Green is the fashionable colour at Davos this year. No woke CEO dare say that the owners of the capital he commands are his paramount concern, or that “sustainability” means making sure your customers keep wanting your product at a price below its cost. Instead he must emphasise how the business is using fewer plastic bags, or flights, or horrid hydrocarbons, to do his bit to save the planet.

The green fashion extends to bonds, where the issuer pledges to use the proceeds in a way that will minimise the complaints from the climate activists. Some governments are trying them but not the UK’s, and this week, far away from Davos, we learned why.

Robert Stheeman is the man who runs the Debt Management Office, the issuer of stock to fund the British state’s insatiable appetite for money. He understands that a key feature of the government debt market is its liquidity, which means fewer, chunkier issues. The last thing he wants is a green gilt which is too small to be properly liquid, and the second-to-last thing he wants is a bond which costs the UK taxpayer more than a plain vanilla one.

Of course, if the green-signalling buyers were prepared to pay a premium for a good-sized issue, then he would be happy to oblige. So far, they are not, despite all their protestations of good intent. That may change one day, but the moral of the Davos green gush is that actions speak louder than words.


How do you solve a problem like Aviva?

Adrian Montague has decided that it’s too hard for him. The chairman of Aviva has just about served his five year sentence, and is getting (slightly) early release. It is not entirely for good conduct, since the shares are 22 per cent lower now than when he took over.

Actually, that’s nothing. According to Morningstar, Aviva shares first hit today’s price 28 years ago, when investors thought that Norwich Union, General Accident and Commercial Union would add up to more than the sum of the parts. How wrong they were. Aviva, still a £16bn company, is a case study in why life assurance mergers don’t work.

It is barely two months since Maurice Tulloch, the latest CEO, held a capital markets day, explaining that “Aviva’s focus is delivering sustainable growing returns to shareholders”. That would be a pleasant change, but a yield of 7.4 per cent at 410p says that few people believe him. Well, “life is complicated. Things don’t always go to plan” as Aviva’s website admits.

The complexity of the business provides a hint of why things do not always go to plan, and why some analysts had hoped for news of a break-up. Given that Mr Tulloch is an Aviva lifer, that was never likely, but a strategy of improve, sell and return the proceeds to the shareholders would make more sense than another reshuffle of the deck. After all, it is hard to avoid concluding that this company is worth more dead than alive, so best of luck to Sir Adrian’s successor.


It still doesn’t fly

Ah, HS2, that TSR2 on wheels. Anyone can see that it is a doomed project, as its backers deploy an ever-more exotic combination of justifications (get to Birmingham faster, release capacity elsewhere, boost the poor old north)  and threats (we’ll have to start firing the workforce, expertise will be lost) in their attempts to justify going on. For a gruesome, mis-step by mis-step guide to how it all went wrong, try this on Reaction.

The explanation for the latest leap in the cost to £106bn is pitiful. Apparently it is impossible to be sure the track won’t sink into the ground, or that the tunnelers won’t encounter some terrible black hole. In reality, the sum is little more than guesswork. The Department of Transport has an awesomely awful track record when it comes to estimating cost and completion dates for its projects, unstintingly documented by Private Eye over the years.

Besides, anyone who has had serious work done knows that a builder’s estimate is a sum of money equal to roughly half the final cost. At £106bn, HS2 would cost nearly £2,000 for every man, woman and child in the country, 90 per cent of whom will never use the railway. Is there no sum large enough for the proponents of this money hole to admit that it just isn’t worth doing?

A chorus of disapproval

Mike Coupe signalled his departure from J Sainsbury this week, to widespread raspberries from the press. Quite right too. Not mentioned in the announcement was the proximate cause of his quitting, the absurd attempt to merge with Asda.

About 10 minutes’ thought would have told him this was never going to be allowed, but instead he spent £45m of shareholders’ money finding out. That is roughly the profit his hard-working army of shop assistants earn Sainsburys from £2bn of grocery sales, and it was completely wasted.

Incidentally, as Nils Pratley pointed out in The Guardian, all three quoted grocers have now replaced their CEOs, and not one of the newbies is a woman. Well, what do they know about food shopping?

Several decades ago, the people behind the FTSE100 invented a new index, FTSE4Good, to track those companies which, in the compilers’ view, were forces for, well, good in the world. I proposed a FTSE4Bad, comprised of companies that were just too horrid to qualify for the new index.

The problem at the time was that almost the only exclusions were tobacco and armaments, hardly enough to build an index. In the 29 years since then, the virtue signalers have shunted oil companies and miners (excluding miners for lithium for electric cars, natch) onto the naughty step, and are threatening to add any bank with the temerity to lend for a thermal coal project.

Now that everyone has to pay lip service to the ESG movement, pledges to be good enough pop up in most unexpected places. Larry Fink sits atop the $7tn that Blackrock manages, and his annual “Dear CEO” letter is full of stuff about climate change reshaping finance (“Climate risk is investment risk”). He warns that Blackrock has been “engaging with companies for several years on their progress towards TCFD- and SASB-aligned reporting” (Dear CEO: Go and look it up), and if they don’t, then Mr Fink do such things, what they are yet he knows not, but they shall be the terrors of the earth.

What he and Blackrock cannot do, for the most part, is sell the baddies’ shares, because most of his investors’ money is in tracker funds. Only if the share price falls far enough to take the company out of the chosen index can the fund sell out (and then it must, regardless). His letter contains a rather woolly threat to vote against non-compliant boards, presumably to allow in others who may be less good at running the business.

The tobacco companies have prospered mightily as social pariahs, but notoriety is still something of a novelty for Big Oil. The managements are making all the right noises, but when your product is the raw material for climate hysteria, it’s hard to know what to do. It’s unlikely that Mr Fink can be much help, given that the only credible projections of global demand for energy show that while we can do without thermal coal, oil will be the dominant source for decades to come.

Fund managers are already being bounced out of BP and Shell, which is one reason why the shares yield over 6 per cent (nearer 7 per cent if sterling stays weak). Mr Fink can well afford to push the climate change bandwagon. For those us who need the money, the terrible twins remain an essential element in our portfolios.

The drugs don’t work

What purpose, exactly, would a cut in UK Bank Rate serve? Members of the Bank of England’s Monetary Policy Committee are softening us up ahead of their meeting at the end of the month, pointing to quiescent inflation and worrying about weakness in the economy.

Cheaper money is supposed to discourage saving and encourage spending, but with the prime interest rate at a barely-perceptible level, this is a trivial effect. Besides, the price that borrowers have to pay has long since parted company from Bank Rate. Another cut will make no difference to the cost of credit cards or car loans.

It might make domestic mortgages even cheaper, in a market made ferociously competitive thanks to the rules which classify them as low risk lending. As a result, today’s mortgage rates encourage home-buyers to take on debt they can afford only if rates never rise.

If it has any impact at all, a Bank Rate cut would make this worse. Indeed, we may already be at the point where a significant rise in interest rates is politically impossible because of its devastating impact on recently-mortgaged households.

Meanwhile, tiny Bank Rate’s weird cousin, Quantatitive Easing, has inflated asset prices, but has done less to stimulate consumer spending than the compensation payouts from PPI, that QE for the masses.

The damage QE is doing to life office and bank profit margins is clear, while companies with final salary schemes must provide extra capital which might otherwise have been productively invested. Both policies have long since passed the point where they help the patient. A fresh prescription is needed, not another dose of failed medicine.

Green about the gills

The latest rescue of Flybe provides a little vignette of what is to come as the promises to tackle climate change run into everyday reality. The pledges to cut, and the more recent ones to eliminate carbon emissions were all made by politicians who knew they would be long gone when those far-off dates arrive.

In the scheme of things, whether Flybe is permanently excused from paying air passenger duty, or whether it is just “extend and pretend” hardly matters, but this is just the start. Much more is at stake, both financially and politically, as the government strong-arms us out of our SUVs, and the pain of rising energy costs during a world glut starts to hurt.


Not even its staunchest allies would claim that quantitative easing has been a complete success. It has driven up asset prices wonderfully for those who own them, but it has signally failed to reach those who don’t. The impact on consumer spending has been less than that from the unplanned stimulus provided by the payouts from the payment protection scandal, the proceeds of which have mostly gone to the have-nots.

PPI is coming to an end, but Bank of England governor Mark Carney seems incapable of grasping the obvious lesson. This week he has been cheerfully claiming that he could cut interest rates, or order another round of buying government stocks, should the economy start to weaken.

Never mind his lamentable record in the prediction business. Never mind that Bank Rate is already effectively dislocated from the sort of interest rates borrowers have to pay in the real world, or that more QE would simply drive the return on government bonds from trivial to invisible, doing still more damage to pension funds and life companies.

It is time to admit that QE has been tested to destruction. Unfortunately, Mr Carney has no other ideas, so he is forced to repeat a failed prescription in the hope of a different outcome. His successor Andrew Bailey hardly inspires confidence. On his watch, the Financial Conduct Authority failed to see the obvious scandal that was London Capital & Finance until £230m of mugs’ money had been poured in. That is now mostly gone. Mr Bailey is the continuity candidate when some fresh thinking is desperately needed. On what we know, he is not likely to provide it.


Melrose wades through the mire

This week sees the second anniversary of 2018’s dirtiest defence against a takeover bid, as GKN employed everything (and everyone) its directors could muster in their desperate attempt at self-preservation. The engineer had been underperforming for years, and when the board bungled the succession, the buy-improve-sell boys at Melrose Industries saw their chance and attacked.

The board’s defence tactics included a scare story about the GKN pension fund and playing the “UK’s industrial jewels being sold to asset-strippers” card. Meanwhile, the directors arranged a sweetheart deal to sell half the business to a recently-bankrupt American company, complete with fat break fee. Just in case, the hastily-appointed “interim” CEO was made permanent and promised a healthy severance payment.

In the event, Melrose’s £8bn bid scraped home with the sort of majority familiar to students of UK referenda. There should have been no doubt, given the shocking behaviour of the defence, but the dithering tracker funds, plus the difficulty of actually getting the votes into proper legal form almost cost Melrose victory.

The winners found themselves owning an aerospace component and motor drive shaft business just as aerospace was cycling down, while the motor trade is convulsed by the war on diesel and the scramble to make money from electric cars. From 230p before the bid, the shares in the engorged company entered the FTSE100 index and fell, all the way down to 160p this time last year. At that point Melrose was valued at less than the £8bn it had paid for GKN. Something had gone badly wrong with the Melrose magic.

Or had it? The latest results are a jumble of adjusted and statutory numbers (even the sales figures are different) but performance is “in line with expectations” and debt is below them. The dividend is up, and the shares are almost back to the 240p they cost before the adventure started. The market value is now £11.7bn.

Melrose is quite unlike any other major company. It has no ambition to keep the businesses it buys, or to accrue capital, since sale proceeds are returned to shareholders. Given the state of both of the industries which are its customers, significant sales may be some years away, but if Melrose can prosper under these conditions, it will have some highly attractive assets when the cycles turn.

A mauling in the malls

Talking of turning cycles, is it possible that the death of the shopping mall has been much exaggerated? The Ogleby family, private players in this battered sector, seem to think so, having just plonked £23m into two centres near their HQ in Manchester, in a joint venture with the local council.

Meanwhile Prologis, an American real estate investor, has taken a north London shopping centre off M&G Property Portfolio, where investors remain locked in to prevent a run on the £2.5bn fund. Unfortunately, the buyer reckons the property is worth more as warehouses, which is hardly encouraging.

Over in the stock market, it’s clear that others feel the worst is past. Shares in Land Securities and Hammerson are up by a half since the August lows. Sadly for the holders of the other terrible shopping centre twin, Intu, there is no respite. Their shares have carried on down, making new all-time lows this week.

At 26p the business is valued at £350m. A rights issue sufficiently large to fix the balance sheet would effectively wipe out existing shareholders, even assuming investors can be found to take on the group’s £1bn-plus of debt. Those in charge of this company have been living in fantasy shopping mall land for the last couple of years. Reality is about to break in.




The senior managements at BP and Royal Dutch Shell have been in action this week, dealing with the increasing attacks on the oil business. While Shell struggled on the BBC, BP’s Bob Dudley was forthright in The Sunday Times, with a few home truths. “BP boss: green future is years away.”

It helps that he will shortly be BP ex-boss, which will allow him to point to the chasm between arbitrary future “carbon neutral” dates and the reality of the world’s dependence on oil. Those dates, wished on us by politicians who will be long gone by then, are likely to be as binding as promises to leave the European Union by last March.

In 2050, oil will still power the world’s economy, and the size of the reality gap is neatly illustrated by the gilets jaunes protests at fuel tax rise in France, and that it is six years since a UK Chancellor last dared to raise petrol duty.

For investors, though, the burning question is how to value big oil. Shares in the unloved duo each yield about 6.5 per cent, driven to today’s levels by a combination of genuine concerns about sustainability, and fund managers desperate to be seen as on-message.

From such conditions do opportunities for profit come. These companies have astonishing financial resilience, as BP demonstrated by funding a liability that might reach $145bn for the Macondo disaster and still emerging much the same as before. Shell overpaid hugely for BG, yet has maintained its dividend, scrapped its scrip scheme and is buying back shares.

The biggest danger to their balance sheets comes not from greenery but from a resumption of oil supplies from Iran and Venezuela, either of which has the reserves to upset the OPEC applecart and drive down the price of crude.

Still, these are routine, rather than systemic, threats in the oil business, and are eminently survivable. On today’s dividend, an investor in Shell or BP would get his money back in 11 years and still own the capital. If instead he bought a UK government security that paid his capital back in 2031, he is guaranteed 0.8 per cent a year, a total of 8.8 per cent over the 11 years. This is the so-called “risk-free” rate. Free of what risk, exactly?

Mutual misery

It seemed like a good idea at the time: a life assurance company entirely owned by its customers, with no greedy outside investors to skim off the profits. It was such a good idea that it lasted 258 years before meeting an ignominious end this week.

It was, of course, Equitable Life, which died of financial failure on New Year’s Eve, leaving about 300,000 elderly policyholders £4bn out of pocket. Under the new owners, a private equity business called Utmost, the remaining policyholders have had to trade guarantees for risky assets (like oil shares).

The cause of Equitable’s demise is simply stated: it made promises of returns to investors that it was unable to keep, because the assumptions behind the promises turned out to be wrong. Other life offices have made similar errors, but they had those greedy shareholders who were first in line to make up any shortfall. If those shares were also quoted on the stock market, then there was (and is) likely to be an early warning of trouble if the price mysteriously weakens.

Equitable had nowhere to go but to the state. After it was forced to close, Vanni Treves became chairman and heroically argued the case that regulatory failure was at least partly to blame for not seeing potential disaster earlier. He died in November, having seen stability, at least, restored.

The mutual structure, once commonplace in life assurance and pensions, has largely been abandoned today, partly because of the Equitable disaster. It still exists elsewhere, most prominently with the John Lewis Partnership, where profits at its department stores have collapsed. With no shareholders, the workforce has had to bear the pain of our changing shopping habits.

It has a new chairman in the formidable shape of Sharon (now Dame) White, who takes over next month. Coming from Ofcom, the telecoms regulator, she will know that there is no regulatory comfort for department stores. Perhaps she will conclude that it is time for John Spedan Lewis’s 70-year experiment to end.

The long goodbye

New Year predictions nowadays routinely include the arrival of the cashless society, pointing to the convenience and cost savings from using phones or cards. However, there is no sign of cash disappearing. Rather, as its use as a medium of exchange withers away, its use as a store of value is rising dramatically.

The commonest dollar note, measured by number in circulation, is the Franklin. The number of $100 bills out there has doubled in 11 years, and together they are worth $1.2tn ($1,200,000,000,000). Nobody quite knows why, but it’s easy to guess. Individually, they are (just about) negotiable in everyday use, while they allow your $1m of loose change to fit into a suitcase.

As authorities everywhere demand more information about what you own, the anonymity of old-fashioned paper money is obvious, even if you are not a drug-runner, gangster or arms trader, so they would like to withdraw high-denomination notes. Eventually, inflation will do the job for them, but since four out of every five Franklins are held outside the US, that $1tn of free money for the US government is likely to mean The Long Goodbye.

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The water companies are under the financial cosh wielded by Jonson (“Stop”) Cox, their regulator. This week he hit them with the toughest five-year pricing regime they have had to endure since the industry was sold off to the public under the teeth-grinding slogan “Water floats” 30 years ago. What was then a debt-free industry now owes £51bn, after paying out £56bn in dividends.

By a combination of luck (persistently declining or low interest rates), financial engineering (dividends on high-interest loans to connected investors) and out-manoevring previous regulators, the owners of some of the companies have made vast fortunes.

But not all. Three of the original 10 – United Utilities, Severn Trent and Pennon – have escaped being taken private. They remain listed on the Stock Exchange, with the constant scrutiny, proper governance, boards battered for poor performance, and share price exposure that brings. They are also the only three to have had their plans approved by Ofwat back in the summer.

Co-incidence? Well, maybe. But consider the position of Thames Water, the biggest and baddest boy in the industry. Taken over in 2001, it was sold on in 2006 to a consortium led by Macquarie, and disappeared from public scrutiny under a pile of intermediate holding companies.

Only recently, after Macquarie had taken its profits and gone, has the true state of the business become apparent. Skimped maintenance (more water leaked in 2017 than actually reached its domestic consumers), opaque governance and sheer greed contributed to one particularly cynical discharge of raw sewage and a £20m fine. The argument that private equity allows owners to take the long view, away from the short-termism of the stock market, is exposed as a sham.

Against this baleful background, the current directors must decide whether to appeal against Mr Cox’s eye-watering demands. The owners have pledged better behaviour, starting with no dividends for two years, but the sins of the bandits will fall on their buyers. They would be well advised to take their punishment and fix the business rather than endure the renewed public humiliation and uncertain outcome that a judicial review would surely bring.

Don’t hold the front page

Those of us who have been bulls of (and shareholders in) Royal Dutch Shell were stunned to see Wednesday’s front page splash: “Shell paid no tax on $731m profits after rebates for dismantling rigs”.  This would have been a stretch even for The Guardian, but the Financial Times, no less, considered it the most important story of the day.

The tax rebate comes about, not through some clever financial engineering, but because the North Sea platforms (not rigs) are reaching the end of their lives, and the operators are, reasonably enough, obliged to deal with them. This was always going to cost money, since it is a reasonable business expense. Successive UK governments might have allowed a depreciation claim while the oil was flowing, but governments always want money now rather than later.  Hence today’s tax credit.

Incidentally, had logic been allowed to rule emotions over the disposal of the Brent Spar storage rig (not a platform) in 1995, disposal costs – and the associated tax credits – would be billions of pounds lower today. Greenpeace captured the television news with graphic water-sprayed pictures of the Spar, under tow to its proposed Atlantic burial ground, claiming it was full of crude oil which would cause untold environmental damage.

In fact, it contained only a trivial amount of oil, but Greenpeace’s actions forced a change in the rules, to an expensive, dangerous and energy-intensive dismantling on land. So instead of creating a wildlife haven with sunk rigs and platforms in the Atlantic, intensive fishing has continued until the fish have (almost) all gone.

Going, going, gone.

It’s been an epic week for Pearson, marked at first by the death of Frank Barlow, former CEO, and later by the resignation of the current incumbent, John Fallon. While obituaries were suitably generous to a former newspaperman, neither could claim to have been great success stories.

Sir Frank was responsible for turning Pearson from a conglomerate to a media and education focussed group, by selling off some truly unique assets. These included interests in Chateau Latour, Lazard Brothers and Royal Doulton. For a while this de-conglomeration seemed to work, and the dotcom boom drove the price to £20 in 1990.

It has been downhill all the way since then. In his six years at the helm, Mr Fallon has continued to jettison assets, including the Financial Times, but the share price has halved on his watch. This week’s sale of the remaining minority interest in Penguin is symbolic.

In theory, the slim-line Pearson, a provider of textbooks in America, should be able to transition profitably to being a digital publisher, but success has eluded Mr Fallon. The task may also prove to be beyond his successor.

There will be no blog next week, since I’m giving you Christmas off. If you know anyone who might like this stuff, please tell them about

If you have been, thanks for reading.



‘Tis the season for broken promises from newly-elected politicians, so nobody really expects 50,000 nurses, 40 new hospitals or 20,000 more policemen, let alone free tv for all or zero carbon emissions by 2050. However, there is a quick, easy and relatively cheap way to signal that the Tories really care about their new friends in the north.

Recent studies confirm that connectivity is a vital ingredient of urban prosperity. The easier it is to get around, the more prosperous a city becomes, while increased frequency of service generates more demand, creating a virtuous circle. Outside London, the circle has often been vicious instead, with falling demand leading to cuts in services.

The bus is a hugely under-rated form of transport. It is cheap, flexible and, using modern technology, predicting when the next one will come gets easier every year. Londoners are used to being told how long they can expect to wait, but this should be just the start. It would be simple to set up systems to tell every potential passenger when the next bus will arrive at his chosen stop, anywhere in the country. He can then arrive at the stop at the same time as the bus.

In the context of transport spending, implementing this would be almost absurdly cheap, with the potential to turn the vicious circle of declining services into a virtuous one of increasing frequency. The cost would be a tiny fraction of the savings from scrapping the vanity project that is the wretched HS2, a scheme that would do far less to help the new northern Conservatives than a proper rail connection across the Pennines. Buses first, rail next. Who knows, happy travelling might even mean that those in the newly-won seats vote Tory next time.

The drugs are starting to work

You will have seen the magnificent bull market in drug shares. Obscure companies developing compounds with (deliberately?) tongue-twisting names have made fortunes for (often) lucky investors. Among the big boys, AstraZeneca has returned 12.5 per cent compound over the last 10 years.

Then there is GlaxoSmithKline. Over the same period, its shares have returned less than 7 per cent on Morningstar’s calculations, with much of that coming from dividends which have sometimes looked unsustainable. What was once the UK’s biggest pharma company had lost its way. The drugs pipeline looked nearly empty, and its future seemed to lie in non-pharmaceutical consumer goods.

After nine disappointing years, CEO Andrew Witty was replaced in March 2017 by that continuing rarity, a female boss. Despite coming from the consumer products side of the business, Emma Walmsley has torn up his failed prescription, selling the Indian consumer business to Unilever and splashing the proceeds on Tesaro, a cancer research company.

At the time, the price looked high enough to need Optrex, and the deal was quickly followed by a joint venture with Pfizer. The plan now is to split the resulting consumer products business from the drugs. This whirlwind dealmaking is enough to obscure what it really going on, but those who can decipher the alphabet soup of new drug compounds see some promising signals.

Those of us who have held the shares over the decade hoping that something would turn up are finding that something has: this year the price has risen 22 per cent, twice as much as the FTSE100 index. At £17.30 it is still miles short of the peak of £20 way back in 1998, but reaching it no longer seems fanciful. The yield of over 4.5 per cent provides some support.

Much can go wrong with drug development, while the only guarantee from combining and then demerging big businesses is fat fees for the advisers. Ms Walmsley has much to do, and her appointment to the board of Microsoft is better for her career than it is for Glaxo shareholders. Still, she has pledged to hold the dividend, a promise that demonstrates confidence, or will mean a short tenure at the top.

So how was your Ocado delivery today? Perfectly OK, according to the researchers who measure these things. Ocado is expensive, of course, although not necessarily for the customers, because this is a technology company, so its shares bask in a willing suspension of disbelief.

Consider: Morningstar says Tesco shares at 226p sell on 17 times latest earnings, and yield just under 3 per cent. Ocado shares at £11.90 sell on 5000 (that’s five thousand) times latest earnings and yield nothing. In nearly 20 years since the three musketeers from Goldman Sachs decided to disrupt the grocery business, there have been few profitable moments, and no money for a dividend.

Yet anyone buying them when the end looked nigh eight years ago will have multiplied their investment by more than 40 times, as the grocery delivery business has become a sideline. Ocado’s technology is bought by other grocers in Britain, America and even Japan. The result is a technology company with a glamour rating to match.

One thing has not changed, though. The business remains a money sink. In the last two years it has raised nearly £900m, and this week pulled in another £600m from a bond which converts into Ocado shares, and which does pay a dividend while you wait. The coupon is a magnificent 0.875 per cent, and the conversion price is £17.9308, 45 per cent above the share price when the terms were fixed last Monday.

So in return for that barely-there income (and a place at the back of the creditors’ queue) you get the chance to pay 9000 times 2018 earnings, or your money back in 2025. No wonder one top retail analyst, Clive Black of Shore Capital, has given up trying to analyse this company.

The lack of information, ambitious accounting policies and the frankly crazy valuation is enough to defeat any attempt at forecasting. It is, he says, like the Jungle Book: “Trust me.” You’ll be fine trusting Ocado with the groceries, but Tesco shares look a better bet, and a far better offer than this convertible.

A time to panic

Property funds are “built on a lie“. Thus the governor of the Bank of England in front of the treasury committee earlier this year. This week the owners of £2.5bn of units in M&G Property Portfolio felt the truth of his comment, as the exit door of the fund slammed shut, locking their money in.

The closure is only “temporary”, of course, as these ominous moves are habitually described, and just as soon as M&G can find a few buyers in a miserable market, the fund will open for business again. Such a comfort. Other property funds were quick to reassure that they had plenty of cash – a chunky  28 per cent in the case of Legal & General’s £3.2bn UK Property Fund – so please don’t panic.

In fact, panic is exactly the right reaction for a holder of any of these property funds. They peddle the illusion that a highly illiquid asset class can be funded with cash that can be withdrawn at any time. To counter this, only 72 per cent of the capital you entrusted to L&G is actually invested. The rest just sits there in case you want it back today.

These funds are about as unsuitable for property investment as it is possible to devise, and it’s not as if investors have no choice. Real estate investment trusts do not “gate” their funds, because they are “closed-ended” and their capital is permanent. While an open-ended fund can close at any time without warning, a closed-ended trust is always open, although in times of stress, you might not much like the price you are being offered.

If you want to indulge the British obsession with property, there are plenty of companies on the Stock Exchange, from very risky to stolid and staid, most with proper boards responsible to the owners of the capital. Your Independent Financial Adviser will probably not suggest any of them. They don’t pay him any commission.

I borrow, you pay

So farewell Amigo. Well, not quite, but the share price of this morally-dubious money-lending business is signalling the sort of desperate need for cash that would be familiar to its customers. It’s a business that will lend to you at an interest rate of 50 per cent provided a mate or relative guarantees to pay up if you don’t. Please don’t call this moral blackmail.

JP Morgan Cazenove brought the company to market in June last year, at 275p a share. It’s been pretty much downhill ever since. I sharply criticised the business model in March when the price was 145p. Last week, the chairman and chief analytics officer each dumped a slug of shares onto a falling market “to meet a tax liability”. Now the bad debts are piling up, the board and major shareholder are trying to work out what to do, and the Amigo price has shriveled to a friendless 59p.

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