Alpesh B Patel OBE

What might a Labour government mean for the economy? In the latest abrdn Macro Bytes #podcast, Luke Bartholomew and I spoke to Lizzy Galbraith. Labour would face a very constrained fiscal situation, given the parlarous state of the public finances, growing demand on the state, and the party’s intention to stick with the debt-based fiscal rule. It proposes a supply-side reform focused economic policy including planning liberalisation, green industrial policy, and closer relations with the EU, to drive stronger growth and relieve some of the constraints. For now, we are not revising up our UK economic forecasts - but we will keep a watching brief. That may mean that the fiscal rules are eventually changed. The shadow chancellor has spoken about a fiscal rule based on net worth - ie taking account of national assets as well as debt - which could eventually give more fiscal room.

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Excellent analysis here of the UK public sleepwalking into a downturn in UK prosperity because there is a lack of understanding of what they are voting for ! There is a short time to ensure there is understanding which may then have influence.

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2024 is delivering on its promise to be a big year in #geopolitics with Rishi Sunak calling a UK General Election for 4 July. Absent major surprises, we don’t expect this one to be a market moving event. The opinion polls are strongly skewed towards a victory for Keir Starmer’s Labour and macro-economic policy differences are far smaller than they were in 2019 when Boris Johnson squared up against Jeremy Corbyn. November’s election in the US is a different matter altogether. The polls are close enough for either Biden or Trump to win the Presidency and there are major geopolitical forces hanging on the outcome. See the blog post for more details including a chart of UK GDP, inflation and base rates since 2010. Not a promising backdrop for the incumbent. https://lnkd.in/dPUVicu9

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Spoiler alert: this is a super wonky podcast recommendation. But strategists will find this interview with the long-serving British diplomat, policy adviser and politician - The Rt Hon Baroness Neville-Jones - fascinating. She outlines why strategy often fails (because it lacks the implementation mechanisms) and the challenges of attempting to do something new and ambitious (expect plenty of roadblocks). It’s an oddly reassuring lesson to hear from someone that has performed at the highest level, especially when you’re rolling-out your next strategy. #strategy #leadership #winning #implementation #nextsteps #people #incentives #process #culture https://lnkd.in/eMrsnyFb

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Old hands will remember Janesh Manek, the UK pharmacist who won the Sunday Times Fantasy Fund Manager competition in 1994 and 1995. He took home £100,000 each time and also caught the eye of John Templeton - who ended up giving him £10m in real money to invest. In 1997 Manek launched the Manek Growth Fund, which attracted another £100m or so in funds,. And invested almost entirely in very high risk growth stocks. It started well. By 2000 it was up 160% and there was much talk about how useless professional fund managers were compared to this obviously gifted amateur. It ended in disaster. By 2017 the fund was down 55% in a decade (the average fund was up 70%), the asset under management were down from a peak of £300m to more like £7m and Manek chucked the towel in. It turned out a little training might have helped (maybe something on valuations, diversification and risk management). It is this story of amateurs only making in the short term that the pros must hang on today in the face of the depressing news that the average UK manager was outperformed in the first quarter of this year (and over several other time frames) by the average 18-24 year old client using the Interactive Investor platform. But there is one thing the pros can learn from the kids.. it is hard to outperform a bench mark when your job depends on you not under performing it... https://lnkd.in/ewKe8T3k

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Iceland‘s new Minister of Finance yesterday published a medium-term fiscal strategy for 2025-2029. The strategy had been hotly anticipated by the markets to see how the Government would respond to a series of fiscal shocks this year, including disaster relief and various cost-of-living subsidies to lower income workers to facilitate Collective Labour Agreements signed last month. 💡 The strategy matters to markets for three reasons: 1) It is an indicator of the “fiscal stance”, which is a measure of whether Government demand management is conducive to disinflation, and therefore to rate cuts. 2) It is an indicator of the near-term supply of government bonds, which can influence their price/yield. 3) It is an indicator of the overall credit of the central government. 🤔 In a note to clients yesterday, we gave our first impressions: -Despite the fiscal shocks, the Government is still targeting broadly unchanged fiscal balances from its previous medium-term strategy, reaching an overall surplus in 2028 (the primary balance will remain in surplus throughout). -The cyclically adjusted primary deficit is estimated to decrease materially this year, which would suggest that the fiscal stance is restrictive. As a fan of less engineered yardsticks, I’d be tempted to instead look at the raw primary balance inclusive of disaster relief, which is actually deteriorating by about 0,5-1,0% GDP (albeit temporarily). Either way, the fiscal stance is unlikely to be expansionary enough to significantly derail the disinflation process. -The Government expects to achieve a balanced budget by keeping expenditure growth in check, partly via clearly articulated new initiatives for consolidation (credible) and unidentified ambitions for consolidation (less credible), which will cause government expenditure to GDP to decline. -However, the headline figures paint a slightly misleading picture, as some de-facto government expenditures are moved “off-balance sheet” via public corporations not recorded under the fiscal balance. This is the case for the equity release scheme offered to victims of the volcanic eruptions, estimated to cost c. 0,6% in direct outlays in 2024, as well as various on-lending schemes. -The debt position doesn’t lie, as all those off-balance sheet measures show up there. The good news is that debt will remain stable at a low level of just over 30% GDP until 2027, before declining. You could argue the government should be targeting more aggressive deleveraging given our position in the cycle, but I’ve also gotta be honest - this is a picnic of a debt trajectory relative to the G7. -Despite the fiscal shocks, net issuance of government debt this year is not expected to increase from previously announced targets, as the government aims to raise cash by selling its remaining share in Islandsbanki. The sale is also expected to weigh on the supply of government paper next year, when net issuance is expected to decline to only ISK 20bn / $140m.

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My latest Substack post How to rid yourself of government and taxation legally https://lnkd.in/erzkPUYQ

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BREAKING: Public Investment Fund (PIF) successfully prices inaugural $829.80m sterling-bond offering The Public Investment Fund has successfully priced its inaugural sterling bond offering at £650 million ($829.80 million) under its existing Euro Medium-Term Note program. This issuance aligns with PIF’s strategy to diversify its funding sources. The offering, which was more than six times oversubscribed, includes a £300 million tranche with a five-year coupon and a £350 million tranche with a 15-year coupon. Loans and debt instruments are one of PIF’s four primary funding sources, alongside retained earnings from investments, capital injections from the government, and government assets transferred to PIF. PIF holds an A1 rating with a positive outlook from Moody's and an A+ rating with a stable outlook from Fitch Ratings

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🪦 The funeral industry — "It‘s an infrastructure play!" 🥹 Last time I looked at the funeral industry (aka the deathcare industry) was when I examined well-known UK value investor Gary Channon's portfolio which featured the largest listed operator Dignity Funerals Ltd at the time. A firm he later helped to take private. Private equity has been attracted to the industry for a while. Bloomberg has just taken a look at some of the key drivers: "Private-equity-funded FUNECAP GROUPE has spent around €1 billion ($1.1 billion) to buy more than 300 crematoriums and funeral centers mainly in Europe, home to 17 of the top 20 countries with the highest death rates. The French firm, backed by 🇬🇧 financial investor Charterhouse Capital Partners and 🇫🇷 Latour Capital, is cashing in on the high cemetery costs, mobility needs and religious secularization that have raised the need for incinerations and alternatives to traditional church-driven services. One in five Europeans is currently 65 years or older. By 2050, it will be closer to 30%. And unlike 🇺🇸 & 🇨🇦 — which is facing a similar population decline threat — Europe has limited space to bury them when they eventually pass away. 'The funeral industry is way more than digging holes 🕳️,' said Thierry Gisserot, Funecap’s founder and chief executive officer. “It’s an infrastructure play.” Europe’s cremation market, in particular, benefits from high organic growth of 5️⃣ to 7️⃣% annually, he said. Incinerations have boomed in popularity, particularly in countries with Catholic roots where rules have eased in recent decades. Funecap acquired Netherlands’ Facultatieve Technologies, the world leader of cremation equipment, in 2022 and recently became a partner in Rhein-Taunus-Krematorium GmbH, the largest one in 🇩🇪. RTK’s CEO Judith Könsgen said other investors had also come knocking ✊. The market for morticians and crematoriums is more fragmented in 🇪🇺 than in other developed nations, particularly in 🇩🇪, according to Björn Wolff, founder of mymoria GmbH. His company, which provides funeral services, has been buying up morticians in recent years, too, and wants to continue doing so. “Family owners are retiring and their children no longer want to run the business,” Wolff said. By taking over, Mymoria is able combine certain areas like administration and improve cost efficiency. 💡Meanwhile, cash flow in the sector is predictable — people have to die. Deaths are expected to gain speed in the coming years as the baby boomer generation ages, which will likely drive up revenues for companies like Funecap & Mymoria. ⚠️ Another source of income that is considered more controversial is the sale of metal scraps left over after human bodies have been cremated…In most European countries, the metals are removed from the ashes and sold to metal recyclers. That’s not illegal as long as relatives are informed." (+++Opinions are my own. Not investment advice. Do your own research.+++) #privateequity

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The future of smaller company capital markets: I’m looking forward to speaking at the The Quoted Companies Alliance annual conference to present some of the initial findings from an important research project at New Financial LLP on this vital sector of the capital markets. The past decade has been pretty brutal for UK public equity markets but the smaller company end of the market has been hit hardest of all. On virtually every metric – number of listed companies, new issues, delistings, capital raised, valuations, liquidity, asset allocation – smaller companies have performed worse than the wider market. We think that a vibrant smaller company market is a key part of rebooting UK capital markets: while smaller companies are less than 10% of the stock market by value, they represent more than 80% of all listed companies in the UK. Listed smaller companies have a big direct economic impact, a local presence in every corner of the UK, and offer high long-term historical returns. Capital markets provide smaller companies with an important source of capital raising for investment in their business to help support the growth the UK so desperately needs. While it is encouraging to see the increased political focus on capital markets reform, this project focuses specifically on the unique challenges and dynamics at the smaller company end of the market. We are very grateful to abrdn, Euroclear, The Quoted Companies Alliance, and Winterflood Securities for supporting this project, which explores: - The unique challenges facing smaller listed companies; - Why we should care about a vibrant smaller company equity market; - The main drivers behind this decline; - The challenges facing the industry and ecosystem around smaller listed companies; - The international context; - What the industry and government can do to address the problem. We will be publishing the report in the autumn: if you are interested in feeding into it and sharing your perspectives over the summer, please message me on LinkedIn. Thank you to James Ashton for the invitation to present at the event: it’s not too late to sign up... https://lnkd.in/ebECvfv4

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There is a lot of misplaced hysteria about companies leaving the London Stock Exchange, and people are searching for answers in the wrong places. We should welcome this as a form of “creative destruction.” We do expect a feeding frenzy - what we have been calling the “Great British Buyout” - where 50-100 companies will be bought (or in some cases move listings) over the next 2-3 years. The sooner this happens, the sooner the valuation gap between the U.K. and the U.S. will come down, which will result is fewer P2P transactions and more new listings as companies are able to achieve fuller value in the U.K. #valueinvesting #shareholderactivism #privateequity

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Reduce waiting lists. These three words are certain to appear in multiple election manifestos – however, often the detail is lacking in terms of how we can make it happen. I believe the key to reducing the strain and burden on our NHS is tech. Digital solutions enable us to: 1. Prevent disease to reduce demand. Tech can empower people to make changes to live happier, healthier lives, and enables early diagnosis (increasing through AI). 2. Be more efficient when demand is present. Tech is central to this, and solutions are most effective when devolved to local decision-making, where the needs of the community are more closely understood. I’d be interested to hear other people’s thoughts on what the detail behind the promises from our prospective governments needs to be.

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This is a really important and thought provoking report. Enabling businesses to scale with UK capital is fundamental to driving growth in the UK economy. This is as important in the private sector as it is in the quoted sector and we should have an environment where entrepeneurs aspire to grow their businesses in the UK and to float in the UK to benefit all stakeholders.

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Excellent observation about voters intentions in the UK… Fed-up Tory voters should be careful what they wish for What few passions the general election stirs are festering almost exclusively among “fed-up former Tory voters”, says Lionel Shriver in The Spectator. And they’re so angry they’ve become blind to their own self-interest; so “demented by loathing for their own party” that they are about to elect a left-wing government largely to “punish the current one for being too left-wing”. To us foreigners, it’s baffling. Sick of being bled dry with the highest tax burden in 70 years, these ex-Tories will take their revenge by “installing a regime that will raise taxes even higher”. Brexiteers who feel betrayed by the passively Remainer Tory party are ushering in the “actively Remainer” Labour party, whose leader plans to snuggle as cozily as possible back in the bosom of the EU. Voters dismayed that their meagre political power is systematically diluted by “unelected civil servants, quangocrats and judges” believe the answer is Keir Starmer KC, a committed globalist who will further “attenuate accountable democracy” with loyalty to the UN, WEF, WHO and IPCC. Normal folk who hoped an 80-seat majority might embolden the Tories to push back against “faddish ‘social justice’ fanaticism” will upbraid the recent string of cowardly PMs by electing one who only recently remembered what a woman was and is “likely to forget they don’t have penises the moment he is elected”. Plenty of alienated Conservatives are livid that so much of the money they work hard for is siphoned off to support the millions of people who are too “anxious” or “depressed” to get out of bed. What to do? Elect a government that is even keener on benefits and even more economically punitive towards those who still go out to work. “That’ll show ‘em.”

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Had a really interesting chat with Legal & General Investment Management (LGIM)'s Michael Marks about the exec pay and UK listings debate and the key issues the fund group has on its radar heading into AGM season. #AGM #ESG #assetmanagement https://lnkd.in/e8TUUwA9

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