signs executive pay in Europe is at a tipping point, with greater efforts by boards and concessions from shareholders to bridge the divide with the US.
“There’s been a sea change of thinking,” said Peter Harrison, chief executive of FTSE 100 asset manager Schroders.
“More and more investors and boards are recognising that if we don’t get executive pay right there will be an impact on the UK’s competitiveness. It’s not just about the listed markets, it’s about creating an environment where founders want to grow their businesses here, and there’s a culture where risk-taking and success is celebrated.”
Read the full story here
Chart of the week
As the share price of St James’s Place began to plummet by almost a third last Wednesday morning, shareholders could have been forgiven for feeling a sense of déjà vu, writes Sally Hickey in London. For the third time in less than 12 months, an earnings warning had sliced a significant amount of value off the FTSE 100 wealth manager.
Last week’s slump was prompted by a surprise £426mn one-off provision related to potential client refunds. This pushed SJP to a pre-tax loss of £4.5mn for 2023, down from a pre-tax profit of £504mn in 2022. It was not the ideal first set of results for new chief executive Mark FitzPatrick.
Neither was it for shareholders, who were still reeling from two similar tumbles last year, the first in July after a planned fee reduction was announced, and then again in October after the Financial Times revealed the regulator was placing pressure on SJP to embark on a more radical overhaul of its charges. The company confirmed the change in fees days later.
SJP’s advisory fees had been widely criticised as opaque and complex, and for fuelling lavish staff rewards like cruises and company-branded cufflinks before an overhaul of pay and perks took place in 2020.
SJP does not even know the number of clients to whom it may have to pay out. The £426mn provision was based on a “statistically credible representative cohort” of clients.
Unsurprisingly, the wealth manager’s shares are down 60 per cent over the past year. Questions are now being raised over whether SJP might not be the only wealth manager in trouble — and if SJP’s provision may represent the first step in a wider regulatory crackdown on advice fees.
Five unmissable stories this week
Departing US climate envoy John Kerry has accused asset managers of “turning away from science” just weeks after JPMorgan Asset Management, Pimco and State Street Global Advisors announced they would leave Climate Action 100+, an initiative to encourage companies to take action on climate change. Kerry said the moves away by the asset managers, coupled with a decline in pace on climate action, was a “problem” and an “unnecessary reaction” to “disinformation and politics”.
Vanguard chief executive Tim Buckley is stepping down at the end of this year after six years, following a period of rapid growth that included the $9tn asset manager coming under fire for its stance on climate change. The world’s second-largest money manager will consider internal and external candidates to replace Buckley, a 33-year veteran, who led Vanguard’s efforts to expand overseas and in the provision of financial advice. Chief investment officer Greg Davis has been elevated to an expanded role as president.
New York hedge fund Elliott Management is best known for hardball tactics that have seen it take on governments and large corporations. But in the UK it has a different pitch: it wants to sell sushi, paperbacks, and now washing machines. The famed activist investor is trying to buy electronics retailer Currys, adding to an already extensive portfolio of well-known components of the UK high street. Don’t miss this profile of 45-year-old Paul Best, the contrarian placing Elliott’s bets on the UK high street.
Schroders booked restructuring costs of £86.2mn last year as part of “efficiency initiatives” to enhance its performance, becoming the latest asset manager to take steps to manage its cost base in a tough environment. The charges come as the FTSE100 asset manager pushes further into wealth management, private markets and solutions division, the three strategic growth priorities that chief executive Peter Harrison outlined for the group in 2016.
London-based Eisler Capital is planning to raise between $1bn and $1.5bn of capital from investors and hire up to 25 portfolio managers this year as the fast-growing UK hedge fund muscles into one of the hottest parts of the industry. Eisler’s rapid expansion underscores the war for talent among the multi-manager hedge funds model pioneered by Citadel and Millennium Management.
And finally
Tate has joined forces with the international art foundation, Art Explora, and the MuMo mobile museum to embark on a 12-week tour of the Midlands and the north of England with masterpieces from its national collection. The mobile museum will tour a specially curated exhibition Soup, Socks and Spiders! Art of the Everyday, an exploration of the ‘still life’ genre, featuring works by artists including Andy Warhol, Fernand Léger and Roy Lichtenstein. MuMo was launched in 2010 by Ingrid Brochard, with the aim of taking contemporary art across Europe and Africa to children and communities who never got the chance to see it. “It’s the reverse of traditional practices,” Brochard told me in a 2020 interview. “You don’t go to the museum, it’s the museum who comes to you.”
Read the full article here