Morning Agenda: Growing Unease as British Mutual Funds Block the Exit Doors

GROWING UNEASE AS BRITISH MUTUAL FUNDS BLOCK THE EXIT DOORS As British mutual funds bar the doors to fleeing investors, traders and regulators are wondering about the repercussions of this for nervous global markets, Landon Thomas Jr. reports in DealBook.

The numbers are small enough so far. Of the 35 billion pounds, or $45 billion, invested in these funds, just under £20 billion has been affected. But the moves have echoed Third Avenue Management’s decision in December to block investors who wanted to bail on its risky credit fund, shocking regulators and rattling investors.

The purest principle of investing in such funds is the understanding that investors who want to get out will immediately receive their money back. This means the portfolio manager must have sufficient cash on hand or be able to sell stocks or bonds quickly enough to satisfy the investors. Recent developments show that British fund companies are less beholden to this principle than their American counterparts.

Their prospectuses are blunt about the investment manager’s reserving the right to halt redemptions under “extraordinary circumstances” to protect the interests of longer-term investors. The funds are also willing to take more drastic steps, as Aberdeen Asset Management did when it marked down the value of the assets in its property fund. The move in effect said to investors: Take your money out if you want, but you will pay a price to do it. Its investors now have through Monday to decide whether they want to take this offer, as Chad Bray reports in DealBook.

Such measures highlight the risks that fund companies will take to satisfy investor demand for high-yielding returns when interest rates are near zero. The push for higher yields has contributed to the growth of property funds in Britain, but their commercial property investments do not trade as securities on an exchange, and the investments are hard to value and sell, making them a risky proposition for a fund promising to deliver cash to investors when they ask for it.

By contrast, real estate mutual funds in the United States have tended to invest in real estate investment trusts, or REITs, which trade on public exchanges.

Investors have so far taken the British funds’ moves in their stride, but the words of caution coming from the Bank of England were jarring.

“These funds offer short-term redemptions to investors while in some cases investing in longer-dated and potentially illiquid assets,” the British central bank said in a report, warning that a frantic selling spree by investors in the funds could overwhelm securities markets.

DEUTSCHE BANK PULLS BACK FROM COAL DEALS Even as other banks made a hasty retreat, the coal mining industry could still count on Deutsche Bank for financing and advice. But now, under pressure from environmentalists and worried about losses from a troubled industry, the German bank is also backing off, Michael Corkery and Clifford Krauss report in DealBook.

It seems that the risks are getting bigger for banks that finance industries that contribute to climate change.

Deutsche Bank’s metals and mining investment banking team lost six team members to Jefferies, the New York investment bank, in a move that analysts said was related to its decision to back away from coal projects. Deutsche Bank has no immediate plans to replace the bankers.

Deutsche Bank had said that it would no longer finance so-called mountaintop removal projects, which involve extracting coal from the surface, often leaving large gashes in the landscape. But it still stopped short of committing to a broad retreat like other large banks had.

There are economic reasons for retreating – the value of deals has fallen, and the American coal industry is plagued by bankruptcies as utilities turn to cheaper or renewable sources and demand from China cools.

“Deutsche Bank supports a well-balanced overall energy mix that takes account of economic conditions as well as environmental and health and safety considerations,” a Deutsche Bank spokesman said in a statement.

But the bank’s considerations still go against the grain of investment bankers, who are conditioned to work on as many deals a possible, not to cap activity.

ON THE AGENDA The United States Labor Department will release its report on the nation’s hiring and unemployment for June at 8:30 a.m.

DEAL-SCOUTING FIRM SCORES AGAIN WITH DANONE BID The two JPMorgan veterans, Douglas L. Braunstein and James C. Woolery, who started the activist investment firm Hudson Executive Capital are seeing their deal expertise pay off, Leslie Picker and Michael J. de la Merced write in DealBook. They set up about 18 months ago with the aim of collaborating with company management teams rather than threatening proxy fights. They took a position in shares of the organic food company WhiteWave Foods last year and built their stake up to $32 million by the end of March.

WhiteWave has agreed to be acquired for $10 billion by the French food company Danone, yielding an estimated 45 percent gain for Hudson Executive.

Behind the scenes, Hudson Executive bankers had urged WhiteWave’s chairman and chief executive to solicit buyers, according to a person briefed on the matter. At the same time, they tried to drum up interest from potential buyers too.

The deal came after a similar deal last week for Medtronic to buy HeartWare, in which Hudson Executive had bought HeartWare shares at an average of $44 each. The stock is now trading close to $58.

While Hudson Executive had continued their winning streak, Danone may have just bought a very expensive maker of soy and almond milk, John Foley writes in Breakingviews.

Danone will pay almost 20 times WhiteWave’s forecast earnings before interest, taxes, depreciation and amortization, or Ebitda. WhiteWave is growing rapidly, but it is already trading at a valuation of 31 times the next 12 months’ estimated earnings.

Assuming that WhiteWave can sustain its current growth in operating profit between now and 2020, when Danone expects the synergies to come through, the return for investors is just 5 percent, if the value that Danone hopes to create and its tax rate is taken into account. That is below WhiteWave’s likely cost of capital.

Still, investors in Danone, a French company, might approve of its increasing its sales in the United States when Europe could take a hit from Britain’s vote to leave the European Union. The funding is also appealing because interest rates are expected to continue falling.

Danone shares initially rose more than 5 percent after the deal was announced, but WhiteWave shareholders got the cream, Mr. Foley writes.

Contact amie.tsang@nytimes.com

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