Investment trusts are notoriously resistant to change. When performance is good, there is no need for it; when performance is bad, the directors tell themselves that it’s just short term. Change usually needs an outside disrupter, and so it has proved with Alliance Trust, the formerly self-satisfied kings (and queen) of Dundee.

It has taken a new board for Alliance to admit that it’s not much good at investing. In future, it will pay others to do it, becoming a conventional investment trust with a retail fund administration business, Alliance Trust Savings, on the side. It was less this blinding flash of insight than the pledge to get serious about the shares’ discount to net asset value (NAV) that produced the positive response to the review last week.

ATS’s fixed fees appeal for larger self-administered pensions and Individual Savings Accounts. It is finally profitable, but is subscale against the likes of Hargreaves Lansdown, and too small to make a meaningful impact on Alliance’s NAV. The decision to keep it looks like an interim one.

At the other end of the investment company scale, on Monday the shareholders of Dolphin Capital Investors vote to decide whether it’s worth going on. The record is grim, but these votes usually expect the answer yes. In this case the board is urging shareholders to vote against continuation. Instead, the directors propose winding up the business, distributing the proceeds and putting themselves out of a job. Please don’t, says chairman Andrew Coppel, call it turkeys voting for Christmas.

Sky’s (almost) the limit

Rupert Murdoch doesn’t believe in playing safe. His latest attempt to pay £10.75 to win 100 per cent of Sky has the usual hallmarks of a gambler. Rather than make a straightforward bid for the 60.9 per cent that his 21st Century Fox does not own, the offer is by a scheme of arrangement.

This will save a little money, and avoid having a potentially troublesome small minority if an offer failed to reach 90 per cent acceptances. However, it also means that Fox cannot vote its shares, and the scheme requires a 75 per cent majority of outside shareholders voting in favour. In other words, holders of 15.2 per cent of the Sky shares could stymie the deal.

In practice, voting never approaches 100 per cent of those eligible, so if Jupiter, Royal London and Standard Life could persuade a few more holders to join them, the scheme fails. Since Mr Murdoch is unlikely to give up, the long-term risk in revolting seems modest, but the short-term risk helps explain why the Sky share price remains so far below £10.75.

The position of the minority is weakened by the bizarre decision of Sky’s independent directors to endorse the price before the announcement, but the Sky bulls are unabashed. Polo Tang at UBS argues that the shares are worth a magnificent £13.70, as the returns from the investment in mobile start to appear. That looks like pie in the, er, Sky, but a bump in the offer seems a worthwhile bet. After all, Mr Murdoch may not be immortal.

Not too bad for a journo

In 1969, Daily Mail & General Trust put up £2,000 to launch a magazine covering the euromarkets. Patrick Sergeant, then the Daily Mail’s City Editor, had the idea, and with his colleagues put up £200. It never needed any more. You may not be an avid reader of Euromoney. You may only have ever seen it lying about the City’s swisher banking halls. But now DMGT is to scoop £350m by selling down its holding in Euromoney Institutional Investor, from 67 per cent to 49 per cent.

DMGT is a curious beast. All the voting shares are held by the Harmsworth family, but an outsider, Paul Zwillenberg, is in charge. This sale is his first big move as CEO, although holding 49 per cent makes no more commercial sense than 67 per cent. Barclays has struggled through the financial implications of the move from subsidiary to associate. After the head-banging maths, it concludes: “This does look a positive for the story, even if it comes at a fairly heavy cost to the financials.” That’s one way of looking at a truly brilliant long-term investment.

This is my Financial Times column from Saturday

They were told about the risks, but the temptation to gamble is so hard to resist, especially when you think you know more than you really do, and the price looks as though others have got it wrong. Yes, it’s the tale of the mug punters, who have seen the value of their bets tumble by a third or more, as shares in IG Group, CMC Markets and Plus500 all collapsed.

The surprise, then, is not the nasty loss but the valuation punters had put on these spread betting groups. Last February the Financial Conduct Authority publicly warned them about their behaviour, and now it has told them to break their nasty habits. Given that over four-fifths of the bets they take lose their customers money, in some cases much, much more than they imagined was possible, even the most supine authority might one day decide that we needed protection from ourselves.

The industry’s argument that foreign-based competitors would treat the customers worse looked unconvincing when last month Cyprus beat Britain to the regulatory punch on contracts for difference.

The FCA’s argument that so-called binary bets meet no obvious investment need might apply to all sorts of weird derivatives which seem to exist purely to further the interests of the promoters. Fortunately for the watchdog, binaries are classed as actual gambling, and are thus someone else’s problem.

Considering our national addiction to betting, we need a rather sharper regulator than the Gambling Commission to bring order to this slippery industry. Co-incidentally, a cross-party parliamentary group last week recommended cutting the maximum stake on fixed-odds betting terminals from £100 to £2. The group pointed out that the bookies have made £1.75bn this way in the last year, although it did not add that compulsive gamblers will always find another way to lose their money.

After the announcement CMC responded, through gritted teeth, that it “looks forward to working closely with the FCA over the coming months.” The mug punters like Fidelity, Legal & General and Henderson who bought the shares at twice today’s price can only hope they don’t lose much, much more than they imagined was possible.

Elementary, my dear Watson

The single market in goods and services with the rest of the European Union is jolly important, and we must fight to preserve it after we leave. Well of course; Britain is a trading nation, and the shuttling of goods across the Channel makes both sides richer. But services? London leaves the rest of Europe standing in financial services, but our continental partners, led by Germany and France, have successfully protected their domestic champions against British-based invaders.

The awkward truth is that there is no single market in financial services any more than there is in plumbing or child-minding. Each member state has its own rules, yet the myth has somehow grown up that this is a valuable single market in one of the few things we do really well, and is at risk from Brexit.

This myth has moved Stani Yassukovich, distinguished banker, former chairman of the Cirencester Park Polo Club and one of our finest imports, to suggest inserting an exchange in the forthcoming Sherlock series: “But Holmes, what was the significance of the single market in services in the EU?” “The significance, my dear Watson, is that there isn’t one.”

I promise not to pay the bearer

Those 1000 rupee notes you’ve been hoarding will shortly become worthless, when even the Indian central bank will refuse to accept them. Urjit Patel, the governor, explained that they remain as a liability on the balance sheet “as of now”, although if it refuses to honour them, it’s an odd sort of liability.

Perhaps Mr Patel has been studying the actions of the Belgian central bank. Its currency has long since disappeared into the euro. Holders of the lower denomination franc notes are told that the bank can’t be bothered with trivial sums, and declines to change them. Inflation may have nibbled away the value of our British pound, but at least the Bank of England does promise to pay the bearer on demand, however old the notes.

This is my FT column from Saturday

All of a sudden, it’s executive pay time. Here is The Purposeful Company, the product of a steering group of seven grandees, a task force of nine more, plus a dozen contributors, together demonstrating that those getting today’s executive pay have nothing useful to say on the subject, as Neil Austin forcefully pointed out on the FT’s letters page last week.

This followed an earlier suggestion that incoming CEOs should receive only a cash salary, with an obligation to buy shares with part of it, to hold for several years. It’s a fine idea which would make really bad law.

These proposals were merely the prelude to the government’s green paper on the subject. If this document reflects government thinking, there’s not much of it. Employee representation on boards has been dropped, perhaps after Volkswagen’s disastrous governance showed how it works in practice. Calculating the multiple of the average employee’s salary earned by the CEO would produce a mixture of entertaining headlines and perverse results. We already have shareholder votes on pay.

There is one sensible, simple move which could slow down the runaway executive gravy train: make every director’s contract contingent on approval by the shareholders in general meeting.This would strengthen the negotiating position of the remuneration committee with the would-be CEO (“we’d love to offer you more, but the shareholders won’t wear it”)  while obliging the directors to justify the contract publicly before it is too late. In practice,  the shareholders would rubber-stamp all but the most egregious packages, but it is their money on the line, after all.

Brilliant, but who’s paying?

David Harding would rather you didn’t call Winton Capital a hedge fund, but no other label is a better fit for the $32bn his company has under management. His clients have enjoyed double-digit compound growth, even after fees that have made him rich enough to fund a maths gallery at the Science Museum.

So is his army of analysts just better than (almost) everyone else at picking currencies, bonds and stocks? Well, yes, obviously, but not quite the way you would expect. Like Winton’s even bigger hedgie across the Atlantic, Renaissance Technologies, it involves nothing as vulgar as conventional investment analysis.

Rather than assessing an economy or visiting a business, Winton’s boffins churn data looking for weak mathematical patterns and correlations (everyone immediately spots the strong ones)  like whether a currency is marginally more likely to rise on a sunny day, or whether companies that report on Tuesdays see more favourable share price reactions.

Over half Mr Harding’s 450 employees do this, and one estimate is that as much as $450bn round the world is run the same way. For Winton at least, it is wildly successful. It also appears to be wealth created out of thin air. It has almost nothing to do with efficient allocation of capital, or helping business to do better, or anything else which is generally thought to make a country richer.

Providing liquidity is a useful, albeit marginal, activity, and Winton’s wealth looks uncomfortably like the result of a zero sum game at our expense. Still, at least we can look forward to the maths gallery to help us learn how to play it.

Oh for a plastic Swiss franc

Oh no! Those new plastic fivers contain animal fat. The quantity may be less than the print your finger leaves on the note, but we’ll always find something else to worry about. The Swiss now have to worry about the bank nibbling away at their savings, at least those with fat balances. Postfinance is to apply negative interest rates to amounts above SF1bn. The experts at Bond Vigilantes expect others to follow, and for lesser amounts.

The solution, for these unfortunate fatcats, is the SF1000 note, or a small briefcase of them. (The distorting impact on the Swiss money supply is not your problem.) The Swissie has outperformed every major currency, but be careful, lest moth and rust doth corrupt your earthly treasures. If only the Swiss central bank would contact Innovia, the Wigton-based makers of the plastic fiver, to make similarly indestructible notes; we really wouldn’t mind the whiff of tallow.

This is my FT column from last Saturday. 

The chancellor proposed merging the budget with the autumn statement. This would be his last, and in future a single annual review would cover both taxes and spending, as in most well-run countries. The prime minister fully agreed:”The right budget, at the right time, from the right chancellor”.

No, not 2016, but 1993. Norman Lamont was fired a few weeks later, carrying the can for Britain’s ignominious exit from the Exchange Rate Mechanism. Philip Hammond must hope that it’s different this time, and that he will be allowed to play out the old game of bad news now, followed by pleasant surprises ahead of the next election.

The bad news is quite bad. The showy (future) rises in income tax thresholds obscure the rises in National Insurance, which is becoming every chancellor’s go-to stealth tax. A trivial change in rates of contributions disguised the NI attack on perks, which the tax experts at Smith & Williamson reckon will raise nearly £40bn more revenue over five years.

Every chancellor needs a slice of luck, and Mr Hammond’s is to be in charge when investors hardly seem to care about how much the government borrows. At today’s rates, it seems rude for the state not to ask for more. While the grands projets like Hinkley Point and HS2 will actively destroy the nation’s wealth, the low-key infrastructure improvements that our low-key chancellor is funding will earn more than their cost of capital, and thus contribute to future growth.

Getting these projects over the hurdles of bureaucracy, conservation rules and local protests,  and then finding the skilled labour needed for roads and houses promises to be much harder than Mr Hammond seems to think. Still, at least the money is there to try.

Sound thinking

At last, a secondary equity fund-raising that avoids lining the pockets of the rentier bankers. Oil explorer Sound Energy has raised 5 per cent of its market value by issuing new shares at the same price as the old, while giving private shareholders a (fleeting) chance to subscribe alongside the professionals. The mechanism has been developed by Primary Bid, an outfit set up for just this sort of deal. Retail money allowed the offer to be expanded significantly.

Crucially, the fund-raising was underwritten, not at some massive discount, but at 81p, the market price. Rather than simply helping themselves to a riskless fee, the underwriters had to convince themselves that Sound shares were worth having if others failed to buy them. In other words, this offer was much more like an old-fashioned rights issue, with the underwriters showing their confidence in the business.

Unlike a rights issue, this was all done at high speed; investors who were not paying attention last Thursday will have missed out. However, they should not complain too loudly: if they like the sound of Sound, they can buy the shares in the market at (almost) the same price.

This act has to go, Darling

Another nail for the coffin that one day awaits the 2008 Climate Change Act. Well, more of a drawing pin, really, but every little helps. This one was driven by Alistair Darling, Labour’s best post-war chancellor, and now sticking a sharp point into Ofgem’s chief executive, Dermot Nolan.

With the clarity of distance, Lord Darling can see the looming disaster that is Britain’s energy policy. As he put it, there is no longer anything resembling a market in energy. Years of subsidies, regulation and intervention has left pricing “completely opaque“. The result is expensive electricity at a time when natural gas has never been more plentiful and widely available.

This is hardly Mr Nolan’s fault, and he ruefully agreed with Lord Darling that the mishmash of wind farms, solar panel arrays and wood-chip burning power stations, liberally sprayed with subsidies,  has all but destroyed competition.

There is no easy way out of this maze, and a bonfire of the subsidies would doubtless be prevented by environmental restrictions on bonfires. The fundemental cause is the wretched Act, with its fantasy commitment to cut CO2 emissions by 80 per cent by 2050. There is no realistic possibility of achieving this, and one day the act will have to go. It’s a pity, though, that Lord Darling was not one of the five MPs who had the courage to vote against the Bill in 2008.

This an expanded version of my FT column from Saturday.


Greencore, Britain’s biggest sandwich maker, has been planning to “deepen its leadership of food-to-go.” As Lucy Kellaway has pointed out, sandwiches don’t need leadership (they need fillings) but this week Greencore deepened its leadership by paying $747m for Peacock, a US sarnie supplier.

The deal went down like a fresh BLT, and the shares rose at the sight of food-to-go leadership in action. Despite the grisly record of “transformational” trans-Atlantic acquisitions, it’s quite an attractive story, so Greencore’s bankers at HSBC were confident that the shareholders would stump up £426m of fresh capital to help pay for Peacock.

Well, not that confident, actually. The terms, nine new shares for every 15 at 153p apiece, are another ugly sign of the rentier attitude of the City’s financiers. Greencore shares were 292p last Friday, so the price would have had to plunge by nearly a half in just over a month for the underwriters to be called upon to take the new shares.

In fact, the shares jumped to 312p. There is less chance of a single share going to the underwriters than of Donald Trump demanding a recount, but the fees including the bankers, lawyers and advisers for this risk-free exercise tot up to £13m – or about eight million sandwiches.

Brexit disaster watch

We’re all doomed! British firms have abandoned £65.5bn of investment plans since the referendum. The end of euro clearing in London would cost 232,000 jobs. That beastly Michel Barnier wants €60bn for a divorce settlement. The next three summers have been cancelled.

Well, perhaps not the summers (unless global warming lets us down) but the other three horsemen of the apocalypse are headlines from Brexit scare stories last week. Do you detect a theme here? The absurdly-precise £65.5bn may follow a rigorous survey of intentions, but it’s patent nonsense. It’s roughly a third of UK industry’s entire annual investment and if true, many manufacturers would be screaming for help by now.

That figure for job losses is an accountant’s souffle from EY, starting with 31,000 “core intermediaries” and assuming a domino effect in law, asset management, catering, office cleaning, dog walking…As for Mr Barnier, something has obviously been lost in translation from the French he insists is the official language of Brexit negotiation.

In other news: the €1bn Bank of Cyprus is planning to replace its Athens listing with London, Google wants to raise its UK headcount to 7,000 from today’s 4,000, and Axa Investment Management is to build a 62-storey skyscaper in the City. Thus does business life go on, in the face of warnings of post-Brexit disaster. Perhaps the sky will not fall in, after all.

Here comes CPIHeadache

Just what we need: another measure of inflation. Forget the Retail Prices Index and the Consumer Price Index, here is CPIH as the new “headline inflation” indicator. The boffins have noticed that the price of housing matters when attempting to measure the cost of living.

The government wants to bury the RPI (which does have a housing element in it) arguing that it is statistically bogus and overstates inflation. This week saw a surprise fall in CPI inflation last month, to 0.9 per cent, but you had to look carefully to find that the RPI was still showing 2 per cent. CPIH is registering 1.2 per cent.

As the official website points out, neither of these measures is a “National Statistic” unlike yet another measure, the All Items Retail Price Jevons (1.3 per cent, and don’t ask). Inflation, defined as a change in the general level of prices, is hard to measure accurately at today’s rates, and the great advantage of the RPI, for all its faults, is that it is a widely accepted indicator of the cost of living, which is what matters to most of us.

Fiddling around here is asking for trouble. It encourages pressure groups for the likes of the BBC or the elderly to devise measures of their own inflation, which invariably come out higher than the official calculations. Mind you, it will only get worse. Technology offers the prospect of real-time, continuous measurement. When that arrives, we will have hardly a clue as to whether we are richer or poorer.

This is my FT column from Saturday

The story of Valeant pharmaceuticals is a modern morality tale, a demonstration that corporate greed (or worse) does not always pay. The shares have plunged again after the new finance director signalled yet more bad news to come, and even after a post-Trumpian rally, they are still uncomfortably in the 90 per cent club.

Valeant was a whirlwind confection of takeovers, imaginative accounting and murky relationships with a distributor. It was driven by the belief that pharma research was a waste of money, and that customers for its drugs were only there to be exploited. This scorched earth, amoral approach helped drive the shares up almost 20-fold in five years.

Yet the real puzzle here is the willing suspension of disbelief among investors as the cracks started to show in 2014, as FTAlpaville reported. Over the following year, the price doubled and the market value approached $100bn as the company attacked the outside analyses, insisting all was well.

Since then the CEO has been handsomely paid to go away and spend more time with his lawyers. Today, it is not clear what Valeant really is, but its fate is some comfort to those running big pharma who think that finding cures and helping customers is an integral part of what they do.

This suggestion takes the biscuit

Paul Manduca takes the Boris Johnson approach to cake. His policy is to have it and eat it. He wants to keep the single market just as it is after Britain leaves the European Union. That would suit him and the lobby group he heads, fashionably rammed-together as TheCityUK, just fine. Tax would continue to pour into the treasury (£67bn a year, he claims) and our receding partners will have free access to the world’s second-largest financial centre. What’s not to like?

It’s hard to blame Mr Manduca for trying, yet even if he can persuade St Teresa and the three Brexiteers to take this line, it is fanciful to expect our friends on the continent to see it his way. The market in their currency is already outside their zone, while their stocks, derivatives and bond markets will follow if the London Stock Exchange is allowed to merge with Deutsche Borse.

Letting London’s insurers and fund managers rampage across La Manche as well would mean that almost the whole of the EU’s financial services industry was outsourced. However carefully Mr Manduca dresses up his proposal, this would surely be too much for their amour propre to bear. Or as Google translate puts it: Vous ne pouvez pas avoir votre gâteau et le manger aussi.

The Climate Act must go, eventually

Only five MPs voted against the Climate Change Bill in September 2008. In an orgy of self-righteousness, parliament voted near-unanimously to cut the UK’s CO2 emissions by 80 per cent by 2050, a date which is past the deadline of at least half of the Hon members who supported it.

Thus was laid the foundation of Britain’s barmy energy policy. This has given us dear domestic fuel prices in a time of plenty, prevented the building of gas-fired power stations, and culminated in the biggest post-dated cheque ever written on the British taxpayer, in the form of the finance for the Hinkley Point power station.

With luck, the UK should avoid power cuts this winter, but it will be close – and dirty – as National Grid admits. Now the Court of Appeal has lit a tiny candle in the energy gloom, upholding the state’s right to cancel the exemption from the Climate Change Levy for renewables. This was merely another little bung to the windmill subsidy farmers, but Infinis Energy argued that under the Climate Change Act, it could not be removed. The court disagreed.

The sceptics at the Global Warming Policy Foundation describe the Act as “a one-shot rocket, quite without steering and with precious little provision for deceleration…if a change of pace is not possible, abrupt termination becomes inevitable.” Repeal of this ill-starred legislation is a long way away, but the court has taken a baby step. Oh, and inside the European Union, even this would probably be impossible.

This is my FT column from Saturday



There’s a growing suspicion, reflected in bond markets everywhere, that inflation may not be dead after all, but is merely in a deep sleep. In recent years the prices of conventional and index-linked UK government stocks have mostly moved in the same direction, but since the summer conventionals have fallen while the linkers rose.

The cost of this protection is now a record 2 per cent – today’s buyer of a 10-year linker is guaranteed to lose that amount each year on his investment in real terms. Perhaps he has read the report from the National Institute, which forecasts inflation at 4 per cent, as dearer oil works through the UK economy. The purchasing managers are already softening us up for price rises after the pound’s plunge, while the Bank of England says its previous guidance of another cut in interest rates has “expired“. Perhaps it died from lack of credibility.

However, things may not be quite so simple. Morrisons can raise the price of Marmite, but Nielsen’s index shows continuing deflation, with shop prices falling by 1.7 per cent last month, following a 1.8 per cent decline in September. Competition is relentless, and may get more intense. A thoughtful analysis from Morgan Stanley points to the differences between the last time sterling fell heavily, in 2008, and today.

Then there was effectively a cartel between the supermarkets, and price rises were passed on. This opened the door to the discounters, who were also able to find suitable sites following the recession. The result was a doubling of their market share, to today’s 10 per cent.

Despite the subsequent efforts of the big four to get competitive, Morgan’s analysts calculate they are still 18 per cent dearer than the discounters. Any attempt to raise prices now would drive more shoppers to Aldi and Lidl. Like the big supermarkets, they source about half their produce from the UK.

Looming over all this is the shadow of Walmart, the owners of Asda. In 2015 Asda earned the highest margins of the big four, but its market share plunged. Any attempt by Tesco to Marmite its customers might trigger the Walmart response that the industry is expecting. So whatever the economic theory says, inflation is not going to wake up any time soon.

Cash will do nicely, thanks

Here’s a shocking suggestion: pay executives the same way as their workforce – in cash. Agree the amount beforehand, so the only difference between the CEO and the receptionist would be an obligation for the CEO to use some of his vastly higher rewards to buy shares in the company he ran.

This suggestion comes from the oxymoronically-named Institute of Business Ethics, and is not quite as bizarre as it sounds. The current system is little better than a smokescreen to cover paying the boss more, and has spawned a whole new useless army of remuneration consultants. The institute acknowledges that a sharp bump-up in basic pay to compensate for the loss of lovely bonuses would be awkward, but believes that the gain in transparency would be worth it.

Well, maybe. We’re all in favour of transparency nowadays, especially from other people, but the current system supports the fiction that the CEO has, almost singlehandedly, met all sorts of demanding and exciting targets, and is then rewarded accordingly. Curiously enough, many of them like it that way.

A signal to the Admiral

Warning! Do not use exclamation marks on Facebook! In its search for that holy grail of motor insurance, high premiums from safe drivers, Admiral wants to pick out risk-averse youngsters by studying their Facebook posts. Excitable posters will be deemed worse risks, while calm, moderate users get a discount. Over time, Admiral could refine its tests. It’s an imaginative use of big data.

Oh no you won’t, responded Facebook. Big data ‘R’ us, not you. Had you read our interminable list of terms and conditions, you would have found something there to stop this sort of thing, or at least our lawyers would. And if that’s not clear enough, we’ll fly the flag letter X which, as every Admiral knows, means “Stop carrying out your intentions and watch for my signals.”

This is my FT column from Saturday