ISSUE 6 3
Investment news for clients of St. James’s Place Wealth Management
autumn 2009
james caan
the optimistic dragon
Investor| |07
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TheThe
Investor
02 | The Investor
Contents
Welcome
05
ALAMY/iSTOCKPHOTO/DREAMSCAPE/REX
Welcome to the latest edition of The Investor.
We have passed the first anniversary of the collapse of Lehman Brothers,
which triggered the worst phase of the financial crisis and intensified the
world recession. The world economy appears to have stabilised for the time
being and equity markets have rallied since their lows in March.
An end to recession does not mean the start of a rapid recovery, however.
As economist Roger Bootle, our guest columnist, points out in Analysis, it
may be some time before economic growth resumes business as usual.
However, that should not freeze us into inaction when it comes to
planning our financial futures. Next April will see income tax rates rise and
personal allowances fall for some higher earners, making it harder, rather
than easier, to save for retirement. The message is clear: more than ever our
futures rest in our own hands. The good news is that, with careful
planning, investment opportunities and tax benefits are still there for those
that take the time to plan ahead.
I do hope there will be lots here to interest you. If you have any queries,
please do not hesitate to contact your St. James’s Place Partner.
06
08
10
14
Sir Mark Weinberg
Chairman, Investment Committee,
St. James’s Place Wealth Management
04 Going Long
12
Finding profits in pest control
Dragons’ Den star James Caan on
entrepreneurs and the economy
05 Investor News
What does the future hold?
14
06 Analysis
Jim Murray talks about
his latest Whisky Bible
15
Offshore retirement planning
For further information on any of the articles in this issue of The Investor, please contact your St. James’s Place Partner
Looking Ahead
Making full use of tax breaks
when planning your retirement
...the commodities cycle?
Back to Basics
The Issue
Confidence builds in property
16
10 Why Should I Care About…
11
Fund Management
How the Investment Committee
selects the best fund managers
Tackling national debt
08 My Money
The Interview
17
Fund Update
Your guide to the St. James’s Place Funds
16
08
04 | The Investor
The Investor | 05
Going long
Investor news
Signs of life
RENTOKIL INITIAL
Breeding profits
A year after the crash, is there any good news?
A fund manager reports on a best buy
– Schroders’ Nick Purves
W
which we believe has hidden
attractions, is Rentokil Initial.
Rentokil has been around since 1924,
when it was set up to market a fluid that
killed death watch beetles. Having
broadened its pest control horizons over
the years, it became a stock market darling
in the 1990s, under CEO Sir Clive Thompson,
otherwise known as “Mr Twenty Percent”.
His mantra was to deliver 20% earnings
growth year in, year out.
That becomes harder over time, since each
year the compounded number gets higher.
To keep going, Thompson did what so many
others have done – he resorted to acquisition,
winning a hostile battle for the much larger
British Electric Traction (BET) in 1996.
Among its conglomerate interests was the
Initial laundry business, and from then
on the enlarged group was renamed
Rentokil Initial.
To boost short-term performance,
Thompson underinvested in the business and
stripped out a lot of costs. For a time that
increased margins, but something had to
give. As Rentokil’s prices became higher
and its service standards lower, customers
defected and profits began to suffer.
As profits sank, so did the share price,
which more than halved from its 400p level
of the late 1990s (though worse was to
come). Thompson became chairman, making
way for a new CEO, then
left the company altogether in 2004.
Yet another new CEO was appointed
in 2005, only to preside over a series
of profit warnings.
Perverse though it sounds, we were
particularly attracted to Rentokil Initial.
The market tends to value companies in
terms of their operating performance today,
not what it could be.
But hidden inside Rentokil Initial we could
see a decent business – pest control – that
was not operating to its full potential. What
it needed was the right management to
uncover it.
We started buying the shares in 2005,
believing that the first new management
team could deliver the company’s potential.
That proved not to be the case. So, since
our first duty is to our clients – including
St. James’s Place – we were actively involved
in finding and installing a replacement team
in March 2008. They are new chairman
John McAdam and CEO Alan Brown, who
both previously turned round ICI.
In order to align the interests of
shareholders absolutely with those of
management, their rewards package is based
on share price performance, and the price
they must hit is meaningfully high.
Now, since they arrived,
the macro-economic climate
has deteriorated
markedly, affecting
all businesses to
a greater or
lesser
“Hidden inside Rentokil
Initial we could see a decent
business – pest control –
that was not operating to
its full potential”
extent. But we think that Rentokil Initial is a
fundamentally sound business, which now
has good management, heavily incentivised.
To achieve the maximum payout,
management will have to get the share price
to 280p. But the company has been run so
poorly in the past that there is significant
scope for earnings to increase. It will take
at least three years from now, but we are
taking a medium-term view of Rentokil
Initial’s potential.
We can afford to do that. We have paid
different prices for the shares as we have
added to our holdings over time, but it
averages out at about 80p.
Today they are trading at around 117p.
If management hits its target, the gains
are likely to be considerable.
117p
(ON 12/10/09)
2009
80p
(AVERAGE)
2005
see-sawed its way downhill, from 5,416 the day before Lehman went bankrupt
to a low of 3,461 in March this year.
The government and the Bank of England have pumped many billions of
pounds into the banking system and, even if banks remain reluctant to lend the
money on, at least none has imploded. With glimmers of recovery here and
elsewhere, a careful confidence has gradually returned to financial markets.
Equity markets staged a recovery and, by the anniversary of the Lehman
disaster, the FTSE 100 was nearly back to where it had been a year earlier
(see ‘Time to get back in the market?’, The Investor, Issue 62, Summer 2009).
Third quarter figures from Thomson Reuters revealed which other segments
of the global capital markets
were coming back to life – and
those which were not. Mergers
and acquisitions were at a
six-year low. Loans, given
the banking sector’s
tight-fistedness, were at a 10-year low. Corporate bond issuance, on the
other hand, was at an all-time high as companies found other ways to raise
money. New stock market listings, or initial public offerings (IPOs), were
starting to tick back up in the US and Asia.
The stock market recovery is likely to be erratic, given the heightened
sensitivity of investors in this environment to any bad news. But confidence
will hold as long as indicators from the UK and world economy remain on the
favourable side.
If the US used to be the engine of the world economy, right now that role is
being played by Asia. China posted economic growth of 7.1% for the first half
of the year and seems determined to hit 8% for the full year. To do so, it is
trying to encourage domestic demand, to compensate for its shortfall in
exports. The Indian and Indonesian economies have also remained positive,
thanks partly to domestic consumption.
France and Germany are officially out of recession, as is the US, technically
speaking. The UK economy was still shrinking in the second quarter of 2009,
however, though the rate of decline was slowing. While the housing market
shows signs of improvement, unemployment keeps rising.
Stock markets tend to look ahead and reflect what they see, say, six months
down the road. St. James’s Place fund managers have differing views on quite
how drawn out the recovery will eventually prove to be. But most agree that
equities are still reasonably priced, and that any volatility is likely to present
further opportunities.
“A careful confidence
has gradually returned
to financial markets”
CORBIS
iSTOCKPHOTO
e like to look for value in
unloved companies. One that
has been much unloved, but
A
full year has passed since US investment bank Lehman Brothers
collapsed and the financial crisis began in earnest. The 13 months
since then have not all been easy, but some stability has returned
to the world of finance and markets, making equity valuations
look reasonably attractive.
The darkest days now seem a long time ago. They included a series of what
were effectively bank nationalisations and the news, in January, that the UK
was officially in recession for the first time since the 1990s. The FTSE 100 index
TAX AND RETIREMENT PLANNING Tax relief on pensions
contributions will change in 2011 for those whose income is over
£150,000 a year. But there are also more immediate opportunities
for some below the £150,000 threshold. For both, now is the time
to take advice. For details see ‘Higher growth’ on page 16.
TheInvestor
Investor ||07
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06 | The Investor
Analysis
Red but not dead
With the national debt on the rise, economist Roger Bootle ponders the
government’s options and suggests some investment opportunities
M
REX
uch has been heard recently
about ballooning UK
government debt and its
implications for the future.
What does it all mean and should we be
worried about it?
Government debt is self-explanatory – it’s
the total indebtedness of the government,
accumulated over the years as it borrows
money to pay for providing public services.
Like people, governments have to supplement
their income with borrowing. If they were to
rely solely on tax revenues, they couldn’t
afford to pay for many of their obligations.
Normally, the bulk of this money is raised
by selling government bonds – gilts, in the
case of the UK government – to investors.
Since the credit crunch began to bite in the
summer of 2007, the large sums used to prop
up failing banks have greatly increased the
government’s borrowing needs.
The Bank of England’s £150bn (with
another £25bn in reserve) quantitative easing
programme, effectively a form of printing
money, has greatly increased its indebtedness.
The conventional measure of any
government’s indebtedness is the amount it
owes as a percentage of Gross Domestic
Product (GDP). That fluctuates over time. In
1976, for example, UK government debt was
54% of GDP, falling to 30% in 2002. This year it
has almost passed the 60% mark – at around
£800bn – and it will probably get quite close
to 100% of GDP, currently around £1.5 trillion.
That sort of level can cause concern in
some quarters. Earlier this year, Moody’s,
one of the rating agencies that assesses the
creditworthiness of sovereign and corporate
borrowers, announced that it would consider
downgrading the UK’s top-rank triple-A
rating. And the reason it gave was the fear that
the UK’s debt-to-GDP ratio might hit 100%.
As it happens, Moody’s decided to leave
the rating unchanged. But a higher debt ratio
of itself is no cause for panic. In 1819 it was
over 250%, but that was followed by Britain’s
“I think that the next
government will go for
the tough option, cutting
spending and raising the
standard and top rates of
income tax as well as VAT”
best economic years ever – the Industrial
Revolution – and the ratio fell steadily for the
rest of the century. By 1946 debt had again
risen to around 250% of GDP, but within 50
years it was back below 40%. In both cases,
economic growth allowed the debt to be paid
down gradually and high burdens of national
debt did not lead to great national penury.
There is a difference between being stuck
with a large debt and being stuck with a large
debt that is out of control. What frightens
financial markets is the fear that a nation
might default on its debt, not the absolute
level of the debt itself.
What should the government do to reduce
the debt? One option – the one I would take - is
not a lot. You can’t do absolutely nothing at all
or the markets would start to worry, but
NET DEBT (AS A PERCENTAGE OF GDP)
60
55
50
Excluding financial
45
sector intervention
40
35
making the debt even harder to pay off.
You can’t lower interest rates to stimulate
the economy, because they are already as low
as they can go, which makes it a bad time for a
financial squeeze. The right time for that kind
of action is when the economy is strong, so
then you’re just taking off the froth.
That said, I think the next government will
go for the tough option, cutting spending and
raising the standard and top rates of income
tax as well as VAT. The Conservatives’ first
Budget could be dreadful, wincing stuff,
throwing in the kitchen sink and blaming
Labour for the need to clean up after them.
That might be good politics, but it won’t be
so good for the economy.
If you believe that’s what they will do, the
investment consequences will include very
low interest rates for a long time – perhaps five
years. I would be bullish on gilts, since yields
would have further to fall, providing gains for
holders. But this comes with a warning.
Investors need to be aware that as yields on
gilt investments rise over the medium to
long term, their value will decline accordingly.
Against bonds, equities look merely fair
in the short term, but rather good over the
medium to long term. Commercial property
is also looking good. Yields have moved up
sharply and the spread over gilts is at an
all-time high.
Roger Bootle is managing director of Capital
Economics and writes a regular column for
The Sunday Telegraph
30
25
1997
April
renewed economic growth will do the job
over time. The alternative is to go for a quick
reduction by raising taxes substantially and
slashing spending. That could be dangerous
and might not pay dividends. By taking all that
demand out of the economy you could put it
into a tailspin, reducing tax revenues and
1999
April
2001
April
Source: National Statistics
2003
April
2005
April
2007
April
2009
April
The views and opinions expressed in this article are
those of Roger Bootle and are not necessarily held by
St. James’s Place Wealth Management
08
Investor
06 | The
Investor
News
The Investor | 09
My money
Tasting profits
W
PHOTOLIBRARY.COM
What if you could sample whiskies and get paid for it?
Jim Murray does, and makes his money work as hard
as his taste buds, he tells Matthew Freemantle
hen he answers the telephone,
whisky aficionado Jim Murray is in
his laboratory in Wellingborough,
acquainting himself with a Clynelish 1983
single malt from the Scotch Malt Whisky
Society. But all he really wants to talk
about is the bible.
Now in its seventh year, Jim Murray’s
Whisky Bible – the flagship title of Murray’s
own publishing company, Dram Good Books
the similarities.’ Wherever possible,
Murray tries to use humour in
his reviews.
‘I hate pretentiousness. When
you hear someone going “Mmm,
I’m getting a touch of Rhodesian
envelope in this one” you know
he’s got no idea what he’s talking about.’
Murray’s fascination with whisky dates
back to a trip to Skye’s Talisker distillery in
When he’s not working he goes
on birdwatching walks or searches
for additions to a collection of
Millwall FC match programmes –
insured for over £100,000 – that
includes the club’s oldest in
existence, dated 1892.
But with the publishing business, tasting
tours around the world and visits to as many
distilleries as time permits, Murray is seldom
– sells between 40,000 and 60,000 copies,
making it the biggest-selling whisky book
in the world.
With translations planned for several
international countries, including Brazil,
China and Japan, and a US release secured for
the 2010 edition, he hopes sales will double
in the next three years.
The 2010 edition features more than 3,850
whiskies from distilleries all over the world.
Nearly 1,000 brand new whiskies entered
the market in the past year, and Murray’s
ambition is to review them all.
Each whisky is marked out of 100, with
four categories – nose, taste, finish and
balance – worth 25 marks each. ‘Whether I’ll
have the time to do them all I really don’t
know,’ says Murray. ‘I don’t make tasting
notes until the third or fourth taste.’
A normal day during tasting season will
see Murray take a 6am walk, perform a series
of mouth exercises, drink a strong black
coffee to kill any oral toxins, warm up with a
few distinctive whiskies to check that his
taste buds are working before locking
himself away in his tasting room.
Not a soul may enter it, lest their body
odour corrupts the air. It sounds altogether
like an extreme sport. ‘I really do have to be
disciplined with it,’ he says. ‘If I start getting
drunk I won’t taste properly.’
With so many whiskies to taste, does he
ever struggle to differentiate? ‘To say every
whisky is completely different is a fallacy.
My writing breaks through these deceptions
and makes whisky easy for people to
understand. It is a question not only of
understanding the differences but also
1975. ‘I remember the smells and sounds
vividly. There was something primeval
about it and it just stuck with me,’ he says.
From then on he would take any chance
he could get to visit distilleries, sneaking off
here and there when on assignment for his
newspaper. ‘I was also inspired by the fact
that a lot of whisky writing was done by
wine writers and was, by and large,
complete rubbish,’ he says.
Murray, now 51, has always been a
journalist. At 16 he presented his first
TV show, Murray on Mondays, which
summarised the week’s activities in
Northamptonshire, and by the time he
was 21 he had a job on Fleet Street.
off duty. He says he had nine days off in
2008, including weekends.
Another source of income is corporate
whisky tastings, for which Murray has been
flown all over the world to hold. ‘Oddly,
despite the recession, I haven’t seen any
tail off in interest in the corporate events,’
says Murray.
He supposes it might have less to do
with him and more with the whisky itself.
‘As one executive said to me: “Funny how
negotiations tend to go a lot smoother when
people have a few whiskies in them.”’
Murray has long fought for the publishing
rights to all his books and now deals with
publishers only for distribution deals. He notes
that he made more money on a self-published
book about the history of Millwall FC, which
sold 6,000 copies in six weeks, than he did on
1997’s The Complete Guide to Whisky, which
shifted over a quarter of a million.
The ‘pretty brutal financial decisions’
he had to make to win those rights back
and reclaim ownership of all his work
have honed his business acumen. ‘Every
question of financing has to be done with
utmost care,’ he says. ‘We have to make
every cent count.’
With the guidance of his St. James’s Place
Partner David Claydon, Murray is constantly
endeavouring to manage his business and
money better.
‘We need cash flow to release books, we
have to employ people and the overheads
are high,’ he says. ‘I’m building a little
empire here. We’re always sitting down
to analyse everything and see how we
can be sharper.’
“ To say every whisky is
completely different is a
fallacy. My writing breaks
through these deceptions
and makes whisky easy for
people to understand”
10
Investor
06||The
Investor
News
The Investor | 11
Why should I care about... the commodities cycle?
BACK TO BASICS
Offshore pensions
By William Trevor
The power of prices
The price of commodities, especially oil, exerts a huge influence
on the world economy, writes Edward Russell-Walling
iSTOCKPHOTO/ALAMY
T
he oil price has been up and down
within the $60-$80 a barrel range in
recent months. Every time it looks like
breaking to the upside, there are two very
different reactions in the marketplace. One
party fears that dearer oil will derail the global
recovery. The other thinks it heralds the
resumption of the commodities ‘super-cycle’.
Commodities cycles are an enduring
feature of economic life. Commodities
themselves fall into three broad categories:
energy (oil and gas), metals and food. The
most recent commodities boom involved all
three, which is highly unusual – earlier
booms have embraced two at most. In the
1970s, for example, energy and agriculture
took off but metals slumped.
Oil is the most influential of the lot because
its price flows through to almost every aspect
of the marketplace, by driving up or down the
costs of energy, transport and agricultural
inputs. That in turn affects prices of the other
two commodity groups.
The commodities boom of 2003-2008 was
the most prodigious ever seen, but its pattern
was a familiar one. Emerging markets,
particularly an industrialising China, were
forcing the pace of their own economic
growth and were hungry for raw materials.
These included iron ore and metals such as
copper and aluminium. And, of course, they
were consuming more oil.
This demand forced up prices across the
board. In the case of metals, the situation was
aggravated by mining companies’ failure to
bring on new capacity in the preceding
years, so supply shortages pushed prices
up even further.
Commodities prices rose by more than
100% between 2003 and their 2008 collapse
and, in some cases, multiples of that. Oil rose
from a low of around $9.64 in December 1998
to an all-time high of $147.27 in July 2008,
a hike of over 1,400%.
One theory, not universally agreed, is
that oil price spikes always cause recessions.
Certainly, one followed the other in 1973,
1979 and again in 2008.
What most economists agree on is that
high oil prices cause higher inflation, which
prompts central banks to raise interest rates,
which then slows the economy.
Commodities booms typically last around
10 years. Some believed that the last one
was a super-cycle and would go on for 15
or even 20 years.
The question now is whether the supercycle is well and truly over – and therefore
not quite so super – or is still under way, and
is merely being masked by recession. Those
who believe the latter say that as soon as
“Most economists agree
that high oil prices cause
higher inflation, which
prompts central banks to
raise interest rates, which
then slows the economy”
recovery really sets in, oil will soar and
inflation with it.
What happens next depends to some
extent, like the last boom, on China and the
rest of the emerging world. China has
deployed a huge $585bn stimulus package
to support growth via infrastructure projects
and domestic consumption. That has fed
through into renewed metals demand,
boosting copper and nickel prices in
particular. Renewed Chinese activity largely
explains why commodities price indices have
risen 30% since the beginning of the year.
Yet China can’t do it alone. Yes, it uses one
third of the world’s steel and its demand is up
by 5% this year. But that can’t offset the other
two-thirds falling by 30%.
What’s more, China’s industrial revolution
is a one-off affair. All those new factories,
ports and steel mills only have to be built
once, and future Chinese development will
be less commodities-intensive. Belated new
mining capacity will act as a brake on metals
prices generally.
Nonetheless, recovery will boost oil
demand and, hence, the oil price. The
commodities team at Bank of America
Securities-Merrill Lynch thinks the oil price
collapse has been an under-appreciated
source of economic stimulus, and believes
prices over $80 a barrel could put the
recovery in developed countries at risk.
It doesn’t see prices being sustained above
that level this year, but says they could
well do so in 2010.
More Britons are packing up their belongings to retire abroad. One survey reckons there will
be 1.8m British expatriate retirees by 2025, rising to 3.3m by 2050. But what can émigrés do
with their pensions? Since the introduction of the new regime on 6 April 2006, one answer
for some has been a Qualifying Recognised Overseas Pension Scheme (QROPS).
In essence these arrangements allow individuals to transfer their UK pension abroad –
whether retirement benefits are in drawdown or not – without being penalised by
HM Revenue & Customs (HMRC).
The key element is their qualifying status. HMRC has drawn up a list of offshore plans
that it recognises as being appropriate, although this is not exhaustive. Any scheme on the
list, however, will have agreed that at least 70% of a retirement fund is used to provide a
lifelong income, and that no benefits are paid to members before age 50.
Caution does need to be exercised, however. If a pension is transferred to a plan that is
not approved, or where qualifying status is later revoked, an ‘unauthorised payment’
charge of anything from 40% to 55% is levied.
St. James’s Place has launched a Guernsey-based QROPS in conjunction with Close
Trustees Guernsey Limited – the Close Guernsey Personal Retirement Plan. The Guernsey
authorities have worked closely with HMRC to draw up a code of practice to ensure that
any funds transferred retain their qualifying status.
Those who transfer their pensions to the plan can take a tax-free 25% lump sum at
retirement age. As members do not have to buy a traditional annuity, regardless of their
age, there is considerable flexibility over the distribution of retirement funds.
Income can be taken as regular
drawdown, as an annuity or as ‘annuity
certain’. Drawdown conditions are
similar to UK-registered arrangements.
However, Guernsey law requires that
some income must be taken – between
5% and 120% of comparable annuity
income (the so-called GAD
[Government Actuary’s Department]
rate) – before age 75. After 75,
minimum and maximum drawdown
changes to 55% and 90%.
The annuity option is similar to a
unit-linked annuity under UK rules,
though payments are subject to
revision every five years. An annuity
certain promises a defined payment
for a defined period – more than three
years but less than 10 – and is paid
regardless of whether the member
dies during this period. When it ends, you can choose another annuity certain, an annuity
or regular drawdown.
However, the most significant benefit is, arguably, the potential to mitigate any
Inheritance Tax liability. While any pension fund that remains in the UK can face tax charges
of up to 82% on death, such restrictions do not exist in Guernsey. As such the total
remaining retirement fund may be paid to beneficiaries of your choosing.
A QROPS will not suit everyone. The important question is whether or not it provides
greater benefits after charges and tax than the existing UK scheme. As ever, it is important
that you take advice.
TheInvestor
Investor ||07
13
The
12 | The Investor
The interview
J
ames Caan has probably always been an optimist. Anyone who can
build a small firm into an international business needs a healthy
ration of positive thinking. But whether it’s his basic nature or not,
he feels optimistic about the business climate in the UK right now.
‘It’s a good business climate for an entrepreneur,’ he reckons. ‘I believe
we have hit the bottom of this painful economic slump, and will see steady
consumer demand growth throughout the next six months.’
A successful businessman for more than 20 years, Caan became widely
recognisable in 2007 when he joined the panel of BBC Two’s Dragons’ Den.
Like the other four TV Dragons, he considers whether or not to invest his
own money in the schemes of a procession of aspiring entrepreneurs.
But how does he choose where to invest his cash? ‘I buy into people,’
Caan admits. ‘If someone has the drive and passion for their business,
it works for me.
And so began the task of building and developing what is now a
state-of-the-art primary school in Lahore providing an education to
more than 420 children between the ages of 5 and 11.
‘This project doesn’t just make a difference to the lives of the children,’
Caan explains. ‘I’ve realised that it has the potential to completely change
the dynamics of the village. As those children that we’ve educated grow
up and get work, they’ll bring money back to the family and, eventually,
the entire village will benefit.’
This year he plans to ‘finish what he started’ by funding the
development of a secondary school that will allow the children of
the village to complete their schooling. He also wants to ‘take full
responsibility’ for the education of 1,000 of his school-leavers by
providing university scholarships as and when the time comes.
In the meantime, Caan says his focus is entirely on Hamilton Bradshaw,
‘Being an entrepreneur isn’t just about having a good idea. Passion
is what makes an individual successful; it’s the very foundation of
their business.’
Having travelled the road himself
and knowing where it can lead, Caan
wants to see a more entrepreneurial
Britain. And he thinks that the
government, this one or the next one,
should assist. ‘In an anaemic job
market like this, well-defined
financial incentives go a long way to
encourage entrepreneurship as an
alternative to job hunting,’ he says.
‘We need to concentrate on
inspiring younger entrepreneurs,
so the government needs to offer tax
relief to first-time entrepreneurs and
the first five employees in their business.’ He has called for a two-year
tax holiday for first-timers. He also suggests that government agencies
such as Business Link and the Learning and Skills Council should team
up with student societies to deliver appropriate education and training
programmes for the young.
Education is close to Caan’s heart. As an independently minded young
man, he left school without taking his O-levels to seek his fortune in
business. ‘The irony of it was that, the more successful I became, the
more people wanted to know where I had been educated,’ he says.
So in 2003, after selling all 14 of his businesses, including recruitment
firm Alexander Mann and executive headhunters Humana International,
Caan enrolled in the Advanced Management Programme at Harvard
Business School.
After graduating, Caan - who is said to be worth £65m - took a trip
to his native Lahore in Northern Pakistan for the first time in 30 years.
‘Arriving in the country, I was completely taken aback by the poverty and
lack of education. People were living in shacks with no electricity and
their only prospects were to work on the small family farm.
‘In the past I’d been a chequebook philanthropist, donating money
here and there, but I’d often wonder how much of a difference I was
really making. My visit to Pakistan gave me the opportunity to really
take an active role in giving something back.’
the private equity firm he
established in 2004. From
their Mayfair offices, the
26-strong team look for
investment opportunities
across a range of sectors.
Caan suggests that such
opportunities are plentiful.
‘Most items on today’s
market were made for
overindulgent, earlydecade consumers – look
at the oversized luxury
products industry, for
example,’ he points out.
‘That means there is ample
space for new, economical,
inventive products that
meet the demands of the
James Caan (left) with fellow Dragons’ Den
members Duncan Bannatyne, Deborah Meaden,
modern consumer.’
Peter Jones and Theo Paphitis
Smart investors should
be looking at green
technology and internet-based marketplaces, he believes, with green
tech set for steady growth over the next 50 years. ‘The marketplace is
cramped,’ he admits. ‘Picking a winning company is not an easy job but,
if it’s done right, with the right people, it will assure big profits.’
“Being an
entrepreneur
isn’t just
about having
a good idea.
Passion is
what makes
an individual
successful”
Dragons’ Den star James Caan
believes that investing in
people is the key to success,
as Sally Littlefair discovers
A dragon’s eye view
PHOTOGRAPHY: STEVE JENKINS - www.perceptionphotography.com
James Caan’s CV
1960
Born, Pakistan
1978–1985 Various positions in
recruitment companies,
including Oxford Street branch
manager of Alfred Marks; also
invests in boutique run by his
wife Aisha
1985
Founds recruitment company
Alexander Mann
1993
Co-founds executive
headhunters Humana
International
2003
2004
2005
2007
Enrols in the Advanced
Management Programme,
Harvard Business School
Founds private equity company
Hamilton Bradshaw
Funds the building of
a primary school in Pakistan
Joins the panel of BBC Two’s
Dragons’ Den
TheInvestor
Investor ||07
15
The
14 | The Investor
BACK TO BASICS
Fund management
Edging ahead
THE ISSUE
Andrew Humphries explains how four new fund managers
passed the Investment Committee’s acid test
Property perks up
By Edward Russell-Walling
Financial writer and editor
iSTOCKPHOTO/PHOTOLIBRARY.COM
T
here have been some changes recently
to the firms and individuals managing
the St. James’s Place UK & General
and Greater European funds. The new
appointments illustrate how the Investment
Committee ‘manages the fund managers’
on behalf of St. James’s Place clients.
The new appointments are John Wood
of J O Hambro Capital Management and
Liberty Square Asset Management’s
Peg McGetrick for the UK & General
Progressive portfolio; and Stuart Mitchell
of SW Mitchell Capital and Burgundy Asset
Management’s Kenneth Broekaert for the
Greater European Progressive fund.
At its simplest, the job of the Investment
Committee is to generate consistently
superior returns by selecting the best
individual investment managers. An integral
part of that is monitoring them to make sure
the Committee remains happy with the
choice, and changing them if necessary.
When it came to the UK & General and
Greater European replacements, Stamford’s
advice was to adopt a multi-manager
approach, with two different managers
jointly managing each fund. This has
diversification benefits, since two different
investment styles are being brought to bear
on the portfolio. This should have the effect
of reducing manager-specific risk,
particularly over short-term performance
cycles, without diluting investment results.
Stamford continually assesses the universe
of fund management talent. In the case of
UK equity managers, for example, in recent
years it has reviewed and rejected more than
150 who did not reach the required standard.
The corresponding number for Europe is
more than 200. On the
other hand, it keeps a
roster of those who have
satisfied an initial
investment assessment
and due diligence process.
For this assignment
Stamford drew up
a long-list of 38 managers
from its roster, narrowing
them down to 12 before
making final recommendations to the
Investment Committee. It’s interesting that
two of the four recommendations are based
in North America – Liberty Square in Boston
and Burgundy in Toronto.
Stamford believes there is a real dearth
of home-based, talented, fundamental UK
stock pickers. As it points out, much of the
information required by today’s managers is
available anywhere in the world at the touch
of a button. So there is little immediate
advantage in the fact of simply being ‘local’.
Both managers travel extensively to the
regions in which they invest and both firms
are well known among
the City community of
bankers and analysts. But
what really differentiates
them is their skill in
interpreting this
information and their
ability to build a
competitive portfolio.
J O Hambro, investing
since 1993, and Burgundy,
“Experience
shows that the
best-performing
managers over the
short run are usually
unable to repeat
their success over
the long term”
in business since 1991, are new appointments
for Stamford. Some of its clients have worked
with Liberty Square for 10 years or more, and
with Peg McGetrick – specifically on UK
equities – for three years. Stuart Mitchell has
worked with Stamford since its earliest days
and has managed the Continental Europe
mandate for St. James’s Place since 2007.
As Stamford points out, simply focusing on
the best-known managers, or those at the
top of investment league tables, is unlikely
to achieve the future results clients expect.
Experience shows that the best-performing
managers over the short run are usually
unable to repeat their success over the long
term. Often their success comes from luck,
not skill, or because they were betting on
the overall direction of the market.
Exceptional investors are those who can
perform better than their peers over a wide
range of market conditions. That’s because
they have superior skills in stock selection,
and it’s these skills that are analysed and
tested by Stamford Associates and the
Investment Committee.
After two years of falling prices and
general misery, a mood of tentative optimism
is beginning to emerge from the property
market – both residential and commercial.
Valuations seem to have bottomed out in
many parts of the country and investor interest
prepare for re-entry. When Hotbed, the
investment network, asked private banks about
their plans, over half said they were going to
raise their recommended allocation to
commercial property. And three-quarters of
them thought the coming year would be a
is reawakening. Some believe, however, that
we’re not entirely out of the woods just yet.
The past few months have seen a gentle
uptick in the indices that track housing prices
and market confidence. The Nationwide house
price index rose 1.6% in August, its largest
increase since November 2006. In the same
month’s Royal Institution of Chartered Surveyors’
poll of estate agents, optimism outweighed
pessimism for the first time in two years.
Top-end London homes remained ahead of
the pack, with prime property prices rising 4%
between June and September, according to
Savills, the estate agents. In choice areas such
as Chelsea, Kensington and Notting Hill, they
have risen by more than 9% since March.
Growing numbers of mortgage approvals
support the idea that some life is returning
to the residential market.
These numbers are based on greatly
reduced numbers of sales, and it’s simple lack
of supply that is underpinning prices. Apart
from a general reluctance to sell into a
depressed market, there are far fewer
distressed sales than in previous recessions.
This may be partly because interest rates are
so low, and partly because lenders shrink from
any foreclosure that would crystallise a loss.
Property price bears say that a sustained
recovery is unlikely until bank and building
society lending picks up significantly. Property
advisers Jones Lang LaSalle predict another 7%
drop next year, with a sustained recovery only
in 2012. Others point out that, if the overall
economy strengthens, interest rates will rise,
acting as a damper on the market.
Views on the commercial property market
are more sanguine, as a growing number of
investors decide that the worst is over and
good time to invest in the sector, compared
with only 33% a year ago.
Commercial property gives attractive income
in an environment where good returns are hard
to find, with the added possibility of long-term
capital growth. Investment Property Databank’s
benchmark index is yielding nearly 8%.
Some very big investors are looking at the
sector afresh. Francis Salway, chief executive of
the UK’s largest property company, Land
Securities, said recently that a turning point
had been reached. Values would rise over the
next five years, he said, though not necessarily
in a straight line.
Salway pointed to a rise in leasing activity in
central London, and growing demand for shops
in certain locations. And he said his company
was ‘rapidly’ approaching the time when it
would return to development in the West End.
Property magnate Sir John Beckwith is
another big hitter who is re-evaluating
commercial property. He is reported to have
teamed up with the former head of Lehman
Brothers’ European property private equity
group to seek out opportunities in Europe.
New investment funds are also popping up to
take advantage of the brighter outlook. But the
best value for property may be in existing funds.
Newcomers looking for deals will force prices up.
And who will benefit? Established funds with
good portfolios of existing properties.
16 | The Investor
The Investor | Looking ahead
Higher growth
he past year has not been a bed
of roses for anyone saving for
retirement, with investments being
buffeted by the markets and, for
some, a less friendly tax regime. That’s all
the more reason to take full advantage of the
tax relief and investment opportunities that
are still out there.
The financial crisis has wrought havoc with
the final salary scheme, which now seems
the FTSE 100 companies racked up a record
combined deficit of £96bn in the year to
July, according to actuaries Lane Clark
& Peacock. That’s double the deficit
recorded a year earlier.
Only three of the top 100 companies
continue to offer a final salary scheme, the
firm said. They are Cadbury, Diageo and
Tesco. And these rising deficits mean that for
the first time companies will have to spend
new benefits for existing employees, KPMG
research suggests. That won’t encourage
others to keep their schemes open.
This year’s Budget saw the introduction of
tapering tax relief on pension contributions,
from April 2011, for those with income of over
£150,000. The taper is such that those with
income of £180,000 or more will get tax relief
at the basic rate, currently 20%. Importantly,
this income threshold relates to total income
rather than merely earnings from employment
or self-employment, and includes dividends,
interest, pensions payments, income from
a trust and the excess over £30,000 on any
redundancy payments.
According to the government, the changes
will affect only 225,000 people. Whatever
the number, it’s true that the vast majority
in its death throes. The pension schemes of
more money on repairing shortfalls than on
will continue to benefit from higher rate tax
Make full use of tax breaks while
you can, says Bernard Dooley
alamy
T
Fund Manager
updates
St. James’s Place fund managers report on the last quarter and discuss
the future for financial markets around the world
“ The need for retirement
planning and advice
remains important.
A pension contribution
will reduce the amount
of income subject to tax”
relief on all of their pension contributions.
However, those with income of less than
£150,000 but with the future prospect of
earning more should be maximising their
tax relief while they can.
This year’s Budget also saw the
announcement that the personal allowance
– the amount that can be earned before tax
is charged - is to be reduced by one pound
for every £2 of income that exceeds the
£100,000 threshold.
Assuming that the personal allowance
remains at the current £6,475, those earning
between £100,000 and £112,950 face an
effective tax rate of 60%.
The good news is that a pension contribution
will reduce the amount of income subject to
tax, and those earning between £100,000 and
£149,999 can potentially get 60% tax relief on
their contributions. Take it while you can, but
get advice first.
Those earning under £100,000 may not
be touched by these particular changes, but
the need for retirement planning and advice
remains no less important - and they should
be contributing as much as they can to take
full advantage of the tax breaks for as long as
they are available.
The views expressed in these updates are the fund managers’ own and
St. James’s Place accepts no responsibility or liability for the information they contain
Keeping you informed when it matters most
In these uncertain times, information is more
important than ever. Our website provides a
wealth of up-to-date information relating to our
investment funds, including investment objectives,
top holdings, portfolio structure and performance.
Through the new ‘Fund Manager Updates’ section,
accessible from the home page, you can also view
the latest commentaries and analysis from our
fund managers.
For more information please visit www.sjp.co.uk
Get your ISA plans
on course
ISAs are one of the most tax-efficient investments available
and so you should consider making full use of your annual
ISA allowance.
The maximum that can be invested in an ISA has increased to
£10,200 for those aged 50 or over before the end of the tax year.
Ask your St. James’s Place Partner for information about
the St. James’s Place ISA.
The tax treatment of ISAs may be subject to change in the future.
Members of the St. James’s Place Wealth Management Group are authorised and regulated by the Financial Services Authority.
The St. James’s Place Partnership and the title ‘Partner’ are the marketing terms used to describe St. James’s Place representatives.
St. James’s Place UK plc – Registered Office: St. James’s Place House, 1 Tetbury Road, Cirencester, Gloucestershire, GL7 1FP, United Kingdom.
Registered in England: Number 2628062.
740 (10/09)