Hedge fund talks with shadow chancellor signal new interest in Labour

The shadow chancellor is to hold talks with a hedge fund that has previously warned that the UK may need an International Monetary Fund bailout, in a sign that the financial elite are taking a new interest in Labour.

John McDonnell is due to meet BlueBay Asset Management LLP, which manages £41.4bn in funds, according to Bloomberg. Labour said the shadow chancellor would be setting out the party’s economic policy at the event next week. It is understood BlueBay requested the meeting with McDonnell.

Labour’s manifesto included financial reforms such as putting in place a ring-fence between investment and retail banking and the party has said it would raise at least £4.7bn a year through a financial transaction tax.

A Labour spokesman said: “John McDonnell has made clear as Labour prepare for government the shadow Treasury team is happy to meet investors that have requested to meet with Labour, and we are completely open about our economic policy.”

Mark Downing, a senior portfolio manager with BlueBay, told Bloomberg it was “not a political endorsement” but said he was interested to hear Labour’s ideas. “As macro investors we actively engage in dialogue with policymakers across the spectrum,” he said. “There are elements of what Labour stands for that we find interesting and there may be elements that we disagree with.”

Earlier this week while responding to Philip Hammond’s budget, McDonnell told the BBC that Labour wanted a dialogue with business leaders and financial services, saying he was taking “advice and assistance” from asset managers, though he declined to name them, saying he did not want to “draw them into the politics”.

Downing has previously predicted more political turmoil for the UK, depending on the outcome of the Brexit negotiations. “Back in the 1970s, the UK went to the IMF eventually and that’s likely where we will be once more,” he said. Its funds are shorting the pound and UK government bonds.

BlueBay, which is owned by Royal Bank of Canada, has been one of the first funds to openly speculate about the impact of Jeremy Corbyn entering No 10 in 2017.

Writing in November 2016 when Labour was low in the polls, Downing predicted a win for a Corbyn-led Labour, SNP and Liberal coalition, were an election to be held the following year. Theresa May called an election in June and won, but lost her majority, despite predictions it would increase.

Predicting a Corbyn victory, Downing wrote: “Whilst this may sound surprising, we would note that many of Corbyn’s policies share a lot of similarity with Trump. Building infrastructure, redistributing income gains away from the top 1%, pulling out of Syria and befriending Russia are all ideas Jeremy and Donald share in common.

“It is a strange world indeed – but with politics and policy driving higher market volatility, we are hopeful that this will lead to plenty of macro opportunities as well.”

BlueBay portfolio manager Mark Bathgate told Bloomberg he was in favour of some of Labour’s policies, including rail nationalisation. “Other developed countries show that nationalised rail can work if managed well,” he said, adding that a fall in living standards made a redistributionist policy programme more appealing.

“Whether it’s good or bad is not for us to decide. We’re making sure we engage with a prospective government,” he said.