We’ve been looking recently at the false promises of a zombie hedge fund industry. Now let’s widen the lens a little to take in asset management more broadly, and the self-interested warping of a concept at the heart of investing.
Start with this terrific piece from Bloomberg, about how investors have been gulled by the supposedly respectable brokers of Wall Street selling investment products known as managed futures. Read more
Private equity has proved better at enriching its own managers than producing investment profits for US pension funds over the past decade, according to a study prepared for the FT by academics at Yale and Maastricht University. From 2001 to 2010, US pension plans on average made 4.5 per cent a year, after fees, from their investments in private equity. In that period, the pension funds paid an average 4 per cent of invested capital each year in management fees. On top of those, private equity often collects a variety of other fees and a fifth of investment profits. “Assuming a normal 20 per cent performance fee, this would amount to about 70 per cent of gross investment performance being paid in fees over the past 10 years,” said Professor Martijn Cremers of Yale.
Investment banking fees from mergers and acquisitions and capital raising have slumped in the third quarter to lows not seen since the aftermath of the Lehman Brothers collapse, the FT reports. Investment banking fees – about 15 per cent of overall investment banking revenues – fell 43 per cent from the second quarter, according to data by Thomson Reuters and Freeman Consulting. Though up 5 per cent to $57.6bn so far this year compared with 2010, full-year fees could fall 2.7 per cent if the current rate was maintained, Thomson said. Global M&A volumes were down 14.3 per cent from the second quarter, with $481.2bn worth of deals announced. Advisers expect M&A for the year may be only single digits higher than 2010, or even flat, despite growth of 19.9 per cent in the first three quarters.
JPMorgan Chase’s trading revenue will slide about 30 per cent in the third quarter, the company’s head of investment banking said on Tuesday, one of the first signs of the impact on bank revenues of a torrid summer in the markets, the FT reports. Jes Staley said the “volatile” market, particularly in August, had depressed revenues from trading, where the bank made $5.5bn in the second quarter. Investment banking fees also dropped, he said, as equity and debt raisings slowed and companies were “putting a pause” on mergers and acquisitions. With much of the turmoil stemming from the eurozone crisis, banks have been trying to reassure investors about their exposure. Mr Staley said JPMorgan was “not worried” about individual European banks and had “a great dialogue” with them.
It’s out, and longer than Tolstoy’s War & Peace.
Presenting the Glencore prospectus, which is so big we can’t upload it to our servers — but you can find the 134MB file on Scribd once it loads! Read more
The FT reports that transparency is the leading concern investors share about the publicity-shy $1,800bn global hedge fund industry, followed by fees and managers’ pay. After their worst year ever in 2008 and a painful 18 months of recovery, hedge funds have yet to shake off their reputation for secrecy and cost, institutional investors will say in an industry survey due to be released by Ernst & Young on Tuesday.
High-flying private equity investor, Ravi Sinha, is being investigated by the UK financial regulator over claims he siphoned off more than £1m in fees at his former firm, JC Flowers. Mr Sinha, who unexpectedly left the US private equity group at the end of last year, is said to have personally pocketed £1.3m of “phantom” fees from a company owned by his fund, the FT reports. The fees allegedly related to an attempted listing of a Luxembourg-based wealth manager.
The “enormous” fees paid to investment banks for advising companies on deals might be skewing the outcome of takeovers, the UK’s leading group of institutional shareholders has warned. The Association of British Insurers said companies and regulators needed to take a close look at the advisory arrangements. The fees were a “deadweight cost” on shareholders that could swallow a significant part of savings derived from mergers and acquisitions.
Investment banks are facing an imminent inquiry into the fees they charge clients, the chairman of the Office of Fair Trading signalled on Thursday in comments likely to provoke alarm in the City. Philip Collins, chairman of the competition watchdog, told a high-profile meeting of politicians and banking figures that the OFT was only months away from launching an investigation into the sector’s fees.