The News-Times (Sunday)

Inquiry puts ex-World Bank officials under scrutiny on China

- Pschott@stamfordad­vocate.com; Twitter: @paulschott

“The changes made to the 2018 ‘Doing Business’ report followed lobbying by Beijing for a better ranking and came ahead of a campaign by the World Bank to raise capital in which Beijing was expected to play a ‘key role,’ the report said. China is the bank’s third-largest shareholde­r after the United States and Japan.”

Former officials of the World Bank are under pressure after an investigat­ion found that they pressured staff members of the bank to alter data on global business conditions in order to favor China and some other government­s.

The World Bank said it would discontinu­e its “Doing Business“report in the wake of the investigat­ion, which was conducted by the law firm WilmerHale after internal questions involving “data irregulari­ties” in the 2018 and 2020 editions of the report and possible “ethical matters” involving bank staff.

WilmerHale’s report concluded that Kristalina Georgieva, then the chief executive of the World Bank, and the office of Jim Yong Kim, then the bank’s president, pressured staff members to change data on China to support Beijing’s ranking in the “Doing Business” report. These rankings are important to China and other developing nations because they can affect their ability to attract investment from overseas.

In a statement, Georgieva, who now leads the Internatio­nal Monetary Fund, disputed the report’s conclusion that she was involved in pressuring World Bank staff members to appease China.

“I disagree fundamenta­lly with the findings and interpreta­tions of the Investigat­ion of Data Irregulari­ties as it relates to my role in the World Bank’s Doing Business report of 2018,” her statement said.

The World Bank, based in Washington, is among the world’s largest sources of developmen­t funding. “Doing Business,” which evaluates a country’s tax burdens, bureaucrat­ic obstacles, regulatory system and other business conditions, is used by some government­s to try to attract investment. The report ranks countries on such factors as how straightfo­rward or burdensome it is to register a business, legally enforce a contract, resolve a bankruptcy, obtain an electrical connection or acquire constructi­on permits.

Timothy Ash, a strategist at the fixed income manager BlueBay Asset Management, said he “cannot overestima­te“the importance of the Doing Business report for banks and businesses trying to assess risk in a particular country.

“Any quantitati­ve model of country risk has built this in to ratings,” Ash said. “Money and investment­s are allocated on the back of this series.”

nancial crisis of 2008, the U.S. financial services sector has not been decimated by the pandemic.

Since the beginning of the global public health crisis, hedge funds “on aggregate … did not fall as far and recovered faster than public markets,” according to a 2021 report by Preqin, a data and analytics provider for the financial services industry. Returns across the asset class totaled nearly 17 percent for the past year.

“As alternativ­es to (hedge funds) become more widespread, the lure of the incumbents becomes a little less shiny,” Lawrence J. White, a professor of economics at New York University, said in a recent interview. “But the hedge funds are not going away — that’s for sure.”

In Connecticu­t and elsewhere, hedge funds have benefited from the continuity provided by their employees’ ability to work remotely in the past year-and-a-half. As specialist­s in “alternativ­e investment­s,” hedge funds invest across numerous categories, including stocks, bonds, currencies, derivative­s and real estate.

Among the states, Connecticu­t hosts the fifth-largest number of hedge fund managers, with a total of 256, according to Preqin. Only California, New York, Texas and Florida have more.

Westport-based Bridgewate­r Associates ranks as the world’s largest hedge fund by assets under management, with a total of $152 billion, according to Preqin. Its investor base includes sovereign wealth funds, public and corporate pension funds, university endowments, charitable foundation­s, foreign government­s and central banks.

Ray Dalio, founder and co-chief investment officer of Bridgewate­r, will speak Tuesday at the Greenwich Economic Forum. The Greenwich resident has participat­ed at each edition of the GEF since its 2018 launch. The GEF is resuming in-person programmin­g this year at the Greenwich Delamar hotel after it was held in an all-online format last year because of the pandemic.

“Our vision is to create in Greenwich a Davos-like event that has, at its core, finance and alternativ­e investment­s — meaning the hedge fund, private equity and venture capital world,” McGuire said. “As far as our ability to bring in the world’s top investors, we are doing very well.”

Among other initiative­s, Bridgewate­r announced last month a partnershi­p with financial-technology firm iCapital Network. Through the alliance, iCapital plans to provide a customized technology platform enabling registered investment advisers and family offices to access Bridgewate­r’s strategies for “ultra-highnet-worth” clients in the U.S.

In an unrelated undertakin­g, iCapital Network announced in June plans to open offices in downtown Greenwich and bring about 200 jobs to the state.

“Creating opportunit­ies forby wealth advisers and their qualified clients to access institutio­nal-quality investment­s has always been our core mission at iCapital,” Lawrence Calcano, CEO and chairman of iCapital, said in a statement. “We are excited to partner with such a prominent team as Bridgewate­r to bring access to these strategies to the wealth management community.”

A hedge fund hub

About 7,650 workers are employed at Connecticu­t-based hedge funds, according to data from Preqin and the Connecticu­t Hedge Fund Associatio­n.

Bridgewate­r operated with about 1,600 full-time employees as of June 2019, according to the most recent data available from the state Department of Economic and Community Developmen­t. At the same point, Greenwich-headquarte­red AQR Capital had about 740 fulltime positions, according to DECD.

The Steven Cohen-founded Point72 employs more than 1,650 worldwide. Headquarte­red in Stamford, it has a local workforce of about 550. It ranked as the city’s 14th-largest employer in the second quarter of this year, according to Stamford’s Office of Economic Developmen­t.

While the state remains a hedge fund hub, employment in financial services is still significan­tly lower than before the financial crisis. Financial activities accounted for about 118,000 positions statewide in August — 19 percent less than the sector’s 145,000 workers at the start of the 2008-10 recession, according to the Department of Labor.

Concerns that Connecticu­t could potentiall­y lose more finance jobs contribute­d to the decision of thenGov. Dannel P. Malloy’s administra­tion to approve eight-figure subsidies for Bridgewate­r and AQR Capital through First Five Plus. Launched in 2011, the program has provided subsidies to major companies in return for them keeping jobs and hiring in Connecticu­t.

The state awarded a $17 million loan to Bridgewate­r — with about $8.3 million forgiven and the balance also eligible for forgivenes­s. The firm also received a $5 million grant and could additional­ly earn up to $30 million in tax credits.

AQR received a $28 million loan — all of which is eligible for forgivenes­s — and a grant of up to $7 million.

Messages left for Bridgewate­r and AQR were not returned.

Some critics of hedge funds have questioned why firms such as Bridgewate­r Associates and AQR Capital needed to receive state subsidies given that their founders are billionair­es and since their employees frequently earn compensati­on well above state averages.

Industry backers counter that the taxpayer-funded incentives are justified because Connecticu­t has faced competitio­n in recent years from other states willing to offer subsidies to persuade hedge funds to relocate.

“It’s very important for Connecticu­t to have big firms like AQR and Bridgewate­r here to maintain its position as one of the hedge fund capitals of the world,” McGuire said. “And some of the junior people in a firm graduate and decide, ‘I want to set up my own shop.’ To have those people living and working here is good for Connecticu­t.”

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