‘European banks stronger than ever’, Toscafund boss Martin Hughes declares
‘When hasn’t there been a problem?’ asks Martin Hughes, founder of a $8bn asset management company. He’s tired of the doom and gloom of geopolitics.
Founder of the $8bn London-based Toscafund Asset Management, Martin Hughes, is a fan of European banks.
Mr Hughes, who will be a speaker at Friday’s Sohn Hearts and Minds conference in Sydney, believes banks in the region have emerged stronger for having gone through the crises of recent years.
“I’ve been watching the (financial sector) for 40 years and I have never seen it in better shape in Europe,” he said in an interview with The Australian.
“They are stronger and better capitalised than the American banks.
“Dividends are high. They have come through a crisis, and they are healthier and stronger.”
Mr Hughes, who started his career as a banking analyst at Barclays Investment Management, founded Toscafund in 2000 after working as global head of financial research with the New York-based Tiger Management Corporation.
Chaired by the founder of Aberdeen Asset Management, Martin Gilbert, Toscafund’s directors also include Westpac chairman John McFarlane.
The group has had a long history of investing in the financial sector, with Mr Hughes expected to select a European financial company as his stock tip on Friday.
While Mr Hughes himself is no longer a fund manager, he is still a partner in the group, spending his time working on a range of private investments.
He is no fan of American banks, which have had a difficult year with the collapse of smaller banks such as Silicon Valley Bank this year.
“The American banking system hasn’t been so good,” he says.
“Apart from Credit Suisse (which has been taken over by UBS), none of the other European banks have got in anywhere near as much trouble.”
Mr Hughes, whose current interests include private investing, says there is concern in Britain at the number of companies leaving the stock exchange.
“There are a lot of executives who run companies who feel they have been harshly valued, so there is a tendency to go private,” he says.
“UK market listings have shrunk by 20 per cent over the last five years, and they will shrink again this year because of takeovers.”
“We have next to no new initial public offerings happening.”
He says the British government is now looking at the possibility of giving tax incentives for people to invest in British-listed shares.
Mr Hughes is closely watching the commercial property market in the UK, particularly outside London.
He says there may be a point where it is attractive to go back into the commercial property market, particularly if prices are low and if buildings can be bought for below construction costs.
“It’s something which comes around every decade or so, and it looks like it might be coming again.”
Mr Hughes says global investors are now waiting for certainty about whether the latest interest rate cycle has peaked.
“Investors are watching to see when they think interest rates have stopped going up,” he says.
“People seem to be anticipating that interest rate increases have stopped, and that the environment will get better.”
Once there is a clearer view on interest rates, he says, investors will get back into the market.
Mr Hughes dismisses concerns that investors should be wary at the moment because of geopolitical issues such as the war in the Middle East, and Russia’s invasion of Ukraine.
“I get tired of these people who come up with words like ‘geopolitics’,” he says.
“When hasn’t there been a problem?”
“We have had the Cold Wars of the fifties and the oil problems of the eighties.”
“There’s always been a geopolitical problem.”
“I don’t think there’s an investment house out there which would not do something because of geopolitical problems.”
Mr Hughes describes his approach to investing as value investing.
He jokes his attitude to investing was shaped by being told to become a bank analyst in his early twenties in his first years out of university.
Looking back, he says, he might have been better off investing in tech shares, riding the boom in companies such as Amazon.
Investing in financial stocks, he says, is “not as easy as buying Amazon shares and watching them go up”.
He remains an enthusiast for the fintech sector, which he sees as playing a much larger role in financial services in the future.
“Fin techs are doing well,” he says.
“It is going to take 10 or 20 years. They can do the things that the old financials can do, but they can do it cheaper, so the customer benefits.”
“I don’t think they will crash the party in the next two or three years, but over the next 10 years they will get a bigger slice of the cake.”
The Australian is a media partner of the Sohn Conference, which has raised $60m for medical research since it began in 2016.
For more information go to sohnheartsandminds.com.au
More Coverage
Why global money is rethinking ‘anything but China’ trade
Big investors are preparing to play in China again, but the wild swings are not for the faint hearted.
Country’s biggest super fund to cop $27m fine
Superannuation members with multiple accounts tend to be the least well off and work multiple jobs, a court has heard as the country’s biggest superannuation scheme is set to pay a record fine over its alleged conduct.