Hintze: Trump will deregulate most since Reagan

CQS founder Sir Michael Hintze

Writing in a December note to investors, Sir Michael said that “more de-regulation than at any other time since Reagan’s Presidency is certainly on the agenda”, which along with the continuing disintermediation of banks, and volatility in markets, will create investment opportunities.

However, he said the direct impacts of Trump deregulation on financial markets were likely to be limited, as US banks are unlikely to withdraw from the Basel III Accord, a global rulebook that requires banks to adhere to capital adequacy standards, and that bank proprietary trading desks “will continue to be absent as market participants”.

He said the consumer protection aspects of the Dodd-Frank regulations, on the other hand, which were enacted in the wake of the financial crisis, were “likely to be eased”.

Sir Michael also predicted that Trump’s election would be good for active fund managers. It will likely create “market uncertainty and volatility about fiscal, political and trade policies which I believe will be good for active managers”, he wrote.

Many active managers, particularly hedge funds, have had a difficult year, with investors choosing to pull money out of active strategies following lacklustre performance, and instead move their money to cheaper passive strategies.

However, London-based hedge fund CQS has bucked the trend. The fund that Sir Michael manages, the CQS Directional Opportunities Fund, has grown in assets this year and has delivered a return to investors of over 30%, according to performance data seen by Financial News. Other funds managed by the firm have also delivered positive returns.

Sir Michael said that he felt “energised about the investment environment”, adding that the firm had been shifting its portfolio in the last few months, saying “we have traded actively and duration has shortened” – meaning the fund has reduced its sensitivity to rising bond yields.

Other leading fixed-income investors, such as M&G’s Richard Woolnough, have taken a similar stance.

Hintze wrote: “The world is always complex, but the nature of the current geopolitical environment has the potential to affect trade and markets in more ways than I can ever recall. The opportunity for ‘air pockets’ is high and they could appear scary, but given the liquidity in the system I do not subscribe to the view that markets will see a collapse. Markets however can be fickle and often seek to discount many years into the future.”

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