Asset Management: Stockpickers hope to profit after a decade of pain

One thing to start: I’m Laurence Fletcher, the FT’s hedge fund correspondent, filling in for Harriet Agnew, who is away on sabbatical this month.

Johnson positions for new market regime

It is no secret that passive funds have been the big winners from an epic bull market running from 2009 to last year.

Why bother paying higher fees to a fund manager trying to pick out winning stocks, when an ultra-low-cost tracker fund will do the job much better, reasoned investors.

But the realisation is finally dawning on many investors that the market environment really may have changed for good. Nicolai Tangen, the head of Norway’s sovereign wealth fund, warned this month that investors are in for “a long period of time with very, very low returns”.

Our columnist Mohamed El-Erian, the president of Queens’ College Cambridge and adviser to Allianz and Gramercy, explains what this means for investors. He believes investors need to pay more attention to individual security selection and he picks out areas of danger in passive investing.

One firm that could benefit from the new market environment is Franklin Templeton, the 75-year-old active management firm whose reinvention is investigated by my colleague Madison Darbyshire.

Back in 1992, the firm was roughly the same as passive specialist Vanguard, with nearly $90bn in assets. Three decades later, Vanguard had grown to $7.2tn, six times the size of Franklin, fuelled by the boom in passive investing.

Franklin suffered badly after quantitative easing kicked in and growth stocks lifted passive indices like hot air balloons. Star manager Michael Hasenstab’s Templeton Global Bond fund was caught out by ill-timed bets and the firm haemorrhaged assets.

But the company, now under new chief executive Jenny Johnson, has been bold in its acquisitions over the past five years, hoovering up new tech capabilities and offerings in the alternatives space.

The manager says it is well positioned for higher-interest rate markets, where stock picking will have a chance to prove its mettle once again. After more than a decade when bond-buying by the Federal Reserve and other central banks lifted all boats, rising rates are leading to more volatility, which could prove fruitful.

Active is far from dead, says Johnson, whose grandfather founded the California-based firm. It’s just getting more specialised.

Is passive investing still attractive? And can stockpickers really deliver this time? Email us your thoughts at [email protected] and [email protected].

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Real estate redemptions at Blackstone

Blackstone, the world’s largest alternative asset manager, has been asked for more money back from investors worried about the health of the global real estate market.

Its Blackstone Property Partners business, which is sold to pension funds and endowments, faces redemption requests of more than $5bn, or 7 per cent of its $73bn net asset value, reports Antoine Gara.

However, investors have not received their cash back because new money needs to come in before the firm has to meet withdrawal demands.

The news comes less than two months after the firm limited withdrawals from its mammoth $125bn Blackstone Real Estate Income Trust, or Breit, which owns a sprawling portfolio of assets including logistics facilities, apartment buildings, casinos and medical office parks that has risen sharply in value in recent years.

That move in December highlighted to investors the dangers of monthly liquidity on underlying assets that can take much longer to sell. This month Breit has faced an uplift in withdrawal requests.

However, the firm has been helped by billions of dollars of new money invested by the University of California, made via an unusual arrangement.

Blackstone has promised the UC a minimum annual return of 11.25 per cent for six years, with a hefty $1bn backstop to those return guarantees.

The money went into Breit, but had it gone into BPP then some investors could have got their own money back.

So have investors complained about this unusual relationship? Apparently not, according to Blackstone president Jonathan Gray. “We haven’t really heard much from our clients in the institutional world” on this issue, he says.

Chart of the week

Industrial metals have ripped higher since November on bets China’s reopening will boost demand for raw materials, write Harry Dempsey and George Steer.

A group of “base metals” led by tin, zinc and copper have surged more than 20 per cent in three months, further supported by the US Federal Reserve signalling a slowdown in the pace of interest rate rises and a softening in the US dollar, which importers use to buy commodities.

Star performer tin has rocketed almost 80 per cent to $32,262 per tonne, the highest level since June, while copper prices have rallied by a tenth this month to $9,329 per tonne on brighter prospects for China’s economy following the easing of its zero-Covid policies.

“At the beginning of the year everyone came in very nuanced, saying we were going to have a [global] recession, that copper would dip in the first quarter and then go higher, but we’ve done exactly the opposite,” said Al Munro, a broker at Marex.

10 unmissable stories this week

Activists Elliott, Starboard Capital and Inclusive Capital are targeting software company Salesforce, whose star has fallen since its pandemic peak. Investors say the firm has overpaid for businesses, with one arguing that “everything should be on the table”.

Indian billionaire Gautam Adani had more than $50bn wiped from the value of his business empire this week after US short seller Hindenburg Research alleged fraud.

BlackRock sharply increased its spending on lobbying in the US last year, up 63 per cent to $2.38mn, as the world’s largest asset manager came under attack over its use of environmental, social and governance factors in investing.

Capital Group has tapped Mike Gitlin, its head of fixed income, to become its next chief executive, as the world’s largest active asset manager continues expanding beyond its roots in US equity funds.

UK financial regulator the Financial Conduct Authority has launched criminal proceedings against a former analyst at fund manager Janus Henderson and four other people for conspiracy to commit insider dealing and money laundering.

Republican politicians leading a backlash against climate-conscious investing “have left facts aside” and lost sight of the needs of long-term shareholders, according to Ron O’Hanley, chief executive of State Street, one of the world’s largest index fund managers.

Billionaire hedge fund manager Bill Ackman has taken a minority stake in luxury British watch brand Bremont after he became one of its customers, providing financial backing as the company plans to bring large-scale watch manufacturing back to the UK.

Top US investment management firms are going on a hiring spree in Europe as draconian anti-Covid measures and rising geopolitical tensions have pushed them to redouble their search for growth outside China.

Nest and Cushon, two UK pension schemes with combined assets of more than £26bn, are in a joint search for asset management partners to develop new forestry investment strategies to address climate change pressures.

UK equities are no longer seen as a “must own” asset class, according to the Investor Forum, a group representing some of the world’s largest investors, which has called for a reset in relations with British companies to help drive growth in the market.

And finally

The Sleeping Beauty was the first performance given by The Royal Ballet when London’s Royal Opera House reopened after the second world war. The family favourite is back until June 6, letting audiences enjoy both Tchaikovsky’s music and Oliver Messel’s sumptuous staging. Marianela Núñez as Princess Aurora and Vadim Muntagirov as Prince Florimund are simply sublime.