Asset Management: The year that was

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One thing to start: Welcome to your special year-end edition of FT Asset Management. We’ve pulled out five themes that dominated in 2023. What have we missed? And where should we focus our coverage next year? Email me: harriet.agnew@ft.com

The year in markets

Humility is always a virtue in asset management, but in 2023 it was essential.

The bond market has taken no prisoners. Time and time again, investors placed bets that the Federal Reserve would see the damage inflicted by its fearsome campaign of interest rate rises and relent — a wager that became especially stark in the aftermath of Silicon Valley Bank’s ugly demise. Over and over, this bet was wrong. 

In late summer, the market got the message and went all in on the notion that interest rates would be “higher for longer”. Again, though, this brought pain — big long-term asset managers grew convinced that 4 per cent marked the top in benchmark 10-year Treasury yields, only for them to streak higher still to 5 per cent.

Now the consensus is twofold: that the Fed has pulled off a miraculous soft economic landing for 2024, but also that it will cut rates hard over the course of the year. A reckoning is coming, because these things cannot both be right.

In stocks, whether investors are tracking indices or picking out high-quality resilient stocks pinned to artificial intelligence megatrends, the result was the same: buy the Magnificent Seven. It is hard to see what can knock Big Tech’s global stock market dominance off course. Katie Martin 

The ESG backlash

The US backlash against the use of environmental, social and governance factors in investing gathered pace in 2023 — 18 states now have some sort of anti-ESG law and two prominent Republicans, Ron DeSantis and Vivek Ramaswamy highlighted their enmity towards “woke capitalism” in general and BlackRock chief executive Larry Fink in particular as part of their campaigns for the GOP presidential nomination.

BlackRock’s support for shareholder proposals on environmental and social issues tumbled sharply: it voted in favour of just 7 per cent in the 2023 proxy season, down from 47 per cent two years earlier. Its stewardship team said that many of the requests were overly prescriptive or pointless. The group, along with State Street and Vanguard also sought to step back from the controversy with new programmes that give clients greater say in how their shares are voted.

Yet BlackRock and its peers continued to pour client money into the energy transition, including a $550mn investment into Occidental Petroleum’s carbon capture project, the world’s largest deploying a new technology called direct air capture. And public pension funds in several states, including Oklahoma and Kentucky, declined to pull money out of BlackRock funds despite official policies calling for a boycott. Brooke Masters

The humbling of Crispin Odey

Odey Asset Management was one of the last bastions of City old school. Established by Crispin Odey in 1991, the hedge fund firm was renowned for hiring “earls and girls” and for fund managers who brought shotguns to the office before dashing off on weekend shoots. Odey himself was a maverick, swinging from enormous losses to triple-figure profits. At its peak, the firm managed close to $13.3bn in assets, and still ran $3.8bn last year.

In June, the FT published an investigation detailing allegations of sexual assault or harassment from 13 women against Odey and revealing a culture of complicity at the company. The firm was immediately engulfed in crisis. Odey, who strenuously denied the allegations, was ejected from the partnership. Banking partners, including Morgan Stanley and JPMorgan, cut ties and within a week, the firm announced it was breaking up. 

Seven further women then came forward to the FT with allegations against Odey. He did not respond to a request for comment regarding six of these later complaints. In response to the last, from the 20th woman to come forward, Odey admitted he “did grab her breasts” but attributed his behaviour to anaesthetic he had been given at the dentist that day. 

Odey is the subject of an ongoing probe by the Financial Conduct Authority and faces a civil lawsuit from at least two of the women. Odey Asset Management is currently in the process of winding down and portfolio managers have moved to other firms. Antonia Cundy 

The march of the multi-managers

This was the year in which cracks started to appear in the multi-manager hedge fund model, which allocates capital across dozens of portfolio managers. Citadel founder Ken Griffin called it in August when he observed that “when you’re most popular is probably when you’re reaching the top of the cycle”. 

Goldman Sachs estimates that between 2018 and 2022, multi-manager assets increased by 150 per cent while the rest of the hedge fund industry grew by just 13 per cent. This year, these groups showed signs they were becoming a victim of their own success as they confronted challenges wrought by capacity constraints, an increasingly expensive talent war and higher interest rates. Investors also started to question multi-manager funds’ high fees and demands to lock away cash for years. 

We revealed in October that Izzy Englander’s Millennium Management was in talks with Schonfeld Strategic Advisors about a tie-up. Talks later fell apart before a deal was reached. But expect to see more consolidation in this part of the hedge fund industry in 2024, more pressure on its business model — and more investor pushback against the eye watering payouts to portfolio managers. Harriet Agnew

The regulation of shadow banking

Global regulators have spent the past decade imposing tough rules on banks to crack down on the risky lending and leveraged trading that led to the global financial crisis. But instead of eliminating these activities, they have simply been pushed out to the growing shadow banking sector. 

2023 was the year that regulators began to stamp their authority on the hedge funds and private credit funds that have picked up the risk-taking mantle from banks.

Global regulators were alarmed by the rise of the US Treasury basis trade, where hedge funds borrow money from banks to bet on the price of Treasury bonds and futures converging.

The US Securities and Exchange Commission approved new rules which will bring more of the Treasury market onto venues scrutinised by regulators, while limiting leverage in some corners of the market. The regulator also proposed a wave of other regulations that have been bitterly opposed by the industry in the courts.

Meanwhile the EU approved new rules this year that will curb fund leverage in the rapidly growing private credit market. And the UK’s Financial Conduct Authority in the UK is preparing to launch a sweeping review of valuations in private markets, amid growing fears over the impact of higher borrowing costs on the sector. Costas Mourselas

10 of our best scoops

10 of our best longer reads

10 of our top news interviews 

Farewell

In November we said goodbye to Charlie Munger, the Berkshire Hathaway vice-chair and trusted partner of Warren Buffett, who shaped the investing style that made both men billionaires. Read our obituary here and don’t miss this round-up of Munger in his own words. 

And finally

Here’s our critic’s choice of the best art exhibitions in 2023 — from unrepeatable Vermeer to ubiquitous Picasso. I hope you made it to some of them. Well that’s all, folks. Thanks for reading, and from all of the team, we wish you a happy, healthy and prosperous 2024.