You can listen to the podcast here.

Avonhurst Corporate partner Emmanuel Amos and Finance partner Ian Frost led the Avonhurst team, which also included senior associates Joshua Swerner and Rafael Serrano and associate Tanya Macrae and trainee Jennifer Falconer-Hall.

Assembuild Group supplies a range of specialist building products, primarily targeting the professional installer market through a multi-channel business model encompassing online, trade counters and wholesalers.

Chiltern is an investor in growing lower-mid-market companies that are headquartered in UK or Ireland.

Emmanuel Amos, Corporate partner, comments: “We are proud to have advised Chiltern on the creation of Assembuild Group and its related financing. We look forward to seeing the continued growth of Professional Building Supplies Limited and Securi-Flex Limited through this market leading platform.”

Jonathan Bloom, Chief Executive of Avonhurst, comments: “We are pleased to support Chiltern on these investments which underscores the strength of our corporate and finance practices that our clients continue to turn to for their most important transactions. We pride ourselves in supporting our sophisticated capital client base as they navigate the challenges and opportunities of today’s extraordinary economic landscape.”

Ecology Solutions specialises in complex ecology schemes across a diverse range of project types. It provides tailored solutions to blue-chip clients operating throughout the UK, supporting all stages from site assessment to public inquiry and implementation.

Phenna Group is a business focused on the testing, inspection, compliance and certification (TICC) sector, with operations in the United Kingdom, the United States, Ireland and Australia.

Emmanuel Amos, Corporate partner, comments: “We are delighted to have advised Phenna Group on another key acquisition. Ecology Solutions is an exciting complement to its infrastructure services division which is going from strength to strength.”

Jonathan Bloom, Chief Executive of Avonhurst, comments: “We are pleased to continue to support Phenna Group on this latest acquisition which indicates the buoyancy of our transaction services teams. At present, we are seeing a range of forward-thinking clients executing deals and we do not see that abating. At Avonhurst we pride ourselves on offering holistic, commercial advice to help our clients achieve even their most ambitious plans.”

Associated Press: “Fordham foresees a post-lockdown period that will feel like The Great Gatsby only to a few.  ‘For many, it could be more like The Grapes of Wrath, unless steps are taken to address inequities — which accelerated during the pandemic — and the gaps in the social safety net.”

Read the full article here.

Reuters: Fordham, “The idea is that a crisis can be a turning point and it's too soon to judge whether thoughtful policies will be transformative… But if we don't use the opportunity presented by the pandemic crisis to build back better, then we should be very concerned about a resurgence of populism not limited to the next 12 months but over the next one to two election cycles."

Read the full article here.

Listen to episode 5 here.

Koh has extensive regulatory experience, spanning investigations and compliance matters focused on the Foreign Corrupt Practices Act (FCPA), UK Bribery Act (UKBA), sanctions and wider financial crime, including having worked in-house as Director (Legal and Compliance) at Kerogen Capital (a Financial Conduct Authority (FCA)-Approved person role) and on a 16-month secondment to the Serious Fraud Office (SFO).

Koh is the latest in a number of senior hires for the firm, which has enjoyed significant growth since its inception in July 2019. These include seven partner hires – mostly from magic circle firms – as well as hiring leading figures from the political, financial and legal sectors as senior advisors, including Lord (Gavin) Barwell, tech entrepreneur Sean West, General, the Lord (Nick) Houghton, Dr Pippa Malmgren and Tina Fordham, formerly of Citigroup.

Jonathan Bloom, Chief Executive of Avonhurst, comments: “We are delighted to welcome Audrey to the firm. Audrey brings extensive experience of cross-border investigations, honed at leading firms including Skadden and Sidley Austin, and complemented by the invaluable experience of working at the SFO. This makes her ideally placed to advise our sophisticated capital clients on compliance and regulatory matters in a landscape that, post-Covid, with a Biden-led White House and enhanced cooperation among enforcement authorities around the world, is likely to be increasingly scrutinised.”

Dr Malmgren is a former Economic Advisor to President GW Bush in the White House and also served on the UK’s National Economic Council.  Based in London, Avonhurst provides advisory services, transactional legal services and capital services to its sophisticated capital clients. The news also come as Avonhurst moves into its next phase of services to reflect the rapidly changing needs of its sophisticated capital clientele, with its newly rebranded Avonhurst Advisory Services.  

100 crucial days.  Dr Malmgren explains:  “During lockdown, people learned how to hold meetings, but they didn't learn how to make decisions.

“Leaders have 100 days to determine whether the victors or the vanquished will define the post-COVID world. Will the leadership of companies and countries use this time to assign blame and prepare for the worst? Or, will they use seize this window to rally citizens and define a culture that can sustainably support the recovery and the growth beyond?

“All of the necessary components of a recovery are in place: there is more than enough capital to support viable businesses and deals, a global wave of entrepreneurial energy has been unleashed, digitization and technological innovation are speeding the capacity to pivot and recover. The world looks to leaders now for the one thing they can control – attitude. Now we'll see with the greatest transparency which leaders stand for "we can do this" and which for "we can't do this".  The difference is one letter – the letter "t". Now is a new kind of "T-Time". Which signature attitude will British leaders adopt: pessimism or quiet confidence?

Dr Malmgren continues:  “Leaders will now have to deal with a backlog of decisions that need to be made quickly and correctly. Nimble thinking will be essential for the complexity of the issues that leaders face. That's why I joined Avonhurst at this time; Avonhurst offers fundraising support, legal services, insights on the macroeconomic landscape, and the ability to do due diligence on the people involved in deals. That comprehensive approach leads to deals that flow.”

It is this commitment to facilitating deal flow that has led to the revitalisation of the firm’s advisory offering.

Jonathan Bloom, Chief Executive of Avonhurst, comments:  “We are rebranding ‘Avonhurst Global Political Strategy’ to ‘Avonhurst Advisory Services’ to reflect the greater depth of capability we now have across the business to address the economic, commercial and political challenges faced by our sophisticated capital clients, but also to acknowledge the way the needs of those clients have changed during recent, era-defining global upheavals.

“We work with companies and investors to anticipate, understand and navigate the economic, political, commercial and regulatory challenges they face, so that they can thrive. Our hand-picked team has extensive experience in analysing geopolitical risk, macro-economic outlooks, political affairs and deal-specific transactional risk, but there’s more to it than that. This isn’t predictive (and predictable) thinking; it’s about preparedness and opportunity.

“A truly holistic approach means that we don’t stop at spotting and highlighting issues. We provide economic, intelligence and access solutions. Best of breed research and scenario analysis of macro themes, risk events and the signposts that move markets is balanced with imaginative ideation and a talent for spotting fascinating adjacencies, interesting outliers and hidden influences.

“We can help our clients define the difference between speculation and optimism. We authenticate real insights, not wishful thinking. Precision is important. Intellectual firepower makes deals happen. Combine the best strategic relationships in the fields of politics, economics, law and capital and you have something unique.”

The Co-Founder and Managing Partner of the Monaco Foundry, Brian Frederiksen, said, "Monaco Foundry and our portfolio of startups around the world will be drawing on Avonhurst's strengths - fundraising, legal advice, deal structuring, and deep on-the-ground due diligence.  Avonhurst brings a breadth of experience and a deep understanding of markets that is required to successfully nurture early-stage firms through funding rounds. We have chosen them because they are not just lawyers or fundraisers, but because they are world-class complex problem-solvers with serious connections. "

Avonhurst CEO Jonathan Bloom comments: “We are delighted to be partnering with the prestigious Monaco Foundry.  Avonhurst was built by a group of market-leading influencers to provide a revolutionary advisory business.   This partnership with Monaco Foundry will allow us to further assist promising startups to navigate the every-changing markets of funds, capital providers, corporate borrowers and issuers, and secured lenders.”

The publication by the UK Government of the long-awaited Integrated Review of Defence, Development and Foreign Policy (the “Integrated Review”),[1] along with the Defence Command Paper, Defence in a Competitive Age (the “Defence Command Paper”)[2] and the Defence and Security Industrial Strategy comes in the context of a wider reshaping and reimagining of the UK’s post-Brexit role in the world and its relationships with others. Alongside this re-evaluation, there has been a recognition that the UK faces what the Integrated Review refers to as a “deteriorating security environment”, with a range of new and resurgent national security threats. 

One way in which the UK Government has sought to address such threats is via a new regime for the control of investments capable of posing a national security risk. The new UK investment controls are contained in the draft National Security and Investment Bill (the “NSI Bill”), which is currently progressing through the House of Lords. As explained in our 11 November 2020 paper,[3] the new regime provides for mandatory notification to a new “Investment Security Unit” (the “ISU”) of transactions meeting certain conditions, including: i) a “UK nexus” (activities or uses in the UK, or supply of goods and services in the UK); and ii) the transaction is in one of 17 specified areas, namely advanced materials; advanced robotics; artificial intelligence; civil nuclear; communications; computing hardware; critical suppliers to government; or to the emergency services; cryptographic authentication; data infrastructure; defence; energy; synthetic biology; military and dual use; quantum technologies; satellite and space technologies; and transport.[4] In addition, the ISU can call transactions in for review outside these areas, and such transactions can also be voluntarily notified.

Going beyond the legal framework set out in the NSI Bill, outlined in more detail in our 11 November 2020 paper, this paper focuses on what the Integrated Review, the Defence Command Paper and the Defence and Security Industrial Strategy can tell us about the likely priorities of the ISU in enforcing the new national security investment controls. We look at some of the key themes, namely:

• the treatment of Russia and China (and the role and importance of national origin more generally), and the growing significance of the Indo-Pacific region;

• the concept of “systemic competition”, and the importance placed on key UK values such as openness to trade;

• the speed of change in science and technology, and the impact of scientific and technological expertise on the UK’s future ability to project soft and hard power capabilities; and

• the role of non-state actors and the risk of terrorism.

Russia, China and the role of nationality

The overall stance of the Integrated Review is that openness to trade is a key aspect of UK policy and culture and that promotion of trade is essential to the country’s economic recovery. Within that, however, the Integrated Review recognises that the UK’s adversaries may use investment in ways contrary to the UK’s interests. There are some clear statements in the Integrated Review and the Defence Command Paper as to which states are perceived as posing the most direct threats.

For example, the Integrated Review made headlines on publication for its bald identification of Russia as “the most acute and direct threat to the UK”.[5]The Defence Command Paper adds that “Russia continues to pose the greatest nuclear, conventional military and sub-threshold threat to European security.” There is little suggestion that Russian investment could represent a net positive for the UK. By contrast, a more nuanced approach is taken to China – the Integrated Review states that though “China… presents the biggest state-based threat to the UK’s economic security, [w]e will continue to pursue a positive economic relationship, including deeper trade links and more Chinese investment in the UK.”[6]

This has caused some controversy, particularly within the UK’s party of government, the Conservative Party. China hawks have called for a tougher approach with a greater emphasis on the risks and potential ethical considerations (for example, in relation to China’s treatment of the Uighur minority, or repression of pro-democracy protestors in Hong Kong) than on the hoped-for rewards of increased engagement with China.[7]

The Integrated Review also expands on what it identifies as the “tilt to the Indo-Pacific”, commonly understood to include Japan, India and Australia. This is a continuation of recent UK foreign policy, including the ongoing efforts to secure a trade deal with India and, most recently, India’s invitation to the G7 summit to be held in Cornwall in June 2021 – as well as the UK’s October 2020 trade deal with Japan, ongoing trade negotiations with Australia and recent application to join the CPTPP.[8]

The picture that emerges from the Integrated Review is therefore of a government which is likely to be extremely cautious regarding Russian-affiliated investment – not only in the 17 key areas, but also likely more widely; almost as cautious (if not equally so, albeit with more diplomatic phrasing) on China; and yet seeking to encourage and increase inward investment from those whose affiliations lie with neutral countries and allies, such as the members of the Five Eyes intelligence alliance, and in particular from the Indo-Pacific region. Indeed, as the Defence and Security Industrial Strategy makes clear, the UK will require to collaborate with allies on some key new and existing technologies, and will be seeking enhanced industrial cooperation, including through NATO. The controls which will be provided by the new regime set out in the NSI Bill are described in the Defence and Security Industrial Strategy as a means of “reassuring our partners that jointly developed technology will be protected”.  

For any given transaction, much will come down to the state of relations of the UK Government with the countr(ies) concerned at the time of filing; the depth and extent (if any) of the proposed investor(s)’s state/government affiliations; as well as the credibility of any alleged lack of state ties/influence in the context of authoritarian states (see below on this). This will be a highly fact-specific assessment. In its guidance surrounding the new rules, the UK has been at pains to state that there are no hard and fast rules regarding particular nationalities – a point which may seem less easy to square with the very clear statements made in the Integrated Review regarding the threat from Russia, for example. However, the stated aim is that the focus will be on affiliations, rather than on nationality per se.[9] Although the Government states that SOEs and sovereign wealth funds are not regarded as “inherently” more likely to pose a national security risk, we can expect to see continued and increased wariness of state-owned enterprises and enterprises with strong links to state actors and key public officials, where the state in question is itself regarded as posing a potential national security risk.[10]

The sector and the nature of the investment target will be critical in this context. Certain transactions and targets may also be ruled out on the basis that retaining an independent UK or allied capability is regarded as critical. The Integrated Review states that in some areas “…future dependence on non-allied sources of supply carries unacceptable risks to our national interests…”[11]

A final point worth noting on nationality is that there is no free pass in the NSI Bill for UK investors. The regime is focused on the sector, the UK nexus, and the degree of influence gained – meaning that all investments meeting the jurisdictional criteria are caught, even if all of the proposed investors are UK nationals or UK-based entities. Again, this can be seen as evidence of the desire of the designers of the new regime to avoid a tick-box approach and allow a holistic assessment of the “acquirer risk” – capable of looking past an immediate investor/vehicle to the ultimate controller, his/her/its related parties, contacts, influences, history and allegiances. 

Systemic competition 

A second key theme of the Integrated Review is systemic competition, described as, 

“…the intensification of competition between states and with non-state actors, manifested in: a growing contest over international rules and norms; the formation of competing geopolitical and economic blocs of influence and values that cut across our security, economy and the institutions that underpin our way of life; the deliberate targeting of the vulnerabilities within democratic systems by authoritarian states and malign actors; and the testing of the boundary between war and peace, as states use a growing range of instruments to undermine and coerce others.”

In this context the Integrated Review speaks of continued engagement at a level falling below the definition of war in international law, including via campaigns of disinformation, theft of intellectual property and cyber attacks.[12] In the Government’s analysis, the autarchic instincts of such authoritarian states are placed in opposition to the UK’s fundamental values of openness and democracy. 

As noted above, the Integrated Review emphasises the importance of openness to trade and investment flows as essential to the long-term prosperity of the UK and to the efforts to rebuild the economy following the damage caused by the economic shutdowns in the Covid crisis. More than this, however, the Integrated Review posits such openness as essential to the UK’s values and model – a model which the Integrated Review identifies as under systemic threat from the competing values and world view of non-democratic systems and authoritarian states. 

This desire for openness must, however, be balanced against a world which sees the increasing “deliberate use of economic tools – from conventional economic policy to illicit finance – to target and undermine the economic and security interests of rivals.” Indeed, the Integrated Review refers to “economic statecraft as a lever in systemic competition”.[13] This is one aspect of what the Government is referring to, when it speaks of the risks posed by “malicious investment” from “hostile actors”.[14]

It would, therefore, be too simplistic to paint the new NSI regime as a post-Brexit move to protectionism. Instead, the UK is seeking to walk the narrow path between preventing malicious actors from using investment to harm UK interests whilst simultaneously promoting a free-trading, open society as a route to prosperity and a model for the world. As a result, for any particular transaction, the Government states that the risk will be assessed “according to the practical ability of a party to use [the] acquisition to undermine national security”.[15] 

Key importance of science and technology to, and the use of new technologies to undermine, national security

A third key theme of the Integrated Review, as well of the Defence and Security Industrial Strategy, is the central importance of the UK’s leading science and technology capabilities to the UK’s ability to project soft and hard power and to its ability to withstand, and succeed in the face of, global systemic competition. As above, the UK Government is concerned over acquisition of materials and expertise in “new routes to CBRN and advanced weapons enabled by technology.”[16]

As such, it is no surprise that advanced materials are among the 17 mandatory filing areas for the new NSI regime along with others focused on science and technology, including artificial intelligence, advanced robotics and synthetic biology.[17] The Government notes the capacity of artificial intelligence and increased automation to transform existing defence capabilities.[18]

Note that, given the lack of any lower transaction size threshold, even very small, venture capital-type investments otherwise meeting the criteria can be captured. Nor can the detailed definitions used for the 17 areas[19] be viewed as creating a safe harbour for transactions outside the 17 areas – as stated, the ISU will still be able to pick up transactions not meeting the criteria for mandatory notification for review of its own initiative. 

Given the powers set out in the NSI Bill to unwind completed transactions, up front filing will often be advisable for transactions which may be of interest despite falling outside the mandatory filing boundaries. There is likely to be a level of interest not only in the intended use of any new technology or other advancement, but also in its potential for future adaptation for use against UK interests. In addition to the concerns expressed over the harnessing of civilian technologies (discussed further below), the Defence Command Paper notes that recent theatres of war have seen “the imaginative employment of relatively low-cost capabilities” to challenge “highly capable air defence and electronic warfare systems”.[20]

Non-state actors; terrorism

Whilst the Integrated Review refers to countering state threats as the first goal of the UK’s national security policy, the third is the countering of “transnational security challenges”, which “include radicalisation and terrorism, SOC,[21] and the proliferation of CBRN[22] capabilities and advanced military technology”. There is also recognition of the role played by non-state actors in systemic competition, with the Integrated Review noting that non-state actors, 

“…often use the same methods, such as cyber attacks and disinformation, to target our citizens and exploit our openness for their own gain… states increasingly work with non-state actors to achieve their goals. This affords them deniability and blurs the line between state threats and other types of security threats, such as terrorism and SOC.”

The focus on serious and organised crime is reflected in the Government’s statements to the effect that any relevant criminal offences or affiliations will be included in the assessment of proposed investors by the ISU.[23] This is one practical corollary of the blurring of the lines that the Integrated Review identifies between hostile states and non-state actors such as serious and organised crime groups. It goes without saying that any links with terrorism, including terrorist financing, are also likely to be treated as highly relevant by the ISU. 

Transactions which may be particularly obvious centres of attention for concerns over such links will include not only critical national infrastructure and military/dual use items, but also any data infrastructure, intellectual property, technology or inputs which could be of relevance for use in or resilience against future cyber, CBRN or other attacks. The Defence Command Paper notes that “some countries are also adopting a military-civil fusion approach towards the development of new technologies, harnessing civilian innovation for the benefit of their Defence capabilities.”[24] Proliferation is a pressing concern for the UK Government: the Integrated Review states that “…it is likely that a terrorist group will launch a successful CBRN attack by 2030”.[25]

Note too that the ISU can take jurisdiction over certain asset acquisitions, including tangible assets and real estate as well as intellectual property. The Government states that, 

“…land is generally only expected to be an asset of national security interests where it is, or is proximate to, a sensitive site, examples of which include critical national infrastructure or government buildings. However, the Secretary of State may also take into account the intended use of the land.”[26]

In this regard, the Integrated Review notes that the UK’s energy infrastructure, for example, “remains an attractive target for attacks by states and non-state actors such as terrorists and criminals.”[27] Acquirers of relevant real estate should give thought therefore not only to the asset which is acquired but also to any neighbouring buildings, land and infrastructure which could affect the national security assessment. Acquirers of intellectual property and tangible assets may be well advised, for example, to consider alternative uses, i.e., not only the use to which the acquirer intends to put the asset, in evaluating the likely attitude of the ISU to the proposed acquisition. 

The Integrated Review also refers to non-state actors in the context of technological advances which mean that considerable power is now wielded by technology companies. This is reflected in the inclusion of such categories as artificial intelligence, data infrastructure and quantum technology in the 17 mandatory filing areas. In addition, certain pure intellectual property transactions, such as licensing agreements (including outside the 17 areas) can also be picked up for review. It is worth noting that the “UK nexus” test means that an acquisition of all or part of a Silicon Valley company, for example, could still require mandatory review under the new UK rules, on the basis of activities or supply of services in the UK. 

Conclusion

The new regime for the screening of investments set out in the NSI Bill is viewed by the Government as one means of defence against adverse activity, in a security landscape characterised by an increased range and complexity of threats. Although the new screening powers will be exercised in accordance with the legal framework provided by the NSI Bill and related legislation, the NSI Bill is a framework only. Flexibility and a degree of ambiguity have been deliberately built in, to allow the UK Government the scope it needs to respond to rapidly evolving risks. As such, a sophisticated understanding of the Government’s national security, defence and foreign policy goals will be essential in evaluating how the new powers are likely to be applied by the ISU in any given transaction. Avonhurst brings together expertise in defence, foreign policy and law to provide a holistic assessment.

[1] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/969402/The_Integrated_Review_of_Security__Defence__Development_and_Foreign_Policy.pdf

[2] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/971859/_CP_411__-_Defence_in_a_competitive_age.pdf

[3] Available from Avonhurst’s LinkedIn page, https://www.linkedin.com/company/avonhurst/posts/?feedView=all. 

[4] Details of the proposed 17 mandatory notification areas are available at: https://www.gov.uk/government/consultations/national-security-and-investment-mandatory-notification-sectors.

[5] Integrated Review, p26. Note though that the Integrated Review is also careful to underline that the “UK respects the people, culture and history of Russia”, a point which can be lost in the media coverage – p61.  

[6] Integrated Review, p63.

[7] See, e.g., https://www.businessinsider.com/tobias-ellwood-uks-integrated-review-fails-to-tackle-china-threat-2021-3?r=US&IR=T; https://www.independent.co.uk/news/uk/politics/dominic-raab-china-integrated-review-b1818099.html.

[8] The Comprehensive and Progressive Trans-Pacific Partnership.

[9] https://www.gov.uk/government/publications/national-security-and-investment-bill-2020/statement-of-policy-intent. 

[10] https://www.gov.uk/government/publications/national-security-and-investment-bill-2020/statement-of-policy-intent#the-acquirer-risk. 

[11] Integrated review, p37.

[12] See also Peter Watkins, “China and the Integrated Review”, 23 November 2020.

[13] Integrated Review, p29.

[14] https://www.gov.uk/government/news/new-powers-to-protect-uk-from-malicious-investment-and-strengthen-economic-resilience. 

[15] https://www.gov.uk/government/publications/national-security-and-investment-bill-2020/statement-of-policy-intent. 

[16] Integrated Review, p85.

[17] As amended in the further details published on 2 March 2020 from “engineering biology”. 

[18] Defence Command Paper, 2.8.

[19] Further details of which were published on 2 March 2020 - https://www.gov.uk/government/consultations/national-security-and-investment-mandatory-notification-sectors. 

[20] Defence Command Paper, 1.10.

[21] Serious and organised crime.

[22] Chemical, radiological, biological and nuclear.

[23] https://www.gov.uk/government/publications/national-security-and-investment-bill-2020/statement-of-policy-intent. 

[24] Defence Command Paper, 1.10.

[25] Integrated Review, p32.

[26] https://www.gov.uk/government/publications/national-security-and-investment-bill-2020/statement-of-policy-intent. 

[27] Integrated Review, p92.

Listen to episode 4 here.

Tina Fordham, partner and Head of Global Political Strategy at Avonhurst has updated her ground-breaking ‘Vox Populi’ study to analyse the global markets in the aftermath of Covid-19 which will be published and available from 25 March 2021.  Avonhurst is a political strategy, legal advisory and capital services firm based in London.

Fordham’s original study, ‘Vox Populi’, was published in 2013 and has since won widespread recognition for its prescience, including predicting the rise of populism and figures such as President Trump. The new study, ‘Vax Populi’, uses OpenSource data to compile and analyse different variables to predict the post-pandemic recovery rate for 30 countries, including the UK. Fordham’s co-author on the report was Dr Tsveta Petrova, Avonhurst's Data and Innovation Advisor.

Fordham comments: “The data has already thrown up significant findings as to ‘winners and losers’ of the pandemic, with lower risk levels in Asia, the UK and Northern Europe, whereas there is more cause for concern in the US, Brazil, Turkey, South Africa, Russia, and Central and Southern Europe.

“We’ve also found that, in contrast to conventional wisdom, regime type – that is, whether a country is a democracy or has an authoritarian regime – does not significantly impact its risk trajectory. Instead, the presence of trust in government and institutions and low prevalence of conspiracy theories matter more.”

Fordham continues: “Covid-19 was no 'Black Swan’ and was probably not even ‘the big one’. This suggests that it's time for the concept of ‘VUCA’ (the US military acronym for ‘Volatility, Uncertainty, Complexity and Ambiguity’) to move over and make way for a more comprehensive, holistic approach to political risk that goes beyond elections and regulation.”

‘Vaccine wars’ and no fast return to normal

Fordham and Petrova argue that, contrary to market expectations for a swift return to the pre-crisis status quo, investors should be prepared for a multi-year, non-linear adjustment period. The near future sees the continued risk of populism, mass protests and political extremism in what the authors call ‘High VAX Populi’ states (as shown in the accompanying ‘heat map’).

Fordham also noted that vaccine disinformation was fast emerging as a new geopolitical weapon, and that vaccine-related economic nationalism could worsen trade and security disputes, as is happening already between the UK and Europe, and the US and China.

The report avoids common complacencies that have seen market commentators rush to categorise the next decade as either the new ‘roaring twenties’ or the next Great Depression, providing a more nuanced and measured analysis. It also offers some surprising findings about variables between countries – including how the British may be positioned for a stronger recovery.

Fordham comments:  "For some, the post-lockdown period will feel like something out of The Great Gatsby. But for many, it could be more like The Grapes of Wrath, unless steps are taken to address inequalities – which accelerated during the pandemic – and the gaps in the social safety net.

Jonathan Bloom, Chief Executive of Avonhurst, comments: “With widespread political uncertainty in the face of an era-defining pandemic, our client base is seeking guidance in the area of political risk now more than ever. They are not looking for generalisations, they want bespoke in-depth risk analysis and advice.  As a political strategy and legal advisory firm focused on serving our sophisticated capital client base, we are excited to publish this ground-breaking study from a recognised industry leader in political risk analysis. This new insight will provide another tool for Avonhurst clients to navigate uncertainty during the next phase of the pandemic.”

Are we headed for a new “roaring 20’s”? Which countries are in a better position to weather future crises in a pandemic age? Avonhurst has produced a report utilising our new proprietary, data-driven tool for assessing prospects for emerging from the pandemic and its aftermath in the world’s 30 largest economies. During this private conference call, we will share the highlights of our research and flag the risk factors and signals investors should be aware of.

Registered participants will receive early and exclusive access to the full report.

Please click HERE to register and receive instructions to add the event to your calendar and join the call. If you wish to join but are unable to, please respond to globalpoliticalstrategy@avonhurst.com, along with any questions and you will receive a link to the recording once it becomes available.

McLaren and the Tiller team connect demand to the best intelligence. Tiller is a trusted and connected network with recourse to hard-to-access information and authenticated insights. Furthermore, with a focus on not just analysing risk but also investigating and delivering commercial opportunities, he is well placed to assist Avonhurst across its unique blend of political strategy, legal advisory and capital services.  McLaren has a wide range of experience across media and communications, finance, intelligence and strategy.  

Jonathan Bloom, Chief Executive of Avonhurst, comments:  “We are excited to be joined by Tor McLaren as Senior Advisor. While we already have a top tier team that analyses macro trends and the impact on industry, with our sophisticated capital clients particularly focused on the risks and opportunities in deploying capital around the world, we thought it essential to bring on board the very best team to tackle challenging intelligence matters. Tor’s arrival further boosts an offering that was recently strengthened by the arrival of Dr Pippa Malmgren.”

McLaren is a founder of Tiller, a unique intelligence business which tackles complex challenges with hard-to-get access and is a former Partner of Nash Capital Group. Prior to that, he spent his career launching, acquiring and selling media businesses – including the launch of Australia’s Foxtel and Galaxy platforms – before returning to the UK to work for NBC Universal’s UK and EMEA television channels businesses as Director of Channels.

Bloom continues: "While Tina Fordham will continue to provide our clients the very best partner-level service in analysing macro trends, having Tor join us will further bolster the bespoke transaction services we provide to our sophisticated capital clients including private equity and credit funds, as well as asset managers and corporates.. Tor joins our other Senior Advisors including Dr Malmgren, Sean West, Lord Barwell and Lord Houghton.  With access to Tiller’s network, Avonhurst will further deepen its foundation to provide political risk / opportunity analysis across the globe.”

Listen to episode 3 here.

Avonhurst, dedicated to representing sophisticated capital, has attracted a raft of established talent since its launch in 2019, including leading figures from the political, financial and legal sectors such as partner and Head of Global Political Strategy, Tina Fordham (formerly of Citigroup), and senior advisors, Lord (Gavin) Barwell, tech entrepreneur Sean West, General, the Lord (Nick) Houghton and Andrew Dowler (formerly of Blackstone).

Comments Dr Pippa Malmgren:  "As Britain reconstructs its legal system, Post-Brexit, it is poised to benefit from the ancient trust in British Rule of Law and from having the most current and innovative legal infrastructure in the world. This is important, given the speed of technological change and the serious geopolitical issues in other parts of the world. Britain's legal system is seen as a safe haven for global businesses.

“Law is now a very fast-growing sector and Avonhurst has a truly innovative approach that solves client problems by combining legal advice, capital fundraising and deep policy/geopolitical knowledge. It is a privilege to join this strong team on some of the most important issues clients face as the world economy emerges from the pandemic."

Fordham concurs: “I am looking forward to working with Pippa to help Avonhurst clients navigate an unprecedented set of challenges in the global political, economic and investment environment.

She will add strategic depth and further perspective to Avonhurst’s best-in-class Global Political Strategy team.”

Jonathan Bloom, Chief Executive of Avonhurst, comments:  “We are delighted to be joined by Pippa. She brings simple sensemaking to the complexities of the world economy, geopolitics and technology. She has advised Presidents and Prime Ministers and has significant experience working in tech, finance and asset management. This enables her to provide the kind of informed, real-world insight that enables our clients to see beyond the Brexit pessimism to take advantage of the opportunities offered in the new political and economic landscape.”

A best-selling author, Dr Malmgren’s books include Signals: How Everyday Signs Can Help Us Navigate the World’s Turbulent Economy, and (with Chris Lewis) The Leadership Lab (2019 Business Book of the Year and winner of The International Press Award) and The Infinite Leader. She has also been named a leading Woman in Tech by We Are Tech Women and in the top 50 Women in Tech by AccelerateHer.  She has been a judge in The Queen’s Enterprise Awards competition and lectured at Sandhurst, Duke Fuqua GEMBA, INSEAD, UT Austin and Tsinghua University in Beijing.

Listen to episode 2 here.

There is an accompanying presentation in PDF format here.

Phenna Group is a UK head-quartered business focused on the testing, inspection, compliance and certification (TICC) sector, with operations in United Kingdom, United States, Ireland and Australia.

These acquisitions continue Phenna Group’s impressive expansion and strong start to the year, following the completion of its partnership deal with Inflexion which Avonhurst also advised on.

Emmanuel Amos, corporate partner, comments:  “We are delighted to have advised Phenna Group on its acquisition of Facit Testing and MATtest Southern which strongly complement its existing business lines. We look forward to seeing these businesses grow further under Phenna Group’s unique business model.”

Jonathan Bloom, Chief Executive of Avonhurst, comments:  “We are privileged to have supported Phenna Group in its exciting growth to date and look forward to that continuing. These transactions further evidence our ability to deliver advice to our sophisticated capital clients that is both holistic and commercial.”

Emmanuel Amos led the Avonhurst team, which consisted of senior associate Joshua Swerner, associate Tanya Macrae and trainee Jennifer Falconer-Hall.

Listen to the podcast here.

Watch the video here.

Listen to episode 1 here.

Watch the video here.

The matter was led for Avonhurst by finance and structuring expert, partner James Wyatt, working with associate Katja Loncaric and trainee Jennifer Falconer Hall. CMS acted as legal advisor to EBRD.

Bernhard Engel, CEO of AxFina Holding SA, comments:

“We were very pleased to work with Avonhurst on this transaction. James and Katja delivered one of the most professional legal performances I have seen to date – lean, swift and on spot.

“AxFina brings the latest in servicing, rationalization and digitization to its core markets, providing its financial sector clients with efficiency, cost savings and expert support. The ERBD investment will make a significant contribution to accelerating our development and expansion in the CEE/SEE region.”

James Wyatt, Avonhurst partner, comments:

“We are delighted to have advised AxFina and to have assisted them and the EBRD in reaching exchange, on schedule. We were able to draw on our cross-practice corporate and finance expertise, our deep sectoral knowledge covering fintech and special situations, as well as on our experience acting for, and across the table from, multilateral finance institutions like the EBRD in developing markets. This adds to the growing roster of transactions on which Avonhurst has advised relating to cutting edge financial services platforms.”

Jonathan Bloom, Chief Executive of Avonhurst, comments:

“As this challenging year draws to a close, we continue to support our sophisticated capital client base as they navigate these uncertain times. We founded Avonhurst last year because we believed there was an increasing demand from such clients for joined up, bespoke advice that spans legal, legislative / political risk advisory and capital services, but we could not have known then just how prescient that decision would turn out to be.

“Throughout 2020, our specialist expertise has been increasingly in demand not just in corporate business, but also in restructuring, real estate, banking and political risk. The attractiveness of our offering is illustrated by the fact that while many firms have contracted or stagnated, we have grown with a number of key hires. We look forward to entering 2021 in a stronger position than ever to assist our clients as we emerge into a dramatically changed economic and political landscape.”

Corporate partner Emmanuel Amos led the Avonhurst team, which consisted of senior associate Joshua Swerner, associate Tanya Macrae and trainee Jennifer Falconer-Hall. Wallace Corporate Counsel provided Irish law advice. This transaction further adds to Avonhurst’s extensive experience in advising on transactions involving business services.

Emmanuel Amos, Corporate partner, comments:

“We are delighted to have advised Phenna Group on its investment in ASM Group, which will further enhance its impressive growth in the Irish TICC market.”

Jonathan Bloom, Chief Executive of Avonhurst, comments:

“We are pleased to have advised Phenna Group on another transaction. This matter is another example of how we are helping our clients navigate – and indeed thrive in – these extraordinary times.

We are ideally placed to help clients with both the challenges and opportunities thrown up by the current climate and are seeing continued activity in national and international corporate business matters.”

Key takeaways include:

•  The interaction of populism and the anti-vax movement could delay pandemic response in the U.S. and Europe by more than is current anticipated.

•  The erosion of U.S. soft power has led countries to repeatedly test the limits of the country’s commitments and strength around the world. China is a rising power and competitor, while Russia is the spoiler in this trend. Watch Taiwan and Eastern Europe for potentially negative surprises.

•  Populism will ebb for a time because populist leaders were ill-equipped to deal with the pandemic, being largely anti-expertise and anti-science. But it is only a recession away from resurging—and potentially in a more virulent strain.

•  Middle East outlook is mixed with some positive trends emerging. A restart of the Iran nuclear accord is high on Biden’s list of priorities. The breakout of peace between Israel and the UAE is one of the Trump Administration’s success stories. Normalisation with Saudi is politically difficult, but ties are thawing.

 •  Brexit could take longer to play out than expected; recent comments from the Bank of England have underscored the fact that Brexit’s negative economic impact could be worse than that of the pandemic. The two together are an economic double-whammy.

We hope you find the views insightful.

We have limited spaces available for an introductory 2021 Global Political Outlook briefing during the week of 7th December. If this is of interest, or to learn more about Avonhurst’s Global Political Strategy services, please contact Jonathan Krinks, Head of Sales for Global Political Strategy, at jonathan.krinks@avonhurst.com.

Pandemic, U.S. Election and Post-Trump Populism

Financial markets have taken the Trump Administration’s legal challenges to the election results in stride because few are surprised that the election has been contested. Biden’s robust victory margin means he will be inaugurated on January 20, though this will be the most unusual and disruptive “lame duck” period in modern US history.

The bigger risk for investors is that a difficult transition undermines the U.S. government’s effort to fight the intensifying pandemic. A few months’ delay in sharing information, coordinating the transition, and setting up systems to deliver the vaccine will significantly impact fatalities and the policy response. Near term, it also makes it tougher to get much-needed fiscal stimulus to offset pandemic headwinds until vaccine uptake is widespread.

Markets have been able to look beyond the pandemic and focus on good vaccine news. This assumes the government will have a competent rollout. The U.S. has among the best systems and capacity for pandemic assessment and response. Yet all that wealth, innovation and technology has not helped. That does not just reflect a lack of leadership, it is also a lack of investment in crisis response capacity.

Finally, populism poses a risk that the developed world will take longer to recover from the pandemic that we expect, because of the movement’s links to the alarming acceleration of the anti-vax movement. As many as 50% of Americans say they will not take a vaccine. For example, Nigel Farage, who gave us UKIP and the demand for the EU Referendum, has founded a new political party with the anti-mask movement at its core.  Populist leaders and movements are accelerating that mistrust in large European countries like Italy and Germany.

The wave of populism will ebb and flow, but it brings up broader issues than just a slower pandemic response. Its leaders have looked incompetent in the pandemic crisis, with their mistrust of scientific expertise, unwillingness to mandate mask-wearing and sympathy with the anti-vax and anti-science movement.

But populists morph and adapt. They can take the issue du jour and mix it with the usual grievances. The universal element of populism is the differentiation between the “real, authentic” people who perceive themselves to be abused by elites—political, academic, media and/or business-- who have rigged the system to their own benefit. It is a latent set of beliefs that coalesce around mistrust of elites, mistrust of expertise, and the notion that the system is rigged. A charismatic leader can manipulate and galvanize this latent force, especially in the context of a recession—particularly where blue and white-collar worked are negatively impacted.  

US-China Policy

The US-China trade war was disruptive, resulting in a major catalyst for market volatility. Global investors and political leaders will get a more predictable, even boring, foreign and trade policy under Biden, without much strategic change. Historically, Democrats are linked with labour, pressuring China over unfair labour practices and human rights as well as threatening to label the country a currency manipulator. That is a newer development for Republicans. President-Elect Biden will continue to talk tough on China, but without Trump-style, personality-dependent destabilizing tactics. During the George W. Bush administration, Hank Paulson led the strategic and economic dialogue, continuing through the two terms of the Obama administration. Look for that kind of peer to peer format between US and Chinese officials at the Treasury and State department levels to help manage relations in a more consistent and clearly communicated way.

The Trump strategy has been tactical, but European and Japanese policymakers are privately pleased that he took the flack for getting tough with China. This suggests that a Biden administration will find it easy to restore natural alliances with many countries that have gripes with China. It would be pushing on an open door. The Obama administration was on the cusp of signing the Trans-Pacific Partnership agreement that called for trade, security and other kinds of collaboration, which was immediately torpedoed by the Trump administration. Of course, Biden must walk the line between being pro-free trade and its labour constituency. But free trade is appealing in a slow growth environment. It may surprise many that US public support for free trade has gone up markedly during the first Trump term.

The risk investors ignore is what China can do; during the course of its stated strategy of “peaceful rise” Beijing has been quite constrained—until recently. The Chinese are getting more expressive about their unhappiness with external interference, not just in their internal affairs, but regionally. Just last week, they criticized perceived interference in Hong Kong and the pro-democracy protests. Do not ignore 20th century style geopolitical tail risks like a confrontation in the Straits of Taiwan, or other measures to change the facts on the ground in the region, to test the Biden Administration’s military red lines, which did not happen during the Obama administration. To expose the United States’ security umbrella as a “paper tiger” would be a huge transformational development, and it could happen by accident.

Risks from Eroding U.S. Soft Power

More generally, the U.S. hegemony as the sole military superpower is ending. It is no coincidence that a number of frozen conflicts have relapsed, like Armenia-Azerbaijan, Ethiopia and Morocco-Algeria. By themselves, these conflicts are not worrisome for investors, but they hold insights for conflict in a world where the hegemon is losing control, and for the future of conflict in the 21st century.

One of the consequences of this erosion of US soft power and hard power is that more countries will test US resolve and act without asking for Washington’s blessing. And over time, there is a change in the facts on the ground and in expectations, and it means that the trend of “rules of the game” eroding becomes more evident, until there is a more significant challenge. They’re just going to keep testing, and testing, and testing. The Armenia-Azerbaijan resolution was a territorial power grab. Turkey, a NATO member-state, supported the Azerbaijan military against the Russian-backed Armenian military which also involved the use of drones. That success might encourage Turkish designs in the Eastern Mediterranean, where there are gas fields involved.

Contrast this with the conflict in Ukraine, which was perceived as threatening Russian interests and led to Russia annexing Crimea, the most important strategic bit of Ukraine, at the risk of spurring an anti-Russian backlash. That didn’t impact markets because Ukraine is not a NATO member-state, and therefore Article 5 protection doesn’t come into play, but it has resulted in sanctions against Russia that continue to this day as well as the worst decline in relations between Russia and the west since the collapse of the Soviet Union.

What if there is a Crimea-style event, but involving a country that was explicitly under Western or US security umbrella, which is why I raised the idea of an attack or a confrontation in the straits of Taiwan? There have been historic guarantees by Washington to protect Taiwan if attacked by China. Taiwan has been under increasing pressure in recent years. And so a big question becomes, if there were to be a security incident involving Taiwan, would Washington make good on its promise? Because if it did not, it would matter for regional security across Asia, not just Taiwan, by signalling that China is the regional hegemon. This is what drives foreign security policy and how we assess when conflicts or skirmishes or confrontations have the potential to spill over from minor regional conflicts to systemically significant ones.

China is a strategic competitor, but Russia is a spoiler. I started my career as a post-Soviet expert and a student of the post-communist transitions. Putin’s leadership over this extended period has evolved. We had the Putin Era when Russia joined the G8 and the WTO. But since 2008, with conflicts in Georgia and then Ukraine, leading to sanctions, Russia has had a strained relationship with the West. Plus, Russia is under further pressures because of lower oil prices and diminishing economic power, unlike China.

The Kremlin has always wanted to avoid aligning more closely with China, bringing the risk that Russia just supplies raw materials to a rising China. But China and Russia share the overarching ambition to be regional hegemons in their space. That raises the spectre of further territorial grabs, such as eastern Estonia, if there were to be some confrontation between Russian speakers, the Russian minority in the Baltic States. The Baltic States are NATO and EU member states. Would there be a confrontation, or would Russia be allowed to change the facts on the ground, which would redraw of the map?

On the positive side, the Middle East is looking better. There are warmer relations between Israel and the Gulf states. Looking forward, the Biden Administration could by executive order return to the P5+1 nuclear agreement. Iran was relatively well-behaved and has been hit hard by the pandemic. Look for the continuation of low-intensity conflict in a number of countries, such as Iraq, Syria and Lebanon, but improved prospects for regional trade and commerce, and kind of breaking down some of these barriers that have really held the region back.

Brexit

The end game is approaching after four years of Brexit Groundhog Day. Investors have been complacent, because every few days another deadline passes without a calamity. Most observers and UK investors expect a “skinny deal”, a narrow set of agreements to paper over the worst, but not a properly developed agreement.

The risk that investors are not even discussing is that Johnson’s government delays Brexit because of “extraordinary circumstances”, blaming it on the pandemic. Consider the political shifts since Boris Johnson won a landslide victory in January with a mandate to get Brexit done. There have been 50,000 coronavirus deaths, public finances are strapped, and the prime minister has appeared incompetent. Brexit is the world’s most prominent example of voluntary de-globalization in history, carrying risks for the world as well as a stress test for the UK government. His government came to power with a mandate of “getting Brexit done”, but they didn’t bargain for a global pandemic.

Big Picture Trends

Watch for below-the-radar pivotal developments, even if they are not immediately market-moving. Anything that changes the facts on the ground from a territorial perspective has the potential to lead to further escalation or confrontation.

Geopolitics refers to states projecting power beyond their borders. Increasingly, countries are not projecting their geopolitical power through hard power, state-to-state conflicts, even though they continue their military build-up. Political tension and conflict are increasingly conducted through cyber avenues, like election interference, misinformation, disinformation and propaganda as well as the use of drones and sanctions.

The avenues have changed, but the bigger question is how the current set of leaders decides to project that power. Investors underestimate what China might do to be opportunistic. It is a rising power. It is not inclined toward military conflict, but it is starting to become more assertive in its region and is also investing hugely in its military capabilities.

Consider this a flashing red light for investors. Political leadership, consensus and capacity are fragmented. Right now, the pronounced disconnect between politics, economics, and market performance is a warning signal. Almost wherever we look, we have poor leadership and state capacity to respond to the threats we are experiencing, even in the wealthiest countries in the world. It turns out that the wrong type of crisis was anticipated.

Second, I advise clients not to think about political outcomes in binary terms, that if the red guy or the blue guy wins, that outcome therefore implies a specific set of pro- or anti-market policies. Increasingly, people are not loyal to political parties. They switch all the time. In the US case, that is evident in the continual rise in the number of registered Independents, some of whom might, for example, vote specifically for Trump rather than for Republicans in general.

This leads to what I call political cross-dressing; in other words the mixing of policies from the left and the right in new ways. Trumpism has very little in common with the traditional Republican ideology of free trade and free markets. It’s a mix of some aspects, like lowering taxes, and with protectionism and government intervention.

The obsession with elections and election outcomes is a red herring to anticipate where policy is headed. Look at sentiment, not investor but human sentiment; public opinion, trends and changes in what I called the demand side of the political equation. So, what the public wants, the grassroots, the bottom up, not just what the leader says they will do. We must track public opinion, demographics, the increasing pressure on corporates, for example, to do more to address inequalities and these kinds of things. Because those factors are going to be what slowly, but surely, changes the investment environment over time.

US Elections

A few final comments on the U.S. elections. Most of the ambitious, progressive Biden agenda will not happen if, as seems likely, Republicans win at least one of the two remaining Senate seats in Georgia’s January 5 runoff elections. On the plus side for investors, the Trump tax cuts will stay in place and re-regulation will be limited. The downside is that Democrat-funded stimulus, including much-needed infrastructure spending, also will be minimized. Suddenly, Republicans are getting religion again on deficits and the Tea Party phenomenon will come out of a 4-year deep freeze in time to clip Biden’s wings spending.

Elsewhere, look for the status quo to rule. The Biden Administration will rejoin the COP21 Paris Agreement on climate change, but a Green New Deal faces tough hurdles, as will reinstating Dodd-Frank and financial services reregulation. The Biden Administration is unlikely to reward progressives with high-level appointments for Senators Warren or Sanders, which would spook markets. Good news for banks, energy and pharma, but it also points to a weak presidency and lack of pro-growth or equality-oriented agenda.

Big tech regulation will take time. Tech is complicated and many in Congress do not understand the nuances. The technical competence and quality of EU competition commissioners is absent in Congress.

Looking further out, investors underestimate the normalization of extreme tactics and erosion of democratic norms. We may never have a normal US election again, with every election contested and months before handovers. This raises the odds of policy errors and miscalculations that will shock financial markets.

 Tina Fordham Partner & Head, Global Political Strategy E: tina.fordham@avonhurst.com

Avonhurst Global Political Strategy E: globalpoliticalstrategy@avonhurst.com

Avonhurst 70 Pall Mall, London SW1Y 5ES

About Us // Avonhurst’s political strategy services team has extensive experience in analysing geopolitical risk, macro-economic outlook, political affairs and deal-specific transactional risk. We are able to provide a holistic approach which not only highlights issues to consider, but provides solutions to political and related legal challenges.

Tina Fordham is a leading thinker and practitionerin the field of global political analysis for financial markets, with over twodecades’ experience advisinginstitutional investors, corporate boards and international organisations..

Avonhurst is a political and legal advisory firm that serves the need of sophisticated capital with services ranging from research, consultancy and structuring to deal execution.

This note does not constitute legal advice and may not be relied on.

The portfolio was purchased by Verdam Limited with Salary Finance Limited acting as the Servicer. The transaction represented a return to the existing lenders to Huddle Finance 2 and added a new type of asset to BCI’s investment portfolio, whilst providing a new structured and management solution for the underlying loan book. Finance partner Ian Frost led on the matter with assistance from Senior Associate Rafael Serrano, Associate Oliver Elsaesser and Trainee Jennifer Falconer-Hall.

Sam Kemp, MD at BCI

“The structure of this transaction and the nature of the underlying loans are a very good illustration of the type of deal we like to get involved in at BCI. Partnering with Salary Finance we were able to get comfortable with the ongoing servicing of this loan book and giving us the opportunity to continue to enhance consumer well-being. Avonhurst were a fantastic partner in helping us to manage the multiple stakeholders involved in this transaction and bring it to a close within a particularly tight timeframe.”

Ian Frost, Finance partner, comments:

“We are proud to have acted for BCI in this financing. This matter represents part of our continued engagement in designing bespoke capital structures for alternative capital providers to invest in asset-based lending. It further shows that even in the current climate, deals are being done and that we continue to advise a growing roster of clients on their most strategic matters.”

Jonathan Bloom, Chief Executive of Avonhurst, comments:

“This is further illustration that in these challenging times the Avonhurst offering – that of joined up, bespoke advice that spans legal, legislative / political risk advisory and capital services – is one that is increasingly sought out by sophisticated capital clients. While we are seeing continued activity in corporate business, we are increasingly in demand for advice on restructuring, real estate, banking and political risk. This is a trend we expect to continue as clients turn to us to help them navigate both the challenges and opportunities of this extraordinary time.”

The UK government today (11 November 2020) introduced the long-awaited UK National Security and Investment Bill (the NSI BiIl), which sets out sweeping changes to the UK’s approach to foreign investment screening and establishes a new regime for transactions with a UK nexus.[1]

Mandatory filings in key sectors

The NSI Bill provides for a dual system for UK review of foreign investments with a UK nexus, with mandatory or voluntary notification of takeovers, mergers and other significant transactions, depending on the sector.

Mandatory notifications will be required for certain investments, treated as “trigger events” (see below), in 17 critical national infrastructure and technology sectors. These are advanced materials; advanced robotics; artificial intelligence; civil nuclear; communications; computing hardware; critical suppliers to government; or to the emergency services; cryptographic authentication; data infrastructure; defence; energy; engineering biology; military and dual use; quantum technologies; satellite and space technologies; and transport. The UK government has launched a consultation on how the 17 sectors should be defined, which is scheduled to conclude on 6 January 2021.[2] 

Outside these sectors, transactions which have potential implications for UK national security may be voluntarily notified by the parties or called in for review by the Investment Security Unit (ISU), the new UK governmental authority that will be established to assess them. The new regime is flexible – the list of sectors requiring mandatory notification will be subject to change.

Five year or indefinite retroactive review

Crucially, for transactions taking place on or after 12 November 2020, the NSI Bill will give the ISU retrospective review powers, to be used within 6 months of the Secretary of State becoming aware of the trigger event. Ultimately, the Secretary of State will be able to look back five years for transactions meeting the voluntary notification criteria. This five year time limit does not apply for transactions meeting the mandatory notification criteria – there will be no “safe harbour” for such transactions, from 12 November 2020 on.

In practice, from 12 November 2020, to ensure deal certainty, parties will need to consider whether any trigger event with a UK nexus and involving a non-UK investor should be notified to the ISU for review, given its broad ability to initiate retroactive reviews.

Types of transaction covered

As stated, the new regime applies to “trigger events”. In the 17 sensitive sectors, mandatory notification will be required for acquisitions resulting in holdings crossing thresholds of 25%, 50% or 75% of the shares or voting rights, or voting rights which enable or prevent the passing of any resolution. Acquisitions of over 15% in any of the 17 sectors will also require mandatory notification so that the ISU can assess whether a trigger event will take place.[3]

In addition, trigger events for a voluntary notification include:

1.      acquisitions of “material influence”, where there are potential implications for national security. Material influence (a concept used in UK merger control) is assumed to apply in acquiring a direct or indirect shareholding of over 25%, but it can apply at lower levels (including under 15%); and

2.      acquisitions of assets, including real estate other physical assets or intellectual property. The UK government states that it is “primarily interested in assets that are integral to a sensitive entity’s activities”. As an example, it gives a “recently created communications app”.[4]

Unlike under the current rules, there are no minimum market share or turnover thresholds – so even very small transactions may be caught. Examples could include venture capital investments in new and emerging entities/technologies.

30 day initial review, with possible extensions

The NSI Bill provides for a 30 working day period for the ISU’s review of a transaction, with a possible 45 working day extension (and further extensions as needed). The ISU will be a new unit within the Department for Business, Energy and Industrial Strategy, responsible for reviewing all notifications under the new NSI law. This is a welcome change from the current position, which entails a cumbersome process involving the UK’s Competition and Markets Authority (CMA), an antitrust and consumer protection regulator.

Transactions that are subject to mandatory notification may not take place until the ISU has provided clearance (see below regarding penalties for breach of notification and standstill requirements).

Following review, the ISU may clear a transaction unconditionally or with conditions attached, or block the transaction from proceeding altogether. Completed transactions can be unwound.

Substantive review

The UK government states that the focus of the review will be on:

1.      the “target risk” – the nature of the target and whether it is in an area of the UK economy where the government considers risks more likely to arise;

2.      the “trigger event risk” – the type and level of control being acquired and how this could be used in practice; and

3.      the “acquirer risk” – the extent to which the acquirer raises national security concerns.

Strong sanctions for breach

The new powers are backed by strong criminal and civil sanctions for individuals and businesses in breach of the new regime. For individuals, the sanctions can include imprisonment for up to five years and fines of up to GBP 10 million, and for businesses fines of up to 5% of worldwide turnover or GBP 10 million (whichever is higher).

Where a transaction breaches the mandatory notification requirements – whether by failure to notify the ISU or by completion without obtaining clearance – it will be void. As stated, the ISU will have the power to unwind completed transactions.

Timing

If the NSI Bill is passed, as expected, the new powers will apply retroactively to all transactions entered into on or after 12 November 2020. Once the NSI Bill is enacted, the Secretary of State will be able to call in a transaction for review within six months of the date on which it becomes aware of the trigger event.

Political context – concern over hostile states, magnified by Covid-19 pandemic

As flagged in our previous publications on this topic, the proposed new FDI regime comes in the context of widespread concern in Western countries over the possibility that “hostile actors” may take advantage of the economic deterioration caused by the Covid-19 virus.

The UK government states that the “context has changed significantly” since it initially began looking at reform of UK foreign investment screening. A 2018 White Paper envisaged a system of voluntary notifications with only a six month look-back period. Following a lack of progress on the 2018 proposals, emergency interim changes were made to UK laws relating to foreign investment in 2018 and 2020 to provide for greater powers to review transactions in six sectors viewed as particularly sensitive. These were interim measures pending the introduction of a comprehensive new regime.

Following further review and consultation, including the 2020 Integrated Review of Security, Defence and Foreign Policy, the UK government has determined that the 2018 White Paper proposals,

“…do not go far enough… nor [do they] reflect the full gravity of the current situation. In particular, they do not do enough to prevent the few determined hostile actors from evading scrutiny and acquiring critical businesses or assets under the radar.”[5]

The UK government’s statements surrounding the NSI Bill reveal several concerns, but primarily the ability of hostile actors to obtain key technologies, assets and access – hence the extension of the new measures to asset acquisitions, including certain acquisitions of strategic real estate and intellectual property. The UK government refers to geopolitical trends including “intensifying great power competition, an increasingly complex global economy; and sweeping technological changes that… increases the agency of non-state actors”.[6]

As noted, the threat to UK national security through foreign ownership of UK assets is perceived to have worsened, including as a result of the Covid-19 pandemic. Referring to the “myriad challenges the Government and businesses now face”, the UK government states that businesses in financial distress may “become more susceptible to rapid and potentially concerning takeovers.”[7] There is a concern to ensure that no state gains unduly from economic disruption caused by the virus. Investment from China in particular can be expected to receive increased scrutiny. The fact that China appears to be recovering from the pandemic better than most Western countries may also influence the government’s position. 

Avonhurst is a political and legal advisory firm that serves the need of sophisticated capital with services ranging from research, consultancy and structuring to deal execution.

This note does not constitute legal advice and may not be relied on.

[1] National Security and Investment Bill, https://publications.parliament.uk/pa/bills/cbill/58-01/0210/20210.pdf.

[2] National Security and Investment: Sectors in Scope of the Mandatory Regime – Consultation on secondary legislation to define the sectors subject to mandatory notification in the National Security and Investment Bill 2020 – https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/934326/nsi-mandatory-notification-sectors-consultation.pdf.

[3] National Security and Investment White Paper: Government response to the consultation (11 November 2020), paras 70-74.

[4] UK Government Policy paper, Statement of Policy Intent (11 November 2020) –   https://www.gov.uk/government/publications/national-security-and-investment-bill-2020/statement-of-policy-intent.

[5] National Security and Investment White Paper: Government response to the consultation (11 November 2020), para 44.

[6] Ibid, para 39.

[7] Ibid, para 41.

Corporate partner Emmanuel Amos led the Avonhurst team, which consisted of senior associate Joshua Swerner, associate Tanya Macrae and trainee Jennifer Falconer-Hall. This transaction further adds to Avonhurst’s extensive experience in advising on transactions involving business services.

Emmanuel Amos, Corporate partner, comments:

“We are proud to have advised Phenna Group’s management team on this key transaction. Inflexion’s agreed minority investment in the business will further assist its already impressive growth to date. This is exactly the kind of transaction that Avonhurst’s clients entrust us with, and it also shows that the right kinds of deals are still being done by willing parties.”

Jonathan Bloom, Chief Executive of Avonhurst, comments:

“When Avonhurst was founded last July, we could not have foreseen just how prescient it was to create a firm that catered to the needs of sophisticated capital clients by offering joined up, bespoke advice that spanned legal, legislative / political risk advisory and capital services. We are ideally placed to help these clients with the extraordinary challenges of the current climate – and the strength of our offering is reflected in the fact that we continue to grow at a time when many firms are struggling. We are seeing continued activity in corporate business and are increasingly in demand for advice on restructuring, real estate, banking and political risk, and expect to see this trend continue.”

Watch the video here.

Listen to the podcast here.

Even in the post-superpower era, US elections are the most-followed global political event for market participants. 

In this extraordinary year, fears of delays and legal challenges have driven volatility, while the ghosts of 2016’s polling failure undermine confidence in forecasting methods. Conspiracy theories abound: Trump’s diagnosis is a hoax, designed to boost sympathy. Or conversely, a staged “speedy recovery” would serve to justify pandemic scepticism. 

The fact that such theories have entered the mainstream dialogue for sophisticated investors highlights how far trust has plummeted —heightening the risk of a market surprise. 

US elections are unlikely to resolve this political uncertainty, but they can help clarify the direction of travel.

The conventional wisdom surrounding US elections and financial market impact is closer to superstition than fact. Republican victories are good for the S&P and keep the US deficit low, while Democrats are the party of tax and spend — the thinking goes. 

These tired stereotypes largely reflect the Reagan-era political and generational biases of Wall Street itself. Now, the most important policies for investors are not set by the White House, but by the US Federal Reserve. And in an environment where political ideology has become blurred and the terms “left” and “right” mean less, the most important policy driver is public opinion — the Vox Populi — not party affiliation.

Perhaps the most important variable in the final weeks of the race is also the least “knowable”: President Trump’s medical condition and his capacity to continue campaigning. Even so, a postponement of the election is highly unlikely, given that early voting has been taking place for weeks, and would also require agreement by a divided Congress. 

So the US election is likely to proceed on 3 November with the current ticket, but with more attention than usual to the VP candidates, making tonight’s debate between Kamala Harris and Mike Pence considerably more consequential. The rate of “October surprises” has been fast and furious, with room for more to come.

Although the risk of an “election malfunction” is higher than ever, the peculiarities of the US electoral college and timeline for reporting means that a result on election night is the still most likely outcome. 

President Trump retains a path to victory, especially if he can win electoral college vote-heavy Florida and Ohio. However the momentum is not going in Trump’s direction — between Joe Biden’s sizeable post-debate polling bounce and the anaemic state of the US recovery. 

More plausible — and, indeed, what prediction markets are currently anticipating, is a Biden victory. But in order to avoid a disputed outcome, Biden cannot simply win — the margin of victory would need to be sizeable, and consolidated fairly early in the process. The worst outcome from a market perspective would be a close victory by either candidate, which would pave the way for delays and a possible Supreme Court challenge — a court that is currently split 4-4 as the confirmation of Amy Coney Barrett has yet to take place.  

With expectations for a legitimate US election and peaceful transfer of power so low, any clear result is likely to trigger a relief rally in markets. Despite financial markets’ historic suspicion of Democratic presidents, in the new normal, a Biden victory is less likely to cause a sell-off, mainly because it is what investors are expecting, but also because of a shift in perception. The “plain vanilla” Democrat Biden is perceived to be is less likely to inflame global trade tensions and can be expected to return the White House to a more predictable policy trajectory.  

The bigger mark of a change in trend from Wall Street would come in the event of a “clean sweep” victory for Democrats in the White House and control over Congress. Historically, this outcome would trigger spending fears, but in the current context, a congressional majority would mean that pandemic-fighting legislation is more likely to pass, reducing the risk of future market meltdowns.

This article first appeared in City AM.

LONDON – Avonhurst continues to build on its stellar first year with the announcement of a new hire, a Partner promotion and awards recognition as a finalist for the FT and the British Legal Awards 2020. Business Development expert Sophie Davies joins the firm as Head of Client Relationships from real estate law specialists Davitt Jones Bould, the national law firm where she has worked for the last seven years. She is the latest in a series of key hires for the firm, which celebrated its first anniversary in July. One of these hires, high yield and distressed debt specialist Albert Aharonian (formerly of Milbank and Paul Hastings) will be promoted from Senior Associate to Partner as of 1st October 2020.

The firm also celebrated a major award recognition, having been named as a finalist at The Financial Times Innovative Lawyer Awards, which were announced last night, 1 October. The firm was nominated in the Innovative Team category. This is the second time Avonhurst has been recognised by awards judges, having also been named as a finalist in the British Legal Awards for Boutique Law Firm of the Year 2020.

Launched in July last year, Avonhurst is a political strategy and legal advisory firm dedicated to representing sophisticated capital. It has already attracted a raft of established talent, including six partner hires – mostly from magic circle firms – as well as hiring leading figures from the political, financial and legal sectors as senior advisors, including Lord (Gavin) Barwell, tech entrepreneur Sean West, General, the Lord (Nick) Houghton, Blackstone’s Andrew Dowler and Tina Fordham, formerly of Citigroup. 

Jonathan Bloom, Chief Executive of Avonhurst, comments: 

“We are delighted to celebrate a banner week for Avonhurst with the arrival of Sophie Davies, the promotion of Albert Aharonian and our recognition in the FT Innovative Lawyers Awards.

“We were also extremely proud to be recognised in the FT Innovative Lawyers Awards. For a firm that is not yet two years old even to be nominated is a considerable achievement, and we are delighted to see our commitment to innovation reflected by such prestigious and forward-facing awards.

“An experienced Business Development professional with particular expertise in the real estate sector, Sophie has an established track record of working with major property development, management and investment companies as well as with government departments, local authorities and other law firms. This broad spectrum of experience will be invaluable as she works with our clients on real estate transactions across both our legal and capital services. 

“Albert’s promotion is in recognition of the valuable contributions he has made to the firm since his arrival, supporting our sophisticated capital clients in the high yield and distressed debt spheres. It also reflects that Avonhurst is committed to strategic growth not just through hiring the very best talent in the market, but also through nurturing and developing that talent.”

October Surprise

The news that President Trump has been diagnosed with COVID-19, coming just over a month before Election Day November 3rd, is the kind of development that illustrates the meaning of the term “October Surprise”. The impact upon voting behaviour of such a wild card event transpiring so near to an election is historically extremely difficult to gauge.

It will be several days before new, post-diagnosis polling data is available and election forecasters have attempted to re-weight their model variables. Meanwhile financial markets have immediately reacted to the news, with the VIX volatility index rising 8% this morning. With many clients seeking answers to questions now, I lay out the main points about procedure and take some initial views about impact based on my historical experience assessing outcomes of US elections.

Major setback for Trump re-election campaign:

In a race dominated by the president’s pandemic response, this development is a major setback. Given the high US death toll and the pandemic’s continued impact on the US economy and jobs outlook, compounded by criticism over Trump’s perceived inconsistencies over the seriousness of the pandemic, the diagnosis comes at a bad time.

Trump’s hopes of being able to demonstrate an economic recovery and announce the availability of a vaccine before the elections now looks virtually impossible. Many Avonhurst clients have asked about the potential for Trump to be the beneficiary of a “sympathy factor”, as happened when UK PM Boris Johnson fell ill with the virus and saw a temporary boost in his approval ratings.

I see this as unlikely in the current circumstances, and note that the polling in the race has held quite steady for several weeks now and the number of “undecided” voters is extremely small. In short, the case for a Biden victory has strengthened. 

Election Day unlikely to be postponed, but legitimacy of outcome more likely to be questioned:

Although quarantining will clearly restrict the Trump ability to campaign (Biden may also decide to quarantine), it is virtually impossible for a US president order a halt to elections. Doing so would have to be via a Congressional order, which I regard as highly unlikely, despite the extraordinary circumstances. It is quite plausible that both campaigns suspend in-person events; nevertheless, Twitter and other means remain available tools to campaigns even if traditional rallies can’t go forward.

With so few days to go, final fundraising efforts (or the lack of them) are unlikely to move the needle on the outcome. At this early stage, we should expect the elections to proceed November 3rd on the basis of the current Republican ticket for President and VP. The risk that the ultimate outcome of the election is disputed—potentially by both sides- has also increased markedly in my view.

Distortions to turnout projections are also likely, as the effect of the US president himself becoming ill may deter voters from going to the polls. Prior to this development, forecasters suggest the highest US election turnout modern history. Nevertheless, the potential for a re-run remains low.

Succession protocols

According to the US Constitution, if President Trump becomes incapacitated and is deemed unable to fulfil the responsibilities of office between now and January 20th (or thereafter if he is re-elected), Vice President Pence would take over as acting Commander-in-Chief. Should they both become incapacitated, the Speaker of the House, Nancy Pelosi, takes over. With all this in mind, I expect that the state of the president’s condition will be closely guarded by his team and the White House press office. Note that even if Biden wins on November 3rd, Trump remains president until January 20th, 2021.

Phase 4 stimulus more likely, US recovery further postponed

The news of Trump’s diagnosis will likely send a chill through the US population—a significant proportion of whom reportedly believe the virus to be a hoax—as well as near-term expectations for a US economic rebound. However, I believe it increases the chances that Congress manages to overcome its divisions with respect to passing the next round of stimulus measures, which would be welcomed by markets. 

All eyes on the Veeps:

Coming on the back of a shambolic 1st presidential debate, Wednesday evening’s VP debate, usually a non-event in terms of its ability to impact election dynamics, takes on vastly more significance, given the increased likelihood that Pence or Harris could take on presidential responsibilities.

Given her performance in the Democratic primary debates and career history as a prosecutor, I think Kamala Harris will put in a strong performance and could see an advantage. Whether this changes the outlook for Democratic ticket is less clear; we have few modern parallels for this situation. But the competence of both VP candidates will be under a microscope.

LONDON- Ground-breaking advisory firm Avonhurst today announced the hire of partner Sonya Van de Graaff from Morrison Foerster.

Restructuring and insolvency expert Van de Graaff was a partner in Morrison Foerster’s London office for nearly five years, having previously been a partner at Schulte Roth & Zabel and Brown Rudnick. She also worked in-house at Bear Stearns International for six years following a stint in the Project Finance team at Allen & Overy. Avonhurst will also be joined by Senior Associate Rafael Serrano, who joins from Linklaters, where he was a Managing Associate in the London office, specialising in leveraged finance and restructuring.

Launched in July 2019, Avonhurst is a political strategy and legal advisory firm dedicated to representing sophisticated capital.  The seventh new partner to join the firm, Van de Graaff is the latest in a series of high-profile legal and advisory hires for the rapidly growing firm. These include former Freshfields partner Ian Frost, Linklaters’ James Wyatt, and former Milbank partner Laetitia Costa, as well as leading figures from the political, financial and legal sectors such as Lord (Gavin) Barwell, tech entrepreneur Sean West, General, the Lord (Nick) Houghton, Blackstone’s Andrew Dowler and Tina Fordham, formerly of Citigroup.

The arrival of Van de Graaf and Serrano builds on that of former Allen & Overy partner and financial restructuring specialist Carolyn Conner, who joined Avonhurst as Senior Advisor in July.

Jonathan Bloom, Chief Executive of Avonhurst, comments:

“We are delighted to welcome Sonya Van de Graaff and Rafael Serrano to the firm. Sonya brings nearly two decades’ experience of working in insolvency and restructuring, with a valuable combination of private practice and in-house experience. With a proven track record of advising funds, investors and other stakeholders in complex capital structures in domestic or cross-border restructurings, Sonya’s ability to identify and analyse distressed investment opportunities and develop innovative restructuring strategies is ideally suited to servicing the needs of our sophisticated capital clientele in the current climate. Rafael’s time at Linklaters included working on major international restructurings, and his appointment shows Avonhurst’s commitment to securing strong talent at every level – from partners and senior advisors to our more junior team.

Sonya and Rafael will be working alongside Senior Advisor Carolyn Conner, who honed her financial restructuring skills as partner at Allen & Overy, and together these new hires greatly enhance our offering in the restructuring and insolvency sphere. They are also evidence that Avonhurst is building on the stellar success of its first year with the kind of strategic, high level hiring that enables us to offer a holistic suite of advice to help our clients successfully navigate the demands of these unprecedented times.”

Watch the video here.

Use of the word “unprecedented” has skyrocketed during 2020. The global COVID-19 pandemic crisis (the “pandemic”) involves the convergence of major public health and severe economic crises. Hope for a swift recovery seems increasingly misplaced amid ongoing uncertainty and the likelihood of a return to “business as usual” this calendar year grows dimmer. However, market players cannot afford to wait for the dust to settle before making strategic decisions. In particular, General Counsels (“GCs”), CIOs, ICs and boards must adopt new tools to better anticipate fast-moving changes to the investment environment the pandemic has brought.

In this piece we draw together insights spanning global political strategy and law. We focus on trends likely to emerge from the pandemic and corresponding government responses in the UK, where the impact of Brexit operates as an additional wild card. We anticipate increased regulation and government intervention, as typically follows major crises, notably in economic intervention, creditor protection, economic nationalism and Environmental, Social and Governance (“ESG”) optimisation.

Although the pandemic could be beaten with a vaccine, history suggests that uncertainty and disruption stemming from a crisis of this magnitude has the potential to last for a decade or more.

Accelerating Trends and Trade Deals

A significant crisis tends to accelerate existing trends. Trends pre-dating the pandemic include pressure on global trade, low trust in government and institutions, political fragmentation and digitalisation. The 21st century has already had its share of “once-in-a-century” crises, including the 9/11 attacks and the GFC, each of which prompted numerous new regulations. Crucially, these tended to be limited to specific sectors, e.g. aviation, banking and insurance. The legislative agenda following the pandemic must address the fact that this crisis threatens even greater uncertainty and volatility than GFC or 9/11. 

A recession alone is likely to trigger a resurgence of populism, protectionism and economic nationalism, as public anxiety mounts over increasing unemployment and declining living standards. Unburdened by the stigma of a “bankers’ bail-out”, the government has implemented a swift and sweeping UK fiscal and monetary response to the pandemic, more decisively and broadly than it did after the GFC. We anticipate that future interventions will follow this trend and will span asset classes. We see a paradigm shift in the political landscape as voters demand protection against social and economic threats, overpowering concerns about immigration and sovereignty that sparked the Brexit vote in 2016. 

Recent decades of progress toward regulatory harmonisation are already being unwound: one of the most important causalities of the pandemic. Consequently, it is vital for GCs to have access to tools and to advice designed to facilitate closer tracking and monitoring of the intersection between politics, policy and law. 

The Brexit deadline on December 31st assumes greater significance against the backdrop of the pandemic. Many firms have been so preoccupied responding to the challenges that they have effectively stopped their Brexit preparations. If no (or a limited) trade deal is achieved, there is increased risk that the pandemic-induced economic recession will be exacerbated by reduced Brexit business planning. Although the mood music in the negotiations seems to be improving, no deal or limited trade deal remains a material risk. We are also skeptical about the prospects for a US-UK trade deal before year-end, as US elections in November become increasingly fraught, preoccupying the White House. 

The Return of the State—Economic Policy Turns Left 

A smaller role for the state and reduced intervention in financial markets and commerce has been the prevailing orthodoxy since the Reagan and Thatcher era, with subsequent “third way” governments on the left (Blair, Clinton) winning power in part by rejecting the more interventionist “big government” elements of their respective political parties’ historic policy platforms. The pandemic marks the end of that era, as governments across the political spectrum have moved with speed and a “big bazooka” to provide a buffer against the worst effects of the crisis. Big government is not only back, but the social, economic and public health implications of the pandemic suggest that the demand for a more robust safety net (and potentially a new social contract) will increase the stress on state capacity. 

UK government policy following the 2019 General Election was premised on the dual political offer of “getting Brexit done” and the “levelling up agenda”, intended to address widening regional income and attainment disparities. Both goals have been crowded out by the pandemic, with levels of public support for the government falling after an initial spike in approval. With the government compelled to expend most of its political capital in handling the pandemic, ministers remain under pressure to sustain the post-pandemic economy and address deeper social concerns. The enduring unpopularity of Cameron-era austerity politics means that continued government support for business will likely continue. Chancellor Rishi Sunak’s most recent measures (bailouts for the entertainment industry/back to work schemes) demonstrate this interventionist trend. 

Demand for such measures and continued industry and income support is likely to continue, despite recent encouragement by government for a return to work and for pre-pandemic consumer behavior. We observe the following noteworthy themes: 

Taxation: the new support measures need to be paid for (borrowing alone will not be enough1) and the public will expect the burden to fall primarily on the wealthy: 

• even this Conservative government can be expected to increase tax rates2 and may impose a wealth and/ or windfall tax; 

• loopholes will be closed as companies and the wealthy are expected to pay their “fair share”; 

Debt Forgiveness: loan payments are being suspended or deferred; some suspended rent and mortgage payments may be cancelled, which will put pressure on landlords and lenders; 

Real Estate: as the impact of the pandemic on the real estate sector fully evolves, further rent freezes, mortgage holidays and stamp duty reductions may be introduced; 

Social Policies: demand has grown for the government to address longer term issues in healthcare, housing, education and infrastructure, alongside demand for more equality: 

• more protection for employees (revised redundancy rules and social support); 

• limits on cash leakage in highly leveraged companies (see the Fed cap on dividends and ban on buybacks for banks); 

• restrictions on access to support packages for highly leveraged companies and a requirement that those that do receive support act in a socially responsible way (e.g. banks lending to poorer credits); 

• incentives for responsible investing, including in social infrastructure and investments in supply chain resilience and regional development; 

• enhanced standards (safety and delivery) for key social sectors (healthcare, education, infrastructure); and 

Tighter Regulation: regulators will be expected to fulfil their obligations and to take action to ensure that market participants stay in line (see the focus on BaFin over Wirecard). 

The points above are premised on the situation as it stands; a no deal or limited Brexit deal (and/or a pandemic second wave lockdown) could further exacerbate the pressure on the nation’s finances and compound uncertainty in the investment environment. 

Creditor Protection 

Prior to the pandemic, a green paper set out proposals for a more nuanced approach to restructurings and throughout the lockdown there has been pressure on lenders (via regulatory guidance from the BoE and FCA) not to exacerbate the crisis by taking action on pandemic-affected companies, and a moratorium has been placed on certain insolvency actions. The Corporate Insolvency and Governance Bill enacts the suspensions and provides further tools for the resolution of distressed situations (including the revised scheme, restructuring plan and the moratorium rules). The additional tools under the Bill and the use of “light touch” administrations present GCs with a wider range of options to navigate in distressed situations, and additional scope for preserving value for stakeholders. 

Notwithstanding these regulatory changes, 2020/21 vintage restructurings will differ significantly from the post-GFC structures due to the increase in non-covenanted debt held by a dispersed group of financial investors. The relative absence of levers (when compared with covenanted debt) will encourage consensual arrangements; lenders and borrowers will need to be sensitive to the shifting dynamics and the regulatory backdrop and must develop structures which benefit all stakeholders. 

Inward Investment and Outside Scrutiny 

Brexit, the US-China trade war and EU budget tensions all signposted a more introspective political agenda and the government has already displayed ambition to protect and develop strategic industries (e.g. the CMA review of the Cobham acquisition and the lowering of thresholds for key industries in 2018). The international pandemic lockdown coincided with persistent declining world trade. 

Despite warnings that economic nationalism could damage fragile financial institutions, governments continue to prioritise internal demands. On 23 June, the UK government expanded the grounds upon which a Public Interest Intervention Notice may be given, and also expanded the sectors to which the lower thresholds apply (the grounds now include maintenance of the ability to combat public health emergencies3 ). The UK government, in common with other governments, is preoccupied with protecting critical businesses from acquisition by “predatory” actors. The government will also put forward a beefed-up National Security and Investment Bill which will overhaul overview of foreign investment in strategic industries (and it is suggested that a mandatory notification regime with criminal sanctions may be introduced). 

Although the government recognises that “the vast majority of takeovers are done for genuine business reasons”, prospective investments will need to analysed through a political lens, structures will need to be created which support any FDI or ESG tests (guarantees for employment, environment targets, etc.) and which satisfy the relevant national FDI laws, “national resilience” concerns will need to be addressed and processes will need to adhere to a timetable which accommodates FDI notification and screening. 

Investors will need to pick their partners with care; febrile international relations create an environment where prospective partners may more easily be classified as “predatory”. The Huawei/5G saga amply illustrates the problems arising when commercial and political spheres clash, while arguments over purchases of remdesivir and the new Russia Report demonstrate the potential for strains in international relations and trade. 

ESG Agenda 

Recessions usually drive out calls for perceived “nice to have” aspects of the business agenda, but we anticipate that this pattern will not repeat in relation to ESG. Instead, we expect that demand for adopting more aspects of the ESG investment agenda will intensify (particularly with respect to climate change). Leading institutional investors are increasingly looking at investments with an ESG focus, from a corporate responsibility as well as a profitability perspective, and governments are responding to public pressure for green policies, social responsibility and future sustainability by introducing conditions for acquisitions from the ESG agenda and by adding incentives and regulation. 

The Extinction Rebellion climate protests, Black Lives Matter movement and wide support for the NHS serve to highlight the myriad social justice causes being taken up in the new decade. With governments already under pressure and under-resourced, public scrutiny of private sector activity is also likely to increase. 

The energy sector has long been subjected to evolving environmental policies, as the focus of the energy mix continues to move inexorably toward renewables – subsidies and support for clean energy and rules against carbon fuels will continue to develop and consumers will continue to transition to non-carbon sources of energy and transport. Notably, the social element of the ESG agenda is becoming more prominent, not only to justify protectionist policies, but also as a good in and of itself which drives incentives for investment. The public support for key workers and for healthcare sustainability through the pandemic is likely to lead to that part of the economy being underpinned, through closer regulation and incentives for investment. With increased focus on these elements, opportunities will arise for investors, but an understanding of how to value and access the benefits is necessary. 

GCs are already aware of the growing importance of ESG considerations and that these are a key driver of investment decisions; an understanding of government’s direction of travel across relevant sectors will be vital in assessing the ESG benefits of any investment. For investors seeking value, it will be important in the short to medium term to prioritise structures which assist in identifying and achieving ESG goals. 

Navigating the Uncertainty to Come 

The pandemic has showcased the ability of government to intervene to stabilise the economy and to protect workers from the initial shock of a crisis. We do not anticipate a return to budget discipline or cuts to state services; quite the contrary. 

The return of the state, the likely increase in economic protectionism and the promotion of ESG policies have all been accelerated by the pandemic. The effects of these trends are registering throughout the economy and will impact funds, lenders, investors and corporates. With changing social imperatives and a more fluid policy environment, investors will need to optimise their investments to succeed within new tax regimes, promote environmental and social standards and to comply with new national resilience requirements. However, investment is required to support parts of the economy that are under pressure and to provide the systemic resilience that the government desires. 

An increased raft of rules and regulations will intensify the challenges for GCs when ensuring compliance and maximising value, and an understanding of the politics will lead to legal structures which better protect economic returns. This holistic approach to risk will require a new breed of advisor who can look across the board, pick out trends and provide solutions. Innovation will not be found in silos and value will arise from agility. 

Avonhurst celebrates the conclusion of a highly successful first year with the announcement of another senior hire, experienced client relationship and engagement specialist Jonathan Krinks joins from financial analysis firm Tellimer (formerly Exotix Capital) where he was Director of Client Engagement. He previously worked at Eurasia Group and at leading global investment research firm BCA Research. Krinks joins as Head of Sales, Global Political Strategy, and is the latest in a string of high-profile hires for the firm, which celebrates its first anniversary this month.

Launched July last year, Avonhurst is a political strategy and legal advisory firm dedicated to representing sophisticated capital. It has already attracted a raft of established talent, including six partner hires – mostly from magic circle firms – as well as hiring leading figures from the political, financial and legal sectors as senior advisors, including Lord (Gavin) Barwell, tech entrepreneur Sean West, General, the Lord (Nick) Houghton, Blackstone’s Andrew Dowler and Tina Fordham, formerly of Citigroup.

Jonathan Bloom, Chief Executive of Avonhurst, comments: “We are delighted to welcome Jonathan Krinks to the firm. Jon has spent much of his career facilitating political advisory services to clients such as asset managers, family offices, private equity funds, hedge funds, and sophisticated corporates, including at Eurasia Group, where he worked with Senior Advisor Sean West, and at BCA. His arrival bolsters our already strong Political Strategy team and is further evidence of our ability to attract the leading talent required to service our sophisticated capital clientele.

Jon’s arrival also marks the culmination of a remarkable first year – a year in which we have swiftly grown to become trusted advisor to some of the smartest money in the City. Celebrating our anniversary in such extraordinary times is a salient reminder of how necessary our holistic approach is, going far beyond just legal advice. Now more than ever, political advisory services are an essential component in business decision-making, enabling our clients not just to survive but to thrive in this period of unprecedented change.”

LONDON – Avonhurst today announced two new senior appointments, further cementing the rapid growth that has characterised its first year. Carolyn Conner is a specialist in international financial restructuring who spent over 20 years at magic circle firm Allen & Overy, 13 as partner. Experienced private equity specialist Raymond McKeeve is currently President and Chief Operating Officer at Cingo Global and Non-Executive Director at financial services company Azura (both roles he will retain) and was previously a partner at the London office of Jones Day responsible for their large cap private equity business. Both will join as Senior Advisors.

Avonhurst is a political strategy and legal advisory firm dedicated to representing sophisticated capital. Since its launch in July 2019, it has attracted a raft of established talent, including six partner hires – mostly from magic circle firms – as well as hiring leading figures from the political, financial and legal sectors as senior advisors, including Lord (Gavin) Barwell, tech entrepreneur Sean West, General, the Lord (Nick) Houghton, Blackstone’s Andrew Dowler and Tina Fordham, formerly of Citigroup.

Jonathan Bloom, Chief Executive of Avonhurst, comments: “We are delighted to welcome Carolyn and Raymond to the firm as Senior Advisors. Having worked in the London and New York offices of Allen & Overy, Carolyn brings two decades’ experience in the international financial markets. At a time when many clients will be examining all of their economic options, her specialist expertise in financial restructuring is key in strengthening our already impressive roster of experts.

“An established private equity specialist and former global transactions lawyer, Raymond brings both private practice and in-house experience to our team.

“The arrival of Carolyn and Raymond is further evidence of Avonhurst’s ability to attract the leading national and international talent to the firm, drawn by the strength and originality and relevance of our offering. When many other firms are retrenching or struggling to articulate their market proposition, we are committed to smart and targeted growth and know how to add value to our clients across multiple disciplines. We have already rapidly established ourselves as trusted advisor to some of the smartest pools of global capital, and as COVID-19 and its aftermath reshapes not just the markets but the future itself, we are ideally placed to steer clients through these unprecedented times.”

Read the full article here.

Watch the video here.

See the full panel discussion with the Cambridge Centre for Geopolitics here.

From our CEO, Jonathan Bloom: “As an American living in London I am, along with all my colleagues, appalled by the horrific acts of racial injustice that have recently come to the forefront in America. My fellow Avonhurst partner Tina Fordham spoke eloquently on the issues we all face on CNBC today. Though the issues are global and we are physically apart, this should encourage us all, now more than ever, to keep in contact and stand together.”

Watch the video here.

Watch the full video here.

Watch the video here.

Watch the video here.

• Impact of UK Prime Minister Boris Johnson’s admission to intensive care politics and Brexit

• Approval ratings of politicians skyrocketing: can it last?

• How the demand side of the political equation may change who wins future elections.

Watch the video here.

Listen to the full audio here.

In times of uncertainty, all service providers, across industries, want to help their clients by offering advice and guidance. Law firms will often focus on the nuances in transaction documents and the associated areas of concern for interested parties. Unlike traditional law firms that are limited to analysing blackletter law and reporting on the same, our team at Avonhurst is determined to assist our clients through the current challenges posed by the Covid-19 in the same holistic manner in which we represent our clients through transactions at any other time: by providing our clients with a full suite of political strategy, legal advisory and capital services. Through our Political Strategy Services team, we offer our sophisticated capital clients clarity in an uncertain geopolitical and macroeconomic climate; our Legal Advisory team helps to analyse legal risk and provides certainty in executing associated transactions; and our Capital Services team will help introduce liquidity where opportunities require additional sources of capital. 

Avonhurst exists to help address the changing needs of sophisticated capital; we were designed by clients for clients and we are here to help you!

Covid-19 is rightly dominating the agenda for governments, communities and businesses globally. Currently, many private equity funds are primarily focusing on managing portfolio company operations and shoring up their finances for what could be a prolonged period of disrupted trading. 

 Market dislocation, while presenting risk, also creates opportunity for prospective buyers who can access finance. The right time to unlock these opportunities remains the key question. We set out four key areas for prospective buyers to consider alongside this.

Financing 

A sustained slowdown in business activity will see lower leverage in M&A transactions with more creative debt and equity solutions required to execute them, including through co-investment.

·       Lenders may be more willing to fund transactions in Covid-19 resilient sectors, such as food chain supply, healthcare solutions and some tech deals. 

·       Buyers may need to be prepared to increase their committed equity for transactions generally, with the potential to refinance (and increase leverage) when the market improves. 

·       Target businesses may require additional financial support that may need to be factored into any financing. Delays in supplies or customer payments will adversely impact a target business’ revenue in the near term.

Due diligence

 The impact of Covid-19 on a business’ operations will require an increased focus on certain areas in a buyer’s due diligence. 

·       A target’s business continuity plans should be stress tested- are these adequate over the longer term, or do they envisage no more than 1-2 months of disruption? Is the business overly reliant on key individuals, without whom, the business would not function effectively?

·       Insurance policies will typically not cover risks to the target which are known or "reasonably foreseeable" at the time when the insurance was taken out. Business interruption policies and travel insurance are prime examples. 

·       Due diligence will need refreshing to avoid “static analysis”. The epicentre of the Covid-19 outbreak is likely to move and it could return to previously contained centres. Operations in jurisdictions which are currently less affected by it, such as Africa and South America, may present a greater investment risk in the near term.

Pricing

Continued market turbulence will result in lowered valuations (discounted prices) for assets. 

·       Buyers will be better placed to insist on the use of completion accounts, which allow for a post-completion price adjustment, as opposed to a fixed equity price achieved through the locked box mechanism (requiring the buyer to take financial risk on the target business from an historical locked box date).

·       Buyers will also seek earn out arrangements (to meet differences in valuation and interrupted trading) and deferred payments (to better manage their own cash flow). 

Regulatory impact

The Covid-19 crisis will see governments adopt more protectionist tendencies in their responses and increased public sensitivity to “foreign” takeovers. However, government response will need to be balanced against the urgent need to secure employment and growth opportunities.

·       Conditions precedent, whether antitrust/regulatory or commercial, are likely to take longer to satisfy given disruption to the workforce of governmental/regulatory authorities and commercial counterparties.

·       Protracted transaction timetables will see more buyer focus on the range of contractual protections to preserve the value of the target business in the period to completion (operating covenants and the inclusion of material adverse change (MAC) clauses and repeated commercial warranties at completion).

·       It may not be possible for a target business to consistently carry on “in the ordinary course” up to completion. A more collaborative approach will be required with sellers, including through enhanced information rights and input on the target’s response strategy to manage any sustained/future outbreaks (where applicable, subject to gun jumping requirements). 

Avonhurst is a political and legal advisory firm that serves the need of sophisticated capital with services ranging from research, consultancy and structuring to deal execution. 

Watch the video here.

Avonhurst partner Ian Frost advised fintech company Salary Finance Limited on the acquisition of its competitor, Neyber Limited, out of pre-pack administration, creating a company that has access to over 3 million employees. Salary Finance specialises in providing loans to employees of employers with whom they have entered partnerships, where repayment is made through salary deductions. Offering lower interest rates loans to those who may not have access to traditional financing, it is backed by venture specialists and Legal & General.

Avonhurst worked with CMS for Salary Finance, with Osborne Clarke representing the Company/ Administrators and Latham & Watkins, Fieldfisher and Fladgate LLP representing certain of the other financing parties.

In the same period, Avonhurst partner Nigel Heilpern represented Guardian Managers Luxembourg / Avenue Developers in its first Italian operation, the purchase of 11,000 square meters of student accommodation space at Via Trentacoste Milan. The real estate was sold by BNP Paribas to the Guardian Managed Funds SICAV-SIF and funded by senior debt provided by Banco Populare di Milano. Avonhurst coordinated the matter for the fund and the required fund subscriptions, as well as advising on the underlying deal. The firm worked with deal counsel Leganz in Italy and Cohen & Gresser in London on the transaction, which marks a significant expansion into a new market for Guardian.

Jonathan Bloom, Chief Executive of Avonhurst, said: “These two matters illustrate our strength in two very different areas – pre-pack sales and real estate – but together show that in less than a year since our launch we are already trusted by major clients both in the UK and internationally to handle their key strategic deals.”

Asesh Sarkar, CEO of Salary Finance, said: “We were pleased to instruct Avonhurst on this strategically important transaction. Salary Finance is a breakthrough platform focused on improving the financial health of employees in the UK and US. Just as we are committed to providing the very best service to our clients, we expect that same level of innovation and excellence from our own advisors. Avonhurst gives us access to the skills, insight and expertise we need to support our ambitious programme of growth.”

Bloom continued: “Avonhurst was created to provide a seamless, holistic service to sophisticated capital clients across legal, legislative and political advisory, and capital services. We have grown substantially since our launch with hires at both the senior and junior level to ensure we can cater to the requirements of our clients across multiple disciplines and jurisdictions. We are delighted to be able to share this evidence of our success.”

Avonhurst partner Ian Frost advised fintech company Salary Finance Limited on the acquisition of its competitor, Neyber Limited, out of pre-pack administration, creating a company that has access to over 3 million employees. Salary Finance specialises in providing loans to employees of employers with whom they have entered partnerships, where repayment is made through salary deductions. Offering lower interest rates loans to those who may not have access to traditional financing, it is backed by venture specialists and Legal & General.

Avonhurst worked with CMS for Salary Finance, with Osborne Clarke representing the Company/ Administrators and Latham & Watkins, Fieldfisher and Fladgate LLP representing certain of the other financing parties.

In the same period, Avonhurst partner Nigel Heilpern represented Guardian Managers Luxembourg / Avenue Developers in its first Italian operation, the purchase of 11,000 square meters of student accommodation space at Via Trentacoste Milan. The real estate was sold by BNP Paribas to the Guardian Managed Funds SICAV-SIF and funded by senior debt provided by Banco Populare di Milano. Avonhurst coordinated the matter for the fund and the required fund subscriptions, as well as advising on the underlying deal. The firm worked with deal counsel Leganz in Italy and Cohen & Gresser in London on the transaction, which marks a significant expansion into a new market for Guardian.

Jonathan Bloom, Chief Executive of Avonhurst, said: “These two matters illustrate our strength in two very different areas – pre-pack sales and real estate – but together show that in less than a year since our launch we are already trusted by major clients both in the UK and internationally to handle their key strategic deals.”

Asesh Sarkar, CEO of Salary Finance, said: “We were pleased to instruct Avonhurst on this strategically important transaction. Salary Finance is a breakthrough platform focused on improving the financial health of employees in the UK and US. Just as we are committed to providing the very best service to our clients, we expect that same level of innovation and excellence from our own advisors. Avonhurst gives us access to the skills, insight and expertise we need to support our ambitious programme of growth.”

Bloom continued: “Avonhurst was created to provide a seamless, holistic service to sophisticated capital clients across legal, legislative and political advisory, and capital services. We have grown substantially since our launch with hires at both the senior and junior level to ensure we can cater to the requirements of our clients across multiple disciplines and jurisdictions. We are delighted to be able to share this evidence of our success.”

Watch the video here.

Senior associate Joshua Swerner joins the firm from Linklaters, where he spent time in the London and Moscow offices; Tanya Macrae joins from Allen & Overy (Brussels and London) and has worked at both Latham & Watkins and Herbert Smith Freehills; Oliver Elsaesser joins as an associate from Paul Hastings and Katja Loncaric joins from the London office of Norton Rose Fulbright, having previously worked in Clifford Chance’s Frankfurt office.

Avonhurst is a political risk and legal advisory firm dedicated to representing sophisticated capital. Since its launch in July 2019 by founding partner Jonathan Bloom, the firm has attracted a raft of established talent, including seven partner hires – mostly from magic circle firms – as well as hiring four leading figures from the political, financial and legal sectors as senior advisors, including Lord (Gavin) Barwell, tech entrepreneur Sean West, General, the Lord (Nick) Houghton, Blackstone’s Andrew Dowler and Tina Fordham (Partner and Head of Global Political Strategy), formerly of Citigroup.

These have been complemented by the additions of high yield specialist Albert Aharonian (previously at Milbank, Paul Hastings and Sidley Austin), and political expert Jessica Turner who is a US lawyer having joined out of law school and has extensive experience including working on Capitol Hill, Washington DC and at the House of Commons in London.

Jonathan Bloom, Chief Executive of Avonhurst, comments: “We are delighted to welcome Joshua, Tanya, Oliver and Katja to the firm. While we are justifiably proud of our ability to attract established partner talent, we recognise that our long-term sustainability as a leading advisor to sophisticated capital clients requires excellence at every level. We are committed to attracting, nurturing and growing the very best associates.

"Our new hires bring valuable UK and international experience in corporate, antitrust, leveraged, export credit, trade and asset-backed finance, financial services and capital markets, honed at some of the biggest and best law firms in the world. They will work alongside our market-leading partners and advisors to ensure our clients get top-level service across legal, legislative and political advisory, and capital services.”

She was Citi bank’s Chief Global Political Analyst and has over 20 years’ experience advising institutional investors, corporate boards and international organisations about global political developments and their implications for markets and the investment environment.

Fordham said: “Beyond the human cost, the coronavirus is the most significant Black Swan for politics, markets and the economy since the Global Financial Crisis. The competence of leaders is about to be tested, with much higher stakes — public health and safety — than during the debt crisis.

“A recession isn’t a natural disaster, though some leaders will try to spin it as such. One source of comfort to investors may be that the risk to public health probably means a recession triggered by a pandemic would see more political support for fiscal stimulus than the 2008 crisis, for example, though it also poses a demand shock that could hurt the economy if policy makers are seen to overreact.

“Political incumbents of every stripe face heightened scrutiny and government reaction function will be tested, with under-investment in public health infrastructure and crisis prevention capacity exposed. The anti-expertise and anti-globalist bias of populists is unlikely to provide answers to a concerned public in crisis mode. International coordination, out of fashion since the G8 finance ministers came together, will be needed to stem the crisis, bearing in mind that the current presidency of the G-20 is Saudi Arabia.

“Meanwhile, geopolitical tensions will inflame, as some actors take advantage of the crisis to gain advantage. The spat between Russia and Saudi Arabia at last weekend’s OPEC meeting reflects how geopolitical tensions can spill over, causing an economic shock. Likewise North Korea’s missile test over the weekend.

“Closer to home, countries like the US with its historic tendency toward suspicion of government and libertarian tradition will likely see push back against measures such as self-isolation and curtailing economic activity.

“Even if contained soon, in terms of political risks and the medium-term outlook, the coronavirus will materially change the outlook for 2020, and possibly beyond given the potential for relapse risk.”

Tina has been named in the Top 100 Geopolitical Experts (alongside Condoleezza Rice) and the FN’s Top 100 Most Influential Women in European Finance. Tina was also appointed to the UN’s High- Level Panel on Women’s Economic Empowerment and a #1 ESG ranking from Institutional Investor.

LONDON – Avonhurst today announced that that it is enhancing its Political Strategy Services offering with the hire of four new Senior Advisors: Lord (Gavin) Barwell; Sean West; General, the Lord (Nick) Houghton; and Andrew Dowler. They will be joining Head of Global Political Strategy, Tina Fordham, who joined the firm in January 2020 from Citigroup, where she was managing director and chief political analyst. Launched in 2019, Avonhurst is a political risk and legal advisory firm dedicated to representing sophisticated capital.

Lord Barwell served as Chief of Staff to the Prime Minister from June 2017 to July 2019. Before that, he was the Member of Parliament for Croydon Central, and Minister of State for Housing and Planning and Minister for London at the Department for Communities and Local Government.

West is co-founder of ‘knowledge economy’ technology company ProfeTech and was previously at prominent global affairs research, advisory and consulting firm Eurasia Group, where he was the founding CEO of the firm’s innovation business and drove global expansion as Deputy CEO of the firm.

Lord Houghton was formerly the UK’s Chief of Defence Staff and is now a crossbench Peer in the House of Lords, a strategic advisor to multi-national corporates and Constable of The Tower of London.

Dowler previously worked for Blackstone, the largest alternative assets investment firm in the world as a Managing Director responsible for the public positioning of the firm and its investment platforms across Europe, including government relations.

Jonathan Bloom, Chief Executive of Avonhurst, comments: “In a rapidly changing and increasingly uncertain political landscape, our sophisticated capital client base is seeking guidance in this area now more than ever. The arrival of four such senior hires complements our already strong Political Strategy Services offering, bringing unparalleled expertise and insight.

“They will work alongside Head of Global Political Strategy, Tina Fordham and a team of associates across our political and legal functions. This seamless approach reflects our commitment to meeting the needs of our clients across legal, legislative and political advisory, and capital services.”

https://www.avonhurst.com/

Tina Fordham (MIA ’99), the managing director and chief global political analyst at Citi, worked to develop an analytical framework to help evaluate how political, social, and economic developments at the regional and global levels were likely to affect world markets.

How has your life experience made you the leader you are today?

To talk about a career path in my case is laughable. I’ve gone from the Silicon Valley to Prague, Moscow, New York, Baku and London; less of a path than an Odyssey. The role I have carved out as the first and only Chief Political Analyst working for a major Wall Street institution is a collision between a hard-working Portuguese immigrant upbringing, the collapse of communism, the globalization of financial markets, and what the British call sheer bloody-mindedness. I’m living proof that you don’t have to have an MBA or be born with a silver spoon in your mouth to make it to senior levels in Banking. Of course with a background like that, it helps to be self-motivated and never take no for an answer.

Perhaps unsurprisingly, my route into banking was pretty unconventional; after graduating from university in San Francisco, I spent much of the 1990’s in Eastern Europe teaching and conducting field research. My first-ever business trip was to the Komi Republic, in the Russian Arctic in 1996 for the charity Action for Russia’s Children. It was a technical assistance project for a US company that wanted to support an orphanage for disabled children in a Soviet-era industrial town they were helping redevelop. Contrary to what I’d expected, it was not depressing but hugely inspiring. Other projects included field work on democratic transitions in Russia and Azerbaijan, and with factory workers in Hungary and Poland.

Working closely with both early foreign investors into Central and Eastern Europe and local people who were dislocated by the post-Communist transitions was life-changing. It taught me a lot about understanding the impact of political, economic and social change from the bottom up and what investors need to understand about fast-changing environments. These insights inform my research to this day; there is no substitute for first-hand experience. Working in challenging and complex environments also makes you resourceful. You learn that if what you need doesn’t exist, invent it. I thought Citi needed a Chief Political Analyst, and eventually, they agreed.

How has your previous employment experience aided your tenure at Citi?

After returning from Eastern Europe and completing a Master’s degree at the School for International and Public Affairs at Columbia (one of the best decisions I ever made), I joined what was then a small start-up political risk consultancy in New York called Eurasia Group. What initially started out as a research project looking at post-Soviet political transitions ended up as the first political and economic risk index on Wall Street, a joint venture with Lehman Brothers launched in 2001 during the emerging markets boom. I was the head of the joint venture, and as part of that business, developed the first political analysis research products specifically tailored to financial market investors. Bringing political science- based analysis to investors as we did then and I still do now has been likened to the first physicists who came to Wall Street. We were pioneers.

What have the highlights and challenges been during your tenure at Citi?

Establishing Political Analysis as a mainstream research offering for investors has been both the challenge and the highlight of my 13 years at Citi. Citi is the only major financial institution that offers political analysis as a dedicated product area, alongside traditional asset classes like economics, commodities and equity research. It simply didn’t exist before. My approach is data-driven, but incorporates qualitative methods too, supported by political science theory and historical comparisons. The demand for what I call political analysis strategic advisory services from both investors and numerous FTSE 100 companies at the board level has been snowballing, and marks a new iteration in my approach. I am deeply committed to the notion that investors and companies can make political analysis a more systematic part of their approach to thinking about opportunities and risks, and constantly thinking of new ways to approach this, such as incorporating qualitative indicators and survey- and scenario-based approaches.

Recent career highlights include spearheading Citi’s first research reports on global public opinion, which I coined as “Vox Populi Risk” in a ground-breaking empirical study ‘What the New Vox Populi Risk Means for Politics, the Economy and Markets‘ and gender economics Women in the Economy: Global Growth Generators‘ in May. We now plan to incorporate gender research as an ongoing topic, and our conceptualization of shifting and more volatile public opinion as outlined in Vox Populi continues to resonate.

On both counts, I’m immensely proud to have had the opportunity to help produce innovative analysis that is helping take banking research into new territory, and am gratified that these efforts have been supported internally and well-received by clients.

What advice can you offer to women who are seeking a career in banking?

I would offer the same advice to a woman in banking as I would to someone looking to succeed in any occupation: identify opportunities to contribute, don’t wait to be asked. Then make sure the quality of your work is outstanding; excellence beats expedience. One point that I feel strongly about is this: when you are an outlier, for whatever reason, you have two choices. Either you twist yourself into a pretzel to try to fit in, or embrace being different and turn it into a source of strength. Embracing being an outlier is clearly the more compelling option: it is also the most rewarding. And people are more likely to remember you.

Although there are risks of a significant oil price hike, or a sustained and/or intensified trade war that would lead to global financial implosion, we do not regard either of these risks as either imminent or systemic, and indeed none are part of our central economic scenario over the next four years.

Political risk is not dead, but it has evolved considerably. Geopolitical risks appear less likely to become systemic — thanks to changing commodity supply dynamics — in contrast to previous decades. Political and policy uncertainty affecting trade, sanctions, regulation, diplomatic norms, and the strength and independence of institutions is generating increased political turbulence, with modest and episodic effects on financial markets and the business environment, but limited impact on the global economy.

Should any kind of global slowdown materialize, the lack of conventional monetary policy space in most advanced economies will be a material obstacle to the implementation of appropriate countercyclical policy. Countercyclical fiscal policy space is widely available, especially if the additional debt issuance can be monetized.

The obstacles to appropriate counter-cyclical policy when the next global recession threatens are likely to stem from weak political capacity and will, owing to political fragmentation, rather than from a lack of combined monetary and fiscal countercyclical policy space. The impact of political risks is more likely to manifest itself in a slower, weaker government reaction function, rather than as a catalyst of a downturn or major financial market event.

The growth rate of the world economy has since 2010 fluctuated between 3.2% and 2.5%, reaching a local peak at 3.2% in 2018 following a rather weak (2.5%) 2016. Global potential output growth is likely around 3%. Citi forecasts growth in 2019 to be 2.9% followed by 3.0% in 2020 followed by three more years of similar growth. According to this forecast, growth will slow down a little from its current just above potential level and will, for the five- year horizon of the forecast, settle down at the growth rate of potential output. Just how plausible is this smooth convergence towards potential output growth? Figure 1 shows the history of global real GDP growth.

Jonathan Bloom, chairman and chief executive of Avonhurst, said that for his clients, political risks were now “as relevant” as legal and business risks.

Mr Bloom, a former partner at US firm Jones Day, said he launched the firm this summer to meet the demands of clients wanting to escape from the constraints of ‘Big Law’.

Instead of being a law firm that provided some political work, Mr Bloom said he wanted his firm to analyse legal and political risks simultaneously, to help clients “horizon scan” and understand the jurisdictions they invested in.

Last week, Avonhurst announced the recruitment of Tina Fordham, the former chief political analyst at Citigroup, to be its head of global political strategy.

The firm is structured so that Avonhurst Advisory Services, which handles the political work, is a separate LLP sitting alongside Avonhurst Legal Services, an alternative business structure.

Mr Bloom said: “We purposefully went with the ABS license so we could bring in third-party funding to support our business.” The name of the funder has not been released.

Alongside them, and beneath the holding company, is Avonhurst Capital Services, which helps introduce funders to businesses and vice versa.

Mr Bloom said the firm’s clients ranged from asset managers and private equity funds to credit funds, real estate funds and family offices.

He said that although he “grew up in Big Law”, one of the challenges he faced was that it was “beholden to the billable hour”, which made it difficult to be as “creative” on fees as clients wanted.

Instead of billable hours, Avonhurst charges fixed fees, retainers and contingency fees.

The services it provides are centred on banking and finance, restructuring, corporate real estate, regulatory and tax. Other services such as litigation, intellectual property and employment are outsourced to other law firms.

Where additional work is needed in core areas, Mr Bloom said firms outside London could be called on, such as a firm in Edinburgh which recently carried out a due diligence exercise which could then be analysed by Avonhurst’s partners.

Operational services such as billing, HR and compliance are provided by the consultancy Kindleworth, which specialises in working with new law firms.

Mr Bloom said he aimed to build up team of around 15-17 partners from the current nine by early next year.

He said his strategy was to keep the ratio of partners to associates to no more than 2:1. The aim was to incorporate “effective and thoughtful” technology, including artificial intelligence (AI), before recruiting many more associates. The firm has only three at the moment.

Mr Bloom said that “at a very junior level” AI and outsourcing could handle the workload, so the plan was to hire mid-level and senior associates.

AI would be used mainly for review of corporate documents where it would not “replace human capability” but help people become more effective.

Mr Bloom said he did not believe that Big Law was finished; it would continue to service a “particular client base”, for example those engaged in global litigation.

However, he predicted that an increasing number of boutique firms would emerge, as had already happened in litigation, arbitration, sports law and private equity.

“Law is still very relationship-driven. This firm is based on a number of long-term clients committed to the creation of the new model that we are trying to build for them. We can look after their interests in a more thoughtful way.”

The firm’s website says Avonhurst is a portmanteau name, taking inspiration from the root terms for river and sandbank.

“These subjects together create a marriage of opposing elemental forces. One dynamic, one static. A beginning and an end. The fleeting and the permanent. At the heart of this idea is flow. The concept of flow is embedded in the world of finance.”