Pressure mounts on Vince Cable over Royal Mail float

Cable yesterday revealed the list of 16 priority investors

1 May 2014

Pressure on business secretary Vince Cable has ratcheted up as the names of more hedge funds which invested in the Royal Mail’s floatation have been unmasked and further pressure exerted by MPs.

After resisting months of pressure to name the 16 priority investors who were allowed to buy a 22% stake in Royal Mail ahead of the public, the Business Secretary Vince Cable finally buckled on Monday.

The list – which is highly embarrassing to Cable – reveals the Government’s preferred investors included some of the most aggressive hedge funds in the world as well as investment firms which had close links to the financial institutions paid by the Department for Business to advise them on the sale.

The equity arm of Lazard, the department’s key adviser on the sale, was among those given “priority” status reserved for long-term investors. However, as the shares rocketed, Lazard Asset Management sold its entire stake within a week at a profit of £8m. It was able to turn such a huge profit because priority investors were given extra allocations of shares – in Lazard’s case worth £19.8m.

While there is no suggestion that any rules were breached and Lazard said there were Chinese walls between its two divisions, the apparent conflict of interest added to the public’s impression that the Government was left blindsided by a sophisticated City operation, leaving taxpayers out of pocket.

It was also revealed that Goldman Sachs, another government adviser on the sale, is partially owned by some of the investment companies which were also given priority to buy a stake in the new business. Both companies have strongly denied any allegations of wrongdoing.

But Margaret Hodge, chair of Parliament’s financial watchdog the Public Accounts Committee, told company representatives who were appearing in front of her committee: “You have 16 priority investors who made a killing [out of the sale]. And it leaves the general public with that uncomfortable feeling that there is just too cosy a relationship between [you] and these investors.

“You all know each other. You work together. You trade with each other. You are part of this little clique and we the ordinary taxpayer lose out on it.

“That is really, really uncomfortable. It just feels wrong. It almost feels to me like an institutional masonic lodge.”

Also on the list were several of the most aggressive international hedge funds – despite Mr Cable saying the Government’s priority was to establish “a core of high-quality investors” that would be there in “good times and bad”.

One of hedge funds was Third Point, founded by Dan Loeb, who is known as one of the most ruthless investors in the world. He became known after buying a $1bn stake in Sony and then demanding huge cost-cutting at its entertainment division.

Another of the hedge funds given a stake was Lansdowne Partners, whose former boss and co-founder Sir Paul Ruddock was a big donor to the Conservative Party. Peter Davies, who sits on the management committee, was the Chancellor George Osborne’s best man at his wedding.

The disclosures triggered a dispute at Prime Minister’s Questions, with the Labour leader Ed Miliband claiming the firms had been allowed to make a “fast buck” by selling their holdings as the price rose in a “rip-off of the taxpayer”.

Pressure mounts on Vince Cable over Royal Mail float

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