One of the authors of Freakonomics tells us how to get the wealthy to pay more tax, we rumple the bedsheets at the Plaza New York and we prepare our passport for takeoff at the airport in SW1.
Hedgehog is sponsored by Schroders Private Banking
You cannot fail to be aware of the popular revolution in writing about economics which was led by Freakonomics. Instead of graphs relating x to y to who cares, professor of economics Steven Levitt and writer Steven Dubner pointed out some unexpected or downright counter-intuitive phenomena in the world, using the tools of economics. For example, they discovered why most drug dealers live with their mothers, how a baby’s name can predict its future, and what is responsible for our low crime rates. (Abortion, apparently.)
Four million copies later, Levitt and Dubner have released SuperFreakonomics, which sets the economist loose on the world’s biggest problems, from global warming to terrorism. (Terrorists can avoid detection by buying life insurance.)
To promote the new book, Steven Levitt gave a talk in Parliament to the Henry Jackson Society, an organisation which promotes democracy across the world. In a packed Committee Room 14, he talked about where footballers should aim if they want to score a penalty and his much-attacked views on global warming (he thinks that our current carbon-cutting plan of action will be fruitless). He’s not much of a fan of the global banking bailout either.
Since he specialises in unusual incentives, Spear’s wanted to know if there were any creative ways he had come across of making the wealthy pay more tax. After all, governments around the world are always desperate for greater tax revenues, and the wealthy are just as desperate to avoid paying more. It would have to be a pretty clever strategy to work. His answer? ‘The single best way to extract more tax from the rich is to have the rich earn more.’
It makes sense: if you cannot increase the tax rate (a crack team of lawyers will find a way around it if you do), you have to increase the amount taxable. That sounds like a solution everyone could live with.
ROCK, PAPER, VILLAS
It is not something most people with a Chiantishire villa or a bunk in Mustique will appreciate hearing, but ‘owning a second home abroad is a mad, mad thing to do — unless you are supremely rich (and even then it’s slightly mad).’ So says David Rogers, founder of Rocksure property funds.
His logic runs as follows: you could invest in a Rocksure property fund, or you could ‘take £1 million and place it in a field in Tuscany (where it is cold and wet for five months each year), commit time to finding, buying and renovating it, then to managing, maintaining and staffing it each year, with an annual cost of up to £50,000. And you’re obliged to return several times each year to the same place in order to get a benefit!’
When you put it like that… There are two Rocksure funds open at the moment. A full unit in the Bravo fund at £189,000 allows you to share ownership in up to six four- or five-bedroom fully-staffed houses around the world (Marrakech, the Algarve, Croatia, the Rocky Mountains, Thailand), enjoying an average of four rent-free weeks each year at your choice of the properties. Capital (about to reach its initial closing) is much more for the urbanite: a full unit at €115,000 allows you to share in luxurious apartments and townhouses in European destinations like Paris, Cannes, Florence and Prague.
David has found that Rocksure has attracted a sophisticated class of investors: ‘The 60-70 people who have invested over £10 million in Rocksure funds since 2006 are senior professionals, average age about 45-50, who are successful, like the idea of hassle-free luxury home ownership, free holidays in exotic places and earning capital gain (hopefully) as they swim.’ This is not David’s first toe in international waters — he was COO responsible for all of Abercrombie & Kent’s overseas offices — while his Rocksure co-founder Desmond Patrick-Smith was MD of Abercrombie & Kent Europe.
Rocksure still holds to the idea that there is no investment like bricks and mortar (especially in a sunny clime) — it just thinks that owning a holiday home needn’t involve traipsing round Provence in search of For Sale signs.
David is offering Spear’s readers a €10,000 discount on a premium share in the Capital Fund. You can contact him on +44 1993 823809 or at firstname.lastname@example.org.
HER IMPERIAL COMMAND
Some traits are clearly genetically inherited: dark eyes and male pattern baldness instantly come to mind. But entrepreneurialism? Is there a race of shopkeepers somewhere? (Napoleon certainly thought so, but he got an ‘F’ in his genetics class.)
Elizabeth Sieff, a 29-year old former head-hunter, is the living proof: she is the great-great-granddaughter of the Marks in Marks & Spencer. Now she is dipping her toe into the lake of recession chic. She and her partner Rebecca Masri have launched the Little Emperors privilege card, which provides the bearer with discounts at a stupendously high-end range of places: restaurants like Alloro, Daphne’s, Restaurant Gordon Ramsay and The Ivy; shops like Cartier, Harrods and Smythson; and hotels like the Ritz, London, le Bristol, Paris, and the Leading Hotels of the World group. Discounts are not slight either: they can reach 50 per cent.
Elizabeth thought that her card would be beneficial both to bonus-strapped consumers suffering luxury withdrawal and businesses feeling the pinch of recession-era over-capacity, whether that means empty tables on a Monday evening or empty suites over the weekend.
‘People who were used to living a cosy lifestyle, not thinking about what they were spending, suddenly became very aware of what they were spending their money on,’ she says. ‘We came up with this idea to do a membership club that could allow institutions to discount without hurting their brand value.’ Her scheme, by reaching a critical mass of luxury businesses, has avoided the danger of having certain ones stand out as if desperate.
The card is both stimulator of and responder to a desire for discounts: ‘Who wants to pay top dollar for anything any more? A lot of the retailers we’ve spoken to have said that actually people are asking for discounts, and it puts them in a very awkward position. But if someone can legitimately take a discount, it makes their lives a lot easier.’ Membership will be capped at 5,000 and the founders’ fee is £575.
And those refuseniks who felt that discounts were infra dig soon came back: ‘There were a couple that initially said no, then a couple of months later came back and said, “Is the offer still open?” That was a great feeling!’
Sounds like we should all be hoping the recession continues for some time.
One of the advantages of having an East Coast liberal-type as President (never mind that Obama is from Hawaii and Illinois, and that W was originally from Massachusetts) is that he’s that bit more likely to go to New York — and now there’s a Presidential Suite fit for him.
The Plaza, whose building on Fifth Avenue at Central Park South screams ‘New York’ as much as the Yankees or the Met, has just undergone a $450 million facelift (like many women on Fifth Avenue, in fact). The Royal Plaza Suite, which costs $20,000 a night, has everything from three bedrooms and a private elevator to amber chandeliers and a grand piano.
One of the chicest things about the Royal Plaza Suite — aside from the Louis XV-style décor — is that your study is equipped with a selection of books from Assouline, the Parisian publisher, which has some space in the Plaza. By realising that guests want nourishment for the brain as well as relaxation for the body, the Plaza becomes a pleasure.
And if that weren’t enough, the eyes are also catered for: thanks to a recent partnership with Christie’s, the Suite will have a revolving art exhibition. Better get your paddles at the ready.
People often say ‘Ah, but when it comes to the crunch — ’. Finally, last year, we came to the crunch. One could tell this from all the gnashing of teeth and rending of garments which emerged across the world, from Wall Street to Main Street, from the City to almost every city.
If you were a bank, the challenge you faced was not just keeping yourself afloat but making sure your clients did not panic, withdraw their money and run amok. Rather than waiting until the moment of greatest stress came (by which time it was evidently too late), Barclays Wealth already knew how its clients would react because — when you become a client — you take their Financial Personality Test.
What this does, says Greg Davies, Barclays Wealth’s head of behavioural finance, is determine a person’s financial decision-making style and their risk attitude, a much broader picture than most banks use: ‘We can measure financial personality in a very rigorous, objective and stable way in six different dimensions. Classical finance tells us that the only thing that you need to know about clients is their risk tolerance. But you differ from someone else in many ways relevant to constructing your ideal portfolio even if you have the same risk tolerance.’
The Financial Personality Test creates a rounded picture of a client and their tolerance for fluctuation in their portfolio, key for creating the appropriate balance of long-term, low-yielding, stable components against short-term but profitable risks.
Portfolio construction is not much like a game of poker, except in one respect: when it comes to a moment of tension, you need to know who will stick and who will fold.
It makes a change from flaccid gift cards with so little purchasing power that you may as well use them as bookmarks. The Harrods Gift Card, available from Harrods Corporate Service, can turn the emporium on Brompton Road into a departure lounge to anywhere in the world: you can now fill it up with up to £10,000, redeemable at the new Abercrombie & Kent Private Travel offices on Harrods’ lower ground floor.
Abercrombie & Kent is perhaps the best known concierge travel service for those who do not want (even a very grand and expensive) package holiday. Everything is tailored, everything is unique. And after all, isn’t that exactly why Abercrombie & Kent, founded in the sixties, has been so attractive to HNWs over the years? Given that the world offers an infinity of travel opportunities, it is easier to get it wrong than it is to book the perfect break, and so the wise traveller takes advice.
Harrods Corporate Service has given Hedgehog a selection of destinations you could visit if you unload your card at Abercrombie & Kent. You could book the Little Bush Camp in the Sabi Sabi Private Game Reserve, South Africa, taking twelve friends to make a change from dank weekends in Shropshire.
The Peloponnese in Greece offers the private Villa Karapoliti, which stands in 30 acres of private hillside surrounded by olive and lemon trees. There is even a speedboat at your command.
If there’s one thing more exciting than receiving an airplane ticket in your stocking on Christmas Day, it’s receiving the key to hundreds of destinations. After all, what use is a ticket when you can’t tell Toronto from Timbuktu?
Globalista is the key. Spear’s is its media partner: it provides chic and informative travel reports which are regularly updated. The more daring can find guides from Svalbard in the north to Antarctica in the south. You can read them online or download them as a PDF, to print off at your desire.
Just in time for Christmas, Globalista are offering a fine discount on their £150 annual membership. You can buy an individual membership or even stock up on them as a corporate gift, giving your clients the ability to say, ‘I’m sorry, we can’t meet — I’m at the best bar in Dallas/Dubai/Dubrovnik.’ Every recipient of a gift subscription will get a smart personalised invitation, their passport to unlocking the true potential of their passport.
When it comes to the literary world, Spear’s has a little to crow about: at the first Spear’s Book Awards in June, we chose Hilary Mantel’s Wolf Hall as Novel of the Year, and it went on to win the Booker; we also chose Liaquat Ahamed’s Lords of Finance as Financial History of the Year, and it went on to win the FT/Goldman Sachs Business Book Award. Smug? Not us.
Which is why it made perfect sense for us to sponsor the Henley Literary Festival in early October and to hold our own event, a Spear’s Talk. John Redwood MP kindly agreed to speak about the causes and consequences of the credit crisis. His audience, who had mostly come straight from a talk by Carol Thatcher, heard a scenario which is frightening precisely because it is real, delivered with powerful rhetoric.
Redwood went on to supply some possible remedies the government could use, such as ending quantitative easing and reducing spending. This knowledge and these opinions are not just the product of an attentive two decades on the green benches but also of his role as chairman of Evercore Pan-Asset, a nominee for the Spear’s Wealth Management Innovator of the Year Award 2009.
Evercore Pan-Asset (formed in 2008 when American banking boutique Evercore Partners bought 50 per cent of Mr Redwood’s Pan-Asset Capital Management) has been doing its best to beat a positive path through the government’s rescue efforts.
One of the ways it has done this — and the reason it was nominated for a Spear’s Award — is by pioneering the use of ETFs in managing its clients’ assets. Exchange-traded funds, which are bought and sold on stock exchanges like normal equities, hold a basket of assets and trade close to their net value. They’re low cost, tax-efficient and very liquid, perfect for passive managers. Switzerland has caught ETF fever, and $1 trillion worldwide is thought to be managed in ETFs.
You can read John Redwood’s words twice a week in his PanComment at www.pan-asset.co.uk.
CHATEAU DE L’EST
We hear from two separate sources that the place to find your Chateau Latour is not at its origin in France or even at auction in London, but looking much further east: Hong Kong. While the rest of the world drifts eastwards, it should be no surprise that wine has packed its passport and is following suit.
Andrew della Casa, director of the Wine Investment Fund, says: ‘Auction results clearly show how Hong Kong is rapidly emerging as one of the three major fine wine trading hubs, after London and New York. With Hong Kong’s total auction sales likely to hit some US$65 million this year, it is strongly challenging the US for second place in the global auction rankings.
‘UK merchants are also reporting increasing percentages of their sales coming from the region, while interest in investing in the serious fine wine investment funds (which are predominantly managed out of London) continues to grow apace. With the fine wine market in mainland China still far less developed than that in Hong Kong and with Hong Kong’s recently introduced zero-duty regime, the potential for growth remains enormous.’
If you’re clearing out your cellar, you know where to consign your cases.
Readers of spearswms.com will have followed our online diary during the Frieze Art Fair in October. One of the best shows that week was the Age of the Marvellous, held in a deconsecrated church by Sir John Soane on the Euston Road. The show was put on by All Visual Arts, a joint project between former LA gallerist and director of ArtNet Joe La Placa and the founder of Europe’s third largest hedge fund, Mike Platt, utilising the art smarts of the former and the business smarts of the latter to amass a collection of works produced especially for it.
Spear’s caught up with Joe, who said that his collecting philosophy was ‘consilience’, where arts and sciences are united in ‘a cosmological vision of the knowledge of mankind’. The show blended these disciplines together terrifically, with some thrilling pieces of work, including Ben Tyers’ Breathe, an egg-shaped container wherein water falls and rises at the rate we inhale and exhale at, and Paul Fryer’s Venus and Mars, an orrery with mythical lovers Venus and Mars orbiting yet never meeting.
What is the business side of All Visual Arts? ‘I used to direct ArtNet and I was an expert on art as an asset class. My partner Mike Platt is the third-biggest hedge fund in Europe. People mistake us for a fund — we’re absolutely not a fund. Our business model is a long-term strategy over five years to make a collection, so we’re not interested in any of the methodology that a fund or a hedge fund would follow.
How has the recession affected AVA? ‘I have to say for me, “What recession?” Even in a recession, it’s not the high-quality works that suffer, it’s the middle ground that actually suffers.
‘For us, it hasn’t really affected us. My collaboration with Mike has made us recession-proof, because the way we’ve designed All Visual Arts as a hybrid organisation, without a gallery for instance, clocking 250 grand a month overhead. We have a nice humble production office, but when we do shows, we go for it.’
SAFFAR, SO GOOD
Unemployment is high, manufacturing is weak and consumers are staying at home. Where can an investor find opportunities? Many are canvassing emerging markets. Few have looked to the Middle East — a region reaping the benefits of strong oil, favourable demographics and government initiatives.
For investors such as UK family offices that are looking for exposure to the region, the timing has never been more attractive. A number of opportunities are available, including investments with a longer term view, such as private-equity funds like Saffar Capital.
Saffar were recently in London to speak with investors on why now is the time to be investing in the Middle East. Through the Saffar Financial Infrastructure Fund, the company is looking to continue investing in growth stage companies, and its track record — building successful regional companies such as Zawya and Credit Suisse Arabia — has proven that a longer term view definitely has its rewards.
Saffar is not a newcomer to the Middle East region, having been founded in 2001. The company has a strong shareholder base drawn from Saudi Arabia, Kuwait and the Emirates. The financial crisis has highlighted the failures of high-leverage buyout funds and many companies now focus on the new mantra of ‘back to basics investing’ as exemplified by strong cash flow management, operational oversight and long term strategies. This longer-term view, Saffar believes, appeals to the likes of family offices that don’t try to time markets or ride momentum.