Innovations may be a costly trap

One podcast to start: Vanguard became a powerhouse money manager thanks to a commitment to the philosophy of founder Jack Bogle. Now, with a new chief executive, can the firm push into other areas of financial services and reshape those too? In this podcast, the FT’s US managing editor Brooke Masters explains how the company’s guiding mantra could help or hinder these plans.

In today’s newsletter:

• Investors have more choice — but are the new offers any good?

• Top UK pension fund pulls £28bn from State Street over ESG retreat

• Currency investors grow wary of bets on Trump tariffs

The industry wants its money back

Philip Coggan, a financial journalist and author of More: The 10,000-Year Rise of the World Economy, recalls interviewing Jeff Vinik back in 1995, then running the world’s largest mutual fund, Fidelity Magellan. He let slip that the fund had added $1bn in value that morning. Good news for Fidelity’s fee income. 

In this FT Money cover story Philip tracks the evolution of the investment management industry over the past three decades. Thirty years ago, investment management was largely a boutique business where fund managers graciously agreed to pass on their wisdom to clients in return for a hefty annual fee. 

These were great days for star managers. Back then, a large number of fund management groups were able to make a decent living, with none dominating the market. In truth, this was partly because performance was not far from being random. This worked in managers’ favour, since they would always have a few funds that were outperforming the market. These could attract optimistic clients who hoped that, despite the regulatory disclaimer, past performance would be a guide to the future. 

But all that changed. Over the past three decades, the asset management industry has undergone a revolution. A sector that prided itself on its expertise has become a commodity business. Inevitably, fund managers are trying to adapt to this revolution by introducing new products. But while these innovations may look like great opportunities for investors, they may turn out to be a trap — a costly one.

Don’t miss Philip’s feature, in which he explores how the industry is offering many new options to tempt investors, among them active ETFs, option-based ETFs and private credit. 

He concludes that while some may appeal to investors looking for diversification in their portfolios, one rule should never be far from such investors’ minds; higher returns are not certain, but higher fees are.

Do you agree? Email me: harriet.agnew@ft.com

Top UK pension fund mandate changes hands

Tensions are rising between long-term investors and US asset managers, which have downgraded so-called environmental, social and governance investing after Donald Trump’s election. 

In the latest high-profile example of an asset owner pushing back against this shift, last week we revealed that The People’s Pension, one of the UK’s largest pension funds, has pulled £28bn from State Street. After a review of its responsible investment policy, the pension plan decided to hand a £20bn developed market equity mandate to Amundi and £8bn of fixed-income assets to Invesco.

The scheme, one of the UK’s largest multiemployer defined contribution schemes, said the two companies would run the funds “with a focus on responsible investment”.

“By selecting Amundi and Invesco, we have chosen to prioritise sustainability, active stewardship and long-term value creation,” said Mark Condron, chair of trustees for The People’s Pension, which aimed to “balance strong financial performance with responsible investment principles”. 

“The big theme has been an increasing difference in the positioning of US versus European asset managers. That’s a huge story,” said Dan Mikulskis, chief investment officer of People’s Partnership, which operates The People’s Pension.

Responsible investment campaign group ShareAction this month criticised State Street alongside BlackRock, Fidelity Investments and Vanguard for a “worrying retreat from ambition” as the asset managers, which together manage $23tn in assets, collectively supported just 7 per cent of shareholder resolutions on ESG last year. 

The switch of mandates comes as a group of 26 financial institutions and pension funds this month asked their asset managers to more actively engage with companies they are invested in about their climate risk. 

Some big US pension funds, including the California Public Employees’ Retirement System and the California State Teachers’ Retirement System, have also warned against dilution of climate reporting standards.

Chart of the week

Currency markets are increasingly dismissive of Donald Trump’s tariff threats, raising the risk of big swings if the US president follows through on his promise to hit China, Canada and Mexico with levies this week.

Trump’s proposal to bring in levies against the EU and China unsettled the euro and currencies of other US trading partners on Thursday, write Ian Smith, Harriet Clarfelt and George Steer. But the falls were less dramatic than some of the upheavals seen in recent weeks when he began spelling out his plans.

Measures of expected short-term volatility in currencies such as the euro and the Mexican peso have fallen since the inauguration in January.

“Having been burned on tariff trades already this year, investors are less reactive to unsupported tweets” and political rhetoric, said Jerry Minier, co-head of G10 forex trading at Barclays. 

Exchange rates have been buffeted by tariff headlines, with the dollar strengthening sharply against currencies of major trading partners on February 3 after Trump announced tariffs against Mexico, Canada and China. But the moves reversed by the end of the trading day after the president postponed the introduction of the levies against the first two countries.

Since then, market moves in response to his announcements have been smaller. Having fallen after Thursday’s broadside, the euro steadied against the dollar on Friday and at $1.04 remains well above the low of less than $1.02 touched in early February.

Akshay Singal, global head of short-term interest rate trading at Citigroup, said that after “trusting and believing” tariffs were coming, the currency market “wants to see them in action”.

He added: “Previously it was ‘I believe what you tell me’, and now it is ‘show me’.” The announcement and then deferral of tariffs against Mexico and Canada had shaken investor confidence that tariff headlines could be trusted, Singal said.

Five unmissable stories this week

The Securities and Exchange Commission has raised concerns about how a new private credit exchange-traded fund from State Street and Apollo that began trading on Thursday will maintain liquidity and value private debt.

The world’s top hedge funds have hit back against plans by global regulators to restrict their use of borrowing to finance trades, which the investors say has been wrongly blamed for recent financial market wobbles.

Daniel Sundheim’s $21bn hedge fund manager D1 Capital Partners has made a comeback by riding a handful of giant corporate turnarounds in Europe, as the region’s stock markets have undervalued many of its largest companies.

The opportunities for macro hedge funds are the best for many years, writes Kenneth Tropin, founder and chair of Graham Capital Management. More volatile markets are set to provide interesting conditions for traders. 

Jupiter suffered £10.3bn of net outflows last year after one of the UK asset manager’s top stockpickers left . . . meanwhile St James’s Place, the UK’s largest retail wealth manager, has returned to profit on the back of strong customer inflows. 

And finally

Swiss merchant Oskar Reinhart began seriously building his art collection in 1922, setting out from Winterthur, a small town north of Zurich, to cherry-pick purchases from Paris and Berlin dealers. Samuel Courtauld started collecting the same year. A particular charm of the Goya to Impressionism: Masterpieces from the Oskar Reinhart Collection exhibition is how markedly Reinhart’s collection echoes the Courtauld’s, and also connects to the pictures that Courtauld was then acquiring for London’s National Gallery, writes the FT’s chief visual arts critic Jackie Wullschläger. The exhibition, which includes works by Cézanne, Manet and Goya, is a gathering of two dozen works visiting from the villa museum Am Römerholz in Winterthur.

February 14-May 26, courtauld.ac.uk