Trust no more in investment managers who cannot manage

SERIOUS MONEY:Investment managers who precipitated the pensions crisis have escaped unscathed

NAPOLEON BONAPARTE, the popular 30-year-old general, suggested to his seniors in the autumn of 1797 that France should seize Egypt, then a province of the Ottoman empire, to protect French trade interests and undermine British access to India.

The executive directory agreed, perhaps in a move to remove the general from the centre of power. The following summer, Napoleon, with a force of 25,000, landed successfully at Alexandria. His forces, however, had little knowledge of either the climate or terrain and they came equipped with only rudimentary maps.

Needless to say, the campaign proved a disaster and it came as no surprise when, three years later, the remaining dispirited troops capitulated to continuous assaults by British and Turkish forces.

Defeat in Egypt delivered a blow to the ambitious Corsican but he learnt well from his mistakes. He was later emperor of France and a brilliant military strategist to boot, only for the bankers from the house of Rothschild to support the British and secure his defeat at Waterloo in 1815.

The story of Napoleon is not relayed to serve as a history lesson but as a reminder to the clients of our home-grown investment managers with whom all trust must surely be broken.

The one-trick ponies to whom you pay unjustifiably high fees have walked your money, not once but twice, into severe bear markets to the extent that their most basic objective as a store of wealth before capital growth has been violated for a decade or more.

Bonaparte’s prescription for failure was always brutal and, while his actions were onerous, the sentiment is admirable. Bankers everywhere are under attack and the deadweight at the top rightly so. However, our investment experts who have precipitated a pensions crisis appear to emerge unscathed.

The facts speak for themselves and those who have overseen a fall of more than 60 per cent in the purchasing power of your defined-benefit pension schemes over the past 10 years remain in office today, despite long-term performance that is nothing short of shameful and which raises questions on competence.

The reputation of capitalism is on the line and there is nothing that these investment managers do but confirm the suspicion that their business ways are far removed from real-world ideology. Tough words indeed but work the numbers yourself.

You will find that the heavyweights at the top of the pile, who are supposed to bear the responsibility for your investments, have earned anywhere from €7,000 to €9,000 in basic salary for every percentage point of loss that you, the client, has had to bear.

Does that sound like capitalism to you?

Perhaps I’m being too cruel but then, as a true capitalist to the bone, perhaps I’m being too kind. Either way, let their words and performance speak their truth.

The inability to chart a roadmap for investors must surely by now be all too obvious, even to the unsophisticated investor. They show little understanding of elementary economics, financial market history, investment psychology and an almost comical understanding of diversification theory for which Harry Markowitz was awarded a Nobel Prize in 1990 for the work that followed from his PhD thesis in 1952 that came to just 15 pages of excellence.

The investment managers who walked you and your money off a cliff during the final year of the last millennium – ie spring 2000 – showed an inability to count according to the Hindu-Arabic numbering system and failed to appreciate the naivety that precipitated Napoleon’s notable black mark in north Africa.

The almost uniformly bullish investment managers have now walked your savings blindly into a serious downdraft in prices for the second time in eight years.

Their relative return game that promotes herding and mediocrity above excellence is surely dead but they remain undeterred and continue to act bullish – which is hardly surprising given the absence of downside risk to their monthly pay slips.

Some of the latest commentary verges on the ridiculous and declares that stock prices are behaving well in the face of continued bad news.

The idea that market averages have been impervious to major earnings shortfalls and a truly shocking deterioration in economic conditions could only be made by those who are divorced from reality. The most casual commentator would almost certainly reach a completely different diagnosis.

The facts speak for themselves. January was the worst month in US stock market history, February ranked third bottom and the first trading day of March has returned stock prices to the levels first seen 12 years ago. It gets worse as the savage bear market now sees market averages in real terms only marginally higher than the secular peak in 1968.

The damage to your bottom line is clear for all to see and responsibility for pension deficits must surely fall in significant part on the fund management business that continues to be paid well despite its obvious failings.

Napoleon, the man who kindled the trappings of democracy in western Europe, would not be impressed. In his time, the so-called bastions of capitalism who remained in office long past their sell-by date would almost certainly be guillotine fodder.