Distilling the past year in markets into one briefing is semi-impossible, but we’ll do our darndest to try and run through it all.

Deep breath in

Skipping past January and February (which ended with the delisting of Home REIT shares) the global financial system was thrown into chaos with the simultaneous, but separate, collapse of Credit Suisse and Silicon Valley Bank.

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The drama started on Friday 10 March when Silicon Valley Bank collapsed, representing the second largest banking blow-up in US history, second only to 2008.

That weekend, US regulators created a lending facility to protect all deposits at SVB, while HSBC purchased SVB UK for £1.

This left a difficult environment for the “material weaknesses” in Credit Suisse’s delayed results, stirring fears the financial world may face another 2008.

The Swiss giant collapsed in March, resulting in the emergency buyout of Credit Suisse by rival bank UBS for $3.3bn, six days after its delayed results came out and all of us rapidly brushed up on AT1 bonds.

The security of the banking sector’s safety reverberated throughout H1, with Janet Yellen, Jerome Powell and Andrew Bailey all repeatedly reassuring the stability of their respective institutions.

Intercutting this was the 2023 Spring Budget, with Chancellor of the Exchequer Jeremy Hunt abolishing the pensions lifetime allowance and the Office for Budget Responsibility forecasting inflation to fall sharply in 2023.

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In the same month (still in March) Schroders Capital unveiled the UK’s first LTAF.

The Financial Conduct Authority didn’t come out with its policy statement on the asset until July, and throughout the year the industry’s opinion was divided on the usefulness of the product.

In the same month (again, still March) the curtain was pulled back slightly on the inner workings of one of the most famous investment trusts, after ex-Scottish Mortgage director Amar Bhidé took his grievances with the trust public.

Bhidé accused the board of the Edinburgh-based trust of “seriously misleading” shareholders and called out the management team’s “capabilities and governance clout” to fully monitor its PE exposure, given the lack of publicly available information, but not before he called the independence of the trust’s then chair Fiona McBain into question.

Scrutiny over SMT’s ability to manage its private equity exposure was heavy throughout the year, as investors faced a torrid run of returns in the high interest rate and inflationary environment.

For investment trusts in general, 2023 was a rough ride, with 91% of trusts ending H1 on discount.

This level of discounts was last seen briefly during Covid, or for a more extended period during the Global Financial Crisis, and did not let up over the latter half of the year.

Mergers upon mergers

The next months saw a buzz of M&A activity in the UK mid-cap asset management space, as Rathbones merged with Investec W&I UK in a £839m deal, which completed in September.

Liontrust put in a CHF 107 million (£96 million) conditional offer to acquire Swiss investment manager GAM, a takeover which collapsed in August after a cohort of GAM shareholders relentlessly pushed back on the deal.

NewGAMe repeatedly claimed that Liontrust’s offer materially undervalued the Swiss firm, despite GAM’s board pushing for its clients to approve the deal.

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The timeline of the deal was pushed back multiple times as both Liontrust and GAM tried to garner support, while NewGAMe put in its own alternative proposal to the Swiss firm, but the saga culminated when Liontrust CEO John Ions was accused by NewGAMe of lying to investors about the views of a major shareholder.

GAM has since entered into a collaboration with NewGAMe, which is now the biggest shareholder in the asset manager.

Amid all of this, the Competition and Markets Authority blocked Microsoft’s acquisition of video game giant Activision Blizzard on the grounds it had concerns the move would reduce innovation in the cloud computing space; Nvida became the ninth firm to hit a $1trn valuation, spurring an AI frenzy in markets; markets began (incorrectly) pricing in a 100% chance of a rate cut by the Federal Reserve by the end of the year; and the UK saw its first king take to the throne in 70 years.

Return of the usual suspects

H1 also saw the true scale of Home REIT’s issues uncovered, in an excellent investigation by News Editor Valeria Martinez.

Carrying over drama from 2022, the trust, which offered the first real estate trust focused solely on reducing homelessness from closed-ended portfolios, was found to be in as dilapidated a state as its various properties.

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Since then, £564m has been written off Home REIT’s portfolio, after which shareholders progressed their lawsuit against both Home REIT and Alvarium.

Woodford also reappeared in the opening half of the year, with the surprise deal from Link Fund Solutions, backed by the FCA.

This saga goes back to 2019 and only this month was the Woodford scheme of arrangement approved by shareholders, with an overwhelming majority of 93.7% approval of those who voted, provisionally – although of roughly 300,000 eligible claimants, just over 54,000 voted. This came 1,656 days following the initial collapse of the former Woodford Equity Income fund (WEIF).

Shattering summer

The summer also revealed the alleged sexual abuse by hedge fund manager Crispin Odey, which sent shockwaves throughout the entire financial industry.

In the aftermath, it was revealed both Odey and his former firm were under investigation as early as mid-2021.

The FCA confirmed last week that it was taking no action against the asset manager.

Breaking up the summer was also the official roll out of the FCA’s Consumer Duty regulation.

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The term was coined in December 2021, but it took the regulator seven months to unveil the full set of rules and requirements, with firms given a year to prepare for the full July 2023 implementation.

Despite the preparation runway provided, the industry is still finding its feet with the rules, especially firms operating within and outside of the UK, which could see them having to abide by conflicting legislation, as the UK continues to define its life after the EU.

Skipping to one of the most unexpected spats of the year, which saw Baillie Gifford and climate activist Greta Thunberg hit the headlines in August.

Thunberg was supposed to appear at the Edinburgh International Book Festival at a panel on climate change scheduled for 13 August but pulled out of the event on Friday 4 August, of which Baillie Gifford was the lead sponsor of.

Interest rate expectations to shape the path for private markets in 2024

The climate activist explained her move followed an investigation by news site The Ferret at the end of July, which claimed the Scottish asset manager had billions invested in companies that profit from fossil fuels.

Baillie Gifford hit back that it was not a “significant fossil fuel investor”, claiming just 2% of its clients’ money is invested in companies with some business related to fossil fuels.

The argument may appear bizarre, but in a year which was defined by the crossroads ESG investing finds itself at, it pointed to the public pressure on asset managers to divest from fossil fuels for fear they lose their “social licence to operate”.

The UK regulator also came out with its final Sustainability Disclosure Requirements report (and every other one of its policies for the year it felt like) in late Q4, leaving firms to grapple the new terms in the coming year.

Q3 and Q4

September (we’re getting there) brought the anniversary of the Mini Budget and a reminder of the economic scars the UK still bears.

At the time, UK bonds and equities continued to hold a risk premium as a result of the Truss-Kwarteng Budget.

Interestingly, managers noted in their fixed income outlooks for 2024 that markets were digesting the same level of volatility seen in 2022 better this year as the spikes in bond yields were not delivered with such a sledgehammer approach.

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In October (still getting there) the Hipgnosis Songs Fund saw shareholders vote against continuing the vehicle as it currently exists, with a mammoth 83.2% of votes against.

This triggered the board to propose a reconstruction, reorganisation or wind-up of the trust within six months, and at the moment it remains unclear what will happen as the trust’s new chair battles with its investment adviser about how much the portfolio is actually worth.

In another 2019 echo, property funds had a bleak month (still in spooky season), when M&G and WS Canlife UK Property ACS suspended their respective open-ended UK property fund ahead of closure.

The age-old question of ‘how do you solve a liquidity mismatch problem’ reared its head, with some experts calling time on the open-ended property model.

The FCA’s solution was thrown back into the mix in the Autumn Statement, after Hunt announced LTAFs would be brought into the scope of Innovative Finance ISAs from April 2024.

Autumn Statement addenda

Hidden away in the claims that these were the biggest tax cuts since 1980s (they weren’t by the way), the government buried a plethora of additional documents, 52 to be exact, covering a variety of proposed of overhauls.

These included granting the FCA powers to “prohibit or impose conditions” on short sales if these were deemed “adverse events” and the ability for the regulator to offer “appropriate” rule-making powers to reform investment trust cost disclosure requirements.

The FCA is considering “interim solutions” but former pensions minister Ros Altmann has taken matters into her own hands and launched a private members’ bill to deal with the issue.

Rounding off the year was the swing in central bank sentiment, as Fed chair Powell finally gave markets a nibble of the promised land by taking a dovish tone with the bank’s upcoming interest rate policies.

The Fed, BoE and European Central Bank all embarked on an interest rate pause during the year, building expectations that rate cuts could begin in 2024 after inflation (somewhat) yielded across all three economies in 2023.

Wait, the central banks did what was expected for once

Although it was not at the golden 2% target yet, forecasts attached to the Fed’s latest meeting pointed to 75 basis points worth of cuts next year.

The dovish shift sparked a rally in equity markets, with the Dow Jones index closing at a record high on the day, jumping over 1.3% from the time Powell began speaking.

The BoE’s Bailey was less cut-positive at his MPC meeting, maintaining the line the bank would do what was necessary to manage inflation.

While I have missed out plenty of petty scuffles and much larger pieces of news, a takeaway from our end of year outlooks was that markets face many of the same issues going into 2024 as they did this year, but in an overwhelmingly more complex way.

I want to take the chance to thank the Investment Week and wider Incisive Media teams for all their truly extraordinary work this year.

And a thank you to our readers, without whom we are just a bunch of writers in a room with no purpose.

We were on hiatus from the end of December until 2 January, during which time hopefully everyone got some deserved respite from all things market related.

Beyond our industry, the world is facing a series of major humanitarian and social crises and we would be ignorant to ignore that.

Our goal is to provide accurate and valuable information to help make sense of all this, and for those both directly and indirectly affected by the events we do and don’t cover, we hope that the new year brings some clarity and peace.

We hope you enjoy the festive period, however you are celebrating, and from myself and the whole Investment Week team, we wish you all the best for the new year.

This article was first published as part of the Friday Briefing series, which is available exclusively to Investment Week members each week. Sign up here to receive the Friday Briefing to your inbox each week.