Royal Mail sell-off: Portraits of financial power - the funds that made a fortune
Jim Armitage is the City editor of The Independent and London Evening Standard group of newspapers. He has been a reporter and editor for more than 20 years and was recently shortlisted for the Press Gazette financial journalist of the year and The Society of Editors financial journalist of the year awards. He contributes news, investigative reports and comment to the Independent titles plus a daily column in the Evening Standard.
Wednesday 30 April 2014
Billionaire investor Dan Loeb, the founder of Third Point, is known as one of the most ruthless hedge-fund investors in the world. So ruthless that even the mild-mannered George Clooney has attacked his actions against Hollywood studios.
His modus operandi is to buy a big slug of a company and then force the board to sell assets and hand over the profits to shareholders. Most famous was the 51-year-old’s siege of Sony, where he bought $1bn of stock and sought a seat at the boardroom table to demand huge cost-cutting at its entertainment division, including Hollywood movie studios.
George Clooney’s response was cutting. He dismissed Mr Loeb as “a hedge fund guy who… knows nothing about our business. It drives me crazy: a guy from a hedge fund entity is the single least qualified person to be making these kinds of judgements, and he is dangerous to our industry.”
The former California surfer’s other targets have included Yahoo, Apple, Disney and Morgan Stanley. He is currently laying siege to Sotheby’s auction house.
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His aggressive and very public attacks on companies’ management teams are famous: chief executives live in fear of the dreaded Loeb “letters of mass destruction” which are issued for all to read through stock exchange postings.
Typical was one to L. Pendleton Siegel, the chairman and chief executive of America’s Potlatch Corporation, to whom Loeb wrote: “You and your smirking chief finance officer Gerald Zuehlke are among the worst managers of a public company in America.”
He started off his Third Point hedge fund with the strategy of taking “short” bets against company share prices before issuing devastatingly cruel allegations onto investor internet sites under the pseudonym “Mr Pink” – taken from the movie Reservoir Dogs.
George Soros will always be best known as the man who broke the Bank of England. On Black Wednesday, 1992, he took huge bets against the pound, correctly guessing that the British economy was too weak to stay in the European exchange rate mechanism.
The Hungarian trader and other big speculators relentlessly sold and “shorted” sterling – betting the price would fall – so it did, despite then-Chancellor Norman Lamont’s pledge to move interest rates up to 15 per cent. Mr Lamont spent more than £3bn attempting to counter their actions by buying the pound until finally capitulating in the evening.
Mr Soros, now 83, is claimed to have made $1bn on the deal – a colossal sum which cemented his reputation as a terrifyingly powerful trader. He went on to attack the currencies of Thailand and Malaysia in the 1997 Asian financial crisis.
Terrifyingly powerful: George Soros (Getty)
With his funds he invests both “long” and “short” in companies, currencies and bonds around the world, picking up an insider trading conviction in France along the way (he strongly disputes the conviction). More recently, his fund management activities have stayed out of the headlines. In July 2011, his main Quantum fund, which managed money on others’ behalf, returned $1bn to investors to focus on solely managing the Soros family money.
Lansdowne’s former boss and co-founder Paul Ruddock was a big donor to the Conservative Party, while Peter Davies, who sits on the management committee, was Chancellor George Osborne’s best man at his wedding.
With connections like that, the company has never been far from the conspiracy theorists’ radars, although there is no suggestion that it has been involved in any wrongdoing.
Lansdowne Partners is one of Europe’s biggest hedge funds, and became notorious for making a reported £100m betting against the share price of Northern Rock.
Its fans point out that it took those bets years before the Rock’s collapsed into the arms of the government and had merely correctly calculated that a disaster was on the cards. But its critics have never forgiven it for profiting from the misery of investors and the worry of Northern Rock’s savers.
It went on to “short” shares in Barclays in 2009, making a profit of £12m in just four trading days.
While it takes long and short bets on the value of shares and other assets, it has not sold any of its allocation of Royal Mail stock and has a reputation for holding onto investments for longer than many rivals.
Lazard Asset Management
Lazard has been chosen by the Coalition Government to advise it on practically every major state asset sale since the election. Bankers say this is because it is not one of the giant investment banks which have large stockbroking divisions that would be conflicted when it comes to selling the shares.
However, it was facing accusations of conflict of interest now it has emerged that its fund management arm, Lazard Asset Management, was made one of the lucky 16 priority investors in the Royal Mail flotation.
Lazard’s international division is chaired by the former Business Secretary Lord Mandelson, while a number of senior civil servants at the Department of Business are ex-employees, including the chief executive of the Shareholder Executive, which looks after taxpayers’ assets like Royal Mail, and the lead official in charge of the flotation project – albeit years earlier in their careers.
The Independent’s revelations that Lazard had advised on more than £11bn of state sales and deals prompted both the Business Select Committee and the Public Accounts Committee of MPs to call the company’s chief executive, William Rucker, in for questioning this week.
Other state sales in which it has been the Government’s adviser include the sales of the Tote betting business, the publicly-owned blood plasma service, the two sales of the taxpayers’ shares in Lloyds bank and the agreement to pay nearly twice the current amount for nuclear energy from EDF Energy’s proposed Hinkley B power station.
In the case of the Lloyds shares sales, it did the work for free, with City bankers saying the kudos of handling such prestigious transactions – the sale of £3.3bn and £4.2bn of shares respectively – was enough.
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