due north
how crisis-hit countries can
take a leaf out of canada’s book
ISSUE 77 | SprIng 2013
CHAIRMAN’S LETTER
welcome
contents
08
Bazalgette
Chairman, Investment Committee, St. James’s Place Wealth Management
FOR FURTHER INFORMATION ON ANY OF THE ARTICLES IN THIS ISSUE OF THE INVESTOR, PLEASE CONTACT YOUR ST. JAMES’S PLACE PARTNER
02 | THE INVESTOR
06 Escaping the crisis
Only one G7 country survived the
financial crisis relatively unscathed
– we examine what Canada got right
08 Reaping the rewards of a bailout
Ireland and Iceland are seeing the
shoots of recovery after being bailed
out; so can other countries take heart?
14 A firmer foundation
A series of government measures are
aiming to stimulate the housing
market – but is it enough?
INTERVIEWS
10
All facts and statistics in this issue of The Investor are correct at the time of going to press. Cover image: Getty Images
n V iVian
04 News
Capping the cost of social care, the
latest budget proposals, and why
there’s no need to panic over Europe
C
anada is one of the few economic bright spots in the
Western world, having come through the financial
crisis relatively unscathed. The governor of its central
bank, Mark Carney, is about to take up the same post
at the Bank of England. In our Analysis feature,
Edward Russell-Walling considers the lessons Canada has for our
own macro-economic management.
In Europe, Spain continues to resist a bailout from its European
partners, while negotiations over the Cyprus bailout proved
tortuous. However, Jonathan Gregson finds that those who
have succumbed to default, international assistance or austerity
programmes have often enjoyed a strong recovery, and concludes
that bailouts are not always bad news.
Housing is a key component of the British economy; a healthy
market inspires consumer confidence and stimulates spending, as well
as boosting the construction industry. The government is trying to
promote a housing recovery with programmes such as the Funding
for Lending scheme and Help to Buy, launched in the budget. Our
Analysis feature considers the impact this is having and assesses the
outlook for the market.
The New Horizon Youth Centre in London has helped thousands
of young people get off the streets, develop their life skills, train
and find employment. It is one of the charities supported by the
St. James’s Place Foundation and Jill Insley talks to its leaders and
those who use its services about the benefits the funding brings.
I hope there will be lots in this issue to interest you. If you have
any queries or comments, please do not hesitate to contact your
St. James’s Place Partner.
ANALYSIS
10 A walk on the wild side
‘A love of the great outdoors was in
my blood from a very early age’ –
naturalist Chris Damant talks bats,
beetles and business
12 New horizons for
disadvantaged youth
How the St. James’s Place Foundation
and Jon Snow are working to support
vulnerable young people
18 Taking a forensic approach
One recently appointed investment
manager shares its experiences of
working with Stamford Associates
IN YOUR INTEREST
16 Pensions facing the big squeeze
With new restrictions to tax relief
and pension pot size, investors are
re-evaluating their retirement options
FUND ANALYSIS
19 Fund manager analysis
Your guide to St. James’s Place funds
DATA
28 Fund and market data
Latest information on funds and
financial markets
The information contained within this edition of The Investor does not constitute investment advice. It is not intended to state, indicate or
imply that current or past results are indicative of future results or expectations. Full advice should be taken to evaluate risks, consequences
and suitability of any prospective fund or investment. The value of an investment with St. James’s Place will be directly linked to the
performance of the funds selected and may fall as well as rise. You may get back less than the amount invested. Where favourable tax
treatments are shown, please note that these are subject to changes in legislation and dependent on individual circumstances.
THE INVESTOR | 03
analysis
analysis
news
budgET 2013
THE family budgET
Housing and childcare schemes among
proposals to help drive economic growth
Given the financial constraints we are under,
chancellor George Osborne managed to come
up with a reasonable number of crowd-pleasing
proposals in the budget. The economic figures
underlying the budget were as gloomy as had
been expected, with the growth forecast for the
current year halved to 0.6% and the date at
which national debt will peak extended by
a further year to 2017/18.
But he unveiled a package of measures to
encourage business investment and recruitment,
including a further reduction in the rate of
corporation tax to 20% from April 2015, giving
the UK one of the lowest rates of business taxes
in Europe. He also announced the introduction
of an employment allowance, which will exempt
companies from the first £2,000 of their
National Insurance contributions.
There was also a further attempt to stimulate
the housing market with an extension of the
existing FirstBuy scheme, which helps buyers
of new houses with their deposits, to all buyers
instead of just those making their first purchase.
There is also a new scheme to guarantee
deposits for those buying old houses aimed at
helping people move up, as well as get on, the
housing ladder.
The tax threshold for individuals will be
increased to £10,000 from April 2014, a year
earlier than had previously been promised,
while the introduction of the new single tier
pension has also been brought forward by
a year and will now start in April 2016.
A new childcare scheme will be introduced
starting in the autumn of 2015, which will
give parents earning up to £150,000 help
with costs worth up to £6,000 a year. The
government is also consulting on options
for allowing the transfer of Child Trust Funds
into Junior ISAs.
EuROpEan uniOn
THE sTORm bEfORE THE calm
SOCIAL CARE
capping the cost of care
The government has finally decided where it will set the cap on the
amount anyone can be expected to pay for care fees in England:
from April 2016, when the proposals come in, the maximum any
individual will have to fund will be £72,000. That is substantially
higher than the £35,000 recommended by economist Andrew
Dilnot following his inquiry into the funding of social care, but an
improvement on the current situation, under which anyone with
assets of more than £23,250 has to fund the total cost themselves.
Welcome though this measure is, it will not remove the entire
burden of paying for elderly social care. For a start, the cap covers
only care fees. The average cost for these is £532 per week, or
more than £27,000 a year in a residential care home, and £750 per
week – £39,000 a year – in a nursing home, according to the latest
survey by Laing & Buisson1; but many people are likely to be paying
substantially more. Furthermore, the cap excludes the cost of food
and accommodation, calculated at £10,000 in 2010/11. Secondly,
when the cap is reached and the funding is set against needs as
assessed by the local authority, it is likely to be restricted to the local
authority rate so anyone staying in a more expensive home will have
to finance the excess.
The government’s hope is that, by introducing a limit in individual
contributions to social care, it will encourage insurance companies
to offer policies to cover this risk. It remains to be seen, however,
whether such policies will be forthcoming. In the meantime, it would
be wise to consider the potential costs of funding social care as part
of general financial planning. Contact your St. James’s Place Partner
if you need further information.
1 www.laingbuisson.co.uk
04 | the inVestor
For a few months at the turn of the year, the
European crisis appeared to be receding:
the European Central Bank’s promise to
do whatever it takes to save the euro had
reduced the cost of government borrowing
in some of the troubled Mediterranean
countries, Greece was settling, albeit rather
grumpily, to the terms of its latest bailout,
and Spain seemed to be managing without
joining the ranks of the rescued. The relative
calm helped both stock markets and the
euro to recover.
Then came two shocks. First, the Italian
elections brought defeat for pro-European
Italian prime minister Mario Monti’s centrist
coalition, while the anti-establishment Five
Star Movement, led by former stand-up
comedian Beppe Grillo, won more than
a quarter of the votes – and promptly
caused gridlock by refusing to co-operate
with any of the other parties to help form
a governing coalition.
Then Cyprus raised the spectre of bank
runs across Europe’s troubled economies, as
it proposed a levy on all the country’s bank
accounts as part of the fundraising package
required to access a €10 billion emergency
funding package, although that was later
withdrawn in favour of a levy on accounts with
more than €100,000.
1 Taken from Invesco Perpetual press release
2 www.bloomberg.com
But put these in context: Cyprus accounts
for less than 0.5% of the GDP1 of the
eurozone and its problems – a huge banking
sector relative to the size of its economy and
its close links with Russia – are not shared
across Europe. And while Italy may be
facing political uncertainty, it appears to be
maintaining its economic programme.
There is also a growing recognition
that austerity alone will not solve Europe’s
problems – in France, president François
Hollande is attempting to combine cost-cutting
with growth policies, even though his policies
have hardly won universal support; here,
the chancellor outlined further measures to
stimulate construction in his March budget.
Even German chancellor Angela Merkel
appeared to soften her pro-austerity stance
with comments at the EU summit in March
to increase youth employment2.
European companies also remain in
relatively robust health and, despite the
recent market rally, stock markets do not
look particularly expensive.
Provided the European authorities can
continue to keep on top of outbreaks of
uncertainty like Cyprus – and the handling
of the Cyprus crisis did not win them many
plaudits – there should be no reason for the
panic of 18 months ago to return.
Getty Images
despite recent setbacks in italy and cyprus, the strength of European
companies and stock markets means there is no need to panic
THE inVEsTOR | 05
analysis
analysis
SPECIAL REPORT
7%
the ‘tier 1’ capital ratio in
canada – 3% more than the
international convention of
4%. the basel iii accord sets
a new global regulatory
standard of 6% for banks
escaping
the crisis
With Canada surviving the financial collapse relatively unscathed,
Edward Russell-Walling examines how the country got it so right
06 | THE inVEsTOR
to fall apart in 2007, this attracted some
derision – Canadian banks were criticised for
being boring and unadventurous.Today, they
are more likely to inspire envy.
Unlike, say, the US system, the sector
has a single regulator, the Office of the
Superintendent of Financial Institutions
Canada (OSFI).This sees its job as maintaining
solvency, not championing the sector, and
it imposes a tougher-than-average capital
regime on its banks.
International convention used to call for a
so-called ‘tier 1’ capital ratio of 4%. (Tier 1 is
the highest level of core capital). In Canada it is
3% higher than that, at 7%. OSFI also insists
on a maximum leverage ratio (loans to capital)
of 20:1. So when the crisis struck, Canadian
bank leverage was an average of 18:1. For many
US banks it was over 25 and in Europe it was
often well over 30.
In the old days, banks used to depend on
deposits from their customers for their funds.
Then they came to rely more on wholesale
funding – borrowing in the bond and
money markets.The problem with wholesale
funding is that it dries up at the first sign of
trouble. Canadian banks still rely more on
depository funding, which gives them more
stability in bad times.
They also steered clear of sub-prime (or
high-risk) mortgages, which were the cause
of all the trouble.When they lend to a
homebuyer, they invariably keep the loan
on their own balance sheets, instead of
securitising it and selling it on.That gives them
every incentive to be sure that the borrower
can repay the money. As an added protection,
anyone who puts down a deposit of less than
20% of the mortgage value must insure the
loan on the bank’s behalf.
The result is that Canadian banks have
remained profitable, and haven’t been as
tempted to take risks as their counterparts in
the US and Europe.When the credit crunch
began in 2007, their funding model meant
they were relatively unaffected.When Lehman
Brothers collapsed in 2008 and the prices of
many riskier assets plunged, they weren’t
holding too many of those. Canada didn’t
escape recession, but that was because its
normally healthy export trade – based on
energy and minerals, cars and agriculture –
was damaged by falling demand elsewhere.
The economy shrank in 2009, but
bounced back the following year, thanks
partly to a large stimulus package built
around infrastructure spending.
Since the crisis, the world has been trying to
become ‘more Canadian’. For example, under
the Basel III accord, which sets new regulatory
standards around the globe, banks will have to
maintain a tier 1 capital ratio of 6%.
As Kevin Lynch, a former Canadian deputy
finance minister, puts it: ‘Prudence may be
boring, but it pays off, particularly when
viewed over the complete economic cycle.’
1 www.economist.com
Balance sheet Despite being derided as safe
and unadventurous in the past, Canadian banks
escaped the need of a bailout during the financial
crisis – a situation that has led other G7 countries
to look to Canada with envy.
‘Careful CanaDa’ aims to Deflate housinG bubble
Warning: royal bank of
Canada chief economist
Craig Wright
it is ironic that the great survivor of the
financial crisis is now suffering from a
housing bubble. being ‘careful canada’,
however, it is trying to manage the problem
down so that the bubble quietly deflates
instead of bursting.
one way to measure value in housing is
to compare house prices with rents –
calculating a price-to-earnings ratio for
property. a table of price-to-rents ratios
published recently by the economist showed
canada to be the world’s most expensive
housing market, overvalued by nearly 80%.
(it was followed by hong kong and
singapore – the most undervalued markets
were Japan and germany1.)
the hottest property spot in the country
is vancouver, which has appealed
particularly to wealthy chinese investors.
the market generally has been fanned by
low interest rates, which have been at 1%
for the past couple of years. the government
has been trying to cool things down,
shortening the maximum mortgage period
from 30 to 25 years (thereby making
monthly payments more expensive), and
raising minimum deposit.
the authorities have so far resisted any
temptation to raise interest rates. by sending
house prices tumbling, that could burst the
bubble rather than gently easing it and
precipitate an unnecessary crisis. however,
the bank of canada, where mark carney
remains governor until June, is making noises
to suggest that rates will eventually return to
a higher level. ‘it’s a warning to consumers,’
says craig wright, the royal bank of
canada’s chief economist. ‘it’s a verbal
tightening rather than an actual one.’
THE inVEsTOR | 07
getty images
C
anada was the only G7
nation that didn’t have to
bail out its banks during the
financial collapse, and the
one that suffered least from
the subsequent recession.
The fact that its top central banker,
Mark Carney, will be the Bank of England’s
next governor suggests that we want some
of what they have. But what exactly do
they have, and how did they escape the worst
of the crisis?
‘It has been a mix of good policy and good
luck,’ says Craig Wright, chief economist of
the Royal Bank of Canada. ‘The history of the
past 20 years shows we have done more
things right than wrong.’
One quality that sets Canada’s financial
sector apart from other markets is an
underlying conservatism that is partly
regulatory, but also reflects the national
predilection for ‘peace, order and good
government’, as the constitution has it.
Before the world’s financial system started
analysis
analysis
SPECIAL REPORT
reaping the rewards
of a bailout
S
Getty
Getty Images
Images
After being rescued from financial turmoil, countries such as
Iceland and Ireland are now seeing the signs of recovery.
Jonathan Gregson looks at the lessons for other troubled countries
08 | THE inVEsTOR
pain has, so far, resisted the
pressure to accept a bailout
from the ‘troika’ of the EU, the
European Central Bank and
the IMF. The unwillingness is
understandable as it would be a humiliation
for prime minister Mariano Rajoy to accept
the financial strictures that would be required
after a bailout. And given the economies of
Greece and Portugal, which have been forced
to accept a bailout, the medicine can make
the patient worse.
If you look at countries that were bailed
out earlier, however, you may see a different
picture. Take Iceland, which effectively
defaulted in 2008. Its economy has been
growing for seven quarters at an average
rate of 2.5% p.a., unemployment is down
to 5.5%, compared with just above 26% 1 in
Spain, and confidence is returning. Iceland’s
economy and public finances, however,
were in good shape when the financial crisis
struck. ‘The problem was with its banks,’ says
Dr Jon Danielsson, director of the London
School of Economics’ Systemic Risk Centre,
and himself an Icelander. ‘They had expanded
to around ten times [of Iceland’s] GDP. But
since they raised money internationally
and invested mostly outside Iceland, their
collapse did not bankrupt the country.’
The IMF and Nordic countries stepped
in to provide liquidity. The krona halved
in value, damaging domestic savings and
stoking inflation. ‘Yes, it made us more
competitive, but also caused instability
and inflation,’ says Danielsson.
Ireland’s banking sector was also ten
times GDP; though in this case money raised
internationally was invested into the domestic
economy, fuelling the property bubble. Simply
letting its banks fail was resisted by others in
the eurozone. Instead, Ireland adopted tough
austerity measures that are paying off. Inward
investment is flowing, international investors
are buying government bonds and the
Organisation for Economic Co-operation and
Development (OECD) anticipates its economy
will grow by more than 2% next year.
UnEmPlOymEnT %
2011
2012
2013*
2010
2011
2012
ICELAnd
-4.0
2.6
2.3
2.7
7.6
7.1
6.1
5.4
GREECE
-4.9
-7.1
-6.3
-4.5
12.5
17.5
23.6
26.7
IRELAnd
-0.8
1.4
0.5
1.3
13.3
14.5
14.8
14.7
PORTuGAL
1.4
-1.7
-3.1
-1.8
10.8
12.7
15.5
16.6
SPAIn
-0.3
0.4
-1.3
0.5
20.1
21.6
25.0
26.9
‘Ireland is coming around,’ observes
Geoffrey Wood, emeritus professor of
economics at City University’s Cass Business
School, ‘but not as quick as Iceland, whose
decision to allow the international arms of
their banks to default is, I think, a much better
model than the Irish government’s blanket
guarantee.’ But as a eurozone member, Ireland
can only gain in competitiveness by freezing
wages and cutting public sector spending.
A key element in previous IMF bailouts – a
sharp currency devaluation – cannot happen
in the eurozone. That devaluation works can
be seen from earlier financial crises in Asia
and Latin America. Before the Asian crisis,
‘hot money’ flowed into Thailand, Indonesia
and other ‘tiger economies’, resulting
in overvalued currencies and, in some
cases, property bubbles.When confidence
evaporated in 1998, international investors
pulled out, exchange rates tumbled and
the IMF provided liquidity to cover the
immediate crisis and a package of structural
reforms to prevent its recurrence.
The same runs true for Brazil where a
sharp devaluation immediately restored
competitiveness.These gains were maintained
by keeping public spending under control and
freeing up the economy, allowing Brazil to
emerge as a new economic superpower.
Not so in the case of Argentina, which
abandoned its currency’s ‘dollar peg’ and
defaulted in 2001. Devaluation immediately
boosted competitiveness, but any gains
soon evaporated. ‘Argentina is a now a serial
defaulter, going through a cycle of prosperity
and collapse every 20 years or so,’ says
Wood. ‘That’s because the government never
implemented much-needed reforms. The
economy is still subject to central planning.’
History shows that bailouts can have a
silver lining. But according to Dr Dimitrios
Tsomocos, reader in financial economics at
Oxford University’s Saïd Business School:
‘The classic IMF bailout recipe of extending
credit lines to forestall a crisis, devaluing
the currency to boost competitiveness,
and structural reforms to strengthen the
2013*
economy in the long run, simply cannot be
applied to countries within the eurozone.
The only way to improve competitiveness is
by internal devaluation, through downward
pressure on wages and pensions.’ The
result, he believes, is that the slowdown in
economic activity creates a ‘recession trap’
with debt and deficits continuing to rise.
‘Economies need to be jump-started by
replacing austerity with growth measures,’
he declares. ‘We need to boost effective
demand through public investment, then
private investment will follow.’
Professor Wood agrees, pointing out
that ‘many studies – including the IMF’s –
have found that government overspending
stimulates economic activity, so that both
taxes and consumer spending increase’.
Within the eurozone, Tsomocos argues:
‘There should be a transfer of funds from
north to south – though this time it should
be used to boost industrial capacity rather
than consumer spending as previously.’ But
that depends entirely on the willingness of
northern creditors to do so. Wood argues
that Europe’s austerity-led bailouts ‘are
just ways of imposing greater burdens on
the citizens of peripheral countries, and of
assisting those who lent money to them,
notably German and French banks’.
But devaluation and expansionary policies
are not necessarily a panacea. Danielsson
distinguishes between Iceland and Ireland
‘whose populations realised they had lived
beyond their means and accept they need
to tighten their belts’, and the ‘Club Med’
nations, which are unwilling to implement
reforms and would prefer to have their debts
written down. So while bailouts can have a
silver lining, it doesn’t come free.
1 www.bloomberg.com
Balance sheet The economies of Iceland and
Ireland are showing signs of recovery after both
experienced bailouts during the financial crisis.
But despite history showing that bailouts can have
a silver lining, other countries within the eurozone
should approach the measure with caution.
THE inVEsTOR | 09
Source: OECD *Forecasts
GDP CHanGE %
2010
interview
interview
a walk on
the wild side
Mark Read
Naturalist Chris Damant reveals how a love for the outdoors led
to a lifelong dedication to wildlife conservation. By Ian McCurrach
sTEppINg sTONEs
chris damant
When most of us are tucked up in bed for the night, in a quiet corner of Buckingham
naturalist Chris Damant is likely to be starting his daily work. For his is the business
of badgers and bats and other endangered species – it is not surprising then that he
suggests meeting up in the middle of the day so that he is sufficiently awake. ‘A love
of the great outdoors was in my blood from a very early age,’ says Damant. And, after
a course in countryside management at Merrist Wood College, his ambition was to
be a warden for a wildlife conservation organisation such as the National Trust.Today,
however, Damant is one of the most respected wildlife conservation and ecology
specialists in Britain and the man people turn to for assignments planning and managing
the natural biodiversity of large tracts of the English countryside.
Damant is one half of Bernwood ECS, the ecological conservation service he set up
with his wife, Sue, in 1998.‘I am the one who carries out all the surveys, studies and
fieldwork on the ground,’ says Damant.‘Sue takes care of the administration and
financial side.’ It’s a successful combination – Bernwood ECS clients include some of
the most well-known and illustrious estates in Britain, such as Cliveden,Waddesdon
and Stowe. Cliveden, owned and managed by the National Trust, is home to a small
number of Bechstein’s bats, a rare tree-dwelling species. Damant found the colony
in 2008 when conducting a full ecological survey of the estate. He is passionate about
bats and is currently working with the estate on plans to restore the main house
windows. ‘The bats live in and around the blind boxes attached to the windows,’
says Damant, ‘so it is vital that great care is taken and an action plan put into place so
that we don’t disturb any roosting habitat.’
Other very rare Cliveden residents favoured by Damant include a colony of several
hundred Papillifera papillaris, known affectionately as the ‘Cliveden snail’. ‘These tiny
11mm-long snails hole up in the crevices of the marble Borghese balustrade, which
runs along the top of the house’s perfectly manicured lawns, and this is the only sighting
in Britain,’ Damant explains. ‘They must have been imported when the balustrade was
purchased by Lord Astor from the Villa Borghese in Rome back in 1896.’
Damant’s work has led him to a number of similar discoveries.‘Dead wood plays
a vital role in the life of invertebrates and last year a colleague, Dr Mark Telfer, and
I discovered a rare species of Pselaphinae beetle, the Trichonyx sulcicollis, in a tree that
was due to be felled on the Stowe estate,’ says Damant. He is only the third person in
the country to have seen this species alive in its habitat since the 1960s; and he not only
managed to save the beetle, but he also saved the tree.
Damant’s favourite wildlife spot is ‘the ancient hunting forest of Bernwood in North
Buckinghamshire, from which my company takes its name’. It was here that he found
Buckinghamshire’s first breeding colony of Bechstein’s bats. Along with the Bat
Conservation Trust and a local bat group he spends his free time monitoring and
radio-tracking these nocturnal creatures. ‘Milton Keynes is also a fantastic place for
wildlife,’ he says, confounding its image of roundabouts and concrete cows. ‘Behind the
straight roads and built-up plots is a network of carefully planned and managed wildlife
corridors.These areas are rich in meadows, trees and parkland, home to a variety of
wildlife such as bats, birds, butterflies and great crested newts.’
When it comes to financial planning, Damant says he leaves most of the decisions to
his trusted St. James’s Place partner, Robert Butler, whom he was introduced to by his
mother-in-law. ‘I’m not driven by numbers and figures and I leave all that side of the
business to Robert and Sue,’ he confesses. ‘It’s a good working partnership. Sue and I
each have half of the portfolio and we always have a running competition to see whose
investments do best – she usually wins. Robert looks after the financial investment side
of life, leaving me free to concentrate on what I do best.’
INFO
10 | tHe inveStOr
1986
Graduates from Merrist Wood
College with a National Diploma
in Countryside Management.
1998
Establishes Bernwood ECS in
partnership with wife, Sue.
2002
Gains full membership of
the Institute of Ecology and
Environmental Management.
2007
Consultant on Burnham Beeches
National Nature Reserve Higher
Level Stewardship Agreement for
the Corporation of London.
2008
Works on the Cliveden
Biodiversity Conservation
Management Plan and conducts
detailed bat activity surveys,
recording the first Bechstein’s
bat in Buckinghamshire.
2009
Provides ecological advice
to the National Trust on
the Stowe Estate.
2010
As part of the Bat Conservation
Trust and local bat group survey,
discovers a new breeding colony
of the very rare Bechstein’s bat
in Bernwood Forest.
2011
Advises the Waddesdon Estate
on the creation and design of
a new 60-acre broad-leaved
woodland, including meadows
and ponds, as part of the
Queen’s Jubilee celebrations.
2012
Works with The Parks Trust
in Milton Keynes preparing a
Biodiversity Action Plan for its
parklands and open spaces.
tHe inveStOr | 11
NEXT
PROFILE
PROFILE
new horizons for
disadvantaged youth
P
Jon Snow
The St. James’s Place Foundation funds a range of charities.
Jill Insley looks at the work of one
eteris moved to London when
he was 19 to look for more
interesting career opportunities.
‘I was qualified as an electrician
and had done that for a few
years and found it quite boring,’ he says.
‘I worked when I first got here, but because
I didn’t have the right experience I lost my job.
First of all I stayed with friends, then I squatted
and was even sleeping rough for a while.’
He was introduced to the New Horizon
Youth Centre (NHYC), in the King’s Cross
area of North London, by a friend. The centre
provides a wide range of services and support,
seven days a week, to vulnerable young people
between the ages of 16 and 21. Housing is the
most important issue for most who come into
the centre – 98% are homeless.
Shelagh O’Connor, director of NHYC, says:
‘The young people have quite complex needs.
Some have mental health issues, many have
suffered high levels of abuse in the past; they
are looking for accommodation, but also need
a lot of support around their wellbeing.’
Young people come from across London to
NHYC, but also from elsewhere in the UK,
while a small proportion is from Eastern
Europe and North Africa.The centre also runs
outreach posts for young offenders in Feltham
and Holloway prisons.
All NHYC services – which range from
access to showers, food and second-hand
clothes to help in finding accommodation and
work – are offered on the premises in a holistic,
joined-up way. Members of the staff team have
daily debriefs to catch up on what is needed by
each young person so, for example, if Peteris
has already explained his situation to someone
working with healthcare issues, he doesn’t
need to go through the whole process again
with the youth worker dealing with housing.
Life skills training – from cookery, paying
bills and dealing with neighbours and
12 | THE INVESTOR
Without their support [the St. James’s Place
Foundation], we wouldn’t be able to put
on this range of activities and services
landlords to drawing up CVs and applying
for jobs and educational courses – is the
essential underpinning of everything
NHYC does.There is no point in finding
accommodation for a young person only
to have them lose their home because they
cannot sustain the tenancy.
Sina Harris, whose position has been funded
by the St. James’s Place Foundation for three
years, teaches the IT skills crucial for virtually
all employment and many aspects of everyday
life. ‘Many of the young people who come
in can use Facebook and YouTube, but don’t
know how to email,’ he says.
‘With some I do a survey to assess what
they need, with others I just talk – you
can’t force people to learn IT, however vital
it is. I tailor the training to each person:
some people aren’t very good at budgeting,
others want to learn how to use Excel, do job
searches or to attain qualifications towards
GCSE from education charity AQA. Most
people are looking for practical skills.’
Although the centre has just eight laptops –
old, but functioning – Sina can see up to 24
young people a day.When Peteris came in,
Sina helped him fill in his benefit form online,
the first step to getting his life back on course.
He also learned how to live on a (very tight)
budget and was helped to apply for shared
accommodation in Wembley.
Sina showed him how to set out a CV and
apply for work: Peteris is now doing an
apprenticeship with a lift maintenance and
refurbishment firm, attending college two
days a week and doing practical work for the
other three.
Peteris hopes to continue this work when
the apprenticeship ends: ‘Every day I’m
learning something, and everyone is pleased
with my work.’
The St. James’s Place Foundation started
funding Sina’s role after a former NHYC
employee – Channel 4 News presenter and
journalist Jon Snow – told his financial adviser
about the centre. Jon worked at NHYC from
1970 to 1973 before becoming a journalist.
‘I got thrown out of Liverpool University
for taking part in an anti-apartheid protest
and couldn’t get any work,’ he says. ‘But then
I heard on the grapevine that Lord Longford
was looking for help to run his day centre.
I meant to stay for six months, but the need
was so acute.’
Now chair of NHYC, Jon is still very
involved, chatting to young people in the
café area and signing cheques for Shelagh on
the day I visit.
‘Needs have changed during the recession,’
Jon says. ‘It has pushed people in seemingly
more manageable and less needy situations
towards us.The problems have expanded up
the socio-economic order.’
Demand for the IT training sessions has
been high. In the past year, 645 young people
have attended 182 skills sessions, 87 have
gone on to do further training and education
outside the centre, and 23 have gained
work experience placements.
One young person who attended training
sessions after dropping out of college recently
completed work experience in the Cabinet
Office, and is now applying to take up his
college place again.
Some 40% of NHYC’s funding comes from
private sources, such as the St. James’s Place
Foundation, money that is often ring-fenced
for specific functions identified by the centre.
‘Without their support we wouldn’t be able
to put on this range of activities and services.
The help is vital,’ says Jon.
Balance sheet One of the charities helped by the
St. James’s Place Foundation is the New Horizon Youth
Centre in King’s Cross. Chaired by Jon Snow, the centre
provides a range of services and support to vulnerable
young people, such as housing and career advice.
the work of the st. james’s place foundation
The Foundation has raised more than £30 million for
charity since its formation in 1992, and £5 million in 2012
alone. The charitable arm of the St. James’s Place Wealth
Management Group funds hundreds of projects every
year. It relies heavily on the generosity and support of
partners and staff, many of whom donate money on a
monthly basis from their income and take part in fundraising
events and challenges.
The charities supported by the Foundation fall into
three categories:
l cherishing the children
l combating cancer
l supporting hospices.
UK-registered charities or special needs schools can find
out more about applying for a grant on the Foundation’s
website: www.sjpfoundation.co.uk
THE INVESTOR | 13
analysis
analysis
SPECIAL REPORT
The official gross UK
mortgage lending
figures, in billions,
since 20071
0
housing market finds
a firmer foundation
M
Trunk
Trunk Archive
Archive
A series of measures introduced by the government aims
to stimulate a rise in house sales. Joanne Hart reports
14 | THE inVEsTOR
2007
2008
2009
2010
2011
2012
ost of us start off
dreaming of owning our
own home, but for many
the financial crisis has
dealt these aspirations a
blow. Official figures1 show that, in 2007,
gross UK mortgage lending amounted to a
record £363 billion. By 2009, that had
dropped by 60% to £143 billion and it has
remained at or near that level ever since.
Volumes have been severely depressed, too,
with fewer than 900,000 transactions
reported every year from the financial crisis
to 2011, and only slightly more than that last
year.These are the lowest volumes since the
mid-1970s, according to Bernard Clarke of
the Council of Mortgage Lenders.
‘We saw more than a million transactions
pretty much every year from 1974 onwards,
even during the early 1990s. But since 2008,
transaction levels have been at a post-war
low,’ he says.The reasons are widely known:
banks have less capital to lend, people are less
confident about their prospects and house
prices remain stubbornly high, particularly
for first-time buyers.
‘A house is the most expensive item that
most people will ever buy, so its price depends
on their income expectations, and that is linked
to job security and pay growth,’ says Simon
Hayes, chief UK economist at Barclays.‘Since
the financial crisis, most people have revised
down their income expectations, so that has a
depressing effect on the housing market.’
However, there have been signs of change.
‘Housebuilding is one of the government’s
most favoured industries because most of the
money involved in the sector stays in the
country,’ says Charlie Campbell, research
analyst at broker Liberum Capital. ‘The bricks
and mortar used to build homes comes from
the UK and the labour force lives here and
spends its money here.’
With this in mind, David Cameron has
launched a number of initiatives including the
Funding for Lending, NewBuy and FirstBuy
schemes, with further incentives announced in
March. Funding for Lending provides banks
50000
50
100000
100
with cheap state-backed funds on condition
they make credit cheaper and more accessible
for households and businesses. NewBuy allows
first-time buyers to get a 90-95% mortgage
for a new-build home, with the government
and housebuilders sharing part of the risk.
And, under the FirstBuy initiative, potential
new homeowners put up 80% of the cost of a
home while the remaining capital is provided
by the government and housebuilders – this
has been extended to purchasers of secondhand, as well as new houses, from 1 April.
Chancellor George Osborne added a
further incentive, Help to Buy, which gives
mortgage guarantees to help those with small
deposits get on the housing ladder.Take-up of
FirstBuy and NewBuy has been slower than
hoped, but there are signs that banks have
begun to make mortgages more accessible.
‘There has been a modest improvement in
the market.There is more capacity recently,
particularly for people with a bit of equity and
a good credit record,’ says Clarke.
The Council of Mortgage Lenders expects
transaction volumes to rise from 886,000 in
2011 to 950,000 this year. But it predicts a
slight decline in 2014, and it is not alone.
Economists across the City believe recovery
in the housing market will be slow.
‘Activity is very low compared to longterm norms and there will be no major
pick-up for two to three years,’ says Howard
Archer, chief UK economist at consultancy
IHS Global Insight. ‘Economic growth will
probably be around 0.9% in 2013 and 1.5%
next year.That’s not enough to kick-start the
housing market so I suspect the market will be
relatively flat and will pick up only gradually.’
Against this backdrop, shares in UK
housebuilders such as Barratt Developments,
Bellway, Berkeley Group, Bovis Homes and
Persimmon have soared over the past year as
they have reported robust figures and
expressed optimism about the future. Barratt
more than doubled from 94p to more than
200p, Persimmon was not far behind, and
others increased in value by 50-70%. But
there is logic behind these price rises.
150000
150
200000
200
250000
250
300000
300
350000
350
400000
400
‘The majority of the housebuilders bought
land at pretty high prices before 2008 when
prices collapsed due to the financial crisis,’ says
Richard Peirson, fund manager at AXA
Framlington. ‘Since then, they have been
buying land more cheaply and their profit
margins have been rising as that expensive land
is used up. Even if volumes are maintained and
house prices are stable, profits will grow
significantly over the next two to three years.’
As these companies put their troubled pasts
behind them, their balance sheets become
significantly stronger, too. Persimmon has
pledged to pay a series of special dividends to
shareholders, starting with 75p this June;
Berkeley is pondering similar returns in the
future, and others may follow suit.
‘Housebuilders have been focused on
self-help, getting their balance sheet in order
after the crisis. Now they are in a much more
attractive position and they should continue
to see earnings recover,’ says Simon Brown,
analyst at broker Northland Capital.
The outlook for housebuilders is further
boosted by the shortage of new homes. In
2007, the government set a target of adding
240,000 new homes per year by 2016.
Currently, around 115,000 new homes are
being constructed annually; less than half the
optimum number. In other words, there is a
growing shortfall in supply, which suggests the
long-term trend for housebuilders is positive.
In the short-term, the companies should
benefit from profit-margin recovery and some
volume growth.This could also feed into
builders’ merchants such as Travis Perkins or
brickmaker Michelmersh Brick Holdings. But
it may be a long while before the housing
market returns to the heady days of old.
1 Council of Mortgage Lenders’ data, using figures gleaned from
Bank of England, HMRC, ONS and its own members
Balance sheet Since a high in 2007, official
figures show that mortgage lending in the UK has
dropped by 60% in recent years. To help kick-start
the housing market, the government has launched
a number of initiatives to support banks and buyers
alike – but do they go far enough?
THE inVEsTOR | 15
IN YOUR INTEREST
IN YOUR INTEREST
pensions facing the
big squeeze
s it still worth saving into a pension
scheme? Many investors will have
been asking themselves that question
following the announcement in
last year’s Autumn Statement of
yet more restrictions on tax relief on
annual contributions and the size of the
pot that can be built up over a lifetime. It
would, however, be foolish to write off
pensions savings: they should remain a core
part of planning for retirement, even
though they are likely to be just one part
of the investment mix.
The government announced that, as from
next April, the annual allowance for pension
contributions will be cut from £50,000 to
£40,000, while the lifetime allowance –
which sets the maximum, penalty-free, value
for a pension pot – will fall from £1.5 million
to £1.25 million.
Pensions tax relief is now substantially
less generous since the lifetime allowance
was introduced in 2006.Then, it was set at
£1.5 million, but it rose annually to reach
£1.8 million in 2010 before being cut back
to its starting level in 2012.The fall in
the annual allowance has been even more
dramatic: set initially at £215,000, it peaked
in 2010 at £255,000.
Even the reduced amount of tax relief
available is worth using, however. The annual
allowance may have fallen substantially, but
it is available to everyone and applies to the
highest marginal rate of tax. That brings the
cost of a £40,000 pension contribution down
to £24,000 for anyone paying the 40% higher
rate of tax (although the extra 20% must be
reclaimed via the individual’s tax return).
The lifetime allowance is also available
to everyone, so a married couple can
accumulate a pension pot of £2.5 million
between them – enough to fund a reasonably
generous annual pension. But everyone
16 | THE INVESTOR
should also keep track of their progress
towards the maximum allowance and
take steps to avoid breaching it if that looks
likely to be a risk.
The reduction in annual allowances and
the lower lifetime maximum means using
other types of savings, in particular
other tax-efficient schemes such as ISAs,
to help fund retirement is likely to
become more common.
Such an approach may also be more
suitable to the changing pattern of
retirement. Twenty years ago, many people
retired in their early 60s and looked forward
to spending the rest of their lives secure
in the income from a final salary pension
scheme, where pensions are based on
earnings in the run-up to retirement.
But that option is now available to
a dwindling number of people. Final
salary schemes are closing, often both
to existing and new members, while
increasing life expectancy and falling
annuity rates are cutting into the incomes
available from defined contribution
schemes1, where pensions are based on
the amount of money in the pension pot.
That could mean people are more
likely to phase their retirement gradually,
perhaps working part-time for a while,
and fund themselves through a range of
investment vehicles.
Those who have used their full
pension tax relief should then consider
using their maximum ISA allowance.
While there is no upfront tax relief on
ISA contributions, the funds can be drawn
out tax free – unlike pensions, where the
proceeds are taxable.
For the current tax year (2013/14),
the allowance is £11,520, giving a couple
£23,040 between them; and the
government has committed to increasing
the ISA allowance annually in line with
the Consumer Prices Index. Other
options include using tax-efficient investment
schemes like Venture Capital Trusts
and Enterprise Investment Schemes for
long-term savings.
The tax changes have not been all one
way, however. The Autumn Statement also
included an increase to the limit to the
amount of income that can be drawn down
from a pension fund. Drawdown is an
alternative to buying an annuity and can
be a good option for those who want to
maintain their fund rather than surrendering
it all to an annuity – particularly when
long-term interest rates, and therefore
annuity rates, are so low.
But the government has stipulated
that investors could only draw down an
income equal in value to an annuity that
could be purchased by an equivalent
pension fund. The sharp fall in annuity
rates in recent years has led to some
pensioners suffering a big drop in income
from drawdown so the government has
increased the limit to 120% of the relevant
annuity as from this March2.
The changes in pension rules and
tax incentives make it essential that
arrangements for retirement are kept
under regular review. That includes
regular checks on the size of the pension
fund to ensure that it will not breach the
lifetime allowance, as well as making
the maximum use of the tax incentives
available for pensions saving.
1 www.napf.co.uk
2 www.pensionsadvisoryservice.org.uk
Balance sheet Although incentives to save into pension
schemes have been reduced, they still have a part to
play in any retirement portfolio. Pension funds and
retirement plans should be kept under regular review
to ensure you are financially secure in later years.
Plain Picture
I
Restrictions to tax relief and reductions in the maximum pot size of
pensions have led investors to re-evaluate their retirement portfolio.
We examine the new regulations and the options available
THE INVESTOR | 17
PROFILE
taking a forensic approach
In taxing times...
How Stamford Associates leaves no stone unturned in gaining the necessary
insight to the business and processes of an investment manager
The St. James’s Place Investment
Committee’s role is to select and
monitor the investment managers
that look after our clients’ wealth.
It is assisted in this by Stamford
Associates, whose sole business is
to advise pension funds and
St. James’s Place, its only wealth
manager client, on manager selection
and monitoring. We asked one of our
recently appointed managers, PIMCO,
which manages the St. James’s Place
Multi Asset fund, to share its
experience of the process.
Getty Images
S
tamford Associates’s approach to
research is an exceptional one,
and accommodating its
requirements in relation to our
Multi Asset strategy, in the
run-up to the launch of the fund in April
2012, was a significant undertaking. Not
only was Stamford Associates required to
get to know PIMCO as a firm, it was also
asked to research a fund strategy that covers
all asset classes.
Stamford Associates cut no corners in
this process, and took an extremely
‘forensic’ approach to understanding
PIMCO as a firm – our people, our history,
our investment process, our operations
and risk management – as well as our
Multi Asset approach and each of its
underlying components. It soon became
clear that Stamford Associates’s review
was the most extensive research process
that we had experienced.
Investment consultants all need to
understand an asset manager’s philosophy,
people, process and performance.
Stamford Associates takes it to a surgical
level; every process, viewpoint, portfolio
position and data point required supporting
evidence – nothing was taken at face value.
Over the course of six months and 14
meetings – including one scheduled for 8am
on 26 December – the Stamford Associates
team’s research covered the core areas
of our investment management process.
18 | THE INVESTOR
It researched every investment strategy
used by PIMCO and personally interviewed
15 portfolio managers who were either
directly or indirectly involved with the
Multi Asset model, as well as reviewing
their individual performance records and
professional experience.
Stamford Associates also did extensive
due diligence on our compensation structure
to ensure that the way our investment
managers are remunerated is consistent with
the interests of investors in our funds. Its
work included researching the ownership
history of PIMCO in detail, its long-term
incentive programmes and levels of senior
staff turnover. PIMCO has never before been
asked to share such detail with a consultant.
Our Multi Asset strategy is complex
as it covers a range of asset classes and has
a different approach to risk than funds that
invest in a single asset class, such as UK
equities. Stamford Associates left no facet
of our investment process covered, going
into forensic detail on all of PIMCO’s
underlying strategies. It requested marketing
presentations, factsheets, as well as holdings
and attribution reports for each underlying
strategy since its inception, covering funds
on both our European and US platforms.
Beyond this initial and exhaustive
research phase, and following our
appointment by the St. James’s Place
Investment Committee, the ongoing
monitoring process is equally rigorous.
We have met with Stamford Associates
formally three times since the launch of the
fund, and are in frequent contact for ad hoc
requests. There is an extensive list of regular
reporting requirements and conference
calls, mostly on a monthly basis, which are
coordinated with both Stamford Associates
and St. James’s Place.
As all this evidence suggests, in
monitoring what is a complex investment
strategy, Stamford Associates and the
St. James’s Place Investment Committee
leave no stone unturned in gaining the
necessary insight to help them understand
our business and our process. We welcome
that scrutiny and believe St. James’s Place
investors should draw comfort from the
rigorous process undertaken on their behalf.
We look forward to working with them in
the future.
...it pays to
take the right direction
In this continuing period of economic uncertainty, there is sadly one thing that we can all be sure of –
the prospect of more taxation today, and long into the foreseeable future, as the government tackles the
sovereign debt crisis.
Yet, even in these challenging times, there are still many proven and highly-effective ways to preserve your
wealth, providing you know which direction to take.
At St. James’s Place Wealth Management, we have the knowledge and experience to help you, as we have
helped many of our clients over the years, by providing trusted tax planning and wealth management
advice. This includes expert advice on:
•
•
•
•
•
How to invest tax-efficiently*
Protecting your estate from the devastating effects of Inheritance Tax
How to make the most of your annual tax allowances*
Maximising your pension contributions by taking full advantage of the tax reliefs available*
Implementing tax-efficient strategies for businesses.*
To find out more about the steps you can take to make life less taxing, talk to your St. James’s Place
Partner today.
*The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
www.sjp.co.uk
The value of an investment with St. James’s Place will be directly linked to the performance of the funds
selected and may fall as well as rise. You may get back less than the amount invested.
4 -7 JULY 2013
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The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.
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Registered in England Number 2627518.