Andrew Balls has become the bond investor's point man in Europe just at the moment when the continent emerged as the globe's biggest financial headache
During his attempts to keep Labour in power in May 2010, the then schools secretary Ed Balls suffered a setback.
The world's biggest bond investor, Pimco, declared it had begun selling off British government debt, signalling a vote of no confidence in the government's economic policies. It was a double embarrassment for Balls: he was a key contributor to Labour's economic response but was also close to Pimco's head of European investment – his younger brother, Andrew.
While the gilt call by Pimco founder Bill Gross – who compared Britain's debt to nitroglycerine – added to the feeling that Britain faced imminent financial crisis and possibly contributed to Labour's defeat, it ultimately proved more costly for the firm than the UK Treasury. The event shifted the spotlight onto the younger Balls. The 38-year-old is now emerging as one of the multimillionaire financiers pulling the levers at the heart of the eurozone crisis. So who is this master of the universe?
Andrew Balls joined Pimco in 2006 from the Financial Times where he had been a US-based economics writer. The California-based company was influential, but it was about to become much more so. Gross may have got the bet on gilts wrong (plus another expensive mistake on US treasuries) but correct calls during the genesis of the financial crisis had helped his clients' assets balloon. As of 31 December 2011, Pimco managed $1.4tn (£880bn). To put that figure into perspective, it is the same amount as the gross domestic product of Spain.
Countries raising debt, especially high-deficit European countries, desperately need investors to buy their bonds and Pimco has more investors than anybody else. It is within that financial behemoth that Balls has risen, quickly being sent from Pimco's Newport Beach base back home to Britain to lead the firm's European investment team. In effect, Balls has become the bond investor's point man in Europe just at the moment when the continent emerged as the world's biggest financial headache.
Neither Pimco nor Balls have ever been eurozone bulls. Privately he is fond of bandying around frightening scenarios, such as the example of his employees in Germany whose payslips still show a "10% solidarity tax" dating back to reunification. Just imagine the popularity of an additional line that reads "Greece", his argument goes.
He is bearish in public too, telling clients: "One thing we know from past crises from around the world is if you can't get ahead of problems they spread. You see this in Europe spreading very clearly to the banking sector. But also the risk of broad loss of confidence in European markets … Can you have a happy ending to the European crisis? I don't think so … What is the probability that the policy response is going to fail? Unfortunately I think there is quite a risk there".
These anti-euro sentiments could have just as easily been uttered by Ed, who as Gordon Brown's closest adviser has been credited with doing more than anyone to keep Britain out of the single currency from 1997.
In fact, the Balls brothers share many of the same views on issues such as the best way forward for the UK economy ("If you can't grow, fiscal austerity is self-defeating," they say) which is not a surprise when you learn that the younger brother helps his elder sibling write political speeches.
Despite being born almost seven years apart, the similarities between the two brothers extend to their education and early careers too. Both went to Nottingham High School, Oxford University and Harvard before pitching up at the FT. Still, their personalities and manner are different.
Andrew Gowers, the former FT editor who worked with both, said: "More than once I heard [Andrew] referred to as Ed's clever brother. He's a modest, cerebral guy, without the pointy elbows of his brother. More thoughtful. More of a markets guy. He always had a modest way of putting his views across. Both are super-clever. Ed is much more political. Andrew is more interested in finding the truth about economics and markets. Ed is always looking for the political angle. It is not at all surprising where they have both ended up."
Andrew has "ended up" on Pimco's investment committee, a coterie chaired by Gross and made up of eight full-time members from Pimco's 2,038 employees. Balls is also a director of Pimco Europe, where the latest accounts show directors earning an average salary of £8m each, sharing £48m in 2010 – and with the highest earner taking £25m. Balls only joined the board in October of that year, so would have been paid a small portion of the £48m, but the numbers suggest he is by now a wealthy man. He certainly has the trappings, living in a posh house in St John's Wood, London, and his financial success is rumoured to have benefited Ed: friends say Andrew has given thousands to his big brother. Neither Andrew nor Ed would comment on the claims.
But while the brothers can boast a long-standing anti-euro stance which now looks shrewd, both are open to criticisms that they called another – possibly more important – part of the crisis incorrectly.
There are many who will never again quite trust Ed's economic crystal ball after he was so closely associated with New Labour's devotion to "light-touch" regulation of the City. Andrew was largely on that side of the debate too, lauding the former Federal Reserve chairman Alan Greenspan who – along with former US Treasury secretaries Larry Summers and Hank Paulson – was one of the most influential pre-crisis voices resisting calls for regulation of financial derivatives.
In December 2005, as Greenspan prepared to leave the Fed, Balls wrote an FT article describing him as a "genius"; explaining how the Fed had been "strengthened during Mr Greenspan's long tenure"; and stating how "Greenspan has established a record of getting the big calls right".
Behind closed doors he still praises Greenspan, who also ended up becoming an adviser to Pimco, meaning Balls continued to see him regularly.
To many who know him, the alliance seems odd. Daniel Bogler, a former managing editor of the FT, said: "Andrew was mainstream at the FT. He very much believed that you shouldn't have unfettered free markets and capitalism. He seemed too left wing for what he is doing now – the straight free market stuff."
Left wing, most probably. Pragmatic, certainly. As Gross himself told the FT last year: "We try and get as much information as possible. We have people like Andrew Balls who likes to have lunch with central bankers – I don't think it's inside information if it's said at lunch and it's all above board."
In that spirit, here is some internal information from Pimco.
When the bond group was publicly trashing UK debt in 2010, insiders say there was one member of the investment committee arguing the view was wrong. His name? Andrew Balls.