Slash and brn

Hi, I’m Katie Martin, the FT’s markets columnist, and I’m looking after this newsletter for a couple of weeks while Harriet Agnew is topping up her vitamin D levels on holiday, the lucky duck.

One thing to start: My excellent colleagues Brooke Masters and Antoine Gara in New York made a great Behind The Money podcast about BlackRock and its big swing at infrastructure. Grab yourself a cup of coffee and have a listen, you won’t regret it.

Slash and brn

Monster deals like BlackRock’s are one thing, but more broadly, the asset management industry is in a tough spot, as evidenced last week by a wave of job cuts at the UK’s Abrdn and Baillie Gifford.

Let’s start with the more alphabetically challenged of the two. Last week, Abrdn announced plans to slash a tenth of its workforce — some 500 jobs — mostly in support roles, as part of a £150mn cost-cutting scheme. This comes on top of the 140 jobs cut last year — roughly half of which were in fund management roles — and the closure or restructuring of more than 100 of its investment funds.

We have, of course, been all over this story. Before she jetted off, Harriet teamed up with reporter Sally Hickey on the news. Sally later followed up with this must-read analysis on what it all means. And Lex weighed in too, labelling the group — formed by the merger between Aberdeen Asset Management and Standard Life in 2017 — the Frankenstein’s monster of fund management.

Chief executive Stephen Bird is unlikely to put it that way. Last week, he said it was “incumbent on us to adjust the business” in response to a share price that is “not where we want it”. Bird, who has been in his job since 2020, of course recognises that “the way forward is not easy”. He is looking to staunch outflows, and shares are down 17 per cent in the past year.

“Most employees know these are necessary steps to modernise the firm and create the right culture,” as one person close to the process told us this week. But the danger is that cutting off familiar fund managers and risking operational slip-ups through these job cuts could end up making the outflows worse. Then what?

Abrdn may have some specific issues here stemming back to its creation. But strains are visible elsewhere in an industry adapting to fee compression stemming from passive investment and the tail-end of the rush in to cash.

Also feeling the heat is Edinburgh-based Baillie Gifford, which is making “dozens” of lay-offs in its 1,800 strong workforce and shutting several small fixed income funds.

“It is not pretty out there — fund managers are caught between net redemptions and a fee squeeze, hence redundancies and mergers,” said Ben Yearsley, director at consultancy Fairview Investing. “There are too many average and inadequate fund managers out there that need a shake-up.” This is set to drive more mergers and acquisitions in the sector, analysts said.

China: trying to stop the market rot

Most global asset managers are finding it hard to come up with nice things to say about China at the moment. Those keen to build up emerging markets exposure generally talk about “EM . . . ex China”. Asia strategies have become “Asia ex China”. The economic, regulatory and geopolitical risks are a really ugly mix, and the crisis in construction is starting to look like a confidence-sapping deadweight reminiscent of the evaporation of consumer confidence in weaker parts of the eurozone during the crisis there a decade ago.

“I think of China in a different way now to before the pandemic,” said Michael Strobaek, CIO at Lombard Odier, in a briefing this week. Growth has slowed, supply chains are pulling away, and it is more geopolitically isolated, he said. 

It is little surprise that stocks there have had a rough run. Hong Kong’s Hang Seng dropped some 14 per cent last year. But this week, authorities ramped up efforts to generate a turnaround.

First, Premier Li Qiang called for “more forceful and effective measures to stabilise the market and boost confidence”, as my colleagues Hudson Lockett and Cheng Leng reported from Hong Kong. This gave stocks there a boost but one trader warned: “Unless there’s evidence of deployment then the impact of this sort of rhetoric will die out”.

Then Cheng again, along with Sun Yu and Thomas Hale reported on a move by Chinese authorities to lighten up on capital outflows by restricting access to the Qualified Domestic Institutional Investor scheme, or QDII for short.

As they reported: “The Beijing-based manager of one fund that focuses on US stocks said they had received informal instructions from the Shanghai Stock Exchange to reduce sales of such products targeting overseas markets after demand went ‘through the roof’.”

In addition, Chinese brokerages that sell funds to retail investors through the QDII programme said the Shanghai exchange was cracking down on “abnormal trading”.

I suspect what asset managers really want to see is an organic rebound in economic growth rates, not a contrived effort to engineer a recovery.

“China is cheap,” said Strobaek. “But assets that look cheap are cheap for a reason. There’s no reason they can’t become cheaper.”

Chart of the week

I wish it could be something more cheerful but there’s really only one candidate for chart of the week and it really illustrates the strain in the asset management industry, particularly in Europe. Would active managers pick their own stocks right now?

Five unmissable stories this week

Listen, if you can’t indulge in some thirsty self-promotion when you’re helping out a colleague on a newsletter, when can you? So read my column about the sedative effects of passive investment. 

But, but . . . The laser eyes crew was pretty convinced that the launch of cash bitcoin ETFs would send the price of the crypto token itself to the moon. This has not worked out. In fact, bitcoin has fallen pretty hard — 16 per cent or so — since the SEC gave the ETFs the green light earlier this month. The line from UBS Global Wealth Management: “While Bitcoin ETFs provide an easy way for investors to invest in digital assets, the fundamental case for crypto assets broadly remains weak, in our view. We believe the significant price swings make them more of a speculative trade.”

Office politics. Sadly, you just have to play the game. Given the lead story above, that could prove to be very useful advice. Miranda Green explains more. 

T+1. Are you ready yet? Jim McCaughan, former CEO at Principal Asset Management, wrote for us on what it all means. 

St James’s Place heads for a deep business review as the wealth manager deals with outflows and stress over its fee structures.

And finally

I have (rather belatedly) started reading The Fund by Rob Copeland a super-deep dive in to Ray Dalio and Bridgewater. So far it is peppered with puzzling little jewels, like Dalio’s habit for eating Scotch tape (posh Sellotape) at his desk. I mean, what? As my teenage kids might say, this is a sticky one. Also, I should have known this already, but I was not previously aware of Dalio’s early-career schtick of making frequent and faulty predictions of imminent economic doom. He was one of Those Guys, it seems. I have a good feeling about this book.