Theresa May is a genius – discuss?

There, that has caught your eye.

We are accustomed to thinking that Brexit has degenerated into a shambles and Mrs May’s strategy of “kicking the can down the road” has been a disastrous humiliation. That is certainly a valid point of view. But from her own narrow self-interested perspective she remains in Downing Street and has avoided taking any of the many final decisions which might coalesce opposition to her.

That strategy marked up another success overnight when the European Council agreed an Article 50 extension until October 31st.

At Boscobel we have continuously resisted the Government’s claim that the country faced a binary choice of Theresa May’s deal or No Deal, as we believed Parliament would approve neither. That continues to be our advice.

A leadership contest?

This morning, the Today Programme was full of disinterested speculation that Mrs May will now be “forced to step down”. That is a possibility. But the fact is there is no legal or constitutional mechanism to remove her from office in the short term. And unlike most politicians she seems utterly immune to the daily hue and cry of the media, Parliament or indeed other people’s views and feelings generally.

She has particular contempt for Cabinet government, one of the many important constitutional conventions our politicians have undermined in recent years. That said, given that at least five of her colleagues now have leadership campaigns up and running, she can enter a plea in mitigation.

Investor confidence

From an investor perspective, last night’s European Council decision has its merits. There is a huge amount of deferred investment, pent up in the system. There were only three IPOS on the London Stock Exchange in the first quarter, the lowest number since the financial crisis. UK companies are holding a record 35% of GDP in cash on their balance sheets.

For managers and investors with capital to allocate and who can ignore the media, the Brexit pause should be an opportunity to make incremental decisions. Very large decisions may still be put off, as the acute political uncertainty around the UK will continue.

What is the medium term outlook?

  • The UK will almost certainly participate in the European Parliamentary elections, with candidates to be selected in the next couple of weeks. The polls suggest this will be a disaster for the Conservatives.
  • The franchise could be critical, as EU citizens resident in the UK will be entitled to vote. They have been treated appallingly by the political and bureaucratic process and are difficult to poll. One suspects, without evidence, they will vote for remain parties such as ChangeUK.
  • Relative to the hard core Remainers, at the top of which sit the eminence grises of New Labour, notably Tony Blair, the Brexiteers (especially the European Research Group in Parliament) are in disarray.
  • Experience of life suggests the longer and more frequently something big is delayed, the more likely it is to lose momentum altogether. We should start to contemplate the possibility that Brexit may never happen, or not unless the mandate is refreshed by a Second Referendum.

In EFTA, it would be in a working free trade agreement, but outside the jurisdiction of the European Court of Justice, the Common Agricultural Policy, the Fisheries Policy and the Customs Union. We would enjoy rights of consultation and veto over new laws, as they applied to us.

At Boscobel, we have supported a campaign for the so-called Norway solution. It is now commonplace in Parliament that there are, in fact, two pillars of European treaties, holding up a common-roof called the European Economic Area. The EU political treaties make up one pillar, but there is another made up of the European Free Trade Association. It still makes sense for the UK to leave the political institutions of the EU and move into EFTA.

For this policy to work it would require something to shift. But that tinkling sound you can hear is just the can being kicked down the road. Again.

Hedge funds are going long ESG

For those involved in a corporate action situation, a remuneration vote, or implementing the sustainability policy of a large company there is one audience which you normally have not had to consider: hedge funds. However, there are signs that is changing.

In general, hedge funds are interested in generating alpha, or non-market correlated returns. The typical holding period can be quite short, somewhere between minutes and weeks, and – unless they are engaged in an activist strategy – they don’t usually vote or engage with the company on Environmental, Social and Governance (ESG) issues.

This week, Albourne, a consultancy advising the clients of hedge funds, published a manifesto in which one of the main points is to develop a standardised method of ESG reporting both for corporates and funds. Simon Ruddick, the chairman, is stepping down to promote it.

The Financial Times also carried a piece which claimed about a tenth of hedge fund strategies are now managed according to ESG principles. Half of hedge funds have also signed up to the United Nations’ Principles of Responsible Investment (UNPRI) charter.

Client’s demand

The drive for greater commitment to ESG by hedge funds is coming from their clients. According to a recent survey by the trade association AIMA, some 51% of hedge funds are seeing increased interest in their responsible investment capabilities, with the bulk of it coming from North America.

There have been some notable fund launches in this area. Jana Partners Impact Fund recently took on Apple over the addictive use of smart phones by children. It invests in companies which it, “believes are good bets but could do better for the world.” ValueAct Capital also launched its Spring Fund which invests in companies which, “are emphasising and addressing environmental and societal problems.”

To be fair to hedge funds, there are good reasons why they have not historically taken much of an interest in this area. Not only are their positions frequently of short duration, their primary objective is to generate alpha for their clients and this may in fact conflict with sustainable investing. There may be better returns to be made from a distressed security with a poor reputation. Furthermore, they may actually have a short position or stock on loan, where the votes rest with the legal owner. Or they may invest via Swaps which face the same issue.

Many hedge funds manage systematic strategies which are based on filtering and analysing data. Standardising ESG reporting by corporates, as the UNPRI is moving towards, is likely to enable them to create filters, indices and algorithms to provide ESG signals to adjust their portfolios or their votes accordingly.

Corporates take note

What are the implications for corporates? These are threefold. There is yet more of a requirement to keep the share register up to date and to establish who is the real owner and decision maker of shares out on loan or held via nominee accounts or other synthetic devices. Second, having worked that out, companies need to understand their investment or voting criteria, which may be systematic. And thirdly to engage with the funds and to emit the right signals.

Hedge funds now manage some $3.1 trillion of assets. As we saw in the campaign against the London Stock Exchange led by the TCI fund, they don’t do things by halves and even if they don’t succeed in their demands, they will make their presence felt by boards and companies and will shake things up.

The recent decision by Unilever to pull a vote on its redomicile was a classic example of things going wrong for a corporate. One suspects the company wasn’t clear who owned its shares and what they thought. Most of the names which came out against it were classic long-only funds. In the future, more hedge fund names are likely to be named publicly in such situations.


Pollen Street Capital appoints Boscobel & Partners

Boscobel & Partners is pleased to have been appointed as communications adviser by Pollen Street Capital, the private equity and credit fund manager focussed on investing in businesses in the financial services sector and in specialist credit assets.

Boscobel’s team, led by Founder and CEO George Trefgarne, will manage Pollen Street Capital’s financial communications across the investment trusts it manages and its private equity funds.

The new mandate extends Boscobel & Partners existing financial PR brief with P2P Global Investments, the specialist credit investment trust managed by Pollen Street Capital.

George Trefgarne, Founder and CEO of Boscobel & Partners, said: “We are delighted to have started 2018 by expanding our relationship with Pollen Street Capital, the leading specialist investor in financial services assets in Europe. Pollen Street joins our growing blue chip client base, including Standard Chartered, Marshall Wace and Majedie Asset Management.”

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