Distressed gentlefolk and daisy chains are the City's cause for concern
CHRISTOPHER FILDES
Spare a copper. The Friends of Friendless Shares, a City charity to which so many of us make involuntary contributions, has a new cause on its hands: investment trusts. There are so many of these distressed financial gentlefolk — more than a hundred are listed on the Stock Exchange, with names like Houndsditch European Technology or Kirriemuir Leisure and General, bearing mute witness to the investment fashions of an earlier day. Some are schizoid, some are depressive and some are past praying for. In the last two years they have, on average, lost more than half their value. They have come down as the City came to believe that a daisy chain of investment managers had been investing in each other's trusts. This chain turned into a ring of roses: all fall down. Now the regulators at the Financial Services Authority are taking an interest, and so is the House of Commons Treasury Select Committee, acting on information received from Daniel Godfrey, who is the Association of Investment Trust Companies' director-general. This blast on his whistle has not endeared Mr Godfrey to all the AITC's member companies, and blasts and counter-blasts can be heard behind the woodwork. The pity of all this is that investment trusts ought to be the friend of friendless personal investors, for whose benefit they were invented, 134 years ago. Foreign and Colonial launched the first of them and has resisted the temptation to rebrand itself Emerging Markets. Canny Victorians were willing to finance the opening up of the American West but not to hand over their money to the resident cowboys and Indians. Now they could buy shares in an investment company run by professional managers who knew their way around.
Trusty model
THAT is how the model ought to work. A share in an investment trust buys you a stake in a portfolio of other shares, at a discount, almost certainly, to their face value. If you had bought those shares yourself and achieved gains — and shares, as you may remember, can go up as well as down — you would be taxed on them at a top rate of 40 per cent. The trusts' managers can buy and sell them without being caught in the tax net. Unlike unit trust managers, they can back their judgment with borrowed money, which, if their judgment is good, is a bonus. Unlike unit trusts, their shares are cheap to deal in. Some of them offer regular savings schemes, but now the inflow of money is drying up, and no wonder, really.
Pocket boroughs
THE collapse of the schizoid 'split-capitals trusts — all those fallen daisies and rosepetals — is a shock, and who knows what the investigators will find in the wreckage? Other trusts have long outlived their purpose and eke out a pointless existence as pocket boroughs for their managers. The AITC is not the force it was when Philip Chappell, godfather of PEPs and of personal pensions, was running it. No audible lead has come from its chairman, Anthony Townsend, himself a director of nine investment trusts, including Zero Preference Growth. In such times of City crisis, Governors of the Bank of England have been known to parachute their own man in: 'There's something we want you to do for us,' they say. That would earn a cheer from the personal investors, actual and prospective, for whom investment trusts were designed — and, of course, from the Friends of Friendless Shares.
Prescribing for Boots
POOR old Boots. It has succumbed to the most dreaded threat in management: `If you people don't sharpen your act up, we'll call in McKinsey.' The supermarkets have been muscling in, and Boots's attempts to hit back with in-store chiropody have proved flat-footed. For a nation of fusspots and hypochondriacs, Boots ought to be the perfect retailer. In matters of health it is out on its own as the most trusted name in the High Street. That is why, as one of its bankers observed, Boots doesn't sell you things — you go to Boots to buy them. Finding them is harder. Boots gives you few clues and keeps on rearranging the stock, hoping that you will buy a hot water bottle on the way round. Kipling said it: 'Boots, boots, boots, boots, movin' up and down again. . . . ' I would urge Boots's managers to keep things simple and play to its strengths, or failing that to try two of its proprietary headache tablets and an early night, hut no doubt they will pay more for the consultants' name on the label.
Time and motion
SOMEWHERE in the Queen's Speech, after the Butlers (Beheading) Bill, there was room for a Bill to speed up planning. It could draw on the experience of the Wellcome Trust, which after five and a half years has persuaded the Cambridgeshire planners to prefer a science park to a field full of thistles. The action now moves to Bishopsgate, east of the City, where London Underground's plans for a new railway line are said to imperil an old one. The historic Braithwaite viaduct, so the planners are being told, must be preserved. My railway correspondent, I.K. Gricer, tells me that there is not too much left to preserve, and that a better and earlier railway viaduct runs all the way from London Bridge station to Greenwich, with trains on top of it. Of course, if the great British planning laws had been in force in 1836, this railway would never have been built. Think of the thistles it must have displaced.
Gricerail
MY correspondent's restless mind has moved on to the Post Office's underground railway. This runs from east to west across London, carrying letters, but its future is said be under review, which is taken to mean that it does not have one. I expect that a preservation society is already forming, but I.K. Gricer's ideas have gone further. This line, he says, should be re-labelled Crossrail. Then, to whizz from the City to Paddington, we need only buy a first class stamp and climb on board. Some of us might have to squeeze to fit into a narrow gauge railway engineered for mailbags, but the Circle Line has its discomforts, too, and the Gricer project certainly heats pretending to build a standard-gauge Crossrail, one of these days, with let's-pretend private finance.
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