The queen of Wall Street

One thing to start: Warren Buffett has sought to reassure Berkshire Hathaway shareholders that he still wants to own businesses, despite the group’s cash pile rising to a record after it dumped stocks and failed to make any big acquisitions.

And another thing: The US Securities and Exchange Commission does not yet have a Donald Trump-appointed chair to lead the agency. But here’s how it is still managing to wreak havoc on the asset management industry.

In today’s newsletter:

• Fidelity’s vast and under-recognised financial empire

• Investors told of golden age of US-Saudi co-operation at Miami conference

• Why Europe’s ‘failed’ securitisation market needs a shake-up

Hi, Fidelity

Fidelity is a private company mostly owned by Abigail Johnson and her extended Boston clan. Details beyond the headline numbers it reports are sparse. This may be one reason why its vast financial empire is under-recognised, certainly compared with the likes of both BlackRock and Blackstone, businesses that get much more attention. 

In this fascinating article, our friends over at FT Alphaville take a look at Fidelity’s latest set up numbers, which are astonishing — both in absolute terms and relative to the struggles of much of the rest of the investment industry. 

Last year Fidelity made $10.3bn in operating income, miles ahead of both BlackRock ($7.6bn) and Blackstone ($6.4bn). Its operating profits were comfortably greater than Franklin Resources, T Rowe Price, DWS, Schroders and Amundi’s combined earnings. 

The Johnsons are known to keep a low profile — the Boston Magazine once said that the family is “pathologically private” — but Abigail Johnson probably deserves more credit and recognition than she gets for having grown an already enviable business built by her father and grandfather, writes Alphaville editor Robin Wigglesworth.

He argues Fidelity is evolving in a way that likely makes it more resilient to the ongoing changes in the investment industry than many of its rivals. A lot of Fidelity’s success is thanks to its $5.9tn core asset management business, the third-largest in the industry. There, most of the growth has come not from its stable of star stockpickers but from its passive/systematic subsidiary, Geode Capital Management. 

But the real under-appreciated hinterlands of Fidelity’s financial empire — and arguably the reason why it has done so well at a time when most traditional asset managers are struggling — are its retail brokerage, its wealth management, and the workplace savings plans for millions of Americans. 

As former Credit Suisse financials analyst Rupak Ghose highlighted in his Substack last week, Fidelity is “omnipresent” across the US, and its myriad interlocking businesses might make the company the world’s most valuable investment group. 

Don’t miss Robin’s 2019 interview with Johnson, in which she declared: “Few fund managers can match Fidelity’s totality”.

Trump is strengthening bonds with Saudi Arabia

Billionaires attending an investment conference in Miami last week hosted by Saudi Arabia were told of a new dawn of co-operation between the oil-rich kingdom and the US in an hour-long address by US President Donald Trump. 

Yasir al-Rumayyan, governor of Saudi Arabia’s sovereign wealth fund, hosted the top executives of finance giants BlackRock, Citadel and many others as part of an annual effort to attract billions in new investment. 

But Trump’s attendance at the Future Investment Initiative Priority Miami, which was announced just days before it began, underlined the importance of the kingdom to the president and his inner circle. 

The FII event was hosted at a ritzy beachfront Miami hotel, confirming a recent change in tone from Saudi Arabia to US investors. The kingdom is no longer content to merely write cheques to US companies as it focuses more on its hugely ambitious domestic development plans. It now demands they open offices in Saudi Arabia or provide capital for its mega projects such as futuristic cities in the desert and bets on healthcare, artificial intelligence, sports, and advanced manufacturing. 

“The kingdom is rightly saying we are beyond the suitcase form of relations,” said one executive affiliated with the government’s development efforts, referring to US investment firms’ practice of sporadically visiting Riyadh seeking cash to invest elsewhere. 

“This is not the Saudi Arabia of 20 years ago . . . You need boots on the ground.” 

The Trump family has a growing business with the kingdom, which has invested $2bn with the private equity fund of Jared Kushner, the president’s son-in-law. The LIV Golf tour owned by the Public Investment Fund hosts events at multiple Trump-owned golf courses. 

Executives at Wall Street firms lined up to proclaim their support for Saudi Arabia’s message. 

On a panel, Robert Kapito, president of BlackRock, said the world’s largest asset manager was eager to beat its rivals in making Saudi Arabia an investment hub. 

“This is the largest career alpha opportunity that I have ever seen,” said Kapito of Saudi Arabia’s development plans. “For those who are competitors of mine, we are building a big office and we are going to be there first.” 

“[We] are all here to leap forward with the kingdom,” proclaimed private equity billionaire Robert Smith of Vista Equity Partners. 

Don’t miss Antoine Gara’s full report from Miami here

Chart of the week

Investors are urging Europe’s politicians to make sweeping reforms to its moribund market for debt securitisation, in a move the industry claims could attract hundreds of billions of euros in financing for the region’s economy. 

Asset managers including bond giant Pimco and insurers such as Italy’s Generali have called for a shake-up during a consultation on EU rules governing the market, where the likes of risky corporate loans, car finance and mortgage borrowing are packaged up into debt securities that can then be sold by banks to investors. 

Executives and investors say layers of regulation — designed to prevent a repeat of the 2008 global financial crisis — have strangled the market, while the US has boomed. They hope that potential reforms in the EU and UK could finally revamp the sector after years of false starts. 

Brussels launched a consultation in October investigating ways to revive the market and attract more financing for businesses and households, while freeing up the region’s banks to lend more. 

A key catalyst for change was an influential report last September by former Italian premier Mario Draghi on transforming Europe’s economy, in which he argued a bigger market for securitised lending could even “act as a substitute for lack of capital market integration”. 

“Over the past decade, the impact of Europe’s unique approach to gold-plating of global standards has become clear and action is overdue,” said Shaun Baddeley, head of securitisation at AFME, a trade group. Some rules were “not fit for purpose and are ultimately hindering economic growth”, he added. 

Some €245bn in debt securitisation was created in Europe last year, including the UK, with about half passed on to big investors such as asset managers and insurers. 

Although it was one of the biggest totals in recent years, according to AFME, it pales in comparison with the US where the equivalent of €1.5tn was issued. That yearly US number was bigger than the total outstanding market across the EU and UK, on AFME’s figures.

Five unmissable stories this week

Will the bond market rein in Donald Trump? Tariffs, trade wars and plans for big tax cuts could all rattle investors in US Treasuries, but it’s a resilient market with few alternatives.

French alternatives firm Tikehau Capital has acquired a 4 per cent stake in FTSE 100 asset manager Schroders, with its co-founder Antoine Flamarion suggesting “there may be some commercial collaboration in the future”.

Donald Trump’s move to tighten his grip on independent US watchdogs is “a big, big mistake” that risks eroding trust in the world’s biggest economy, Vincent Mortier, chief investment officer of Amundi, has warned.

Fund managers are facing lengthy delays in getting approval from the Monetary Authority of Singapore to operate in the city-state after a surge in applications, putting a dent in the city-state’s ambitions to be Asia’s leading wealth management hub.

Fund managers have stepped up pressure on the UK government to “simplify” Britain’s tax-free savings regime by scrapping the cash Isa product . . . But Dan Olley, the chief executive of retail investment site Hargreaves Lansdown, has hit out against these calls. 

And finally

It was great to see so many of you at our inaugural Future of Asset Management Middle East conference in Abu Dhabi last week. I hope like I did you also found time to visit the spectacular Louvre Abu Dhabi museum, designed by French architect Jean Nouvel, on Saadiyat Island. Sadly we were just too early for the nearby Guggenheim Abu Dhabi museum, which is expected to complete later this year.