Greed is not enough for arrogant fund managers

It’s the fault of ‘stupid’, ‘greedy’ investors that the stock market is in freefall, or so the City gurus would have us believe. The temerity of it. By George Pitcher

With the legendary investment acumen for which I am justly famed, I have a with-profits insurance policy that matures next November. I wait with anticipation for news of what is aptly called my terminal bonus. I expect, at some stage over the next ten months, to receive a letter from Friends Provident telling me that, as a consequence of recent collapses in the equities markets, I actually owe them money.

I remain fairly philosophical – it is, after all, the purpose of the stock exchange to transfer the savings of the poor into the pockets of the rich at least once in every generation.

And I’m not surprised to learn from a group of eminent chief executives of investment companies that it’s really all my fault. They met in a panelled room within the imposing Lutyens architecture of the Reuters building on Fleet Street last week, at a summit organised by online financial publisher Citywire, to apportion blame for the sorry state of investment returns.

I could have gone along with a consensus that held that “the recent lack of investment performance is the direct result of Pitcher approaching the maturity of his plan”. But apparently they went further than that. According to Simon Davies of Threadneedle Investments, the fourth-largest retail asset manager in the UK, it’s all the fault of investors because we’re “greedy” and we make “stupid decisions”.

Other giants of the retail investment industry chimed in behind Davies. Quoted in the Financial Times, Close Fund Management managing director Marc Gordon said that we investors “want the Holy Grail all the time”. Nick Ferguson, the former chairman of Schroder Ventures, commented that “greed and fear, which have dominated the markets for the last thousand years, are very powerful forces.”

Holy Grail? Millenarian forces? You know we’re really in trouble when investment managers go all mystical on us. I was willing to accept that lack of investment returns were my fault, but these remarks I find frightening in the extreme. It is, apparently, the fault of “greedy” investors for making such “stupid decisions” as to invest money with the like of Davies and his colleagues, for whom greed and stupidity are seemingly unknown characteristics.

Well, on behalf of the UK retail investment market, I’d just like to say to Davies: “Listen to this, sunshine.” The unprecedented bull market that offered real returns on equities for some 17 years until 2000 – absorbing the odd bear-leg such as the 1987 crash – witnessed a commensurate explosion in the hard marketing of financial services.

Those marketing campaigns included the iniquitous widespread mis-selling of pension schemes by the financial services industry that can never satisfactorily be unwound. During the course of those 17 years, retail finance marketers granted major company pension schemes protracted “pension-contributions holidays”, meaning that within two years of the downturn, companies found themselves unable to meet their pension liabilities.

Similarly, financial services companies have been so imprudently run that even after nearly two decades of coining it in the equities markets, they lack any real resilience to a downturn. The minute equities have a bad spell, the Financial Services Authority cuts the industry’s solvency requirements to allow investment companies to dip further into reserves to meet liabilities.

Meanwhile, a report from Key Note tells us that industrial directors and senior executives awarded themselves more than &£5bn in pensions benefits in 2001, which the report describes as a “tax-free raid on company profits”. I dare say the financial services industry bought itself a drink on the back of this business too.

Those of us who wonder exactly who is being “greedy” in this scenario may also like to dwell on our “stupid decisions” in believing anything said by the industry that Davies represents. One thinks of all those retail stockbrokers who persuaded their clients into the technology boom.

They’re at it again, as it happens. According to stock market information analyst Hemscott, quoted British companies will increase profits by an average of 27 per cent in 2003. On whose evidence does Hemscott base this wildly delirious and ludicrous claim? The answer is the updated profit forecasts of 61 stockbroking firms, which are still talking the market up even as it collapses around them.

These people occupy a kind of parallel dimension, in which the market is poised to return to a boom, when all the evidence points to further depression. Were we, of course, to believe them for a moment, then it would be our fault for being “greedy” and making “stupid decisions”.

The revealing truth behind these comments is that the retail financial services industry relies on sucker consumers, whom it holds in utter contempt for being stupid enough to believe its blandishments. This is the attitude of the street-trading spiv. Davies candidly adds to his observation about “stupid” investors that fund managers “encourage them to be even more stupid”. Quite.

I note that Davies’ company, Threadneedle, has been put on the market by Zurich Financial Services. I hope it goes further than that and sells Davies and his colleagues down the river, so that they know, at least for one moment, what it’s like for the poor saps and punters whom they hold in such contempt and so casually patronise.

George Pitcher is a partner at communications management consultancy Luther Pendragon

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