Private market firms warn of mis-selling

One scoop to start: The property division of one of Canada’s largest pension fund managers, QuadReal, has pledged to lend more than £2.5bn to British data centres, housing and industrial buildings, in a big bet on the race to develop the UK’s digital infrastructure and address a chronic shortage of homes. 

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In today’s newsletter:

• The risk of selling private markets funds

• BlackRock reshapes its highest ranks

• UK government borrowing shoots up

Private market experts flag mis-selling risk

The private markets frenzy continues apace. More wealth managers and advisers are seeking to offer the asset class to their customers in the hope of generating higher returns compared with public markets.

But private market experts are worried that a failure to properly explain the risks of the sector could lead to mis-selling, write Alexandra Heal and Emma Dunkley.

Large asset managers that create these private market products warn that the intermediaries selling them — from private banks to financial advisers — need to be clear in their explanation of liquidity. Private assets can be hard to offload when markets take a turn.

The comments come as wealth managers and advisers increasingly offer these investments — which range from private equity to private credit and infrastructure — to wealthy individuals in Europe seeking to diversify their portfolios and boost returns.

Demand for access to private markets has led to a surge in assets managed by so-called evergreen or semi-liquid funds in the UK and Europe to at least €88bn by June this year, more than double that of early 2024, according to consultancy firm Novantigo.

But private markets groups told the Financial Times that some intermediaries lacked experience and may not have the expertise to assess the products and explain their lack of liquidity to customers, as withdrawals from many funds can only be made every few months.

“The big concern I have is that [intermediaries] say it’s liquid,” said one executive at an alternative asset manager.

Steffen Pauls, co-chief executive and founder of Moonfare, said: “Unlike public equities, these investments are designed to be held over long periods. If wealth managers and advisers don’t fully understand this dynamic, or fail to communicate it clearly to their clients, the risk of disappointment rises sharply.”

BlackRock reshapes its highest ranks

BlackRock has expanded its global executive committee and formalised a council of its most senior staff, as the world’s largest asset manager seeks to develop its leadership team for the future, write Eric Platt and Jamie Smyth.

The New York-based group has appointed 20 executives including Sarah Melvin, who heads BlackRock’s European business, and Mike Pyle, who helps set its investment strategy across financial markets, to the powerful executive committee, according to a letter from chief executive Larry Fink and president Rob Kapito.

“This expansion reflects our commitment to evolving with purpose and unlocking the full potential of talent across the firm,” Fink and Kapito wrote. “We view this as part of an ongoing refinement of our leadership structure — one that ensures we remain responsive to our clients, our people and the opportunities ahead.”

Stacey Mullin, BlackRock’s deputy chief operating officer, and Jaime Magyera, who runs the group’s US wealth and retirement unit, were also appointed to the panel.

In another move, Fink and Kapito wrote they were “formalising” a management committee consisting of the most senior members of its business.

That group includes chief operating officer Rob Goldstein and chief financial officer Martin Small, as well as Rachel Lord, the head of BlackRock’s international business, and Adebayo Ogunlesi and Scott Kapnick, who joined through the acquisitions of Global Infrastructure Partners and HPS Investment Partners, respectively.

“This group will help define BlackRock’s long-term vision, strategy, culture and principles,” Fink and Kapito wrote. Both men are on the management committee.

The moves come as BlackRock works towards an ambitious five-year target that it hopes will double its market value. While outlining that push at the company’s investor day in June, Fink said developing the group’s leadership team would be one of his top priorities.

Chart of the week

The UK government borrowed £83.8bn in the first five months of the fiscal year, the highest for that period since the onset of the pandemic, laying bare the challenge facing chancellor Rachel Reeves in November’s high-stakes Budget.

The shortfall between government spending and income was well above the £72.4bn forecast for April to August by the Office for Budget Responsibility, the UK’s fiscal watchdog, writes Valentina Romei. The gap was primarily due to tax revenues rising by less than expected.

Friday’s figures from the Office for National Statistics also showed the government borrowed £18bn in August, compared with an OBR forecast of £12.5bn.

Economists said the deterioration in the public finances meant it was almost certain that Reeves would be forced to raise taxes again in November, after already hiking them £40bn in her first Budget last October.

“The chancellor faces tough choices, and the test will be whether she can make them palatable to voters and markets,” said Nabil Taleb, economist at the consultancy PwC UK.

The pound slipped and long-term UK borrowing costs rose as the figures deepened investor fears over the state of the public finances.

The chancellor needs to plug a fiscal hole that some economists have estimated at more than £20bn to maintain the government’s key fiscal rule — funding day-to-day spending entirely through tax revenues by 2029-30 — and to restore her fiscal headroom.

Paul Dales, an economist at Capital Economics, said that, based on the latest data, the government would have to raise £28bn in the Budget, mostly through taxes.

Five unmissable stories this week

Physicist and hedge fund manager Jean-Philippe Bouchaud discusses why the efficient markets theory is “all wrong” and what Camus can teach us about compromise.

Franklin Templeton is predicting a slowdown in consolidation in the investment management industry as traditional asset managers with slumping public valuations struggle to acquire faster-growing but more highly valued private capital rivals.

Jupiter has poached Royal London Asset Management’s chief investment officer Piers Hillier to replace two executives who were doing the same job, as it seeks to simplify the business and improve performance.

Deutsche Bank’s asset manager DWS is preparing a sale of its data centre business NorthC, a deal that could form part of a wave of digital infrastructure deals expected in Europe this year.

CVC is stepping up succession planning ahead of its next big fundraising, with the private equity firm’s dealmaker Peter Rutland emerging as a frontrunner to replace current chief executive Rob Lucas.

And finally

The V&A East Storehouse has created a permanent home for David Bowie’s archive, with new reading and study rooms. The collection contains more than 80,000 items, ranging from costumes and accessories to musical instruments and sound equipment.

V&A East Storehouse, Hackney Wick