Asset management: Fallout from the Adani Group

One scoop to start: I’m Brooke Masters, the US Financial Editor, writing to you one more time before Harriet Agnew returns. But she has already reported that UK fund manager Baillie Gifford saw its assets under management drop by a third, or more than £100bn, during 2022, as rising interest rates hit the growth stocks that had propelled its performance over the past decade

Adani Group turmoil’s broader impact

As concerns mounted about Indian conglomerate Adani Group last week, the turbulence sucked in FSTE 250 group Jupiter Asset Management.

Jupiter was the only UK-listed business among an anchor group of investors who signed up to help the conglomerate as it attempted to raise some $2.5bn through its listed entity, Adani Enterprises, writes Emma Dunkley. Through its India fund, Jupiter had committed to £3.4mn of the total fundraising, representing just above 1 per cent of the anchor investors.

But short seller Hindenburg issued a damning report alleging fraud and market manipulation, claims that Adani Group denies. By Friday, companies controlled by Adani had lost more than $100bn and co-founder Goatam Adani was no longer Asia’s richest man.

In the meantime, Adani Enterprises first claimed that the fundraising, a follow on public share sale, had been successful and then pulled the deal. The business said it was protecting investors who would have been left underwater by the sharp fall in the share price. Investors’ cash was held in escrow and due to be returned.

But Jupiter’s move to back the share sale in the midst of such damning allegations even as other UK businesses held back put the spotlight on its rationale and governance. Jupiter fund managers Avinash Vazirani and Colin Croft say they have done very well off past investments in Adani companies. Jupiter’s only current holding is Adani Ports and Special Economic Zone: the £9.4mn stake was one of the fund’s largest purchases last year.

A modest proposal for Goldman

Goldman Sachs partners are meeting in Florida this week after a difficult stretch, with 3,000 lay-offs, falling profits and a big strategy U-turn by chief executive David Solomon on consumer banking.

If Solomon, who saw his pay drop 29 per cent year on year 2022 (to $25mn) is to avoid another humiliating cut, he needs to help the bank regain its swagger, writes Bill Cohan in an opinion column. A former investment banker himself, Cohan’s answer naturally involves M&A that would shake up not just banking but the whole fund industry.

To compete better with Morgan Stanley and JPMorgan Chase, Goldman would benefit from having access to the cheap capital that more deposits provide. Cohan argues that it should buy a big commercial bank. To him, the logical target would be Bank of New York Mellon, which has $1.8tn of assets under management and another whopping $44.3tn of assets under custody or administration.

Regulators may not be so keen about a combination. Both institutions are already on the global list of 30 systemically important banks and BNY is the world’s biggest custodian.

Chart of the week

Halfway through earnings season, the biggest US companies are on track report the first year-on-year drop in quarterly profits since the early days of the Covid-19 crisis, writes George Steer.

Companies included in the blue-chip S&P 500 index are expected to post a combined 5.3 per cent year on year fall in earnings for the final three months of 2022, according to FactSet. It took into account the 252 groups that have reported so far and used analyst estimates for the rest. The last time the group posted an earnings drop was in the the third quarter of 2020.

Consumer discretionary stocks, consumer services, materials and IT are the worst performing sectors thus far, but energy companies and industrial stocks have posted bumper numbers for the final quarter of last year, delivering annual earnings per share growth of 58 per cent and 37 per cent, respectively.

10 unmissable stories this week

BlackRock has done a deal with European mobile broker Bux to offer low cost savings plans aimed at drawing more retail customers into exchange traded funds. Investors will be able to put money in up to 10 BlackRock iShares ETFs for just €1 per month.

Liquidity is no longer the worry that keeps most traders up at night. For the first time in six years, volatility tops the list of market anxieties as investors fret about a central bank accident.

AIG fired its interim chief financial officer Mark Lyons over a violation of confidentiality rules. A legal settlement that gives Lyons a $7.5mn pay-off said that he had not used or disclosed confidential information, “other than with respect to the sharing of access to company-issued communication devices”.

Banks that lost more than $10bn from the meltdown of Bill Hwang’s family office Archegos Capital Management in 2021 will get back as little as 5 cents on the dollar from its restructuring, with brokers such as Goldman Sachs funding the payouts with leftover cash from its account.

The UK asset management industry suffered its worst year on record in 2022 with net fund outflows surging to £50.1bn as soaring inflation and the cost of living crisis forced retail investors to raid their investment pots. Retail investors took out £25.7bn, the first annual net outflow since at least 2002.

Blackstone only met a quarter of the January redemption requests from much vaunted $69bn Blackstone Real Estate Income Investment Trust. Breit, a private trust, slammed down its gates in early December after a surge of withdrawal requests.

The plumbing behind key derivatives markets blocked up this week after a cyber attack on financial markets group Ion Markets, highlighting the computer security risks to trading.

Bankrupt crypto lender Celsius operated a “very Ponzi like” scheme to use client assets to control the price of its own token, CEL. That’s according to one of the company’s own former employees, in communications revealed by a court-appointed examiner.

It was a big week for City of London job moves. Legal & General chief executive Sir Nigel Wilson will retire after more than a decade in the top job. Wayward asset manager Abrdn has re-created the post of CIO, tapping Peter Branner as it hunts for growth. In the US, Bridgewater named a third CIO, Karen Karniol-Tambour.

Goldman Sachs agreed last year to transfer a portion of its privately held Russian investments to two former employees, as the Wall Street firm winds down its operations in the country in the wake of Moscow’s war with Ukraine.

And finally

Funny Girl, the New York revival of the musical based on the life of comedian Fanny Brice, is one of the city’s hot tickets right now. Though it drew mediocre reviews when it opened last April, the show got a new lease on life when Lea Michele took over the title role in the autumn. Not only has Michele’s performance received raves, but her appearance parallels a story arc in Glee, the television show that made her famous. In it, Michele’s character Rachel Berry lands her dream role in a revival of the same show on Broadway. The show is currently selling tickets through the end of May.