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Get shorty: how Clinuvel Pharmaceuticals beat the hedgies

Get shorty: how Clinuvel Pharmaceuticals beat the hedgies
Get shorty: how Clinuvel Pharmaceuticals beat the hedgies


The acrimonious battle between hedge fund short-sellers and Australian biopharma group Clinuvel Pharmaceuticals appears finally to be drawing to a close.

After a two-year struggle, during which short-sellers have focused on the company’s regulatory hurdles for its drugs and its steep valuation, the hedgies are in retreat.

Frequently the subject of debate on message boards and, improbably, a favourite stock of cigar-smoking German hedge fund manager Florian Homm, $1.1bn Clinuvel provides a treatment for erythropoietic protoporphyria.

EPP is a rare and serious inherited disease that leads to raised levels of a phototoxic molecule. When a patient’s skin is exposed to light the molecule reacts, leading to irritation or a visible burning within minutes. At worst, the pain is so extreme it can cause patients to scream.

Clinuvel, which has been profitable since 2017 after years of losses due to research spending, produces a drug called Scenesse to treat the condition. It has received approvals in the US, EU, and, most recently, in Israel. The company is now looking to expand its use to treat patients with other genetic or skin disorders, for instance vitiligo, a condition whereby a lack of melanin causes pale white skin patches to develop.

The battle with hedge funds started in spring 2019 when the stock, trading in the AS$20s, attracted the attention of short sellers ahead of a key ruling by the US Food and Drug Administration.

In April, short interest was less than 0.5 per cent, but steadily climbed to around 5.8 per cent by the time of the US FDA approval in October, which briefly sent the shares rocketing above A$45.

Undeterred, the short interest continued to grow, reaching nearly 10 per cent by April 2020. Stock out on loan, another way of measuring short selling, peaked at 12 per cent at the end of March, according to IHS Markit, shortly after Clinuvel shares hit an 18-month low during the pandemic-induced market turmoil.

At one point, the stock became the most shorted among 324 biotech and pharmaceutical stocks in Asia last summer, according to Bloomberg.

Most companies are not fans of short-sellers or their tactics, though many choose to ignore them. Clinuvel took a different approach. It began to note the level of short interest at the end of 2019 and into 2020, before ramping up the rhetoric last year.

“Some market participants see the opportunity fit to distort and short stocks within the gaze of regulatory oversight,” said CEO Philippe Wolgen in a July 2020 shareholder letter pulled from financial data site Sentieo, highlighting “those who disseminate negative and disparaging news on us”. A common tactic of short-sellers was, he said, to “infiltrate” retail shareholder websites and to spread “incorrect and often false rumours”.

Wolgen pointed Australian, German and US authorities towards “these . . . stock bashers and all who distort the Clinuvel narrative openly” and called for regulators to trace individuals involved in this.

Then, in its annual report in October, it devoted a section to attacking short-sellers, noting “an increase in false and misleading comment” in online forums. It also discussed how court orders could be used to force the identification of people posting defamatory comments anonymously.

For good measure, at the AGM in November, chair Willem Blijdorp took aim at “a small group of online investors” trying to influence new shareholders with “years of nonsense information”. “It’s value destruction in the most stupid form I have come across,” he added.

Precisely what exactly had irked Clinuvel management is hard to know for sure, but posts have taken aim at a range of subjects including Wolgen, the price of Scenesse, the company’s focus, the chairman’s independence and so on.

To be fair though, Clinuvel’s previous encounters with hedge funds may explain some of management’s wariness towards the shorties.

The group was a favoured stock of Florian Homm, the rogue financier who ran Absolute Capital and who this year has faced charges from Swiss prosecutors. Homm, described by Wolgen as being “very difficult to deal with”, was an early backer of Clinuvel and had become its biggest shareholder through his hedge fund by the time of the financial crisis.

Homm shocked the financial world by resigning from his hedge fund Absolute Capital in September 2007. With $500,000 stuffed into his underwear, briefcase and cigar box, he boarded his private jet and flew to Colombia, later going into hiding before being arrested at Florence’s Uffizi gallery.

Wolgen recalls Clinuvel’s shares falling in the wake of Homm’s exit and then finding out “a large percentage of our stock was shorted. We could never find out who was short”, he told the FT.

Wolgen added: “I was left with the aftermath, dealing with thousands of shareholders.” Years later, Homm told Wolgen by phone that backing Clinuvel had been one of his great achievements in life. In more recent years Homm has still been posting research on the stock via his website and YouTube channel.

As if that was not enough, in 2014 Clinuvel became a takeover target for Retrophin, the drugmaker set up and headed by Martin Shkreli, the infamous hedge fund manager later jailed for fraud.

This time around, Clinuvel is taking no chances. Wolgen, a former stock analyst who joined the company after writing a negative report and then being invited in by management to discuss it, said the company had hired investigators and lawyers to look into “posts that were blatantly false” on the message boards.

The company is frequently putting out news and correcting what it sees as fake posts on a website it has set up (which contains plenty of news on vitiligo, an area of focus for the company), he said.

Other actions include “the continuous construct of a legal dossier on false unsubstantiated news, reputational damage, smear and slander campaigns while forensic investigation takes place on the culprits: behind any anonymous poster lies a verum email account”, said Wolgen.

While the GameStop saga may have helped, the decision to fight back aggressively against the short sellers also appears to have been effective: short interest has dropped from nearly 10 per cent a year ago to less than 5 per cent of late. Chairmen Blijdorp recently felt he could declare that “short sellers are exiting their position . . . and the share price is increasing”.

The Reddit-driven frenzy in GameStop demonstrated the power of the message boards. Clinuvel’s story shows that power, perhaps, is not unlimited.

Homm did not respond to a request for comment.



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OPINION

Body language and the return of the ballet

Body language and the return of the ballet
Body language and the return of the ballet


I love the ballet. Yes, I was the little girl who constantly wound up her musical jewellery box with its twirling ballerina at the centre, and who always wanted a pink tutu and lace-up pointe shoes. At college, I remember driving to another city just to see the visiting Bolshoi Ballet company.

Over the many years since, going to the ballet has always felt magical and inspiring. I still get lost in the grace and beauty of how the dancers’ bodies move, lengthening and leaping or making tiny sharp steps, as though staccato symbols floated invisibly above their coiffed heads. All that disciplined work looks so effortless, but most of all, dancers remind me of what I so often forget: that the human body is a joyful wonder, able to accomplish more than I usually give it credit for.

I haven’t been to the ballet since October 2019, when I saw a performance by the American Ballet Theater at the Lincoln Center. Like the rest of the audience, I had no idea it would be the last live performance I’d see for more than a year. Now, as New York carefully unlocks its cultural arts venues, ballet companies are gearing up for returning to live performances in the fall.

Last week, in anticipation of a gradual return to normal, the New York City Ballet premiered their 2021 Digital Spring Gala, as a 24-minute film directed by film-maker Sofia Coppola. Nothing compares to a live performance. But still, late Monday night after an over-extended workday, I tuned in, suddenly giddy with anticipation, as if a little thread of thrill had been pulled within me. If you plan to watch, it’s available online until May 27.

Spoiler alert: it was beautiful. The film begins with short, sharp glimpses of the barren spaces around the theatre: the rows of empty velvet seats, a cold-looking storage room stuffed with clear plastic bags full of unused pointe shoes, and iron rods of hanging unworn tulle skirts and dresses.

Gonzalo Garcia in an excerpt from Jerome Robbins’ ‘Dances at a Gathering’, part of New York City Ballet’s 2021 Spring Gala © Philippe Le Sourd

A shelf of gigantic plush costume heads of mice reminds us of the lavish holiday season, the magical Nutcracker performances that didn’t happen last year. It feels both exquisite and forlorn, stirring both nostalgia and a longing for a return to the parts of our lives that summoned joy.

Into this quiet yearning, principal dancer Gonzalo Garcia enters the frame, walking into a long dark hallway. We follow him towards the light at the end, an empty rehearsal studio, where he pauses at the doorway, drops his bag and gazes in with what feels like a strange mix of quiet relief and lingering grief, as though he were never sure he’d be there again. We follow Garcia’s muscular limbs as he moves and stretches and glides and pirouettes and jetés around the room, a dazzling example of what the body is physically capable of when one is in command of it.

Ashley Bouder and Russell Janzen in an excerpt from George Balanchine’s ‘Duo Concertant’, part of New York City Ballet’s 2021 Spring Gala © Philippe Le Sourd

It feels like a quiet reminder of our bodies’ resilience in times of trauma, the way they can hold not just pain but memories, too, of better times. Watching professional dancers of any kind, I am constantly amazed at how the body seems to have its own language. With movement it can convey and release emotion in ways that can free and expand us. It made me think about how all of our bodies are capable of communicating, and how all of us are always in some sort of dialogue with our own bodies.

Physical sensations, instinctual responses, emotions and intuitions arise constantly within all of us, whispering insights about our present experiences and what we might need. Yet although our culture and society is obsessed with body image and how we look, we are not readily trained or encouraged to pay attention to how our bodies communicate with us or to listen for their inherent wisdom and guidance.

In the past 14 months, we’ve all found ourselves more aware of our bodies. Some of us gained or lost weight due to stress and anxiety, others had to combat new levels of lethargy, insomnia and unrest. We had to find creative new ways to stay active when gyms were closed or we didn’t feel safe being in proximity with strangers.

In surviving the pandemic, our bodies have been through traumas that can’t be separated from the emotional or mental hurt we may have experienced. But I suspect that in this past year, we’ve all discovered deepened ways to be grateful for our bodies.

New York City Ballet in the finale from George Balanchine’s ‘Divertimento No. 15’, part of NYCB’s 2021 Spring Gala © Philippe Le Sourd

Watching the ballet the other night, even digitally, was an especially beautiful and moving experience because it reminded me to recognise again the strength and beauty of our bodies, to remember that our bodies are a language unto themselves.

For the finale, the film bursts from black and white into colour, replete with classical tulle tutu-wearing ballerinas, and male dancers dressed in white tights and pastel blue jackets, all against a sky-blue background. They twirl and leap joyfully together to an excerpt from George Balanchine’s “Divertimento #15”, and I feel the muscles on my face stretch into a broad smile. It is a moment of enchantment and childish delight.

Tiler Peck hugging Ashley Laracey, with Unity Phelan at right, after the finale of George Balanchine’s ‘Divertimento No. 15’ © Philippe Le Sourd

Our bodies may not always win in the healing game, nor might we always treat ours or others’ with the respect and honour they deserve, but while the curtains are up in our lives, they remain exquisite works of art.

Enuma Okoro writes weekly for Life & Arts

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OPINION

Which is the fairest mirror of them all?

Which is the fairest mirror of them all?
Which is the fairest mirror of them all?


If you have a question for Luke about design and stylish living, email him at lukeedward.hall@ft.com. Follow him on Instagram @lukeedwardhall

I want to make my house feel brighter and lighter and so I am looking for mirrors to place in most of my rooms. I’m not sure where to start. Can you help?

A room doesn’t feel truly complete without a mirror or two, I believe. Not only do they provide extra light and brightness, they are also brilliant accessories in their own right. I enjoy the process of sourcing and placing mirrors and experimenting with colour and material contrasts, sizes and shapes.

In our sitting room in the country, for example, we bought when we moved in a tall and thin circa 1910 japanned mirror in red lacquer (pictured above, from London’s Ebury Trading) to hang above the fireplace. Its thin red border is a welcome contrast to the room’s grassy olive-green walls and the Queen Anne-style rounded shape is quietly elegant.

The slender size gave us ample space to add candle sconces and framed pictures on either side. A wider mirror would have filled the space and looked great too, but the verticality of this thin mirror and the surrounding arrangement of pieces pleases me.

I like mirrors of almost all shapes and sizes, and I don’t have rules about what to choose and where to hang. (Although overmantel mirrors generally belong above mantels, and landscape-shaped mirrors are not usually to my taste.)

What I must say is: go bigger rather than smaller, as a too-small mirror in a space feels mean. And, as with pictures, don’t hang too high. You don’t want a mirror floating high on a wall, untethered. It should feel grounded to whatever is beneath it, whether floor or basin or furniture.

A shield-shaped mirror from the 1960s
A shield-shaped mirror from the 1960s, available at Pamono

A French faux bamboo-style mirror, c1920 available at Tom Scott Antiques
French faux bamboo-style, c1920, available at Tom Scott Antiques

I do, unsurprisingly, love an old mirror. Old glass can often be beautiful; I love its patina, foxing and spots and smudges. It is possible to buy new glass that has been treated to look old, and some smart versions can be found, but more often than not the effect doesn’t look quite right to me.

If you fancy designing your own mirror using this kind of glass, take a look at GX Glass, which makes a nice Venetian glass with a subtle, gently mottled appearance.

So, where to start? The range of choice can feel dizzying. Here are some of my favourite ideas, which I hope might provide some initial inspiration. I like inexpensive faux-bamboo mirrors in little loos — they often seem to be just the right size to hang above a small sink. Tom Scott Antiques often has a good range in stock.

A shield-shaped mirror is a wonderful thing, particularly Italian ones made in the 1950s or 1960s with thin metal borders. Search pamono.co.uk for good examples. London’s Retrouvius is selling a charming mini version in a wooden frame, with the perfect amount of patina across its surface.

I adore also a gilt-wood mirror, but be careful to avoid the Liberace look. How? I think one wants one’s gilding to be fairly dull, not too brassy. If you’re searching for something a bit ritzy, you want fine, elegant scrolling, not bulbous blobs.

LVS Antiques is selling a very large and rare George I gilt-wood and gesso mirror that features a broken scroll arched pediment with carved eagle heads, cresting to a feathery foliate crown. It is utterly marvellous; I want it madly.

Retrouvius is selling a charming mini shield-shaped mirror
Retrouvius is selling this mini shield-shaped mirror

The rare George I gilt wood and gesso mirror that features a broken scroll arched pediment at LVS Antiques
A rare George I gilt-wood and gesso mirror at LVS Antiques: ‘I want it madly’

If money were no object, I’d be first in line for a Murano moment. See the pair of 19th-century Venetian mirrors on offer from a dealer in Long Island City, via 1stdibs. These are etched with scenes of figures in landscapes and trimmed with pink and green glass flowers. They look as if they have been sculpted entirely of sugar by woodland pixies.

At the other end of the spectrum in terms of age, expense and extravagance, I’m a huge fan of the mirrors made by Habitat when it first started out. These feature thick plastic borders in a range of colours. They’re simple, fun and bold, and look great in bathrooms. Habitat should consider bringing them back. They come up on eBay sometimes — this is where I found my square emerald-green model.

A pair of 19th-century Venetian mirrors at 1stdibs
A pair of 19th-century Venetian mirrors at 1stdibs

The French company Atelier Vime produces lots of wonderful things from wicker and rattan, made by craftsmen using materials grown locally in Provence. I very much like its large natural rattan-edged mirror. The soft tones and textures of the rattan contrast beautifully with the glass, and its size would create a grand statement in any room — above a console table in a hall, perhaps?

Atelier Vime’s rattan-edged style mirror
Atelier Vime’s rattan-edged style

I mentioned the idea of designing your own mirror, and this is something I certainly recommend if you fancy the challenge of creating a particular shape and size. For my Paris hotel project, last year I designed a mirror inspired by William Kent’s ornate gilt-wood pieces, recreated in simple off-white painted MDF, to which I added decoration in black paint.

Not exactly fit for the V&A, but it worked just fine in a foyer around the corner from the Gare du Nord.

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OPINION

Solutions 30: suspended in animation

Solutions 30: suspended in animation
Solutions 30: suspended in animation


At the crack of dawn on Monday morning, FT Alphaville stared in disbelief at what had just crossed the French wires.

Solutions 30, a €1.1bn Luxembourger man-in-a-van telecoms and energy outsourcer listed in France, had asked Euronext Paris to suspend its shares “until further communication is released”. Four trading days later, the equity remains frozen at €10.38.

So what on earth is going on?

Well, as you might recall from our coverage in December and what’s happened since, the outsourcer, which counts European corporate heavyweights such as EDF, Orange and Unitymedia among its customers, has suffered a torrid six months.

On December 9, news of an anonymous short-seller report on the company hit the French press. Two days later, the shares were temporarily suspended after Muddy Waters — the American activist investor, which had been short the stock since May 2019 — joined the fray. The company responded in detail to the allegations, but it didn’t alleviate the market’s concerns. By Christmas, the share price had halved to under €10.

The bulk of the anonymous report, and Muddy Waters’ five follow-up open letters through December and January, focused on the company’s historical relationship with an Italian accountant named Angelo Zito who, according to local reports, spent time in prison in 2000 over his links to the Sicilian mafia. Solutions 30 acknowledged it had a relationship with Zito, but said that it had ceased all ties with him in 2016 once they found out about his past the December before.

Solutions 30, in an effort to clear its name, commissioned an independent audit by Deloitte and local accountant Didier Kling Expertise & Conseil in late January. Published on April Fools’ Day, it found the various accusations against Solutions 30 “unfounded and erroneous” and said they had not “identified any evidence to corroborate the allegations of money laundering, in connection with organised crime”. The shares rallied 30 per cent on the news, settling at €14, a third below the company’s 2020 high. 

A sixth and seventh letter from Muddy Waters the following week caused the stock to fall once more. This prompted the publication of a lengthy letter from chief executive Gianbeppi Fortis on April 12, in which he stated that Solutions 30 has “decided to no longer respond publicly to slanders that are totally unfounded” and invited shareholders to file legal complaints with the authorities against these “false and misleading publications”. The California-based activist replied with a YouTube video laying out its short thesis a fortnight later.

Phew. Now you’re up to speed, here’s what FT Alphaville thinks might be going on with the stock suspension.

The immediate thought that springs to mind is Solutions 30’s full-year results. Just over a fortnight ago the company released its 2020 numbers which, on the face of it, looked rather good. Revenues grew 18 per cent year-on-year to €819m, with Ebitda margins touching 13 per cent, and the company recorded a net cash cushion of €59m. Not bad at all.

Yet, there was a wrinkle: the results were not audited. Solutions 30’s auditor? EY. The firm took the reins from Grant Thornton in 2019.

In the results press release, the company said the “complete consolidated financial statements, including the notes, will be made available as soon as possible”. Silence has followed.

That makes Solutions 30 the only company in the CAC 60 — France’s mid-cap index — not to report full year audited results, according to French financial daily Les Echos. So here we have a company under scrutiny for its accounting audited by a firm under scrutiny for its audits of corporate disasters like Wirecard, NMC Health and Luckin’ Coffee.

EY Luxembourg declined to comment, citing professional secrecy obligations.

The French investing forums however, have another suggestion: perhaps there is imminent news of a key investor on the shareholder registry, with the elongated suspension due to the details of the deal being ironed out. The idea sort of adds up, Gianbeppi Fortis floated it in his most recent letter, writing:

The duty of the company and its management is to examine all strategic options in the best corporate interests of the company and its stakeholders. All options are being contemplated, including the strengthening of the company’s shareholder base, which could go as far as a delisting.

Yet here is where the logic somewhat breaks down: if a negotiation was in progress — for either an anchor investor or a full takeover — why wouldn’t Solutions 30 just put out a press release stating it? Under the rules of the AMF, the French regulator, discussions regarding a potential takeover have to be disclosed by the bidder, unless the negotiations are kept confidential. However, if the share suspension is a public signal that there’s a negotiation, then that would negate any confidentiality.

And, on the idea of an incoming anchor investor, even if a private negotiation for fresh capital was in progress, how could the company justify a suspension of the stock on that news alone?

It doesn’t quite add up.

Whatever the reason, Solutions 30 is keeping mum. The company declined to comment for this article. It is worth pointing out, however, that there is no specific time limit on the listing being resumed, according to both European and French regulations. So the situation could drag on.

The longer the shares remain frozen, however, the deeper the suspicion might grow that the news is negative. Judging by the panicked discussions among investors online, the fear seems to be already setting in.

Additional reporting by David Keohane

Related Links
Oddo call for an independent audit at Solutions 30 — FT Alphaville
Solutions 30 suspends shares after Muddy Waters joins the fray — FT Alphaville
Solutions 30 falls a fifth on news of an unpublished short report — FT Alphaville
Solutions 30: a €1.1bn question mark — FT Alphaville
Solutions 30 and the disappearing audit letter — FT Alphaville



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OPINION

The other climate risk investors need to talk about

The other climate risk investors need to talk about
The other climate risk investors need to talk about


The writer is chief executive of State Street Global Advisors

The year is 2040. For decades, investors and regulators alike have been encouraging companies across the globe to decarbonise by mid-century.

As a result, MSCI announces for the first time in its 54-year history that every company in its World Index — more than 1,500 publicly traded companies — has achieved net zero. And yet, few are celebrating. Despite the largest companies in the world all having committed to carbon neutrality, a UN report shows that carbon emissions globally have actually gone up.

How could that be? Well, in the rush to be “green” some companies adopted strategies that reduced their emissions or helped them become more efficient, but others simply relied on offsets that delayed the inevitable. Worse, some opted to avoid public scrutiny altogether.

Indeed, while many in the media have seized on “greenwashing” — companies embracing sustainable practices for public relations purposes — a far greater danger is “brown-spinning”: selling off the highest-emitting components of businesses to private equity and hedge fund actors at a discount. This can reduce disclosure, shield polluters and marginalise the voice of the investor.

Certainly, the push to net zero is both urgent and necessary. With US President Joe Biden rejoining the Paris Accord, companies across the globe see the writing on the wall, and are setting ambitious net-zero targets. Investors are stepping up as well. For example, the Net Zero Asset Managers Initiative that aims to help big investors strip out damaging carbon emissions now has 87 signatories, representing nearly 40 per cent of all global assets under management

Meanwhile, there is urgency for businesses to respond: today, the failure to address climate concerns comes with increased reputational risks for companies. But pushing companies to set aggressive emissions targets is only half the job when it comes to transitioning to a net-zero future. How will companies get there?

Many will evolve their business models from dirtier sources of energy to incorporate renewables such as wind and solar, as we are seeing in many European oil and gas companies. Some will develop new technology to manufacture products such as “green steel”, reducing the largest sources of industrial emissions. Still others may use this moment to reinvent their businesses radically. These would be good outcomes for our environment and for companies — a win-win.

But for others the decisions will be harder, more costly and more complex.

For instance, while carbon offsets may be a financially viable alternative, they do not reduce overall emissions and should probably only be used if there is no choice. Likewise, businesses that have a harder time reducing their emissions outright may invest in carbon capture or take more intermediate steps such as buying carbon credits.

Some companies may simply take the easy path of brown-spinning and sell off their highest emitting assets to the top private bidder who may be less concerned about climate change.

To be sure, some private equity firms have embraced ESG and sustainability and are doing great work in this space. Unfortunately, the public has limited insight into the emission impacts of privately held companies.

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That’s why the role investors play in holding companies accountable on the journey to net zero is so important. When investors are at the table, we can use our voice urging disclosure of metrics and strategy and, if no action is forthcoming, our vote.

As investors, we must be crystal clear on our expectations for companies, following through on commitments by vetting transition plans, sharing best practices and scrutinising any offsets or spin-offs of portfolio companies. Our goal is to ensure that portfolio companies’ transition plans to a carbon-neutral world represent good value for investors over the long term.

We should also push for better, universal disclosure. Public and private investors alike would benefit from more relevant and standardised ESG data that helps us understand companies’ capital allocations and the quality of their transition plans.

While much is uncertain, what is not in doubt is that with investors at the table, there will be fewer opportunities to profit off pollution. Public disclosure will increase, not evaporate. And with a focus on the how, there will be far greater accountability to deliver the climate progress we all want to see.



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OPINION

Levelling up your investment portfolio

Levelling up your investment portfolio
Levelling up your investment portfolio


As a Brummie of a certain age, I remember the faded grandeur of Birmingham city centre in the 1970s, with the Victorian and Edwardian buildings looking more than a bit worse for wear.

Already, a decade before Britain’s financial Big Bang wiped out the Birmingham Stock Exchange, it was clear that the heyday of the city’s stockbroking community had long passed. The paint in the offices around the stock exchange was peeling and there were posters plastered on the venerable facades.

In truth, even at their 19th century peak, Birmingham’s brokers had struggled to compete with London. As early as 1911, a local metalworking giant — Guest Keen and Nettlefolds (later GKN) — listed not in the shadow of Birmingham’s St Philip’s cathedral but of St Paul’s.

It’s useful to remember that the roots of regional inequality run deep at a time when an enthusiastic government, fresh from a round of election victories, is pushing ahead with a levelling-up agenda

But we should not be too gloomy. After a battering in the 1980s for its engineering industry, Birmingham remodelled itself as a services centre around the pioneering National Exhibition Centre and it has a new financial hub that includes HSBC’s UK headquarters and a Deutsche Bank outpost. They’re soon to be joined by Goldman Sachs, as the US bank announced last month.

So if Boris Johnson is serious about closing the gap between the rich south and the economic laggards, investors should also be serious about looking for opportunities. Because if levelling-up works, it should generate good investment prospects, including for private investors. 

The government is pledging money for everything from freeports to skills training, broadband networks and railways. Government jobs are moving north, with the Treasury setting up shop on Teesside.

Bar chart of April 2020, full-time employees (£) showing Median weekly pay by UK region

Johnson’s efforts are likely to be boosted by digitalisation, which allows people to work together wherever they are located, and by signs that working from home will survive the end of lockdown. London’s grip on high-skill services will weaken, if the workers can live where they like. 

But it won’t be easy. The Institute for Fiscal Studies has pointedly reported that “the UK is one of the most geographically unequal countries in the developed world”. Brexit could make things worse, as it’s more likely to hit low-skilled jobs outside the capital than London’s high-skill core. And, in a painful irony, the government has pulled out of Europe’s biggest levelling up initiative, the EU’s Regional Development Fund.

For private investors, picking investment plays in these circumstances is tricky, especially as the UK stock market has had a good run in the past year. The domestically focused FTSE 250 index is up 63 per cent since the pandemic shock, far ahead of the globally oriented FTSE 100 on 34 per cent.

Consolidation and globalisation have turned many local companies into bigger players. Among the largest listed companies in Manchester, for example, are PZ Cussons, the toiletries group, Timpson, the shoe repair chain, and Manchester United. Their markets are respectively global, national and global. Smaller companies too often have a national reach. Gately, a Birmingham-based LSE-listed law firm, is a diversified national group.

Of course, you can still get exposure to levelling up through national companies. Alex Wright, a Fidelity International UK-focused fund manager, recommends housebuilders with portfolios skewed away from the Southeast, such as Redrow and Vistry Group. He sees value in brickmakers Ibstock and Forterra, and in Brickability, a distributor.

Laith Khalaf of AJ Bell favours big construction groups such as Balfour Beatty. Less obvious picks are WHSmith and baker Greggs, on the grounds that their hub-based stores can profit from investment in transport networks.

Dig around and you can unearth some truly local investable companies. There is Daniel Thwaites, a Lancashire brewer with 250 tenanted pubs, listed on the small AQSE market. Sigma Capital Group, an LSE-listed housing developer, has a strong business in the Northwest. Durham-based Hargreaves, Britain’s biggest bulk haulier, is a substantial property developer in the North and Scotland.

However, it’s fair to say that the choice of pure-play North- or Midlands-focused listed companies is limited. For funds it’s worse. The Investment Association, which represents more than 4,000 funds, tells me it can’t name any fund with a clear northern identity.

Fortunately, property offers some ways in. Investors ready to lock up money away can look at buy-to-let. As my colleague James Pickford has reported, southern landlords are now looking with a fresh eye at residential property in the Midlands and the North.

But bricks and mortar requires more money and time than the average investor possesses. Meanwhile, investing in out-of-London property through the financial markets is hard — there are few residential specialists, while commercial operators are overweight in unfashionable big offices and heavily biased towards the capital.

However, there are options. Fidelity’s Wright likes L&G, an institutional investor, with promising property projects, for example a £4bn partnership with Oxford university for housing and other schemes.

The investment trust sector offers 20 property funds with a regional focus, according to the Association of Investment Companies. They include the Urban Logistics Reit, a warehouse specialist, which does 66 per cent of its business in the Midlands, and the PRS Reit, which offers new-build rented family homes, has 59 per cent of revenues in the north west.

The choice could widen if Rishi Sunak, the chancellor, succeeds with his proposals for long term asset funds (LTAFs), open-ended vehicles which would allow investors to put money into, for example, infrastructure or venture capital.

The government wants LTAFs to be made suitable for at least some private investors — probably wealthier people with advisers. But it will be slow going: officials know funds holding illiquid assets such as bridges or venture capital stakes can be risky. So the rules, due to be announced later this year, will be cautiously framed. And rightly so.

In the meantime, for investors keen on the potential of unlisted companies, the investment trust sector already offers some closed-end funds with a regional focus, The Lancashire-based Seneca Growth Trust, for example, boasts of “a strong pipeline of investment opportunities, particularly in the north of England.”

The British Smaller Companies VCT has investments in Manchester, Preston and Nottingham. And it’s run by a firm called Yorkshire Fund Managers. What more would you want?

So if you want to want to back the North and the Midlands you should hunt around and use your imagination. The NEC story suggests it can be worth the effort. When Birmingham first funded it there was widespread scepticism about a bunch of provincial municipal councillors going into the global exhibitions business. Their boldness paid off.

Stefan Wagstyl is editor of FT Money and FT Wealth. Email: stefan.wagstyl@ft.com. Twitter: @stefanwagstyl





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OPINION

UK scores points with Washington on sanctions co-ordination

UK scores points with Washington on sanctions co-ordination
UK scores points with Washington on sanctions co-ordination


The UK had barely inked its new anti-corruption sanctions regime late last month before the plaudits started flooding in from Washington.

“We stand in close partnership with the United Kingdom in addressing the global challenges of corruption and illicit finance,” said Janet Yellen, US Treasury secretary. “The United States commends the United Kingdom,” added Antony Blinken, US secretary of state.

To underline the warm and fuzzy feelings, the US even imposed some sanctions of its own to match the launch by targeting two Guatemalans. This came “in close co-ordination with the United Kingdom”, it said. 

The US had already “designated” the same duo under different measures last year, but the two countries were making a wider point: the US and UK are working in tandem to right the world.

Josh Rudolph, former director for global economic engagement in Barack Obama’s National Security Council, said imposing sanctions alongside others was how the US Treasury “expresses its approval of something”.

On March 25, the two countries also imposed joint sanctions on a Myanmar military corporation. Such moves count as useful victories for both London and Washington, perhaps less because pursuing targets in multiple jurisdictions expands their effectiveness and more for their symbolism.

For the UK, in the wake of Brexit, the absence of a swift trade deal with the US and tensions over the Northern Irish border, London wants to be seen cementing its relationship with the US and deploying global heft. For the US, the Biden administration’s multilateral mantra needs buddies to bear out its claims it is supporting values associated with its longed-for concert of democracies, such as protecting human rights and fighting corruption. 

“The UK is still our first port of call to issue sanctions jointly with Europe,” said Rudolph. “Before Brexit, Britain always helped carry our water in Europe generally and on EU sanctions in particular — from technical preparations to diplomatic strategy on the continent.”

Heather Conley, Europe expert at the Center for Strategic and International Studies in Washington, said the joined-up approach also provided a “helpful and powerful, friendly push to the EU” to encourage the bloc to move forward with what she described as its own slower, consensus-driven process.

“The EU and the UK are in strategic competition with each other,” said Conley, who served in the George W Bush administration, adding both wanted to show they could act with the “biggest effect”. “Both Brussels and London are determined to demonstrate that theirs is the better model.”

A US Treasury official said the Biden administration was looking for opportunities to work with like-minded countries by pursuing aligned and complementary actions wherever possible, in a bid to pursue foreign policy and national security interests. 

A person familiar with the UK government’s approach said imposing sanctions was not the core issue for US-UK relations, but that the UK could be responsive to partners and saw sanctions as an area where “we can co-operate and agree and it benefits both of us”. “We can be a lot more nimble and flexible around our sanctions regime — that’s what Brexit has enabled,” the person added.

Hagar Chemali, a former Obama senior policy adviser at the US Treasury, recalled securing sanctions buy-in from the EU “was constantly a problem” for Washington’s geopolitical aims. 

“When I was in government we struggled a lot with the EU,” she said, referring to ultimately successful efforts to enact the European Magnitsky Act to target global human rights abusers. The process “impeded [US] Treasury’s willingness to reach out to the EU”, she added.

While the EU matched the recent US Myanmar sanctions, imposing its own a month later, it still has no bloc-wide anti-corruption sanctions regime.

The US is in some cases playing catch-up. In Biden’s first sanctions measures since he took office, Washington matched some actions already taken by the EU and UK to respond to maltreatment of Russian opposition politician Alexei Navalny. It also acted in concert with the UK and Canada “in parallel to measures by the European Union” to target Chinese officials over the treatment of Uyghurs in Xinjiang in late March.

But the US has been left dangling after some moves. A senior administration official told the Financial Times that it had calibrated imposing its April 15 sanctions targeting Russian debt, excluding the secondary market and including a wind-down period, in the hope that it might encourage allies to follow suit. There’s been no such luck yet from either the EU or the UK.

Follow @KatrinaManson





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