Asset Management: The New Titans of Wall Street

A start: It was great to see so many of you at our Future of Asset Management North America event in New York last week. If you missed it, watch the video on demand here.

And a teaspoon: British chancellor Rachel Reeves is considering dropping an inheritance tax element of her non-dom crackdown after warnings it would cause an exodus of the wealthy and bring in little revenue.

In today’s newsletter:

• How trading firms stole a march on the big banks

• Vanguard is planning a new push into the active fixed income market

• Global egg prices rise as bird flu hits supplies

How trading firms stole a march on the big banks

After decades of dominance in the investment banking sector, a new generation of upstart firms is now dominating global markets.

This mandatory analysis of my colleagues Joshua Franklin and Costas Mourselas is the first in an FT series on the trading giants that have risen to challenge investment banks.

It explores how non-bank trading firms such as Ken Griffinhis Citadel Securities, Jane Street and Susquehanna have seized market share from banks in a number of key markets, including stocks, bonds, commodities and derivatives. They have gained an advantage by investing enormously in technology.

This new generation of trading titans was generally established at the turn of the millennium, just as the noisy trading pits of Chicago, New York and London were losing influence and e-commerce was on the rise. Regulations after the 2008 financial crisis further hampered the big banks.

These newer trading firms look very different from the banks they usurped. They employ legions of doctors and engineers to develop sophisticated trading algorithms that buy and sell securities in microseconds.

“Banks simply did not appreciate how electronic markets and the efficiency of these firms would eventually make them the dominant force in trading,” said Rob Creamerpresident of the Chicago firm Geneva Trading.

“Banks made big money quoting transactions over the phone and didn’t care to prioritize a low-margin business like electronic market-making — it was hardly going to pay for the new headquarters in Manhattan.”

Banks still retain an advantage, controlling the timing of new securities issues through equity offerings and debt transactions. But non-bank firms are increasingly coming for market share in traditional areas of strength for banks, including foreign exchange and debt markets, which have been more opaque and slower to go electronic.

Critics wonder if the increasing market share of these less regulated firms could cause problems for markets in the future.

“Regulators need to look at the top 15 players in trading volume and should be agnostic about whether it’s a bank or a hedge fund or a proprietary trading group because there are inherent risks when one has too much market share,” said the boss. of a proprietary trading company. “If they go down, it could take liquidity and stress the market.”

Read the full story here

Vanguard CEO unveils fixed-income push

Vanguard revolutionized the stock market with its low-cost index-tracking products, driving down prices and becoming the world’s second-largest money manager in the process.

Now it comes for the bond market. At the FT’s Future of Asset Management event in New York last week, Vanguard’s new chief executive Salim Ramji announced that the $9.7 billion asset manager is planning a push into fixed income investing.

Fixed income “will be more important as people retire. . . it will be more important in, at least from our point of view, the long-term rate environment,” Ramji told my colleague. Brooke Masters in a main interview.

“If you think about the fixed income market today . . . it’s much more outdated, it’s much less transparent, much more expensive.” About 10% of the firm’s assets are already in fixed income assets. “I think there’s an opportunity that Vanguard has to change that dynamic,” he added.

Ramji criticized the fixed-income market for high fees and a lack of transparency, which he said benefited firms more than their clients. “The opportunity set is vast when you look at the fixed income market. It’s twice the size of the stock market, and the inefficiencies in fixed income are tremendous.”

Ramji, the first foreigner to lead Vanguard since its inception in 1975, also addressed the technical and service failures that have plagued the manager in recent years as the industry rapidly modernized and admitted that the firm had “let his the customers. “We have some work to do,” said the former chief executive at BlackRockVanguard’s main competitor.

He also walked a fine line around the company’s decision not to support any of the environmental or social shareholder proposals it considered in the 2024 proxy season.

Ramji said: “We don’t dictate to companies what their strategy should be, we don’t push a particular agenda.”

Chart of the week

Egg prices have risen as devastating bird flu outbreaks around the world and changing consumer tastes put pressure on supplies, it says Josephine Cumbo and Susannah Savage in London.

Global average prices are 60% higher than in 2019, according to analysts at Rabobanka quick appreciation led to political scoring by the vice-presidential candidate JD Vance on the US election campaign trail. The lack of eggs also created temporary restrictions McDonald’s breakfast service in Australia.

A key factor in the price increase has been devastating outbreaks of bird flu in North America and Europe, which have led to the culling of tens of millions of laying birds.

About 33 million commercial laying hens and chickens were culled in the US between November 2023 and July this year, following another bird flu outbreak in 2022 that killed 40 million eggs, Rabobank found.

The “lingering effects” of bird flu were compounded by rising demand, it said Karyn Rispolieditor-in-chief of eggs at Expanda commodity trading data provider.

She said consumers are also turning to eggs as a more affordable source of protein than meat. Concerns about the carbon footprint of meat consumption also drove demand for eggs, Rabobank added.

Those factors have caused Americans to pay more than three times as much for eggs as they did five years ago, Rabobank said. In comparison, egg prices in South Africa have only doubled over the same period, while Russia, Japan, Brazil and Europe and India have seen price increases of between 50 and 90 percent, it added.

Five must-see stories this week

David Huntthe chief executive of the $1.3 billion asset manager PGIM said it was concerned about the “layered leverage” that private equity firms use to return cash to investors and urged regulators to push for more transparency about complex forms of debt.

Legal & General called Eric Adler from the American insurer financial prudential as chief executive of its new asset management division, tapping a US executive with private asset experience to signal how it plans to grow the UK’s biggest asset manager.

Barbell fees for fixed income investments, he writes Huw van Steenisvice president at Oliver Wyman. A trend long associated with equity investing is now manifesting itself in bond markets.

Nuveenwholly owned subsidiary of the US Teachers Pension Fund TIAA with $1.2 billion in assets under management, is set to open its first Middle East office in Abu Dhabi, becoming the latest asset manager to bet on the new financial hub.

Steven Okaythe chief executive of the investment bank Peel Hunthas warned of a “cliff edge” looming for UK small-cap stocks if the government scraps inheritance tax relief for Aim-listed companies.

And finally

Last weekend I attended the Wigtown Book Festival in South West Scotland, now in its 26th year. I heard William Dalrymple talk about why India was the intellectual and technological superpower of Ancient Asia; Buddhist monk Gelong Thubten on finding strength in adversity; Pip Thornton talk about how Google sell your words; and a delightful performance by the poet and comedian Pam Ayreswhich had us all in stitches and rapturous applause. Wigtown highlights this week include a series of guest curator-hosted culinary events Coinneach MacLeodaka the Hebridean Baker. There will also be appearances by the National Chef of Scotland Gary McLean; MasterChef finalist Sarah Rankin; and Sanjana Modha Sanjanathe creator of amazing modern Indian cuisine. Until October 6.

Meanwhile, the Josephine Hart Poetry Hour returns to the British Library in London on Thursday. As of Brian Cox, Nicole Ansari-Cox, Tim McInnerney and Joely Richardson will read aloud the poetry of the natural world. Tickets available here