One thing to start: The first quarter has been quite something, as I’m sure you’ll all agree. We’re taking a break for Easter next Monday but normal programming will resume on April 17.

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GQG goes against the grain

Rajiv Jain is not afraid of taking risks. The founder and chief investment officer of GQG Partners proved that last month when he ploughed $1.9bn into Adani Group after it was hit by a US short seller’s attack that wiped as much as $145bn from the Indian conglomerate’s market value.

The Florida-based firm’s move has thrust 55-year-old Jain, an Indian-born emerging markets investor who has made a career of going against the grain, into the spotlight. While his public image is now tied to that of Gautam Adani’s infrastructure empire, it does not appear to worry him.

“The craziness part is mostly coming from the public relations risk,” he told Ortenca Aliaj and me in an interview.

“Nobody who invested in FTX has gotten fired yet,” he said, taking a swipe at the numerous firms that put money into Sam Bankman-Fried’s now bankrupt cryptocurrency exchange. Well quite.

While GQG’s investment in Adani Group caught the market by surprise, Jain said it had been looking at the conglomerate for five years and already had significant exposure to India.

Some of his team met Adani family members last summer while the company was doing a roadshow in New York, although back then Adani shares had been on a stratospheric rise and, as Jain puts it, “there were other fish to fry”. 

But the surge in Adani stock came to an abrupt halt in January when Hindenburg Research released a report alleging accounting fraud and stock manipulation. While the company denied the accusations, investors fled and it was forced to call off a $2.4bn fundraising.

“Things changed with a vengeance this year,” said Jain, with the slide in value providing a compelling entry point for GQG. “The stock is down 75-80 per cent, so that obviously gets your attention.”

Column chart of % showing Beating the benchmark

Jain says he is not concerned about Hindenburg’s report on Adani and accepts that companies in emerging markets tend to have certain traits that may make some investors uneasy. He says:

“Is this perfectly clean? No it’s not. Is it fraud? No it’s not. So the difference between the two is what we’re talking about. In the meantime you are getting irreplaceable assets, at very attractive valuations, which have some tremendous upside.” 

For Jain, who over the past seven years has built a business with more than $90bn in assets (including over $20bn on behalf of Goldman Sachs Asset Management), the Adani trade is no different to other contrarian plays he has made in his career. Most recently this included aggressively snapping up unloved energy stocks in 2021 and meaningfully selling down holdings of technology stocks that year.

Ultimately he believes that it’s only by sticking their neck out and going against consensus that active managers can justify their existence and their fees.

“It’s very easy to buy Apple, Google, Microsoft . . . our job is to deliver alpha over the long run. If you don’t want to be uncomfortable owning anything, why would you outperform? It will not happen.”

Read the full profile here

Article 9 is on borrowed time

It’s only been two years but does the bell already toll for Article 9, the greenest of all green funds?

Asset managers are complaining that new EU rules to classify sustainable investments are unworkable, prompting the European Commission to consider junking a key part of its flagship initiative for the €282bn market.

The tightening of EU criteria for the greenest category of investment has led asset managers including BNP Paribas, BlackRock, Amundi and Pictet to remove the label from €175bn (£154bn) of funds in just over three months to January. This has reduced the size of the market by nearly 40 per cent.

Several people familiar with discussions between EU officials and industry told my colleague Kenza Bryan that the commission is now debating whether to scrap the category altogether, to quell fears of greenwashing and address the frustration of the market.

“They are considering getting rid of Article 9 entirely,” said a person involved in the talks with the commission, referring to the legislative name for the greenest category of investment.

The person added that legal constraints meant Brussels could not give a “satisfactory answer” to questions by Esma, the EU’s securities regulator, about the uproar among investors. While the commission cannot rewrite the underlying law itself, it could propose legislation for the EU to adopt after next year’s parliamentary elections.

Bar chart of proportion of Article 9 funds reporting each range of sustainable investments (%) showing few funds meet the EU's 100 per cent purity criteria

For those unfamiliar with the rules, they were first set out by the EU’s 2021 Sustainable Finance Disclosure Regulation, which asset managers rely on to identify their most environmentally friendly products, since broader bloc-wide rules on a new “taxonomy” of green investments are not yet fully implemented.

At present, the bloc’s definition refers to investments that contribute to an environmental or social objective, and “do no significant harm” to such goals.

But the commission clarified its rules in January to require the greenest funds to hold 100 per cent “sustainable” investments — leading to the rebranding of asset managers’ funds. It could make this definition even more restrictive in a further clarification due next month.

The EU and UK still lack official guidance about using ESG labels for funds. Jean-Jacques Barbéris, director of ESG at Europe’s largest fund manager Amundi, said the bloc’s definition of “sustainable” was “highly unstable”. 

“There are [funds] that are super demanding on the one side and others that are a little ‘yoo-hoo, party time’ on the other . . . and everything in between,” he added.

Read Kenza’s full story here

Chart of the week

Column chart of Société Générale CTA Index, monthly move (%) showing trend-following hedge funds slumped in March

Trend-following hedge funds have suffered one of their worst monthly losses since the dotcom bust in the bond market turmoil that unleashed by the recent banking crisis.

So-called CTA funds, which manage around $200bn in assets according to eVestment, use algorithms to detect and ride trends in global futures markets, but many were caught out by a sudden reversal in US Treasuries after Silicon Valley Bank’s failure.

Société Générale’s CTA index, which tracks the performance of 20 of the largest such funds, dropped 6 per cent in the space of two days in the wake of the Californian lender’s collapse, and has slid further since, bringing its decline to 6.4 per cent in the month to March 30, the latest day for which data was available.

That marked its worst monthly performance since November 2001, another month when changing interest rate expectations caused historic swings in Treasury yields.

The trend-following funds had profited from last year’s historic sell-off in bond markets, but many came unstuck when the banking chaos prompted a sudden dash into ultra-safe US government debt.

“CTAs were following last year’s trend into this year,” said Edward Al-Hussainy, a senior analyst at Columbia Threadneedle. “When trends reverse as rapidly as they did in the banking crisis, CTAs are bound to get caught offside. It was particularly bad because of how crowded they were in the short positions in Treasuries.”

Funds managed by firms including Man Group, Aspect Capital and Systematica Investments were among those hit by the moves.

Five unmissable stories this week

Nick Train, co-founder of £18bn investment firm Lindsell Train, has defended domestic pension funds for cutting their exposure to London-listed stocks, warning that the City has fallen into the “backwater” of global equity markets.

Legal and General Investment Management, the UK’s largest asset manager, has warned that businesses and financial markets are failing to price in the risks of climate change, telling investors to “strap in” and prepare for a “bumpy ride”. 

The £90bn Universities Superannuation Scheme, the UK’s largest private-sector retirement plan, and hundreds of universities have warned the Pensions Regulator that its shake-up of rules risks damaging economic growth and the education sector.

Ken Griffin’s $54bn hedge fund Citadel plans to reopen its Tokyo office later this year, almost a decade and a half after shutting down its Japan operations during the global financial crisis.

Sir Nigel Wilson, the outgoing boss of Legal and General, has said that the UK government’s flagship regional development policy of levelling up is “failing” and that the recent banking turmoil will make the situation worse.

And finally

Björk Ensnares Laocoön (2023) © Rafaela de Ascanio

To the Tristan Hoare gallery in Fitzrovia for a captivating exhibition of ceramics and tapestries by my friend Rafaela de Ascanio and Christabel MacGreevy, both London-based artists. Sexing the Cherry takes its point of departure from Jeanette Winterson’s 1989 postmodernist novel of the same name. De Ascanio’s colourful sculptures and tapestries delve deep into the world of Winterson’s novel, exploring “the tensions within female idolatry, from the monotheist Minoan snake goddess to pop queens Bjork and Rosalía.”


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