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Business leaders and investors expressed alarm at the Labour party’s manifesto, voicing concerns over policies that would lead to higher corporate and wealth taxes, forced nationalisation and mandatory employee ownership. Party leader Jeremy Corbyn on Thursday renewed his attack “on the tax dodgers, the bad bosses and the big polluters”, as he promised a new levy on multinationals to raise up to £6.3bn every year and an increase in corporation tax from 19 per cent to 26 per cent at a cost to industry of £23.7bn. At an individual level, Labour said it would tax capital gains at income tax rates, reverse cuts to inheritance tax, impose VAT on private school fees and introduce a second homes tax. These taxes, the party said, were aimed at “the super-rich, companies who have benefited from tax cuts since 2010, the City, multinationals who hide their profits in tax havens, and those who have benefited from the forest of tax reliefs that have sprouted up with barely any scrutiny”. But experts warned that the policies might deter investment, and push higher earners abroad. “There are some pretty radical policies in there that would scare investors. As an investor, I would be very nervous [of a Labour government]. Foreign investors would be concerned about whether Britain would be a good place to do business,” a UK-based global asset manager said. Adam Marshall, director-general of the British Chambers of Commerce, said businesses would welcome proposals to reform skills funding, upgrade infrastructure and review business rates but rejected Labour’s approach. “Command and control isn’t the way,” he added. “Excessive intervention in business governance and sweeping tax rises would suppress innovation and smother growth.” Taking a 10 per cent ownership in all big businesses would have quite a profound impact on the market UK fund manager Taxation of multinationals, including large US tech groups, would cover the £6.9bn it would cost to operate a fibre network over 30 years, Labour claimed, as it confirmed it planned to nationalise parts of BT in a drive to link every house and business in the country to ultra-high speed broadband by 2030. It would also look to nationalise Royal Mail, and bring other sectors — rail, water and energy — back into public ownership “to end the great privatisation rip-off”. One telecoms executive, who did not want to be named, said the raid on BT “would be a bulldozer through a broadband market that is already ripe with competition and billions of pounds worth of private investment”. He added: “A state-run Corbyn monopoly would suffocate the choice people have today and the service they receive.” Another executive at a large UK-based group said the “extreme Labour leadership” has sent “a cloud of fear over investment in the UK”. Labour said that it would impose a requirement that a third of seats on boards are reserved for elected worker-directors, to give employees more control over executive pay. Large companies would have to ensure up to 10 per cent of their share capital is in the hands of employees. Holders of the shares would have dividend payments capped at £500 a year with any excess paid into a climate apprenticeship fund. Recommended Instant Insight Robert Shrimsley Labour’s promised transformation is an assault on business “Taking a 10 per cent ownership in all big businesses would have quite a profound impact on the market,” said one UK fund manager. The Investment Association said: “While these proposals may sound inclusive, there is a risk that they lead to the dilution of current investors’ shareholdings. Ordinary savers and investors could face being short-changed.” Hamish Sandison, chair of Labour Business, a membership group affiliated to the party, said a Labour government would pay a “fair price” under its nationalisation programme, and added that the employee ownership scheme was at a “broad brush proposals” stage. But the Pensions and Lifetime Savings Association, which represents workplace pension schemes in the UK, said it was seeking urgent clarification from the party over its nationalisation plans and was looking for assurances that if in government it “would pay the full value for any companies it seeks to nationalise and not jeopardise people’s pension savings”. Is Jeremy Corbyn's radical Labour manifesto eye-catching or eye-watering? Senior executives in the City also raised concerns over the impact of a new financial transactions tax that Labour estimates would raise £8.8bn, with plans to extend stamp duty across currency and derivates trading. “A tax on financial transactions would be bad for business, bad for investors, bad for savers, and bad for the economy,” said Miles Celic, chief executive of TheCityUK, a lobby group for the financial services sector. Edwin Morgan, director of policy at the Institute of Directors, said there was too much “stick” and not enough “carrot” in the manifesto. He noted there were “clear potential downsides” to some of the headline policies in the manifesto, such as employee ownership.

Japan’s SoftBank has agreed to buy the UK’s Arm Holdings for £24.3bn in a big bet that the British smartphone chip designer can help it become a leader in one of the next big technology markets, the “internet of things”. The Japanese telecoms group’s takeover of Cambridge-based Arm, which was founded 25 years ago and employs 4,000 people, will be the largest acquisition of a European technology business. Lex on SoftBank’s purchase of Arm Subtitles unavailable After just two weeks of breakneck negotiations, SoftBank said on Monday that it will pay £17 in cash for each share in Arm, a 43 per cent premium to its closing price last week. Shares in Arm surged to £16.78. Masayoshi Son, chairman and chief executive of the Japanese group, told reporters in London the deal highlighted his confidence in the British economy, just weeks after the country voted to leave the EU. “I am one of the first people to bet with a big size on the UK after Brexit. Talking [about investing] is easy. I am proving it . . . This is my big bet,” he said. As a global force in chip design, Arm is better insulated from the Brexit vote than many other UK companies by its leadership in a key segment of the technology industry and the fact that it earns in US dollars. Arm’s business model has relied on licensing its technology to other hardware makers including Apple and Samsung Electronics, giving it a near-ubiquitous presence in mobile devices. It receives a small royalty for each device. Last year, 15bn chips based on its technology were shipped, nearly 3bn more than the year before. Nearly half of those were in mobile devices, though Arm is seeing faster growth in chips for networking equipment and the internet of things. Mr Son, 58, first courted Arm chief executive, Simon Segars, over a meal at his $117m Silicon Valley home in late June. He then travelled to the Turkish coastal town of Marmaris, where Arm chairman Stuart Chambers was on a sailing holiday, on July 2. Over a long lunch, Mr Son launched what turned into a rapid-fire back and forth with Arm directors finally agreeing to an offer. Mr Son’s capped his move with a phone call to Theresa May and Philip Hammond, the UK’s new prime minister and chancellor of the exchequer, offering a series of legally binding assurances to maintain Arm’s headquarters, double its UK-based staff over the next five years and increase its overseas headcount. A spokesman for Mrs May welcomed the prospective deal as “in the national interest” and a vote of confidence in post-Brexit Britain, in spite of Mrs May’s warnings last week that foreign takeovers would in future be subject to tougher scrutiny. Mrs May said last week that she wanted a “proper industrial strategy” that allowed ministers to step in to defend important companies; under the 2002 Enterprise Act public interest tests can only be applied in the case of defence, financial services and media. It is understood Mrs May is looking to extend the list to include sectors such as phamaceuticals, rather than applying a test to every foreign takeover. Her spokeswoman said: “Whether a foreign takeover is in the national interest is something that should be decided on a case by case basis.” The Institute of Economic Affairs, a rightwing think tank, said Mrs May’s “economic nationalism is both dangerous and a threat to prosperity” adding: “The concept of a foreign takeover is largely meaningless in the modern world.” Mr Son said UK officials had warmly welcomed his plans for Arm. “They said ‘Wow’,” he said, adding he did not make his decision because of Brexit. “The paradigm shift is the opportunity,” he said, referring to expected growth in the internet of things — interconnected gadgets and devices. “It will be a big opportunity for all of mankind and products used.” After taking into account £1bn of cash held by Arm, the deal gives an enterprise value for the business of about £23bn. This is 24.4 times Arm’s 2015 revenues of £968m and approximately 56.8 times adjusted profit after tax of £429m. The fall in sterling following the June 23 referendum has left the UK currency nearly 30 per cent lower against the Japanese yen over the past year, making Arm an attractive target. Since Brexit polling day, the yen has risen by about 11 per cent against the pound. However, this is offset by a 16.7 per cent rise in Arm shares since their Brexit polling day close. Mr Son has built SoftBank into a sprawling global telecoms and media conglomerate worth $68bn with holdings that range from a majority stake in Sprint, the fourth-largest US mobile carrier, to Yahoo Japan, the country’s most popular internet search engine. Further coverage Lex Arm is right to take the money. SoftBank is likely wrong to spend it Striking while Brexit iron is hot Purchase of Arm would play to both pro- and anti-Brexit positions Arm holds sway over ‘internet of things’ Chip designer holds increasing sway over ‘internet of things’ SoftBank’s guessing game Masayoshi Son’s latest big ‘crazy idea’ comes three years after Sprint acquisition Waiting for the next ‘big idea’ Where now for the Japanese group? Mr Son has professed a fondness for big “crazy ideas” and has been looking to deploy a huge war chest of cash he has accumulated from successful investments. Some of his previous deals include a $20m investment in ecommerce company Alibaba in 2000 that is now worth $65bn, and the $15bn acquisition of Vodafone’s lossmaking Japanese arm in 2006 that has positioned SoftBank as the number three carrier in the market. Over the past decade, SoftBank has participated in more than 140 deals worth about $82bn, according to Dealogic data. They range from buying small stakes worth a few million dollars in little known start-ups to multibillion-dollar investments in fast-growing companies such as Didi Chuxing, the Chinese ride-hailing mobile app and competitor to Uber. The Arm deal comes only weeks after Mr Son abruptly parted ways with his chief dealmaker and heir apparent Nikesh Arora, a former Google executive. Arm has often been talked about as a potential acquisition target for Intel, the world’s largest chipmaker, which failed to capitalise on the smartphone boom. Intel’s chip architecture, known as x86, was developed for PCs and has been ill-suited for battery-powered devices for which efficient power consumption is key. The FTSE 100 company has also targeted one of Intel’s most successful businesses, in making chips for servers. Arm’s technology was originally developed in the 1980s at Acorn, a British computer maker. It was spun off into a separate company, with significant backing from Apple, and its technology was used in the first generation of mobile devices including Apple’s handheld Newton. As a designer of chips rather a manufacturer, Arm’s intellectual property model leaves it with a high profit margin. However, its revenues of about £1bn last year made it a minnow by global chip standards. The purchase price is equivalent to 70 times its net income last year, and more than 50 times earnings before interest, taxes, depreciation and amortisation. Hermann Hauser, Arm’s founder, described SoftBank’s proposed takeover of the company as one of the “sad and unintended consequences” of Brexit. “The future of Arm could have been determined by the UK management team. Now it will be determined in Japan,” he told the FT. The Raine Group, Robey Warshaw and Mizuho Securities are advising SoftBank on the deal. Arm is advised by Goldman, Lazard, UBS and Barclays.

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SoftBank could relist Arm Holdings, the UK chip designer bought for £24.3bn two years ago by the Japanese internet-to-telecoms conglomerate, according to its senior executive. Yoshimitsu Goto, senior executive corporate officer at SoftBank, suggested to investors that an initial public offering would be one potential exit strategy for the Saudi-backed $93bn investment fund SoftBank launched last year.  The Vision Fund is set to acquire a 25 per cent stake in Arm from SoftBank pending approval from the Committee on Foreign Investment in the US. The fund will need to exit its investments before the end of its 12-year life cycle.  According to bankers present at a session on Monday held as part of the Credit Suisse Asian Investment Conference in Hong Kong, Mr Goto said that “one possibility is relisting Arm in the future”, although he added there were no immediate plans to relist the UK subsidiary.  SoftBank declined to comment on Mr Goto’s remarks.  One person close to the situation said that SoftBank was still in the “first innings” of its ownership of Arm, and any listing would be at least five to seven years away. SoftBank’s decision to buy Arm in July 2016 in the immediate aftermath of the UK’s vote to leave the EU marked the largest takeover of a European technology business.  The deal was a key part of the vision of SoftBank’s chairman and chief executive, Masayoshi Son, to become a leader in the “internet of things” and connected devices.  Using the $93bn fund, SoftBank has extended its reach across the globe, making investments in technology companies ranging from US car-booking company Uber to shared-office provider WeWork. The company is also in talks to buy a minority stake in Swiss Re, one of the world’s biggest reinsurers.  In addition to the relisting of Arm, SoftBank is also aiming to float its Japanese telecoms business in the next 12 months in a deal that analysts say could raise as much as $18bn.  Still, the fact that SoftBank is weighing an IPO for Arm is unexpected, as Mr Son has repeatedly stressed the merits of keeping the company privately held.  At the time of the acquisition, Mr Son said the delisting of Arm would allow the UK group to make longer term investments in technology without interference from investors who may seek short-term profits.  Simon Segars, the chief executive of Arm, told the Financial Times this month that SoftBank has funded five small acquisitions and 25 per cent rise in staff numbers to 5,700 since the deal closed. He said the Japanese company has provided Arm with more “raw resources” than it had as a listed business and has left the entity to operate independently.

Buffet quant fund

In late 2013, academics at computer-driven funds giant AQR posted online a research paper called “Buffett’s Alpha.” The paper argued that the returns of the legendary investor could largely be explained by buying stocks that were cheap, safe and high quality — and then using debt to juice returns. The implications were potentially huge. For all the mystique surrounding the investing strategy of the Sage of Omaha, much of it could apparently be replicated by a machine scanning the market for stocks displaying such characteristics. AQR launched a fund that applied this approach to a large basket of global equities. Other quant firms are joining in; London-based start-up Havelock is currently trying to fashion an algorithm that mimics Mr Buffett. Such attempts are helping to undermine what was once a prominent feature of the investing landscape: the cult of the star stock picker. Also threatening these vaunted operators has been the decade-long equities bull market, fuelled by trillions of dollars of central bank asset purchases, which has boosted the appeal of cheap index-tracking funds. Spotting out-of-favour bargain stocks has been a duff strategy compared with buying and holding stocks already on a roll, or fast-growing technology firms. As a result, many of the former stars have been left looking decidedly ordinary. “Stock pickers just haven’t performed and that’s why investors are pulling out of active managers,” said Kevin Arenson, chief investment officer at Stenham Asset Management, which invests in hedge funds. Managers such as Fidelity’s Jeff Vinik, Pershing Square’s Bill Ackman and Greenlight Capital’s David Einhorn in the US, and Woodford Investment’s Neil Woodford, Fidelity’s Anthony Bolton and Lansdowne’s Peter Davies in the UK, are among those to have developed strong followings among investors. It has been a tough few years for such marquee managers, in general. Neil Woodford’s firm is shutting down after a high-profile scandal, Mr Davies’ flagship fund is on track for its third calendar year of losses in four, and Mr Ackman’s performance is now recovering after several years of losses. Last month stock picker Jeff Vinik became the latest star to throw in the towel, closing his hedge fund and saying it was difficult to persuade large institutions to put money with him. Jonathon Jacobson announced he was winding down his $12bn hedge fund Highfields Capital Management last year after two decades in the business. “It’s so hard,” said Kerr Neilson, founder of Sydney-based stockpicking firm Platinum Asset Management, which has A$24bn in assets. Stock pickers, who often delve in underappreciated areas of the market, would have tended to have had a smaller position in strongly-performing US stocks than passive funds and were therefore “preordained to underperform,” he said. “It’s cost us a lot of money in a relative sense.” The fees such funds can charge have been hit. The average performance fee for equity hedge funds, a loose proxy for stock pickers, has dropped from 19.1 per cent at the start of 2008 to 16.4 per cent in the second quarter of this year, according to data group HFR. That fall is roughly in line with the average for all hedge funds, but much steeper than for event-driven funds, the other strategy that focuses on stocks. Some stock pickers are now feeling like an endangered species. Just one-tenth of the US equity market’s trading volumes now comes from fundamental stock investors, with most of the rest coming from index derivatives and passive funds, according to data from JPMorgan and hedge fund Lucerne Capital. Lucerne is one of the few stock pickers to beat the index this year, with a 43 per cent gain so far. David Scarozza, head of equities at Commonfund, an asset management firm serving non-profit organisations, said he is no longer willing to pay management fees for simple ideas he can easily access through an index. “We require an active stock picker to do more than just get us exposure to value or momentum,” he said. Other old-school managers, like Mr Einhorn, have refused to call it a day despite suffering large outflows. Greenlight’s assets have more than halved since mid-2018 to $1.8bn, regulatory filings show, after the hedge fund posted its worst ever performance last year. Five years ago it managed about $12bn. For their part, the stock pickers argue that such pressures are bound to fade over time, as simple strategies such as buying the tech sector no longer deliver. “It looks like no manager can pick stocks any more, so why not just buy the index?” said George Mussalli, chief investment officer for equities at Boston-based investment firm PanAgora Asset Management. He believes being an active manager is a “dirty term” now. “But we’re just in a cycle where large-cap has outperformed.” Platinum’s Mr Neilson concurs. “In the end you need an informed allocation of capital,” he said. “We’re safe. We’re not extinct.”

Sovereign Debt Prices

Lansdowne Partners, one of Europe’s biggest and most influential hedge funds, is betting that financial markets are on the brink of a reversal that will see a big fall in “idiotic” bond prices, a slump in technology stocks and a revival in UK equities. The firm, which manages about $15bn in assets and takes long-term bets on stocks, is predicting a major shake-up in the dominant market trends of the past several years, said a person close to the firm. While markets have long been supported by central bank stimulus, Lansdowne now expects governments to issue more debt to fund spending, which could upset bond prices and some of the best-performing stocks of recent years. The portfolio overhaul is likely to mean a significant increase in Lansdowne’s exposure to UK equities, the person said. For Lansdowne’s flagship Developed Markets fund, that would mark something of a return to its roots as a UK-focused fund, before it took on a global mandate in 2012. “It’s pretty clear [Lansdowne] thinks things are different,” the person said. “Governments are going to spend a ton of money to boost economic prospects, which will reduce political risks and which will lead to risk-free rates [yields on the safest government bonds] rising.” Yields rise as prices fall. Lansdowne declined to comment. While Lansdowne changes its bets on individual stocks from time to time, such a wide-ranging rejig of its outlook is rare. The firm, whose flagship fund run by Peter Davies and Jonathon Regis has made an annualised return of 10 per cent since it launched in 2001, is closely watched by many rival hedge funds. However, Lansdowne is also one of the most publicity-shy in the hedge fund sector and does not disclose its biggest bets even to its investors. The portfolio shift, which has not previously been reported, comes as fund managers across Europe grapple with the phenomenon of negative-yielding government bonds and faltering economic growth. While many investors believe subdued inflation rates and European Central Bank bond-buying will keep yields very low for the foreseeable future, others think bond prices look vulnerable. Bond prices are idiotic. They’ve reached stupid levels Person close to Lansdowne “Bond prices are idiotic. They’ve reached stupid levels,” the person close to Lansdowne said. “You can’t justify buying something on a negative yield, given governments have the opportunity to issue more.” Risk-averse investors’ hunt for bond-like securities has also driven defensive stocks — companies less vulnerable to economic booms or busts — to very high levels. The gap between defensives and cyclical stocks is now “at least equal in magnitude to that seen in the late ’90s tech boom,” the person said, adding that defensives are likely to fall. However, the big drivers of investor behaviour over the past decade — central bank intervention and political risk — could be about to change, triggering an unwind in some of the biggest trades of the past decade. Political risks could lessen, the person said, for instance in the US-China trade war and Brexit, over the coming quarters. Lansdowne also expects governments to start issuing more bonds to pay for higher spending. This could not only stimulate economic growth but also push up bond yields. The firm is now betting that cyclical and cheap so-called value stocks, which have underperformed faster-growing stocks for years, will start to do well. “Value stocks are super, super cheap,” the person said. Lansdowne is also changing tack on technology stocks, which have enjoyed a stellar run over the past decade. Having sold positions in Amazon and Google last year, the fund is now betting that some tech stocks will fall. Lansdowne is “moving from long to short in technology [as] valuations are super-high,” the person said. Shorting means betting on falling prices. “Would you buy Facebook …now? No,” the person added. Lansdowne has long been considered the gold standard of equity hedge fund investing, although performance has been sub-par in recent years. This year the Developed Markets fund is down 5.3 per cent, whereas the S&P 500 index has gained more than 18 per cent. The firm also expects to increase its position in UK stocks significantly, if political risks recede. That is a contrarian call, when the FTSE 100 is hovering around the level it was at the end of 2016. However, Lansdowne thinks companies are run in a much better way than 10 or 15 years ago and have stronger balance sheets. “UK companies are significantly mispriced,” the person said. “The UK economy is structurally in a very good position. If you compared UK and US unemployment, it would be difficult to differentiate the two, and yet the narratives are radically different.”