UK hedge fund managers ask Healey for growth plan, gilt discipline

Two UK hedge fund managers want Chancellor John Healey's first Budget on Wednesday to set out a growth plan and a credible path to lower debt, with UK debt above £3tn, Hedgeweek reports.

Healey is under pressure to find new revenue and close a fiscal hole, and the finance industry fears a windfall tax.

For allocators underwriting London-based strategies, the Budget will show whether personal tax treatment keeps portfolio managers in the UK. Individual tax was the clearest point of agreement among the managers asked, under the heading "Stop driving talent and capital out of London." The diligence question is where a UK manager's senior team is resident and what would move it.

Debt interest runs close to 4% of GDP, Hegel Capital founder and portfolio manager Adrian Vlad says, more than most government departments spend. He assesses the chancellor as he would a company in his portfolio: a strong franchise with a stretched balance sheet. "No company cuts its way out of that position. It grows out of it," he says. Vlad wants a growth plan rather than a list of tweaks, and straight answers on defence, the triple lock and social care, which he argues would start to shrink debt relative to the economy. Headroom against the fiscal rules, he says, "is a buffer, not a strategy."

Alphidence Capital chief executive and chief investment officer Igor Yelnik puts credibility with bond investors ahead of any short-term giveaway. He points to an April-to-September deficit £6bn worse than the Office for Budget Responsibility expected, with CPI inflation at 3.5% and forecast to peak near 4.1%. "Any perception of fiscal slippage may put gilts in harm's way," he says. Yelnik expects a Budget that avoids short-term market disruption but proves damaging to the economy over the longer run. Gilt investors, he says, will deliver their verdict quickly.