Hermann Hauser, veteran technology entrepreneur, was closely involved in the founding of Arm and objected to its sale in 2016. He says the golden share idea may be “a little ambitious” but adds drily that he is “quite impressed that the technologically illiterate [political] class has finally woken up” to the threats to the industry.

For decades, he says, starting during Margaret Thatcher’s premiership in the 1980s, “we really screwed things up royally”. Thatcher introduced an era of openness to international takeover activity based on a free market in deals. Over the years, domestic semiconductor manufacturers such as GEC, Plessey, Ferranti and Inmos withered or failed to scale up.

It is impossible to tell whether Inmos’s innovative “transputers” could have been part of a powerful British chip industry had the government not privatised it in the 1980s. But the allergy to subsidising or protecting “national champions” helped inform the attitude to Arm’s sale in 2016. As one former UK security official points out, presented with a similar situation “the Americans, French and Germans would have stopped it”. 

The perils of fence-sitting

The government’s decision in relation to Newport Wafer Fab’s purchase by a Chinese-controlled company could mark the end of that era of non-intervention.

“A lot depends on how politics evolve in this country in the next six to 12 months,” says Sir Geoffrey Owen, former editor of the Financial Times and author of a recent report on the UK semiconductor industry for Policy Exchange, the think-tank. “Are we going to shift decisively away from the open market for foreign takeovers or not?”

There are plenty of pitfalls in trying to select industries, let alone individual companies, to ringfence. “I used to use semiconductor manufacturing as [an example of] the sort of thing where the government could have made a gigantic industrial strategy mistake,” says Giles Wilkes, a former adviser to May.



Treasury officials once objected that any government intervention could undermine inward investment, says Wilkes, who is now a senior fellow at the Institute for Government think-tank. “There wasn’t a settled methodology for trading security against investor certainty,” he says.

The National Security and Investment Act, which came into force in January, is one step towards trying to establish that methodology. It identifies several “sensitive areas” of the economy — from advanced materials including semiconductors, to artificial intelligence and quantum technologies — in which buyers will have to notify the government about acquisitions.

The Newport decision (which fell under the retroactive provisions of the act) will be an early test of the government’s insistence that it will use the legislation to safeguard national security rather than as an industrial policy tool to protect broader economic interests. As competition lawyer Nicole Kar of Linklaters told a recent parliamentary hearing: “These are very important signals to investors. Is this about the political mores of the day? Is it a politicised process, or is it really about national security?” 



A select committee of MPs is conducting an inquiry into the strengths and weaknesses of the UK semiconductor industry and supply chain. The Department of Digital, Culture, Media and Sport is also running a review of the sector, to be published later this year, examining how to ensure a reliable and trusted supply of chips.

Industry figures agree that it makes sense for the government to take the time to shape a coherent semiconductor strategy: “Buying time would be a sensible option while constructing a consistent policy,” says James Lee, chief executive of Wave Photonics, a Cambridge-based start-up that wanted to use Newport Wafer Fab’s facility to help develop its compound chips.

But there are risks. One is that the delay drives companies and manufacturers to decamp and invest elsewhere. Anke Lohmann, whose company, Anchored In, advises business in the quantum computing and photonics chip sector, says the government needs to decide what it wants.

“Just sitting on the fence is neither one thing or the other,” she says. “The biggest problem is if you just buy more time and don’t make a decision.” 

Boiling frogs

“There is a certain amount of frustration about policy inconsistency and lack of policy clarity,” says the former security official. He points to the risk of a “boiling frog” outcome, whereby China gradually outstrips its rivals in semiconductor technology without the UK feeling the need, or having the capability, to respond.

The government says it is committed to supporting the industry and “building on its global strengths in areas such as design”. It says it is reviewing UK capability “so we can protect and grow our domestic sector and ensure greater supply chain resilience”.

The south Wales compound semiconductor companies are lobbying for support for their specialised subset of the industry. Chips made from compounds such as silicon carbide or gallium nitride have many advanced applications and compound semiconductors offer an opportunity for more cost-effective investment, they argue.



Andrew Rickman, founder of Rockley Photonics, whose chips process, transmit and sense information optically, told a recent parliamentary committee that the UK was “not going to catch up any time soon” with advanced silicon chipmakers such as TSMC. It would make sense, he suggested, to instead use Newport Wafer Fab as an open-access foundry to scale up next-generation chips.

“Let’s not look in the rear-view mirror,” Rickman said. “What is coming up next? From my perspective in the field of photonics . . . the future is extraordinary in things like quantum computing.”

Political uncertainty also complicates policymaking. Both of the current candidates to be the next prime minister, Liz Truss and Rishi Sunak, have talked tough on the threat posed by China, raising the prospect of a redefinition of trade policy and a remaking of already fragile supply chains. Yet the interdependence of those chains makes it impossible for any one country or trading bloc to become self-sufficient in semiconductors.



Any UK policy seems bound to involve other friendly partners, notably the US and the EU. Since Brexit, though, the UK has adopted a semi-detached relationship with the EU’s semiconductor programmes. The link survives because of mutual interest in the UK’s strength in compound semiconductors. Intensifying collaboration with the EU is “an open goal” for the government, says Wyn Meredith, director of the Compound Semiconductor Centre, a joint venture between IQE and Cardiff university. Yet both Truss and Sunak have tied themselves to the Brexit mast, making alliances with the EU politically difficult.

A final risk to a more muscular industrial policy is that overzealous security concerns could impede the cross-border investment deals that are the lifeblood of many early-stage companies. TechUK, the industry lobby group, warns that use of the NS&I act has already led to “the cancellation of what should be considered low-risk investments, with projects being moved to European competitors”.

Hauser, too, detects an “anti-China hysteria” in the British approach. “My feeling is that the only sensible strategy with the Chinese, as long we have the technology lead in some areas, is to use that as a bargaining chip — if you want the wafer, you have to build the factory in the UK, employ a certain number of people,” he says. “If you don’t allow the Chinese [to invest in Newport Wafer], the company withers on the vine and then, in the end, you have got nothing.”

Meanwhile, as the UK’s reviews and probes continue, businesses in the sector are looking for other ways to grow and sustain their supply chains, even if that involves investing overseas.

“I would suggest [the government accelerates] this process, because there’s a window by which we have to get things done,” says Lemos of IQE, which also manufactures in the US, Taiwan and Singapore. “Otherwise, the business would take a different course.”

Not long after becoming the chief executive of Goldman Sachs in 2018, David Solomon asked for a private plane.

It was a controversial request. Goldman bankers traditionally eschewed ostentation, and when its chief executives used private aircraft, they rented them from NetJets. Solomon reckoned that his lost time from flight delays cost the bank money and the Goldman team conducting a cost-benefit analysis ended up seeing things his way. The bank wound up ordering two Gulfstream jets. Solomon even had a hand in choosing the decor, says a person familiar with the matter.

Goldman’s new boss was sending a signal. He wanted to do things differently, and in his own way. The company that Solomon inherited was still among the crème de la crème of investment banking and trading, but it needed to be more. Its stock market valuation lagged peers such as Morgan Stanley that earned a greater portion of their revenue from steadier, fee-generating businesses like fund management.

Solomon’s mission was to develop new income streams and “drive more durable revenue,” in the process making it easier for outside investors to understand a still enigmatic bank that had been structured as a private partnership until its initial public offering in 1999.

Yet despite Solomon ploughing billions of dollars into businesses such as consumer banking, asset management and transaction services, little has changed in Goldman’s revenue mix since the days of his predecessor, Lloyd Blankfein. Trading and investment banking still make up the lion’s share.

Goldman’s challenges are particularly pronounced in retail finance. Six years after setting up its own online consumer bank, called Marcus, Goldman has yet to say when the operation will turn a profit, and people familiar with the matter say management is currently conducting a review of the division’s spending plans.

A growing number of Wall Street analysts wonder whether the only way for Solomon to really change Goldman is through acquisition — perhaps by following the lead of Morgan Stanley, which shifted its business mix after the 2008 financial crisis with the purchases of wealth manager Smith Barney, online trading platform ETrade and asset manager Eaton Vance.

“True transformation will be hard organically,” says Christian Bolu, banking analyst at Autonomous Research. “And we know that from looking at Morgan Stanley, you don’t have to go that far.” 



So far, Solomon has nibbled on the acquisition front, with deals including paying $2.2bn for Atlanta-based consumer finance company GreenSky and €1.6bn for the investment management arm of Dutch insurer NN Group.

Bigger deals would be harder to bring off. Goldman has an idiosyncratic culture and — despite its history as an adviser on big deals — little record of making major acquisitions itself. When Goldman recently surveyed investors, some of whom owned its stock and others who did not, about what it should do with excess capital, they rated acquisitions as the lowest priority, behind reinvesting in its business, dividends and share buybacks, according to a person with knowledge of the survey.

By most measures, Solomon’s tenure so far looks like a success: Goldman has delivered record profits and seen its share price hit a record high last year. But these milestones were largely on the back of the bank’s legacy trading and investment banking businesses putting up stellar numbers.

On one of the key measures by which Wall Street keeps score — its price to book ratio, a metric which compares a company’s stock price against the value of its assets to give a sense of its true valuation — the bank’s performance remains stubbornly static and well behind its major US rivals.

If Solomon’s strategic goal is to convince outside investors that Goldman is a steady bet, he still has some work left to do. After almost four years in charge, his new Goldman still looks a lot like the old one.

The song of Solomon

Solomon, 60, made his name in leveraged finance and came into the top job with a reputation as a cost-cutter and a blunt manager.

He was an unlikely figure to take charge of Goldman. Solomon and the bank’s president, John Waldron, 53, both came to the company more than two decades ago from Bear Stearns, a less prestigious investment banking rival.

Despite the passage of time, some members of Goldman’s fabled alumni network still refer to him and Waldron as “the guys from Bear”. Solomon’s flamboyant character — typified by his well-publicised stints as a musical festival DJ and appearances on the TV show Billions and in Jennifer Lopez’s recent Netflix documentary — is also an incongruous fit to lead a bank once known for its inscrutability.



At the bank’s first-ever investor day in January 2020, Solomon and Waldron outlined the new diversification strategy. While building up legacy businesses, he outlined a focus on four growth areas: consumer banking, transaction services, asset management (raising funds from investors and managing them for a fee) and wealth management (advising well-heeled clients on their investments). Solomon has also cut $1bn in costs and promoted more internal collaboration under the “OneGS” mantra.

The expectations for change at Goldman are particularly high in asset and wealth management, where it has about $2.5tn in assets under supervision, which includes money managed by Goldman as well as other client assets. Goldman hopes to boost its annual fees in those areas to more than $10bn by 2024, up from about $6bn in 2019.

Solomon’s strategy has been to build on Goldman’s historical strengths. In asset management, Goldman has long made big money with its own equity investments in areas like private equity. To smooth out the resulting earnings volatility, Solomon is scaling back private investments using the bank’s capital and prioritising managing third-party funds, which promise more stable fee income.



In transaction banking — the business of helping companies move their money around — Goldman is hoping to tap into its vast corporate contact book to grow. Although its revenue target of $750mn by 2024 is meagre, transaction banking promises stable returns and does not require Goldman to hold large quantities of capital.

“You’ve got to give [Solomon] five stars for the vision and the outlook on what he wants to do, and how he wants to change the bank,” says Gerard Cassidy, a banking analyst at RBC Capital Markets. “But we’ve always maintained with any bank, not just Goldman, to really incorporate that kind of change, it’s impossible to do it organically.” 

The acquisitions it has made have been smaller, so the company can learn about new business and get better at integrating them, insiders say. The experience has been positive; Goldman’s deal for NN Investment Partners, which had about $355bn in assets under supervision, has stirred the bank’s appetite to make similar purchases. “If we can do a few NNIPs, that would start moving the needle,” says one Goldman executive.

The weakest link in Goldman’s diversification strategy is consumer banking, the only one of its four growth pillars that remains unprofitable. Goldman launched the consumer business in 2016 under Blankfein, naming it Marcus after the bank’s founder, Marcus Goldman.

Marcus has cycled through a series of leaders. Harit Talwar, the first head of the consumer division and the former US cards boss at Discover, was replaced in 2021 by his longtime deputy Omer Ismail, but he abruptly departed Goldman for Walmart. Marcus is now run by Peeyush Nahar, who joined Goldman last year, having previously worked at Uber and Amazon.

Under Solomon, the combined consumer and wealth management division was initially run by Eric Lane and Tucker York, but Lane left in 2021. Now, York and Stephanie Cohen serve as co-heads of consumer and wealth management, with Cohen overseeing consumer operations and York spending more time on the wealth business.

The consumer business has at least succeeded in amassing more than $100bn in deposits, giving Goldman low-cost funding that the bank estimates saves it tens of millions of dollars a year. In 2021, sources including savings accounts, retail loans and credit card partnerships with Apple and General Motors brought in $1.5bn in revenues, a figure the bank hopes could top $4bn by 2024.

But Goldman was snubbed by Apple and only given a minimal role in the tech giant’s new buy now, pay later product. Goldman had been a financial partner to the iPhone maker since 2019, providing the credit underwriting and much of the financial infrastructure behind Apple’s credit card.



The bank is still in talks with Apple to play a role in possible expansion of the latter’s buy now, pay later offering, according to one person familiar with the matter. Unlike Apple Pay Later, which is interest free, consumers would be charged interest for longer-term BNPL loans funded by Goldman if the expansion takes place.

The regulatory risks in consumer finance were also highlighted this month when Goldman disclosed that the US consumer finance regulator was investigating how it managed accounts at its credit card business.

Goldman remains unsure when its consumer operations will move into the black, leading to the current review of spending plans, according to people familiar with the matter. This has included cost review meetings between Cohen and the bank’s president. “Waldron has been holding Stephanie’s feet to the fire,” one source says.

Dealer’s choice

The emphasis on change has not made much of a difference in terms of how the business makes its money. The year Solomon took over, Goldman earned 62 per cent of its revenues from investment banking and global markets. In 2022, analysts forecast that those two divisions will provide almost 69 per cent of revenues, dropping back down to about 62 per cent in 2023.

To some extent, Goldman suffers from an embarrassment of riches: the last two years have played to its historical strengths. Rock-bottom interest rates, market volatility and the rush of pandemic dealmaking helped push Goldman’s profits and share price to record highs in 2021.

Goldman veterans who cut their teeth when the bank was a partnership question whether its reliance on its traditional areas of strength is really a problem. They argue that fee-based businesses such as asset management can be volatile in downturns, and maintain that Goldman’s trading operations can churn out massive profits regardless of the environment.



Their point was underscored last quarter when the trading division overcame volatile markets to produce more revenues than Goldman’s three other units combined. In the second quarter, Goldman earned more money from investment banking and reported a bigger jump in trading revenues than any rival.

Investors disagree. Analysts note that running a giant trading business requires Goldman to set aside huge amounts of capital, making it harder for the bank to boost its return on average tangible common equity, a key measure of profitability. Goldman’s current Rote target lags behind competitors Morgan Stanley and JPMorgan Chase.

It is also the case that Goldman stockholders have had to deal with their fair share of nasty surprises from its wheeling and dealing. In 2010, Goldman paid a $550mn fine to settle US regulators’ allegations that it misled investors in a complex mortgage-backed security called Abacus. In 2020, it agreed a $2.9bn global settlement with regulators over its role in the 1MDB money-laundering scandal in Malaysia.

The share of revenue Goldman makes from investment banking is likely to take a hit as well, as inflation and a looming global recession have created a chilly environment for dealmaking. The company’s recent struggles to offload debt to back the £10bn takeover of grocer Wm Morrison will have been a painful reminder of a changed market.



Making so much of its revenue from unpredictable activities such as trading in financial markets and advising companies on deals has not impressed investors, judging by Goldman’s price-to-book ratio.

Goldman now trades at about 1.1 times book value, slightly ahead of its average multiple over the past five years of 1.06. Morgan Stanley, by comparison, trades at about 1.7 times book, ahead of its five-year average of 1.3.

A millstone around Solomon’s neck since he assumed command, the price-to-book ratio also presents a hurdle to Goldman using its stock as an acquisition currency to buy any company with a higher valuation.

“The traditional capital markets businesses are perceived to be very cyclical in terms of those revenues. The cyclicality of revenues tends to get a pretty healthy discount in the market,” says Devin Ryan, banking analyst at JMP Securities.

The guy from Bear

Part of Solomon’s task has also been to modernise Goldman’s culture and move on from the bank’s macho “masters of the universe” reputation. It has made more diverse promotions to its coveted partner ranks, for example, and introduced a more relaxed dress code.

However, the new outward-facing corporate image to accompany its push into consumer banking are not to everyone’s taste at Goldman — and nor is Solomon’s own flashy personal style.

Once the quintessential behind-the-scenes firm, Goldman is now sponsoring McLaren’s Formula 1 team as part of a branding effort by Fiona Carter, the bank’s chief marketing officer whom Solomon recruited in 2020 from AT&T. Spending money on the partnership has displeased some at the bank in a year when it has warned of potential job cuts, according to bank insiders. “Doing the McLaren partnership is tone deaf,” says one Goldman Sachs banker.



Managing the bank’s talent — a job some at Goldman liken to serving as a Hollywood producer — has proved challenging for Solomon. Although Goldman has long boasted of its deep bench, it has been hit by several significant departures — including senior bankers Gregg Lemkau, Stephen Scherr and Eric Lane. Complaints have also been made to Solomon about his return-to-work policies, with the company looking to get many of its bankers back to the office five days a week, according to people familiar with the complaints.

Solomon’s ostentatious style has grated on some at Goldman. His DJ career — a passion he developed while working on a financing deal for a Las Vegas hotel in 2008 — has attracted scrutiny from the board of directors, according to people familiar with the matter.

Some members of Goldman’s board, which Solomon chairs, told him they were uneasy about his decision in 2019 to perform at Tomorrowland, a Belgian music festival, one of the people says. Board members noted an article in the New York Post that described the event as being known for its “undulating throngs of naked, sweaty, drug-fuelled revellers”. 

Solomon also apologised to Goldman’s board after DJing at a 2020 event in the Hamptons resort area of New York that was criticised for flouting social distancing rules during the Covid-19 pandemic, another person familiar with the matter says.

But the attention hasn’t slowed him down. This summer, Solomon, who has promised to donate earnings from his DJ efforts to charity, hit the road to perform at Lollapalooza, a four-day music festival in Chicago attended by hundreds of thousands of people. Goldman declined to comment on whether Solomon took the company jet to Chicago.

Solomon hit the stage in Grant Park on July 29 after holding a town hall with Goldman’s Chicago staff and meeting some clients. Clad in a black T-shirt, Solomon treated the crowd to Abba and Queen remixes and was joined by OneRepublic singer Ryan Tedder to perform a 2021 collaboration. The track’s title: Learn To Love Me.

Michael Byung Ju Kim still remembers the conversation that convinced him to set up his own private equity firm in his native South Korea.

Educated in the US, Kim worked on Wall Street for Goldman Sachs and Salomon Brothers before joining global private equity giant Carlyle, where as Asia president he led the firm’s Asian push in the early 2000s.

But a meeting in 2005 with Ho Ching, then chief executive officer of Singaporean state holding company Temasek, inspired him to strike out on his own.

“Ho Ching, whom I greatly admire, encouraged me to create an Asian firm, owned and operated by Asians, for Asia,” says Kim. “But rather than set up shop in Singapore, the Korean in me won out, so we set up here in Seoul.”

Seventeen years later, Kim’s private equity firm MBK Partners is sitting on $25.6bn of assets under management — an annual increase of 29 per cent since it was founded shortly after his conversation with Ho. Its sale of a 12.5 per cent stake to New York-based Dyal Capital earlier this year valued the company at $10bn — equivalent to publicly listed TPG, America’s fifth-largest PE firm.

The rise of MBK, which invests in Korea, Japan and China, illustrates the dramatic growth in scale and sophistication of the South Korean private equity market in the decades since the Asian financial crisis of 1997.

In 2021, South Korea’s private equity deal value doubled to a record high of almost $30bn, exceeding neighbouring Japan by about $2bn and trailing only China and India in terms of total deal value in the region, according to estimates by Bain & Company. Investor exits also jumped 225 per cent from the previous year to $21bn.

“Korea has assumed disproportionate importance as a buyout market in the last few years,” says Iain Drayton, head of Goldman Sachs’ investment banking division in Asia ex-Japan.

“The financing is there, the conglomerates are restructuring, and you have a lot of family-owned businesses going through succession. As a result, the country has become a magnet for private equity — it’s one of the best-kept secrets in Asia.”



Private equity’s growth in Korea reflects the transformation in the country’s once tumultuous relationship with foreign capital, as it liberalised its economy and adopted financial practices from abroad. It also mirrors the wider fortunes of the country itself, 25 years after international creditors suddenly withdrew the short-term financing upon which Korean industry had come to depend, leaving banks and overleveraged conglomerates on their knees.

Today, local private equity firms set up less than 20 years ago are going toe-to-toe with global players as Korean companies, now flush with cash, plot new forays into foreign markets.

Kim, known as the “godfather of Asian private equity,” says firms like his have helped the country carve out a valuable and distinct niche for itself in the region. “When we began in 2005, global institutional investors would scratch their heads and say ‘we get China, we get Japan, but why Korea?’” he says. “Now they understand that compared to the larger markets of China and Japan, Korea is not too risky and not too low-growth. That’s why we call Korea the Goldilocks country.”

‘A period of shame’

In the aftermath of the Asian financial crisis, a range of foreign funds swooped in to take over distressed Korean financial institutions.

In January 1999, Newbridge Capital, a joint venture between TPG, Blum Capital and Acon Investments, paid approximately $500mn for a 51 per cent stake in Korea First Bank, which had been nationalised two years before. The following year, a consortium headed by Carlyle — then led in Asia by Kim — paid $412.3mn for 40 per cent of KorAm, another leading South Korean bank.

To Korean critics, these foreign “vulture funds” were feasting on the country’s misfortune at a moment of acute vulnerability. Public anger erupted after Texas private equity firm Lone Star Funds paid $1.2bn in 2003 for a controlling stake in Korea Exchange Bank, regarded by many in Seoul as the jewel in the crown of the Korean banking system.

“Lone Star became synonymous with what many saw as a period of shame and leakage of national wealth,” says one Korean financier. “It got really ugly.”



The Korean financial authorities attempted to declare Lone Star’s acquisition of KEB illegal, in effect killing a proposed 2006 sale of the bank to HSBC. Prosecutors also accused Lone Star executives of tax evasion and stock price manipulation, sending country manager Paul Yoo to prison in 2008. The senior finance ministry official who approved the transaction was imprisoned.

In 2012 Lone Star fought back, taking action at the World Bank’s international arbitrator to demand $4.7bn from the Korean government in losses incurred from its delay of the HSBC deal and the unfair imposition of taxes. A ruling is expected this year.

But while parts of Korea’s financial regulatory establishment were seeking to make an example of Lone Star, others saw in the activities of the foreign private equity groups something to emulate.



These advocates say the foreign PE firms recapitalised Korea’s leading banks at their own risk, introducing modern risk assessment systems and credit discipline to financial institutions that for decades had lent recklessly to politically connected conglomerates.

They were rewarded with handsome profits in the process: Carlyle more than doubled its money selling its stake in KorAm to Citibank in 2004, while Newbridge made a $1bn profit selling its stake in Korea First Bank to Standard Chartered in 2005. Lone Star would eventually sell its stake in Korea Exchange Bank to Hana Financial Group for $3bn in 2012.

“The sales reflected the value that was created,” says Kim. “The authorities recognised the contribution made by private equity and, in the face of a cultural backlash against the foreign firms, set their sights on fostering a local PE industry. It was a direct outgrowth from the financial crisis.”

Birth of an industry

Until 2005, Korean investment groups had been restricted to raising money from investors on a project-by-project basis. But after the enactment of a new capital markets law, they were able to raise “blind pools” of cash to deploy as they saw fit.

These new Korean-registered “general partnerships” enjoyed tax advantages over their foreign competitors, as well as greater freedom to acquire assets subject to foreign ownership restrictions. Two months after the law came into force, Kim and his former team from Carlyle launched MBK.

The new firms also benefited from the willingness of Korea’s giant pension funds, including the mighty public National Pension Service (NPS), to invest in local players even if they had limited experience in the industry.

This was due in part to the weak performance of Korea’s public markets, weighed down by longstanding investor concerns over poor corporate governance. The NPS increased its PEF investments more than tenfold between 2007 and 2017, according to a study by McKinsey.

“The Capital Markets Law enabled the creation of funds, but if there was no sizeable institutional investor supporting that, it would have been impossible,” says Park Chung Ho, Korea co-lead for US-based investment firm KKR.



He adds that the NPS’s emergence as a key institutional investor in global private equity since 2005 had “changed the narrative” about the sector in Korea itself.

“Private equity was no longer outside the realm of what Korean institutions or Korean players had access to. It started to be seen as something from which the country could benefit.”

Most importantly, there were deals to be made. South Korea had rebounded from the Asian financial crisis so quickly that the country paid off its 15-year loans within two years. The crisis had also forced radical restructuring on the surviving Korean conglomerates, creating opportunities for carve-outs and growth.

“The capital that had been invested in these export-oriented manufacturing businesses over decades didn’t just disappear during the Asian financial crisis,” says Park. “It was in assets, in infrastructure and in production capabilities. There was a lot of idle capacity that was ready to churn when the market picked up.”

Under pressure from Korea’s high inheritance tax rates, founders of a whole generation of medium-sized companies and larger business groups were looking to divest and sell, powering the rise of new local PE players such as IMM and Stic Investments, both of which had begun life as corporate restructuring specialists in the late 1990s.

When the global financial crisis struck towards the end of the 2000s, there was a new round of opportunities as multinational corporations headed for the exit.

It was in this context that KKR’s newly minted Seoul office acquired South Korea’s Oriental Brewery from a debt-laden Anheuser-Busch InBev in 2009. The $1.8bn deal, executed in partnership with Hong Kong-based Affinity Equity Partners, marked the return of global private equity to the Korean market and forced global investors, many of whom had been put off Korea by the Lone Star saga, to give the country a second look.

KKR would go on to make a fivefold return on its investment, selling Oriental Brewery back to AB InBev in a $5.8bn deal in 2014 and helping to propel Joseph Bae, then head of KKR in Asia, to the position of global co-chief executive.

The following year MBK bought Korean retailer Homeplus from Tesco, which was at that time reeling from an accounting scandal, for $6.1bn — the largest M&A transaction in Korean history. In 2021, it made billion-dollar returns from divestments in Korea, Japan and China respectively — constituting a third of the nine largest PE exit deals across the three countries that year.

A busy future

Traces of the Lone Star controversy remain in Korea’s public discourse. During his nomination process earlier this year, Korean prime minister Han Duck-soo was forced to deny any involvement in the Lone Star case when working for the Texas fund’s Korean law firm.

But Young Ki Kim, head of investment banking for JPMorgan in Seoul, says that local private equity’s rise since the 2005 capital markets law has long since transformed the way the industry is perceived by Korean business owners.

“When PE was involved primarily with distressed assets, there was a certain stigma for founders — it was associated with failure,” he says. “But now it is associated with success — the talk of ‘vulture funds’ is long gone.”

Sung Tae-yoon, professor of economics at Yonsei University in Seoul, adds that the industry has adapted to Korea’s regulatory, economic and political environment by avoiding the kinds of cost-cutting practices and lay-offs that have tainted the industry’s reputation in other parts of the world.



“They have been less aggressive about corporate restructuring because retaining the workforce is often a condition for their acquisition due to the rigid labour market,” says Sung.

Sung adds that private equity is viewed relatively favourably in Korea because of the memory of the cronyism and outdated practices of the country’s banks in the lead-up to the Asian financial crisis.

Private equity firms both local and global have bought up chunks of highly diversified conglomerates such as SK Group, Hanwha Group and Doosan Group, while increasing investments in the Korean credit, real estate and insurance sectors. Industry executives say medium-sized Korean companies in sectors ranging from consumer goods, infrastructure and manufacturing to ecommerce, fintech and software offer potential pickings for the future.

But financiers say that investors hoping to feast on giant carve-outs from leading chaebol such as Samsung, Hyundai and LG are likely to be disappointed. In part, this is because unlike their Japanese counterparts, the Korean conglomerates already went through a period of acute disruption in the aftermath of the Asian financial crisis.

“It doesn’t strike me that we will see the same sort of deep surgery on the chaebol that we have seen on some of the keiretsu in Japan,” says Drayton of Goldman Sachs.

Instead, he says, the next frontier for private equity in South Korea is likely to be the opportunity to partner with Korean firms as they look to deploy their own capital abroad.



Spooked by regulatory caprice in China, restricted by western export controls and enticed by the prospect of US and European subsidies, Korean companies are making a push into western markets in sectors ranging from semiconductors to EV batteries and defence equipment.

The chaebol are leading the charge. Samsung Electronics, the world’s largest memory chipmaker, is investing $17bn in a new foundry in Texas, while SK Group chair Chey Tae-won has announced $52bn in US investments between now and 2030. In May, Hyundai announced a $5.5bn investment to build its first dedicated EV plant and battery manufacturing facility in the US.

Speaking before his abrupt resignation this month as global chief executive of Carlyle, Kewsong Lee told the Financial Times that “an enormous amount of capital will be required when it comes to semiconductors, to energy transition, to alternative forms of energy and electric batteries, to the next generation of mobility.”

Lee said that there were “constant conversations” going on between global PE firms and a younger generation of chaebol leaders, many of whom were educated in the US and are “very open to these kinds of partnerships”.

“There’s going to be a lot of Korean corporates going overseas — they are looking for growth outside of Korea, and the US is offering a compelling strategy,” says Park Chung Ho of KKR, citing his firm’s $2bn investment last year in SK Group’s plans to expand its share of the global hydrogen market.



Local private equity firms are also hoping to take advantage of the corporates’ foreign push. Song In-jun, founder and CEO of IMM, points to its acquisition of Air First, formerly German Linde Group’s Korean industrial gas business, a key supplier to Samsung’s chip plants in Korea and potentially abroad, as an example of how Korean funds will start to enter foreign markets in the chaebols’ slipstream.

A new generation of boutique Korean PE firms has also sprung up to take advantage of the trend. Earlier this year, former IMM PE director Paul Kang and former Apple strategic deals manager Hansol Kim co-founded Bricks Capital Management, a private equity start-up seeded by leading Korean companies in the EV battery sector to identify investment and acquisition targets for their budding supply chain in the US.

For Korean financiers who remember the Asian financial crisis and the foreign acquisition of the country’s financial institutions in the early 2000s, this Korean push into foreign markets constitutes a gratifying inversion of the narrative of a quarter of a century ago.

“People in the west forget that in the late 1990s Korea, the 10th largest economy in the world, was effectively in sovereign default,” says Kim. “Then when we set up in 2005, it was said that the centre of the global economy was shifting to Asia. It was just an aspiration then — today it’s a reality.”

Additional reporting by Hudson Lockett in Hong Kong and Song Jung-a and Kang Buseong in Seoul

GSK and Sanofi are setting their sights on ending the dominance of BioNTech/Pfizer and Moderna vaccines, after early data showed their shot had fewer side effects and lasted longer, according to GSK’s new vaccine chief.

Phil Dormitzer, who left Pfizer last year to join GSK as head of vaccine research and development, said in the long run people may prefer to be boosted with a protein subunit vaccine, such as the one developed by the British and French drugmakers. These vaccines contain the protein of the virus’s spike, rather than genetic code for it.

“Covid is important. It is not going away. It is changing,” he said. “As we head towards the late stage of the pandemic and the post-pandemic era, other things become important: tolerability, the temperature stability, convenient cold chain, and durability.”

Preliminary data suggests the vaccines of this type could have fewer side effects and last longer than mRNA shots. A recent study in animals by researchers at Stanford showed a protein subunit vaccine eliciting high levels of antibodies for more than a year.

“We have to wait for more data, but it’s something to watch and it may turn out to be that there’s a durability advantage,” he said.

Dormitzer insisted the mRNA vaccine market could be disrupted, as manufacturers tried to apply the technology to other diseases, such as influenza. GSK has partnered with German biotech CureVac to develop a next generation mRNA Covid-19 jab, including launching a trial of an Omicron-targeted shot last week, and is using the technology for other viruses.

“There’s nothing magic about mRNA,” he said. “I’ve been involved with mRNA since long before Covid.” 



Pfizer and BioNTech declined to comment. Moderna did not respond to a request for comment.

Dormitzer joined GSK to lead the world’s largest vaccine R&D organisation — even though it had lagged far behind his former employer in the race for a Covid-19 shot.

GSK chose to offer its adjuvant — which boosts the efficacy of jabs — to several vaccine makers, the most prominent of which was Sanofi. But mistakes in trials led to delays and the GSK/Sanofi shot has not yet received regulatory approval.

Dormitzer is trying to focus GSK’s vaccine business on the largest markets and those with the most unmet need. The company’s best selling vaccine is Shingrix, for shingles, and it is working on better vaccines for flu. In June, GSK reported phase 3 results showing that the first ever respiratory syncytial virus vaccine offered “exceptional protection”, so Dormitzer is prioritising filing for approval.

He has just completed GSK’s first vaccine acquisition since he arrived, spending up to $2.7bn on US start-up Affinivax, which is developing a pneumococcal vaccine to compete with Pfizer’s blockbuster Prevnar and US Merck’s Vaxneuvance. Dormitzer said it was a “very exciting technology”.

“It seems like an opportunity to really meet the residual quite large unmet need for pneumococcus by making a better vaccine, which by the way, is also easier to make,” he said.

GSK completed the largest European demerger for decades last month, spinning off its consumer joint venture Haleon. The transaction reduced debt at the new slimmed down pharma and vaccines business and gave it a dividend of more than £7bn, as well as a further stake to sell down. The money will be invested in replenishing its pipeline, including through mergers and acquisitions.

Dormitzer said he was always looking for deals. “There are both things that are interesting in their own right, but also supportive technologies that can help other vaccines as well. So it’s a rich environment out there,” he said.

Last December, South Korean semiconductor company Magnachip reluctantly announced the demise of its proposed $1.4bn merger with Chinese private equity firm Wise Road Capital.

Apart from its listing on the New York Stock Exchange and a nominal corporate presence in Delaware, Magnachip has no substantive operations — in manufacturing, research and development or sales — in the US.

But that did not stop the Committee on Foreign Investment in the United States, a body initially set up in the 1970s to screen the purchase of US strategic assets by OPEC countries, from intervening in the merger.

In a move that took the global semiconductor industry by surprise, Cfius intervened in the merger and ruled that it posed a potential risk to US national security, effectively killing the deal and casting a chill over the sector.

“Cfius has traditionally been involved in traditional security issues like ports and infrastructure, and yet it blocked the takeover of this relatively small chip firm that had hardly any US presence at all,” said Chris Miller, assistant professor at Tufts University and author of Chip War: The Fight For The World’s Most Critical Technology. “That was a really important signal for the entire industry.”

The Magnachip case is an example of how mounting US-China tensions are affecting chipmakers, which are increasingly being pressed to align with Washington as it seeks to counter China’s rise as a technological power.

The companies are vying for billions of dollars in US grants through the $280bn Chips and Sciences Act and do not want to be caught out by restrictions from an increasingly hawkish White House.



The Financial Times reported this month that Korean semiconductor titans Samsung Electronics and SK Hynix are re-evaluating their investments in China in response to “guardrails” in the legislation that prohibit recipients of US federal funding from expanding or upgrading their advanced chip capacity in China for 10 years.

Competitors including Taiwan’s TSMC and US chipmakers Intel and Micron, all of which have manufacturing operations in China, are also under pressure to boost domestic US production while making it harder for Beijing to obtain advanced semiconductor technology.

The pressure is likely to build as the US attempts to rally allies Korea, Taiwan and Japan behind a “Fab 4 chip alliance” designed to co-ordinate policy on research and development, subsidies and supply chains.

Korean chipmakers, historically reluctant to take sides in the technological rivalry between the US and China, have acted as a bellwether for the direction of the global semiconductor industry.

Samsung and SK Hynix have boosted investments in US production facilities even as they remain heavily exposed to the Chinese market. South Korea exported $50bn of chips to China last year, up 26 per cent from 2020 and accounting for nearly 40 per cent of the country’s total chip exports, according to the Korea International Trade Association.

But they share a near-total dependence on a small number of US, Japanese and European chip designers and equipment makers for the technology required to produce advanced chips, giving Washington leverage over what Miller described as the “main choke points in the semiconductor production process”.



Those companies include US chip designers Cadence and Synopsis, Siemens-owned Mentor Graphics, American equipment makers Applied Materials and Lam Research and ASML in the Netherlands, which makes the extreme ultraviolet lithography tools needed to produce cutting-edge Dram memory chips.

“China has the market, but the US has the technology,” said Yeo Han-koo, who served as South Korea’s trade minister until May. “Without technology, you have no product. Without a market, at least you can find a way to diversify and identify alternatives.”

Neither Samsung nor SK Hynix, which both specialise in memory chip production, manufacture their most advanced semiconductors in China.

China’s largest chipmaker Semiconductor Manufacturing International Corp announced last month that it had started shipping advanced 7-nanometre semiconductors. However, analysts said that without access to the world’s most sophisticated equipment, SMIC would struggle to close the gap with Samsung and TSMC, which are major global suppliers of 5nm and 4nm chips.

A person close to TSMC, which dominates the global market for foundry chips, said the US bill was unlikely to have a dramatic effect as the Taiwanese government already had restrictions on producing advanced chips in mainland China.

But Dylan Patel, chief analyst at SemiAnalysis, said that US guardrails on upgrading or expanding companies’ Chinese operations would still have an impact.

SK Hynix and Samsung would probably only maintain their existing investments, said Patel. “As a result, the share of their production in China is likely to reduce substantially over time,” he said.

The dilemma for Korean and other chipmakers is how to execute their pivot away from China and towards the US without provoking a backlash from Beijing, which has grown increasingly vocal in its opposition to what US officials describe as “friendshoring”.

“Decoupling with such a large market is of no difference from commercial suicide,” read an editorial last month in the Global Times, a Chinese state-owned nationalist tabloid. “The US is now handing South Korea a knife and forcing it to do so.”

Yet Patel said China’s continued dependence on the chips and technologies from foreign groups meant that its leverage was limited. “Beijing needs these chip imports for their own manufacturing industries. What are they going to do, stop having electronics manufactured in China?”

He said Washington could increase the pressure further by banning the export of chipmaking equipment used to manufacture advanced Nand memory chips to Chinese plants, including those owned by foreign companies. Samsung and SK Hynix both have Nand memory chip plants in China.

David Hanke, partner at Washington law firm ArentFox Schiff, who advises multinationals on China competition issues, said that chipmakers would be wise to heed the spirit of the Chips Act and not just the letter of the legislation itself.

“How much a company has been contributing to China’s technological development will be scrutinised,” said Hanke, noting that grants to chipmakers would be reviewed every two years by the US Department of Commerce.

“There will be a big optics problem for companies that play it too close to the edge of what this legislation allows.”

He added that companies should also consider the possibility that Washington will take an even more hawkish turn in the near future. Republicans are tipped to recapture the House and possibly the Senate in November’s midterm elections.

“When it comes to circumventing US regulations, China moves like water around rocks. So it shouldn’t come as a surprise if people on Capitol Hill start to say in a year or two’s time that the present guardrails were too weak.”

Additional reporting by Kathrin Hille in Taipei

Global warming is, by definition, a global problem. But the worldwide scope of the EU’s latest climate change effort — designed to end the practice of describing things as greener than they really are — is provoking alarm on Wall Street.

The Corporate Sustainability Reporting Directive, agreed in principle with little fanfare earlier this summer and due to come into force from next June, compels all “large” companies that operate in the EU or have listed securities in the bloc to produce extensive new reports on the effects of their business, and of their parent companies, on the environment.

“It’s deliberately global in application,” said Chris McGarry, lawyer at White Case. “That obviously makes sense because we’re talking about global issues.” Andrew Hobbs, of EY, said the rules had become more extraterritorial than the EU’s original proposals.

For banks such as Morgan Stanley or JPMorgan, it means producing reports for businesses that sprawl across dozens of regions and are multiple times the size of their EU-based entities. Some bankers also say it is off-putting for their clients — an Asian company that lists a single debt instrument in the EU will have to produce reams of audited information about its entire business.

“The extraterritoriality is bonkers,” a policy expert at a large US institution told the Financial Times. One of his peers at another large US bank described the CSRD as one of the most pressing policy issues on his plate, even as the EU fine-tunes hundreds of pages of new capital rules this autumn.

The directive introduces mandatory audited corporate reporting on a vast range of environmental, social and governance impacts including greenhouse gas emissions and internal risks and controls. On the environmental side, they include metrics such as climate change mitigation strategies, pollution and the impact on biodiversity and ecosystems.

That’s a big ask across enormous global businesses, banks and their lobbyists say, especially when the terminology may not be compatible with other global work, and the exact details of what they will have to report at group level haven’t been pinned down yet.

All big companies could make the same arguments, but banks feel particularly aggrieved by two elements in the EU’s plans.

One gripe is that the reports must capture the effects of companies themselves, and of companies they do business with. Financial services companies’ returns will have to capture the activities of their clients. But financial and non-financial services companies must report on the same day. Banks are arguing that their deadline should be later.

“There is genuine concern around liability (for inaccurate information) particularly in the US . . . around likely litigation if they don’t have the availability and reliability of data they need to be able to make their own disclosures, because they can’t get that from their clients,” one industry lobbyist said.

The second bank-specific complaint is the imposition of the full whack of rules on foreign companies that list any instrument in the EU’s markets, such as a Japanese company issuing a small bond that can only be sold to institutional investors in Paris or Amsterdam or Frankfurt.

The agreement reached in June will continue to grind its way through the Brussels machinery in September, when there will be a final plenary vote in the European parliament.

Banks are hoping to get a decent hearing on claims that the most recent draft is unclear — the more optimistic policy experts think the tidying up will mean that companies whose only EU activity is issuing securities get the same reprieve as those offered to small and medium-sized listed businesses. These have been promised obligations that are “proportionate to the capacities and resources of SMEs . . . and relevant to the scale and complexity of their activities”.

But they privately admit that the “ship has sailed” on the extraterritoriality, even if they are at odds with the greater European project of creating debt and equity markets as broad and deep as those in the US.

“You’re going to kill off European capital markets like this,” the policy expert says. He adds that while there might be an argument for uniform information covering EU-listed equities, extending the requirement to all securities will drive companies away.

The policy expert expects companies that only use the EU’s capital markets a little to not use them at all. London may be the beneficiary, since it offers a diverse source of funding without incurring the burden of the new rules. “This contradicts the goal for Capital Markets Union (CMU), they know that,” the first banker says of the stance Brussels is taking. “There’s not much you can do on that level . . . climate takes supremacy.”

Author's email: laura.noonan@ft.com

Bavarian Nordic is making “every effort” to satisfy demand for its monkeypox vaccine, the only approved shot against the rapidly spreading disease, as countries grapple with severely limited supplies.

The Danish biotech company’s chief executive Paul Chaplin said on Wednesday the outbreak was “unprecedented”, as the company released its first-half results.

“We are making every effort to meet the initial worldwide demand for our monkeypox vaccine and are working diligently to further expand our manufacturing capacity through additional scale-up activities and partnerships,” he said.

Bavarian said last week it had entered a limited deal with a US manufacturer to expand supply.

More than 41,000 cases of monkeypox have been detected since May, when a cluster of cases was reported in Europe. Before this outbreak, monkeypox was endemic in sub-Saharan Africa. There are early signs the global spread may be slowing, though numbers are not definitive.

Supplies of the shot, known as Jynneos or Imvanex, have been severely limited. The vaccine was originally designed against smallpox and kept in bulk stockpiles in case of a resurgence of the disease, which governments had hypothesised could come in the form of bioterrorism. Authorities then approved its use against monkeypox, a virus that very closely resembles smallpox.

The UK has nearly run out of supplies and will not get any more until late September, the Financial Times has reported, and the rest of Europe is also grappling with shortages. Health authorities in the UK, EU and US have backed “fractional dosing” — administration of a fraction of the usual dose — to stretch out supplies.

Also on Wednesday, Bavarian said it had struck a deal with the World Health Organization’s Pan American Health Organization to increase access to the shot in Latin America and the Caribbean, with deliveries expected to begin in September.

Bavarian said on Wednesday it had recorded a loss before interest, tax, depreciation and amortisation of DKr212mn ($28mn) for the first half on revenues of DKr857mn.

The company has raised guidance six times since March, buoyed by vaccine orders.

Citi analysts said they expected “large incremental monkeypox vaccine orders in the second half that will materially transform Bavarian’s earnings outlook for 2023, 2024, 2025” and beyond.

Confirmed orders for 2022 stand at more than 2mn and are fast approaching 8mn for 2023, Citi added.

When Switzerland’s Richemont fully acquired Yoox Net-a-Porter in 2018, Lex thought it was an odd fit beside luxury brands such as Cartier jewellery and Mont Blanc pens. As predicted, the online luxury goods retailer has found its way back on to the market after just a few years.

A €2.7bn writedown after two decades as an investor in YNAP adds grist to the mill of activists hoping to loosen the grip of chair Johann Rupert. The trigger is Richemont’s decision to sell a controlling stake in YNAP to Farfetch for 12 per cent of the rival’s shares. The US-listed acquirer has an option to buy the rest of YNAP’s stock later.

Pressure on Rupert from the likes of Bluebell and Third Point is lessened by a dual-share class structure. These are typically destructive of shareholder value, unless accompanied by a sunset clause. But for longtime boss Rupert, this is more than compensated for by wielding half the votes with an economic interest of only one-tenth of the stock.



Bluebell, a small UK activist, wants to get Francesco Trapani, who ran Bulgari and is close to lux giant LVMH, on to the board. This plan has just received a thumbs down from proxy adviser Institutional Shareholder Services. Underperformance supports the case for minority shareholders to do the opposite at September’s annual meeting.



The theory that luxury goods lend themselves to online retailing remains unproven. Inside Richemont, YNAP sales growth failed to impress even during the pandemic. The business has never made a profit. Shares in Farfetch and Germany’s Mytheresa, down 87 per cent and 66 per cent respectively since the start of 2021, tell the same story.



Including operating losses YNAP has absorbed about €4bn of Richemont cash since its inception, says Bluebell. Hence a discounted sale price, 0.4 times sales or below half of Farfetch’s valuation.

Underperformance extends to Richemont’s own shares. These have trailed peers LVMH and Kering over the past five years. It is time to start dusting the cobwebs out of the boardroom.

Earlier this year, with markets in turmoil, Capital Group, one of the world’s largest money managers, arranged for two guests to speak to its investment professionals.

Both were retired portfolio managers. One was known for his ability to “look around corners”, spotting long-term winners others had overlooked. The second was both contrarian and cyclical. He loaded up on volatile airline and steel stocks, resulting in a white-knuckle ride, with poor years followed by great ones. But, as he told the March gathering in California, he had an iron stomach.

What the managers had in common, says Jody Jonsson, a 32-year veteran of Capital and a management committee member, was a “belief that you must have the conviction to wait out a market that doesn’t favour your investing style. It takes incredible courage [ . . . ] We brought them both in to help our next generation of investors understand how we manage money and why we respect and need their individual investment approaches.”

Her comments reflect an unusual philosophy that has turned Capital into the world’s largest active fund manager, with $2.1tn under management as of the end of June. Its funds are run by multiple people, but instead of reaching agreement, each is encouraged to stake out a different position. That means one part of Capital is often selling shares in a company even as another is buying — and some managers within the same fund may be bearish while others are bullish.

The long-term results have been excellent for decades. All but one of its 18 equity mutual funds have beaten their benchmark since inception by an average of 150 basis points annually, even after fees are deducted. The company controls about 8 per cent of US mutual and exchange traded fund assets.



In a sea full of predators, Capital is like a whale shark: slow-moving, friendly and enormous. Its collaborative culture, low fees and dedication to active stock picking make it a well-respected outlier in the increasingly cut-throat world of asset management.

But on the cusp of its second century, the group is facing a profound challenge. Retiring clients are drawing down savings and its flagship products — equity mutual funds — are falling out of favour. Net equity inflows have been negative every year since 2016, bar 2018 when they were flat.

Buoyant markets may have kept its assets under management rising until this year, but 2022’s volatility hit hard: AUM slumped by 19 per cent and several flagship funds are having bad years. Competitors such as Vanguard and BlackRock, which offer exchange traded funds and ultra-cheap passive products that track indices, have grown much faster.

Capital’s leaders may scorn “asset gathering” for its own sake, but they cannot ignore the dangers of refusing to move with the times. Without change, shifting investor preferences could leave a company — even one as large as this — irrelevant.

For executives like Matt O’Connor, a management committee member who joined in 2008, that risk means offering new products to attract a new generation of investors. “We always need to evolve,” he says. “Today, we have the right strategies and a history of consistently strong investment results,” he adds. “Now it’s about [ . . .] the way we offer those results — ensuring we have the right products in the right places to appeal to more clients.”



To that end, the group launched its first ETFs in February, making its active investment strategies available to a new group of investors. It boosted offerings of bond and “solutions” funds, which are popular for retirement and education savings. It has also embarked on a hiring spree to support the new products, as well as a serious push into European and Asian markets.

Capital culture

Founded in Los Angeles in 1931 by Jonathan Bell Lovelace, Capital has shunned the limelight for almost that long. Its best known products, called the American Funds, without reference to the group name, are sold through brokers and advisers rather than marketed directly.

The corporate culture frowns on self-aggrandisement: top staff almost never appear in the financial media and the company name doesn’t appear on the outside of its headquarters. Capital also refuses to comment on investing decisions, even when they are so big that they move share prices, as happened earlier this year with the sale of €7bn of European bank stocks.

That has left the company shrouded in mystery even as its funds amassed an investing record that few rivals can match. Morningstar, the investment research group, gives 65 per cent of its funds four or five stars out of five. “They are the Microsoft of asset managers. They will not be the first movers but they will go to where there is demand,” says Tom Nations, the Morningstar analyst who follows Capital. “They have a very competitive line-up.”



While other asset managers are recent devotees of “stakeholder capitalism” that values employees and customers, employees say Capital has been trying to do it for decades.

The atmosphere and structure can feel friendly to the point of cultish. Employees are known as “associates” and, since the 1940s, everyone has been referred to by a unique combination of capital letters rather than a name. Early hires simply used their initials but duplication problems led to the assignment of a string of four letters bearing some resemblance to the name of each new individual.

Under Jon Lovelace, the founder’s son, the family spread the ownership to 400 top employees, known as partners, and the company aims to be in the top quartile for pay for all roles. Every associate also gets two bonuses and an annual company top up of their individual retirement equivalent to 15 per cent of salary.

“Everybody who joins Capital has this moment where they go, ‘I can’t believe someone was just so nice to me,” says Guy Henriques, or “GMQH”, as he became known when he joined from UK asset manager Schroders in 2019 to lead the company’s overseas expansion. “If I had made that mistake at X, Y, Z, I would have been pummelled, but at Capital Group, someone put an arm around me and said ‘Let’s work out how we do better next time’.’’

Annual employee turnover is roughly 6 per cent, less than half the 15 per cent norm for financial services. The average tenure of associates is 10.2 years and for portfolio managers, it is 21.8. Women account for 36 per cent of senior managers globally and under-represented minorities are 10.9 per cent of US top executives. The comparable US industry numbers are 25 per cent women, and 6 per cent minorities, according to the Investment Company Institute.



But this culture could be threatened as the group staffs up for a plunge into new products and markets. Roughly 2,200 of Capital’s nearly 9,000 employees have joined since the start of 2020, and the firm is seeking to hire another 2,000 in the next 18 months.

Morningstar’s Nations says it makes sense for Capital to look abroad as traditional US fund markets are “saturated”. But he warns that “increased focus and execution are two different things. We’re not talking about the most nimble organisation in the world.”

Extreme collaboration

Nowhere is the focus on collaboration more intense than among Capital’s 450-plus investment professionals. Since the early 1960s, the firm has assigned multiple independent managers to each fund. The $115bn New Perspective Fund, for example, has nine named portfolio managers. Younger managers, who are not named publicly, and research analysts also run smaller pots of money.

“The beauty of our system is that each person can focus on what they do well,” says Jonsson (JFJ), who serves as the fund’s overall co-ordinator. “I’m terrible at energy and commodities [ . . .]But I make sure that there’s someone else in the fund who is good at it.”

Since the 2000s, the company has also broken the equity group into three teams working separately, although their investment choices are co-mingled in all of the funds. Six members of the 10-person management committee personally run money, highlighting the power of the investment team.



Insiders argue that this structure is what has allowed Capital funds to grow larger than competitors with a single star manager or traditional committee. With more people running money, the funds track a broader range of companies. Decisions to buy and sell are less likely to disrupt the market than if the whole fund shifted its position. Bonuses are based on long-term investment results without regard to assets managed.

“It takes a lot of the ‘it’s mine’ ego tripping and a lot of the tension out and allows you to focus on the long term,” says Charley Ellis, an expert on the asset management industry and author of a book on Capital Group.

The model has seen the firm through good times and bad. Capital saw massive retail inflows after the 2003 mutual fund scandal tarnished rivals, but it endured a grim period after the 2008 financial crisis, when overall assets slumped and staff had to be cut. Since 2011, actively managed products like those Capital offers have fallen from 79 to 57 per cent of the total US investment market, according to the ICI.

Now, EU regulatory changes have forced investment advisers to offer independent funds as well as in-house products, creating an opening for outsiders such as Capital. Extreme market volatility has underscored the attraction of steady long-term returns.



The firm, which first tried to crack Europe in the 1960s, has been steadily building its non-US staff for years. Overseas headcount has more than doubled in the past decade. More than 20 per cent of last year’s $38bn in net new inflows came from overseas, even though 97 per cent of AUM are from North America.

“I’m hoping that we’re the overnight success of 60 years of planning and testing,” quips vice-chair Rob Lovelace (RWL), a grandson of the founder. “We know we need to grow. That’s important for hiring and for health. But it’s about growing well.”

Late to the party?

Capital Group was years, if not decades, late to the ETF party. It has also been cautious about plunging into offerings that explicitly promise to invest based on environmental, social and governance factors — although the group has been using ESG metrics to inform its ordinary funds.

It eschews alternative investments, even as rivals have expanded into private equity and credit in search of profits. Lovelace points out that Capital has dabbled in the area: venture giant Sequoia was founded under its aegis in the 1970s. It has also stuck to selling through intermediaries, even as retail investors have flocked to online brokers and DIY platforms. Salespeople have had a smartphone app since 2017, but a version for retail investors was only made available in 2020.




These strategies have left the group vulnerable to complaints that it is old-fashioned and failing to keep up with investor demands. Chief executive Tim Armour (TDA), who joined the firm as a trainee 39 years ago and has served as CEO since 2015, has been pushing for less dependence on equity mutual funds. A 2020 strategic plan prioritised finding ways to bring Capital’s investing prowess to a wider range of customers.

“We made a clear commitment to being a global asset manager. We’re clear on that being a north star,” says Heather Lord (HRTL), who heads strategy and innovation.

Rebalancing required strengthening bond products that had underperformed in the financial crisis. Capital has doubled the size of its fixed-income team since 2015 and redrew its bonus curves to make sure that portfolio managers are not motivated to take outsized risks. It also tweaked its methods to reflect differences between equity and credit investing. Bond portfolio managers still follow their convictions but must stay within parameters set by a leadership group. “That ensures we are all rowing in the same direction,” says Mike Gitlin (MKCG), head of fixed income.

Fixed-income assets under management have doubled to $470bn since 2015, putting Capital among the top global active bond managers.

Capital’s slow move into ETFs is also starting to pay off; it gives investors a way to put money in directly and has attracted more than $2bn in assets since the February launch. Nearly one-quarter of the firm’s assets are now in something other than a traditional US mutual fund, up from less than 5 per cent in 2015, and $163bn of net fixed-income inflows over the period have helped keep the firm growing — albeit more slowly than some of its biggest competitors. Total AUM have risen 62 per cent since 2015; Fidelity and Vanguard more than doubled.



The group remains committed to its giant army of salespeople, crediting the high-contact model with driving a 50 per cent increase in the number of advisers who put client money in Capital products since 2012. “We are doing something different and it’s not simple. We’ve got to explain it over and over again,” Lovelace says.

But the group has also had to rethink its hiring. Historically staff were brought in after gaining experience elsewhere, but that has made it hard to meet diversity commitments because the sector remains so white and so male. “We used to say we weren’t an early career shop. We have had to flip that,” says Andrea Gill (AJNG), co-head of human resources.

The overseas expansion brings other strains. Those offerings are smaller scale, which drags on profitability and makes it harder to compete on fees. The multi-manager system works best in large, highly liquid markets, which means the firm has had to turn down requests for narrowly tailored products such as those that exclude specific countries and sectors.

For now, the quandary for Capital executives is much like the one faced by some of its portfolio managers: should they wait out a market that doesn’t appreciate them? Or must they change with the times?

“The way we manage our business is the way we invest,” says Armour. “Sometimes it may seem a little boring or staid, but it’s like the tortoise and the hare. If you keep doing what you can do well over a long period of time, the compounding really works.”

Pfizer has said it will seek approval for a vaccine targeting respiratory syncytial virus in older adults after reporting positive trial data as rival groups race to develop a jab for a market that analysts estimate will generate up to $10bn of annual sales.

The US company on Thursday said a late-stage trial in adults aged 60 years and older demonstrated that its vaccine was safe and effective at preventing serious disease from the virus.

An application for regulatory approval will be submitted in the autumn, said Pfizer, which is hunting for new ways to boost revenues as sales of Covid-19 vaccines begin to moderate.

RSV is a contagious disease that can cause severe respiratory illness, particularly in older people and infants. Each year about 336,000 older people are hospitalised worldwide because of RSV and there are 14,000 deaths a year in the US.

The virus is one of the few major infectious diseases without a vaccine, although recent scientific advances have encouraged four large pharmaceutical companies — Pfizer, GSK, Johnson & Johnson and Moderna — to undertake late-stage trials of potential jabs.

GSK in June said it would apply for regulatory approval of its RSV vaccine for older adults following trial results that it said showed “statistically significant and clinically meaningful efficacy”.

J&J expects to publish late-stage clinical data for its vaccine in the coming months as does Moderna, which is aiming to develop a single “multivalent” jab that would protect against RSV, influenza and Covid-19.

Analysts say the revenues for a successful RSV jab would be significant, with SVB Leerink last year forecasting the market could eventually be worth up to $10bn a year.

Pfizer said its trial of 37,000 older adults demonstrated its vaccine was 85.7 per cent effective at preventing severe disease from lower respiratory tract RSV infection. The jab was well tolerated, with no safety concerns, it added.

Pfizer is also studying whether its shot can prevent RSV infection in infants from birth up to six months of age by vaccinating pregnant women.

Annaliesa Anderson, Pfizer’s chief scientific officer of vaccine research, said the company would work with the US Food and Drug Administration and other global regulators to secure approvals.

“Scientists and researchers have worked to develop RSV vaccines with little success for over half a century. These findings are an important step in our effort to help protect against RSV disease,” she said.

A previous attempt to develop an RSV vaccine ended in tragedy in the 1960s when two infants who took part in trials died from lung inflammatory response that developed during their first natural infection after vaccination.

Scientists say the current crop of candidates are very different from the 1960s vaccines and would not provoke a similar inflammatory response because all older adults would have already been exposed to RSV.

“We know that once you are infected with RSV you can no longer prime for that exacerbated response with a vaccine,” said Jason McLellan, professor of molecular biosciences at the University of Texas.

He said companies were progressing cautiously when it came to developing RSV vaccine for infants who might not have been exposed to the virus.

McLellan’s research on identifying and stabilising the structure of a protein that the RSV virus uses to infect human cells, published almost a decade ago, was instrumental in reviving Big Pharma’s interest in developing the jabs.

He said the new generation of RSV vaccines would probably become annual boosters and could in the future be combined with flu and Covid jabs to create a pan-respiratory vaccine.

Swiss pharma group Novartis plans to spin off its generic drugs business after a lengthy review of the division, which drew interest from private equity firms and even calls from politicians for it to be nationalised.

Spinning off its Sandoz division would create the largest generic drugs company in Europe by sales, Novartis said on Thursday, as it set out one of its most significant moves to focus on faster-growing and higher-margin drugs.

The move is one of the boldest steps yet by chief executive Vas Narasimhan to focus Novartis on more lucrative drugs that include those targeting cancer and rare diseases. In 2019, the group spun off its Alcon eye-care unit.

Narasimhan said on Thursday that it was “better to separate them [Sandoz and Novartis] in a clean and efficient way”.

Although private equity firms had shown interest in the business, no compelling bids were made, according to people familiar with the matter. Narasimhan, who has led the group since 2018, said the company had not received any formal offers.

Citi analysts said that given the Alcon spin-off, deteriorating conditions in financial markets and the intensifying pricing pressures on generic drugs, “a spin has looked the only viable route to separate Sandoz for some time”.

Founded by the Sandoz family, the business merged with Ciba-Geigy to create Novartis in 1996. Drugs manufactured by Sandoz, which employs about 20,000 people and generates almost $10bn in annual sales, are a staple of medicine cabinets in Germany, Austria and Switzerland.

Novartis had already attempted to shed parts of Sandoz to India’s Aurobindo in 2020, but competition concerns from US regulators scuppered the nearly $1bn deal in 2020.

Narasimhan said on Thursday that the generics sector was “a highly attractive market”.

“We will see, as now we have the full carve out financials available, how any of the external firms might view the business,” he said. “To be clear, I continue to expect that many external parties will be highly interested in this business.”

Novartis said it anticipated that the transaction would be completed in the second half of next year. The company added that it would be “generally tax neutral” and would require approval from shareholders.

On a train through the English countryside, a woman’s voice speaking Mandarin Chinese announces Bicester Village, a designer outlet centre near Oxford. There, Chinese-speaking staff stand ready in luxury fashion stores from Burberry to Tory Burch. But among the shoppers, the language is no longer often heard.

Chinese tourists, once the biggest driver of luxury sales, have almost disappeared from European high streets since the closure of China’s borders in 2020. With no clear date for their return, retailers are having to come up with new tactics.

Rather than selling easy-to-grab items to fast-moving tourists, sales teams are having to slow down and personalise their services for pickier locals.

It is a dramatic transition for a sector that previously concentrated on catering for Chinese tourists. In the decade before Covid hit, Chinese consumers became by far the world’s biggest spenders on luxury goods, making one-third (€93bn) of global sales, according to consultancy Bain. But they only made one-third of those purchases within China.

They made the rest on trips abroad, particularly in Europe. Chinese shoppers felt buying from European flagship stores was more authentic, and it was also much cheaper: they could shop tax-free using European rebates.



As a result, Chinese tourists became the highest per-capita luxury spenders among all travellers, accounting for two-thirds of the sector’s sales in Europe before Covid.

“It was on steroids before the pandemic,” said Achim Berg, global leader of consultancy McKinsey’s luxury group.

In the UK in 2019, people from China made up only 5 per cent of non-EU visitors to the UK, according to VisitBritain, the country’s tourism board. But they accounted for 32 per cent of all tax-free shopping, according to data from Global Blue, a tourism shopping tax refund company.

“Retailers really defined the shopping experience around Chinese tourists,” said Claudia D’Arpizio, Bain’s global head of fashion and luxury. Not only did retailers hire Chinese-speaking staff, they focused stock displays on the products favoured by Chinese buyers, particularly bags, which could be quickly picked up by a traveller in a rush, as opposed to clothing, which needs to be tried on.

Jingjing Zhou, a sales assistant in Paris department store Galeries Lafayette, was one of those recruited before 2020. “It was the best time to enter the sales industry,” Zhou said. “Very few Europeans learn Chinese, so as an overseas student you could get hired, make great sales, then get a permanent contract. Nowadays, it’s not so easy for my friends to get into this industry.”

The biggest stalls in Galeries Lafayette, from LV to Longchamp, all have at least one Chinese speaker on duty, but these days Zhou mostly uses her French. In the first quarter of 2022, just 200,000 Chinese people travelled outside of Greater China, one-hundredth as many as in the same period in 2019, according to the China Outbound Tourism Research Institute.



While luxury groups like LVMH strongly grew their overall revenues during the pandemic through sales in China, they have had to change tactics at their European stores to court more local buyers.

“It’s pretty expensive for sure. All that money spent in training, because the whole shopping experience has changed,” said D’Arpizio.

A recent surge in Middle Eastern tourists, as well as US visitors buoyed by the strong dollar, has helped fill stores. Eduardo Santander, CEO of the European Travel Commission, said the lack of Chinese tourists left the many luxury retailers that relied heavily on them with “a huge feeling of loss”, but had spurred “a huge effort to diversify”.

Retailers have personalised their services. During Europe’s Covid lockdowns, shop assistants contacted customers via WhatsApp with tailor-made recommendations. Berg sees a “possible return to the old idea of service and store management from the 1990s, the little black book with all the customers’ addresses and preferences in it”.

“You have to do much more to attract local customers,” Berg said. “They can come back, they have more time to spend, versus an international customer that was determined and straightforward.”



Zhou said local shoppers at Galeries Lafayette were “detail-oriented”. “Chinese tourists are more happy-go-lucky in making purchases,” she said.

Industry analysts expect Chinese tourism spending to return to pre-Covid levels by 2025, but such predictions depend on a softening of Beijing’s commitment to its tough “zero-Covid” policy.

And Chinese buyers are unlikely to be as dominant a force in European high streets as they were in 2019. Instead, much of their purchasing power looks set to stay at home.

During the pandemic, Chinese consumers’ luxury purchases swung from being made 70 per cent abroad to 70 per cent in China, according to Yaok Group, a Shanghai-based high-end lifestyle consultancy.

“After Covid, we forecast that the tourist armies will return, with a bounceback in ‘revenge spending’,” said Ting Zhou, founder of Yaok Group. “But in the long run, it will not go back to 70-30. More like 60-40.”

To adjust, luxury retailers are expanding their local presence in China.

“The next step is digging down into the next-tier cities, outside of Beijing and Shanghai,” said Zhou. After closing down a Paris annex built for Chinese shoppers, Galeries Lafayette is planning to open its first Shenzhen store in 2023.

China-based retail sales fell in the second quarter of this year because of a series of harsh lockdowns in Shanghai and Beijing. But in the medium term, forecasts show Chinese consumers’ overall dominance of the global luxury market growing.

In 2020, the Chinese mainland was the only luxury market in the world to expand year-on-year, according to Bain. And the portion of global sales made to Chinese nationals hit 46 per cent in 2021, said Zhou. “In their heart, China is the market luxury groups will not let go of,” she said.

Additional reporting by Nian Liu in Beijing

McKinsey, Bain and Boston Consulting Group have unveiled one of the biggest rounds of pay rises for new hires in more than two decades, as inflation, booming demand for advice and a tight labour market force the trio of consultancies to compete harder for talent.

The firms, which do not publicly disclose their pay scales, will increase annual base salaries for MBA graduates in the US from $175,000 to between $190,000 and $192,000, according to people familiar with the matter.

Top performers will be in line to receive more than $250,000 in their first year when performance-related and signing bonuses are included.

“The last time the consulting industry had this level of salary inflation was around the dot.com boom in 1999-2000,” said Fiona Czerniawska, chief executive of Source Global Research, a consulting sector analyst.

“Increasing salaries remains the most immediate and effective lever any professional service firm can pull if it wants to attract and retain high-calibre people,” she added.

Since a brief downturn at the onset of the pandemic in 2020, consultants have benefited from a surge in corporate demand for advice on digital transformations and M&A as companies reshape their businesses following the coronavirus crisis.

The mounting pressure on companies to reduce their environmental impact has also been a boon for management consultancies, which have rapidly built businesses to provide advice and strategy.

One in five firms had to turn away work because they did not have enough staff with the right skills, according to research by Source Global.

The decision by three of the most prestigious consultancies to push up pay underlines the pressure the financial services industry faces to attract new recruits. Last year, several major Wall Street banks, including JPMorgan Chase and Citigroup, lifted salaries for junior bankers. Corporate law firms have also been locked in an aggressive pay war.

Consultants are improving pay and other benefits in response to increasing competition in “a very hot talent market”, said Keith Bevans, partner and head of consultant recruiting at Bain.

“The competition that we’re up against is broader than it’s ever been,” said Bevans. “We’re meeting people on campus that are interested in big tech, they’re interested in other consulting firms, they’re thinking of starting their own companies or a search fund or they’re looking at going right into private equity.” 

Firms have also improved benefits such as paternity leave.

“While compensation remains important, our research shows that to attract, retain and develop talented colleagues, considerations such as clear career growth opportunities, flexibility and purpose matter just as much,” McKinsey said in a statement to the Financial Times.

The firm received about a million applications for 10,000 jobs in the past year despite criticism of its role helping “turbocharge” sales of addictive opioids in the US.

Candidates now pay more attention to other benefits but pay is “definitely the biggest factor” in enticing recruits, said Namaan Mian, chief operating officer at Management Consulted, which advises students applying for jobs in the sector. This year’s pay rises for new starters at McKinsey, Bain and BCG were the second biggest in the past decade, he said.

It took consulting firms about four years to repair their profit margins after significant pay rises at the turn of the century, said Czerniawska.

Despite “choppy economic waters”, firms were continuing to hire with the long term in mind because if they “turned off the spigot during a downturn” it would be difficult to recruit consultants quickly enough when things improve, said Mian.

Recruits who have completed an undergraduate or masters degree but who do not have an MBA will also receive six-figure pay packets. Base salaries for graduates joining Bain and McKinsey in the US will rise 12 per cent to $112,000 a year, according to people familiar with the pay increases.

Their counterparts joining BCG in the US have been offered $110,000, said a person who had seen a job offer from the firm. BCG, Bain and McKinsey declined to comment on their salary figures.

Salaries at the firms vary by region and are significantly lower in most countries outside the US. The firms do not disclose their profits but many partners are paid seven figure sums annually.

Do you know what a seventh minus an eighth is? And how would you feel if you had to quickly spit out the answer in a job interview?

If the thought appals, bad luck. The polls say that, in a matter of days, Britain will be led by a prime minister who likes to set this sort of mental arithmetic test for civil servants in interviews.

Liz Truss, the frontrunner in the Tory leadership race, is moreover “unwilling to appoint those who cannot promptly say, for example, what a seventh minus an eighth is”, The Times reported last weekend.

My first thought on seeing this was that it was one of the most interesting things I had read about the oddly robotic Truss since the contest started last month. It might explain a lot about this daughter of a maths professor, who herself has two maths A-levels.

Also, weeding out the innumerate from the upper ranks of the bureaucracy does not strike me as the worst idea. And some jobs require a degree of arithmetic capacity.

When I tried the seventh-minus-eighth test on FT colleagues last week, the first to pass it in a flash was a former financial analyst on the Lex desk.

Most, like me, winced as they groped for the answer, muttering words like “denominator” and “numerator” that had evidently not passed their lips in years. But they got there in the end, which is helpful at a place like the “Financial” Times.

The Truss test is also relatively straightforward, unlike the craftier tactics deployed by the likes of Walt Bettinger, chief executive of US broker Charles Schwab.

He once revealed that he invited prospective hires to breakfast and, having arrived early himself, arranged for the restaurant manager to muck up the candidate’s order to see how they “deal with adversity”.

This is only marginally better than a US tech company I once came across that sometimes asked job applicants to play table tennis after their interview, to see how they managed “challenges”. At least Bettinger’s hapless dining companions got breakfast.

The trouble with both of these ploys is they assume that people going for a job behave honestly, which they do not.

If you really want a job at Charles Schwab, you will almost certainly treat a waiter politely at breakfast with the boss, no matter how many times you get an Americano instead of a latte.

You will also cheerfully play ping pong, no matter how much you may hate it.

Maths ability is harder to fake, but mental arithmetic tests share another, deeper defect with the ping pong and breakfast trials. All suggest there is a special, fail-safe way to hire good people.

In fact, picking the most suitable employees is one of the hardest things to get right in any organisation.



Remember this if you are ever unlucky enough to be asked one of those weird interview questions such as, “how many golf balls would fit inside a 747?” Or “how many haircuts are done in the US every year?”

The spread of this type of brainteaser is sometimes blamed on companies such as Google, which has at times used them in hiring interviews.

But these kinds of questions are basically “worthless”, according to Google’s former head of people operations, Laszlo Bock. “We do everything we can to discourage this, as it’s really just a waste of everyone’s time,” he wrote in his 2015 book, Work Rules.

The questions make interviewers feel clever, but they can be practised and don’t do much to predict actual job performance, Bock said. So Google had shifted to a range of measures shown to predict performance better, such as tests of practical and cognitive ability.

This underlines the worrying thing about Truss. Would she really blackball someone purely because they fluffed their sums?

I hope not, considering what the political journalist, Simon Walters, wrote last week after reading about the seventh-minus-eighth test.

It reminded him of a meeting he had with Truss years ago when she was pushing for schools to teach times tables and other educational basics.

“What is seven times eight?” he asked her. Alas, he reported, the answer she gave was, “54”.

Author's email: pilita.clark@ft.com

Gazprom is set to cut its gas deliveries even more to French utility Engie after a disagreement over contracts, exacerbating the slow pace of flows over recent weeks and prompting further warnings from France that it is braced for the possibility of a total cut to Russian supplies.

Engie said on Tuesday that the Russian state-owned gas group had informed it of “a reduction in gas deliveries, starting today, due to a disagreement between the parties on the application of some contracts”.

Gazprom did not respond to a request for comment.

Engie is France’s biggest supplier of gas to businesses and households, competing with rivals including TotalEnergies and EDF.

Its deliveries of Russian gas, which normally account for about 17 per cent of its yearly supply, had already dropped to about 4 per cent, or a monthly level of 1.5 terawatt hours, as flows to Europe fell in recent weeks.

France has long been less dependent on Russian gas than neighbours such as Germany but has still been rushing to find alternatives, increasing imports from other suppliers.

“Russia is using gas like a war weapon,” French energy minister Agnès Pannier-Runacher told France Inter radio on Tuesday. She said the Engie supply cuts added to France’s reasons to prepare for a full end to Russian supplies.

“We must prepare for the worst, a total interruption of deliveries.”

French gas storage levels for the coming winter had reached 90 per cent of their capacity, and France was exporting gas to Spain and Germany, Pannier-Runacher said.

President Emmanuel Macron is set to hold a national defence council on Friday to address gas supplies and power planning for the winter, news agency AFP has reported.

Europe’s energy crisis has got worse in recent weeks as the price of gas has continued to soar to new heights, rising higher than $500 a barrel of oil equivalent last week.

Electricity prices have also soared, driven primarily by the price of gas and tightness in the market caused by the large number of French nuclear plants that are offline.

That has turned France, normally heavily reliant on its nuclear generation, into an importer of electricity, requiring neighbouring countries to increase gas and coal burning to meet its demand.

The EU on Monday said it was preparing emergency measures to curb the price of electricity by separating it from the soaring cost of gas. Utilities and exchanges have warned that record prices require additional government support as the need to post additional collateral has spiralled.

Engie said it had already secured alternatives to keep gas supplies flowing to customers, and had put in place measures to mitigate any financial hit to its business from the reduced Russian flows. The group is in discussions with Algeria’s Sonatrach to boost gas deliveries through midterm contracts, following Macron’s visit to the country last week.

Additional reporting by Max Seddon in Riga