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  1. Wealth
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February 26, 2009

Suing for Success

By Spear's

If wealth managers and investment bankers could be sued simply for losing money, their lawyers’ phones would currently be ringing off the hook. There are perhaps not even enough lawyers in London to represent both the angry would-be litigants and the fearful fund managers.

If wealth managers and investment bankers could be sued simply for losing money, their lawyers’ phones would currently be ringing off the hook. There are perhaps not even enough lawyers in London to represent both the angry would-be litigants and the fearful fund managers. ‘Class action’ is the new phrase financiers most dread seeing in their correspondence.

But as Caroline Garnham, partner at Lawrence Graham and founder of Family Bhive, says, it is negligence or deceit that will bring a win at law, rather than plain losses: ‘You should ask whether all banks did their due diligence. Did anyone know what the valuation of these sophisticated instruments was? Did they take care?’

The best advice for clients appears to be to feign a lack of sophistication: in the case of JP Morgan v Springwell (2008), JP Morgan (then Chase Manhattan) won because Springwell was felt to be too sophisticated to rely solely on the advice of Chase Manhattan. If you put on a rustic accent and chew on some corn, perhaps a judge might blame the bank.

You have to judge each case on its merits, but those whose advisers put them into the Ponzi scheme to end all Ponzi schemes are likely to have a better case because they were paying people for good advice and due diligence. Contrarily, in a falling market where everyone’s investments have become shadows of their former selves, it is hard to claim that you were the recipient of poor advice.

Those with a grievance are certainly making their presence felt. The Coutts AIG Action Group, spearheaded by Sir Keith Mills, took out adverts in national newspapers to air their views about the alleged mis-selling of bonds.

The number of Coutts customers who feel aggrieved is minuscule compared with those who may have suffered at Bernie Madoff’s hands: three million by one study, equivalent to the population of Chicago. That would be a crowded courtroom for their class-action suit.

When Garnham says that ‘there are a lot of private bankers and investment managers who must be pretty nervous’, you cannot help but think of poor asset managers, quaking as they await being served with papers signed by a thousand of their angriest clients.

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The case of Tom Aikens is by now notorious. After a poor autumn when his Chelsea restaurants, Tom Aikens and Tom’s Kitchen, were hit by the financial crisis, the administrators were summoned in October.

One pre-pack administration later, the restaurants were bought by a private-equity firm and thereafter dining continued without a hitch. (Except, of course, for Aikens’ suppliers, who were left out of pocket, often to the tune of thousands of pounds each.)

What stirred most interest was the pre-pack administration: a way of saving your business and avoiding its debts. Jon Moulton, boss of private-equity firm Alchemy Partners, known for its difficult but successful deals, outlines the problem with pre-packs: ‘A bunch of directors run a company into the ground, decide they would like to carry on with their jobs and put it into pre-pack administration. They don’t offer it for sale and buy it back for a few pennies, then screw the creditors.’ They make no effort to find fair value for the assets.

If a board ‘with less than full integrity’ and an ‘unscrupulous’ insolvency practitioner can be found, the business may be saved even as the creditors are lost — along with reputations.

Jon Moulton says that some QCs even believe pre-packs may be illegal in principle, although there is no suggestion that Aikens has acted illegally and Moulton says they can be appropriate, if the management team acts fairly.

Still, if opprobrium is a distant concern and the alternative is an expensive, drawn-out insolvency, wherein most creditors are still unlikely to find satisfaction, we may be eating pre-packed lunches for some time to come.

Never behind the wealth management curve or afraid to say what they mean, the residents of St James’s Place Wealth Management have taken another leap into pro-activity by advertising for partners.

Rather than take the traditional, old-boy-social-circle-members’-club approach to hiring — employ them if they wear the right tie and you can share a beer — they are boldly announcing their interest.

Their timing is not wholly coincidental. As the recession bites, many talented individuals are being thrown out of investment banks and the City, or are at least looking glancingly towards the exits.

The gleam of Canary Wharf is no longer as alluring as it used to be. It therefore makes perfect sense for St James’s Place to seize the opportunity — there are good people to be found.

Peter Thompson, Principal Partner with the St James’s Place partnership, elaborates on the attractions of wealth management: ‘It’s suffering far less than you might imagine. Faced with the alternative of remaining in an investment bank or the City, it’s a much more attractive proposition. They want to remain in finance, but they want a meaningful job and a standard of life and a chance to see their families.’

With the demise of bonuses — often the only inducement for long hours under neon lights — and all the possibilities bonuses promise, there is valuable human capital to be won over from the banking behemoths. St James’s Place Wealth Management has taken the opportunity the moment has provided and will reap rich rewards, as will their clients.

Ars longa, vita brevis (art is long, life short) is a maxim well worth bearing in mind in times of turbulence. Instead of trying to shed a collection as the market hits levels not known since the Heath government — and thus contributing to the fall — it is better to step back and far better, if funds are available, to buy.

The problem with expenditure, as the bosses of Citigroup learnt when they had to cancel their order for a $50 million private jet, is that it just does not look good at the moment. (Especially after a $45 billion bail-out.) It is the publicity which sinks the enterprise — in most cases, spending itself is not inherently bad.

This is where the Contemporary Art Society comes in. Despite the immediacy implied by its name, the CAS is in fact a non-profit celebrating its centenary this year. For 100 years, it has been buying the works of young artists and donating them to public collections. It bestowed its first Bacon on the Tate, and has donated everyone from Gauguin to Gilbert and George, before they were big.

It also offers a consultancy service for companies and individuals that combines taste and insight with discretion. Alison Myners, wife of the City minister Lord Myners, is the chairman of the CAS and outlines how it can help companies who need to continue their relationship with art in challenging times.

‘When budgets are reduced everyone has to look at the way in which they spend their money,’ she says. ‘Companies have a responsibility to account for their expenditure to shareholders — it makes sense for them to work with a non-profit organisation, to be buying the work of exciting new artists rather than buying well-known artists already at the top of the market.’

The CAS takes no commission on the art it chooses: ‘Our clients are paying only for time spent on the project, so they are able to budget sensibly. Importantly, they also have the joy of supporting new artists and doing something fresh and innovative — they will lead rather than follow.’

To celebrate its centenary year and provide for its future, the CAS will hold its first ever fundraiser in April. With a gothic theme suiting the mood of the times, in the fittingly gothic vaults next to London Bridge, the benefit will feature an auction of art by Damien Hirst and Paula Rego, among others, preceded by a private view at Sotheby’s.

If the Contemporary Art Society has been contemporary for a century, it has not inhibited the growth of other consultancies. The newest — and certainly the one with the best pedigree — is the brainchild of Virginia Damtsa and Tot Taylor, the dynamic duo behind Riflemaker.

Riflemaker is one of very few contemporary art galleries in London which can make the great and the good of the art world queue round the block for its private views. (Its
current exhibition, Voo-Doo, is well worth a visit.) It is therefore no surprise that its owners have been called into consultancy.

From their consultancy, at the centre of stylish London on New Bond Street (Riflemaker’s two galleries are in Soho), Virginia is passionate about involving buyers in the process of finding their art as much as she can. But not all buyers: ‘Many people I don’t work with. They say to me, “I don’t want it to take a lot of my time.” I want it to take a lot of your time!’

Virginia establishes strong relationships with artists and takes her clients around their studios, but her curiosity is not easily satisfied: she confesses she is the sort of person who looks underneath tables and behind cupboards to find work.

It is this close attention which results in the best prices for the best pieces. There is a great emphasis on the right price: in an art market run amok, a cool head is needed.
Now and the immediate future are very much the times to be buying, if you are liquid, says Virginia: ‘It’s a good period for collectors: the market has definitely been overvalued. After perhaps another year of falling, there will be a fair readjustment.’

Still, as the current shake-out is showing, buying art as an investment is dangerous. Virginia stresses that a buyer should be excited about getting a piece of our future heritage, not something which may offer a return: ‘When you buy art, you have to do it for the right reasons.’

Those who care about passion, excitement, heritage — and art, of course — and would like to visit the Bond Street consultancy can apply at 79 Beak Street.

For too long, the strong pound has merely been a metaphor (and now not even that). Pound coins are reasonably tough, but notes are just one misdirected match away from ashes.

Thankfully, Amex has come to the rescue. To celebrate ten years of Amex Centurion, its card which entitles the bearer to an ever-eager concierge service, it has ‘evolved’ (we quote) a charge card made of titanium. No more jokes about bending the plastic.
It looks ‘more like a piece of art than a charge card’. Do judge for yourself — if, of course, you receive an invitation to have one.

Saying to your betrothed, ‘Shall we get a pre-nup?’ has been thought to be the quickest passion-killer since taking your mother-in-law on the honeymoon. There is something repulsive to romance in a pre-nuptial agreement, since it inherently acknowledges that the relationship may fail — and worse, if it does fail, you are going to have to split the pennies.

A new breed of pre-nups has emerged to combine the practical financial advantages of sorting out who will get the house in St Tropez and who the garage-full of classic marques: the post-nup. Once the honeymoon (literally and metaphorically) is over, there is nothing to be lost from planning an exit strategy.

The law, for once, is helping. While pre-nups are still not legally binding, despite case law indicating that a well-drafted pre-nup is likely to be upheld, a divorce last December gave instant impetus to post-nups.

In MacLeod v MacLeod, the Privy Council ruled that because both partners had made an agreement during their marriage (in this case, one agreement amended several times), it should stand.

Consequently, Marcia MacLeod won a smaller share of her husband Roderick’s wealth because of their post-nup. In her ruling, Lady Hale said that post-nups meant one partner could not hold the other to ransom, as might happen if a partner did not get what they wanted with a pre-nup.

Rebecca Cockcroft, an associate and collaborative lawyer at Manches (whose practice has expertise in international marital disputes, especially in Russia), is very much in favour of post-nups.

‘This is a welcome decision,’ she says. ‘Family lawyers have been calling for clarity in this area of law for some time. Married couples should be free to regulate the financial arrangements between them both during the marriage and in the event of a divorce.

Anyone considering entering into a pre-nuptial or post-nuptial agreement must, however, ensure that each person has had independent legal advice and that they have given full details of their respective financial positions.’

Romance is not dead — it’s just under negotiation.

One of the few upsides in a property crash is that it becomes easier for those not on the ladder to start climbing. Of course, smart investors can also take the opportunity of capitalising on distressed sales, as has London Central Portfolio with the launch of its new Recovery Fund.

Targeting Knightsbridge and Mayfair residential property, which it will renovate and let out, and using geared financing at just 2.5 per cent, the fund looks set to pick up prime sites at bargain prices. Subscriptions close in March.

Although the shine may have come off the career, it need not come off your car. As witnessed by factory shutdowns across the land (even Bentley’s workers had an extended Christmas break), demand for new luxury cars is down, but there is still a healthy market for those looking for something second-hand.

Just consider the number of people who now have to sell their second (or third) cars: that new-car smell has lost its enticing tang.

Richard Crosthwaite, prestige cars editor at Glass’s Guide, which has published car values since 1933, says that now is a much better time to sell than last November and December. ‘People were actively panicking about the state of the economy and their finances,’ he says. ‘They were wondering whether they would be able to scramble out of their cars. They’ve got a better take on it now.’

Glass’s figures show that between November 2007 and November 2008, the price of a one-year-old luxury car fell by, on average, 20 per cent. A one-year-old Mercedes S-Class was £43,350 in November 2007, and in November 2008 it was £33,250.

Even if the panic has now stopped and the rate of decline has stabilised somewhat, the market is still weak. If you are thinking of selling, time is of the essence.

What was once ‘used’ became ‘vintage’, and what was ‘vintage’ has now
become ‘pre-owned’. In the euphemistic pile-up, one thing remains the same: second-hand luxury items are in demand.
is an eBay for the Mayfair set, offering pre-owned, authenticated luxury items. Its categories feature exactly the items that have been hoovered up over the past few years but are now dead weights: a second Rolex does not make your time any more valuable, and — unless you or your wife want to resemble an eastern potentate — there is a limit to the number of bangles and baubles one can brandish.

The principal advantage of using is the discretion of internet transactions: it is not a secret that previous high-fliers may now be slightly nearer the water, but the site allows them to become more liquid with a decent degree of privacy. Although it is based in America,

British users can still participate in the auctions and pay with a bank wire or Amex.

It is perhaps a cruel trick to play, but it confirmed much of what already seems obvious: top restaurants are sufficiently empty that the mere mention of a City bonus is enough to secure a table at prime-time on a Saturday night. (We were impressed that the restaurants believe that anyone is receiving a bonus this year.)

The River Café performed a powerful volte-face as soon as we mentioned a bonus: they said they were fully booked on Saturday, but after we dropped the B-word, the next thing we heard was: ‘7.30, is that OK?’ Momo were really busy until they heard the magic two syllables, upon which they offered a table ‘any time’.

Sketch, whose precincts are generally prohibitive unless there is a bonus burning up your pocket, magically discovered a table, and said the Library was lying empty, waiting for a banker to come along and rescue it. Alas, that Saturday it was not to be.

The only restaurant not to waver from its stance, despite the blandishments of a bonus which got larger every time they said they couldn’t seat us, was Scott’s, which even the recession cannot empty. 

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