The FT heads to Davos

This is an audio transcript of the FT News Briefing podcast episode: ‘The FT heads to Davos’

Joanna S Kao
Good morning for the Financial Times. Today is Monday, January 16th, and this is your FT News Briefing.

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US regulators are cracking down on a complicated investment product.

Kaye Wiggins
There’s a lot of echoes of pre-2008 stuff in here.

Joanna S Kao
More and more British consumers are turning to buy now, pay later. And the FT’s Gideon Rachman is in the Swiss Alps and tells us why he and other high flyers trek to the World Economic Forum in Davos every year.

Gideon Rachman
It’s that kind of ability to do kind of political and business celebrity speed-dating, if you like.

Joanna S Kao
I’m Joanna Kao, in for Marc Filippino, and here is the news you need to start your day.

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In the UK, a new survey shows that more and more people are using buy now, pay later services. They allow people to buy things and pay later, or in instalments. You might have seen services like Affirm, Klarna or Afterpay as you checked out of your latest online shop. Demand is rising among all age groups because people are being hit hard by the cost of living crisis. But the service is unregulated in the UK, and nonprofits worry about the rising demand for credit.

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US regulators are cracking down on a kind of investment vehicle marketed by private equity groups. It’s called a collateralised fund obligation. And if that sounds complex, it is. The FT’S Kaye Wiggins describes it like this.

Kaye Wiggins
Basically, a collateralised fund obligation is a box. That’s the best way to think of it. It’s a box containing stakes in lots of different private equity funds and sometimes private debt funds, private real estate funds, private infrastructure funds. That box then bundles all of those different stakes in different funds together. And it issues bonds that you can buy as an investor.

Joanna S Kao
Kaye’s our private capital correspondent. She says the biggest buyers of the product are insurance companies, which is why the regulator that’s cracking down is an association of US state insurance watchdogs. After a year of scrutiny, the group concluded that the private rating agencies that grade collateralised fund obligations are understating their risk.

Kaye Wiggins
So there’s a lot of echoes of pre-2008 stuff in here. So, I mean, even the name of these products, collateralised fund obligations, you know, is a strong echo of collateralised debt obligations, which, you know, only became widely understood really after they wreaked havoc during the financial crisis. So, and the structure of a collateralised bond obligation is, you know, very, very similar. And the idea that you’re diversifying risk because it contains a much bigger pool of underlying securities, like, that whole idea is quite reminiscent of what was happening before the crisis. And so there’s a large element here of the regulator looking at this and saying, hang on a minute, or we can see how this game played out in 2008, and we didn’t like that.

Joanna S Kao
Kaye says any new rules could make it harder for insurance companies to buy the product, and that would hurt the private equity firms who sell it. So they’re pushing back.

Kaye Wiggins
They’re saying, look, we think the regulator is being too heavy-handed here, you know, because what the regulator is saying it’s gonna do is actually, you know, take control itself of doing the stuff that the rating agencies were previously doing. So the big pushback will be from people who say, hang on a minute, this seems kind of anti-competitive, that the regulator itself is doing the ratings in effect. Somebody I spoke to about this said, you know, the regulator is acting as a market participant here. And, you know, we don’t think that’s fair.

Joanna S Kao
Kaye Wiggins is the FT’s private capital correspondent.

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The World Economic Forum opens today. The annual gathering in the Swiss Alps brings together financial elites, politicians and civic groups. The FT’s Gideon Rachman is a regular at Davos, and he confessed to us that getting to the yearly meeting in the Swiss Alps is . . .

Gideon Rachman
It’s a schlep, you know, you have to go to Zurich and then it’s way up in the mountains, takes hours to get there. And I think that’s, in fact, part of the scale of it, because once they get people there, it’s not like if it was in London, in New York, where people would just drop in or out, they’re kind of stuck there for a few days, and that creates this rather intense environment. But why do I keep going? Well, I think largely because it is such an opportunity to meet people you wouldn’t otherwise meet. You know, the first time I met Vladimir Putin was in Davos in 2008, I think.

Joanna S Kao
So Gideon, who are you hoping to meet this year?

Gideon Rachman
Well, there’s always an element of serendipity in Davos about who you kind of bump into. But one of the people that I think I’m meeting is President Ferdinand Marcos of the Philippines. And that should be interesting for numbers of reasons. Firstly, he’s the new president and in the way of a lot of leaders, they often try to make Davos like a first stop as a way of introducing themselves to the international business community, to all the politicians. It’s a kind of efficient place to meet people and to market your country. But Marcos is interestingly placed because potentially he’s very controversial. He is, after all, the son of a former dictator, Ferdinand Marcos, and he succeeds Rodrigo Duterte, who is a pretty thuggish figure, the Filipino president who launched a vigilante war, was pretty foul mouthed and Duterte’s daughter is actually Ferdinand Marcos’s vice-president. But I think Marcos is gonna try to soften his image. And also, he’s recently just been to Beijing. And the Philippines is a really kind of key geopolitical player between the US and China. So how, what he has to say about those kinds of issues, will be very interesting.

Joanna S Kao
You mentioned Putin earlier. He and other Russian leaders are banned this year, but Ukrainians will be there, though. Do you know what kind of presence they’ll have and how much focus there will be on the war in Ukraine?

Gideon Rachman
The thing about Davos is that there’s so many different things going on at the same time that there will be a group who are obsessed with Ukraine. And, you know, I will certainly go to many of the Ukraine events put on by, there’ll be a big Ukrainian delegation. They’ve hired a special house on the promenade, Ukraine house. And there will be interesting stuff going on there. But I would say that a large proportion of the delegates, maybe the majority, are not from Europe, are not that interested in the war and will probably kind of ignore it. You know, they’ll be promoting whatever they happen to be keen on getting into the public eye, whether it’s their country or their business or their intellectual breakthroughs. I think it’s actually almost important to remember, and maybe Davos isn’t a bad place to remember it or to see it, that rightly or wrongly, a lot of the rest of the world sees Ukraine as one issue among many and not necessarily their primary concern.

Joanna S Kao
You’re right, there are so many concerns and terrible conflicts, not just in Ukraine. And of course, we’re still dealing with the fallout from the pandemic. The world has really changed quite dramatically in the last few years. How have you seen these changes reflected at Davos?

Gideon Rachman
I think the heyday of Davos, it’s not past in the sense that people no longer go. A lot of people do. But the sense that there is a sort of common Davos project, I don’t think that really exists anymore. And that’s kind of reflected in their slogan this year, “Cooperation in a fragmented world”. I mean, as the world they kind of helped to put together has fragmented, and I think they’re now seeing, you know, whether they can put the pieces back together again.

Joanna S Kao
Gideon Rachman is the FT’s chief foreign affairs commentator.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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