Lombard

June 25, 2013 12:18 pm

Lombard: Regime change coming at Qatar Investment Authority

Abdication of the emir ushers in changes at investment fund

The abdication of the emir of Qatar in favour of his son prompts gossip among corporate financiers that regime change may be afoot within the Qatar Investment Authority, sovereign wealth fund of the gas-rich Gulf state. A rejig of buyside contacts at any big investor has potential to reshuffle the sellside hierarchy too.

Much depends on how Hamad bin Jassim fits into the new power structure. “HBJ” as he is familiarly known to western financiers (though presumably not to his face) is stepping down as prime minister. If he ceases to lead the QIA too, other important jobs could be reassigned, such as the managing directorship of direct investment arm Qatar Holding, currently held by Ahmad al-Sayed.

Whatever the outcome, pressure is mounting for the $100bn-plus fund to become more systematic. That would involve number crunchers calling more of the shots, rather than officials getting better at keeping appointments. The appeal of yanking western bankers’ chains transcends all philosophical divides.

The Qataris tend to invest in a single business in a sector provided they get a discount and like the boss. So their 25 per cent stake in Sainsbury suggests the QIA views Justin King as the bee’s knees, but Philip Clarke as the wasp’s armpits. A switch into conventional diversified asset management is unlikely, meanwhile.

Lombard would love to publish a racecard of Qataris in identical robes and sunglasses with such labels as “the reformer” or “the long shot”. We lack the background knowledge, but would hazard systematisation is inevitable within the QIA, if only as a means of determining the point at which forward valuations promoted by visitors from the City lose their last tenuous moorings to reality.

That learning curve will be familiar to Norges Bank Investment Management. Also to Britannia’s Bunce, the asset manager set up by a far-sighted UK government in 1971 to invest receipts from North Sea oil. What? No such fund exists? Guess we’re stuck with selling shares to other countries’ wealth funds, then.

Can kicked down the road

A spoonful of sugar helps the medicine go down. A profit warning from Rexam so tentative it might be termed a “profit nudge” was accompanied by news that the canmaker will sell its healthcare division. That could trigger a payout to investors, albeit with dilution to future earnings.

The market nevertheless marked the shares down 2.4 per cent. In February Rexam’s chief executive Graham Chipchase, a straightforward man in a utilitarian business, had promised a 15 per cent return on capital in 2013. Rexam is now set to miss that mark, if narrowly.

Mr Chipchase had been making a case for keeping the healthcare unit, which produces pill jars and the like. This stance became less convincing after the disposal of two other divisions for £760m. Maybe running a tinmaker, even a very big one, gets boring without side projects.

Bid interest and a weather-related trading downturn have changed Rexam’s mind. The division will probably be auctioned by Barclays, with private equity houses among the bidders. A price of £650m, representing an eight times multiple of historic earnings before nasties, is the target to better.

Analysts eased group earnings estimates, leaving the shares on a forward multiple of 11 times. That is spot on for a steady business whose capacity to spring surprises, is modest. The cardboard confederacy that is DS Smith offers the closest thing to adrenalin-drenched thrills available in the packaging industry, on a price/earnings ratio of 13.5 times.

Unpersuaded

It is a truth universally acknowledged that a central bank harassed by gender equality vigilantes must stick Jane Austen on its paper currency. Outgoing Bank of England governor Sir Mervyn King has dropped valedictory hints that the novelist may replace scientist and celebrity beard-wearer Charles Darwin on £10 notes. That would represent reparation for the ousting of philanthropist Elizabeth Fry from the fiver in favour of Winston Churchill.

Austen, a brilliant literary reactionary, would have suited Sir Mervyn, exponent of conventional monetary policy. You can just see him bowling through one of her bonnet sagas in a coach-and-four. But she is the wrong woman to adorn notes that will be deployed in unconventional monetary experiments by incoming governor Mark Carney.

The saturnine Canadian is a ringer for Heathcliff, the passionate outsider who shakes up the established order in Wuthering Heights. The portrait space on the back of the tenner rightfully belongs to Emily Bronte.

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