Wealth management: China is participating in private equity

A first to start: Richard Buxton leaves Management of Jupiter funds after a career spanning nearly four decades with City institutions, which established him as one of the UK’s best-known asset managers.

Beijing puts hundreds of billions of dollars into Western companies through PE

A IVC Evidensia veterinary practice in Sweden may not seem to have much in common with a Vena energy solar energy project in Taiwan, or GardaWorld security personnel at a Canadian ice hockey game.

But some of the capital supporting all three companies comes from the same place: the People’s Republic of China, my colleagues write Will Louch, Yuan Yang And Kaye Wiggins in this great lecture.

Private equity companies EQT, Global infrastructure partners And BC partners – the direct owners of the three companies, respectively – are just three of dozens of Western buyout groups that Chinese state-backed investors such as the State Administration of Foreign Assets And Chinese investment company have put money into it, according to people familiar with their business and an analysis of registration applications.

These relationships, often established through offshore vehicles, have enabled Chinese sovereign wealth funds to pour hundreds of billions of dollars into Western economies, taking indirect stakes in companies in sectors such as healthcare, technology and manufacturing, even as regulators and politicians take measures to mitigate the economic crisis in the west. dependence on China.

These indirect investments in private equity funds have increased as a result of Western governments and regulators taking steps to prevent the same Chinese sovereign wealth funds from investing directly in companies and infrastructure.

They’ve also been aided by the growth of the private equity industry, which has grown from a niche corner of the financial services industry to a nearly $13 trillion asset class over the past three decades. Its rapid growth has made it an important conduit for global capital flows, with companies such as Black stone, KKR And Carly group managing and investing money on behalf of sovereign wealth funds, endowments, the super rich, and state pension schemes, among others.

Private equity managers insist there is no national security risk in holding money from Chinese state entities in their funds because the way they are structured typically does not give such investors board seats or voting rights. Some even see it as a risk-free way to raise Chinese capital without giving up actual corporate influence.

However, the close relationship between private equity and the Chinese state is increasingly at odds with the changing political mood in Western capitals, where governments have become much more vigilant about the possibility of Chinese influence over strategic industries.

In the meantime Caisse de dépôt and placement du Québec (CDPQ), one of Canada’s largest pension funds, has become the latest Western investor to curb its investment in China amid rising geopolitical tensions. And JPMorgan chef Jamie Dimon has warned that tensions between the US and China have upended the international order, making it more difficult for companies to deal with than it was during the cold war.

Holland’s once-in-a-generation pensions move

To the Netherlands, where the country made world news last week when Dutch parliamentarians agreed to a major overhaul of the country’s decades-old pension system, writes Josephine Cumbo in London.

As part of the reforms, after years of political wrangling, the Dutch system will be given the green light and move from a ‘defined benefit’ (DB) model – whereby pension funds promise pension incomes to participants based on salary and seniority – to a ‘ defined contribution (DC) model, where members pay into individual accounts.

No sinecure, because it involves converting millions of existing pension pots into the new scheme. The move is also expected to lead to major asset allocation changes for the €1.45 trillion sector.

“This is a once-in-a-generation event,” says Onno Steenbeekgeneral manager for strategic portfolio advice at APG Asset Managementthe largest pension fund manager in the country with €541 billion in assets under management.

The change was prompted after the DB system came under pressure from low interest rates and an aging population, straining funding. The majority of Dutch pension money is currently invested in bonds, but that is about to change.

“I expect some changes in how and to what extent pension funds will use interest rate swaps and currency hedging products,” says Steenbeck. “I imagine the focus will move more towards total return strategies, but it’s very hard to say at this stage.”

While many other countries, including the UK, Australia and the US, have established individual DC markets, these types of accounts, where the savers bear the full investment and longevity risk, will be new territory for the Dutch who are used to a collective approach . .

Under the collective DC model, investment risk is shared among members, giving funds more opportunities to invest in more illiquid asset strategies.

Kees Swinkelsasset manager at consultant Mercerexpects the Dutch to initially opt for collective investment models as they adapt to the new system.

“It would be a big step for the Dutch to switch from DB to individual DC accounts,” said Swinkels. Funds must have completed the transition to the new system in 2028.

Meanwhile, in the UK, MPs from both major parties are falling over themselves to talk about pensions. Here’s the FT view on how we can make UK pension assets work harder. And here deputy editor-in-chief Patrick Jenkins weighs the pros and cons of converting the Pension Protection Fundthe lifeboat for UK pensions, to save UK stocks.

Chart of the week

The US stock market has moved into negative territory at least since the beginning of the year.

The S&P 500 Equal Weighted Index, which gives equal value to each stock, is down 0.35 percent since January, data from Refinitiv shows, writes George Steer in London. That’s in stark contrast to the 9.5 percent gain for the benchmark S&P 500, where companies with larger market caps account for a larger share of the index.

While bigger gaps have appeared between the two measures of the same stock market’s performance before, “there has never been such a strong negative divergence,” he said. Manfred Hubnerdirector of research firm Sentix.

The rapidly increasing demand for the largest stocks explains the difference. Riding the AI ​​wave, Nvidia, Microsoft, Alphabet, Apple, Amazon And meta have added a total of $3.1 trillion in market cap by 2023, data from AJ call show.

Excluding their contribution, the S&P 500 has lost $286 billion so far this year. High-quality, low-risk technology stocks can also be traded like traditional safe assets like US Treasuries and the dollar, “both of which are beset by doubt,” argued Eric Knutzenchief investment officer multi-asset class at Neuberger Berman. “Maybe market participants are more concerned than they seem,” he said.

Five must-have stories this week

A group of 255 of the UK’s top private equity dealers earned £2.7 billion in carry interest in one year, according to an analysis by the law firm Macfarlanesthe kind of profit that attracts the attention of politicians who threaten to raise taxes on the industry.

Franklin Templeton has agreed to buy rival Putnam Investments for more than $1 billion as the California-based asset manager continues its expansion into alternative products and retirement plans.

Jack Olczakthe director of Philip Morris Internationalsays the maker of Marlboro cigarettes charts a path to becoming an ESG stock as part of an effort to win back investors who have shunned the stock because of its tobacco exclusion policy.

Nvidia is one of the few companies that will weather the recovery in US stocks this year, even as rapid advances in artificial intelligence are creating “more losers than winners”, according to Rajiv Jainfounder and chief investment officer of GQG Partnersone of the largest recent buyers of stock in the US chipmaker.

Lansdowne Partners has agreed to buy British investment boutique Crux Asset Managementa step that confirms the evolution of recent years from one of Europe’s largest hedge funds to a mainstream asset manager.

And finally

The works of Swedish painter Hilma van Klint and Dutch painter Piet Mondriaan lie next to each other in one new exhibition at Tate Modern.