Stramongate Limited

Shareholder Newsletter

An early picture of Stramongate Bridge, over the river Kent in Kendal.

October 2007

Issue 10 October 2007

2

CONTENTS

Harry Sargent on chairing the Family Council and life down under (page 3) Changes to Stramongate Board (page 4) Financial & Investment Updates (pages 6 to 8) Sand Aire Deputy Chairman Marcus Gregson on what it takes to be a jolly good lis-tener (page 10) Sand Aire CIO David Craig talks us through exotic in-vestments and the Credit Crunch (pages 9 & 11)

C h a i r m a n E w e n M a c p h e r s o n a n n o u n c e s r e t i r e m e n t . . .

The Macpherson and Scott families have connections going back more than fifty years. Ewen has been

hugely supportive and provided great guidance to the Scott family in running Provincial, Prolific, Sand

Aire and more recently Stramongate. On behalf of the whole Scott family, we would like to thank Ewen

for all his sound guidance and wise counsel and wish him all the best for the future.

Alex Scott Harry Sargent

Chairman, Sand Aire Chairman, Scott Family Council

Welcome to the new style Stramongate newsletter!

The newsletter provides shareholders with a financial update on the progress at

Stramongate. This year, however, we are trying to do much more. With financial

markets hitting the headlines as Northern Rock customers queued up to with-

draw their money, we interview David Craig on a ‘Profile of a Credit Crunch’.

David is the Chief Investment Officer at Sand Aire and has huge experience in

the markets. Our interviews give you an understanding of his background and

how he heads up the investment team that manages Stramongate‘s assets.

Stramongate is currently undergoing quite significant changes in its management

with Ewen Macpherson standing down as Chairman. The Macpherson family

has links to the Scott family and Provincial Insurance dating back at least fifty

years. As shareholders we all owe Ewen a debt of gratitude – we profile him on

page 5. We also profile Charles Aldington who joined the board in September

and takes over from Ewen later this year.

As shareholders will know Stramongate and Sand Aire are heavily con-

nected. Independent corporate governance is an important issue and inside we

show diagrammatically how Sand Aire, Stramongate and the Scott Family Coun-

cil are linked but independent. We interview Harry Sargent, Chairman of the

Family Council, on page 3. Sand Aire itself has grown significantly over the

years and now has over 25 staff. It is testament to Sand Aire’s success that

Stramongate now accounts for less than 25% of its business (as judged by as-

sets under management). To help the company grow, Marcus Gregson was re-

cruited last year as Deputy Chairman. You can read more about him on Page

10.

Another new recruit at Sand Aire is Katherine Hanson. She was instrumental in

putting this newsletter together and we thank her for all her hard work. This year,

for the first time, we have commissioned an external journalist to write many of

the articles and hope you enjoy the contribution made by Luke Moreton.

Finally, this newsletter is for you. Please let us know what you think and what

you would like us to cover next year. Hopefully we can include a letters page!!

Paul Reynolds

Director of Wealth Management, Sand Aire Limited

DID YOU KNOW?

Alex Scott was awarded

Family Office Individual

of the Year by

Citiwealth in 2007.

Sand Aire Limited

101 Wigmore Street

London

W1U 1QU

P: 020 7290 5200

F: 020 7495 0240

www.sandaire.com

3

Harry Sargent Chairman Harry Sargent has a lot on his mind. The 28-year-old chairman of the Family Council marries an Australian this month and plans to emigrate next year. Currently he manages in a kite-surfing shop in London, but one day would like to open his own establishment in Australia. Here he talks about the Family Council

ing them directly. The Council has seven members, and there’s a mem-ber for almost every branch of the family. So everyone in the family should be close to someone who attends the Council meetings. Our job is to make sure everyone knows what’s going on and to have their voice heard. I understand the Council is relatively new? Yes, it’s only in its second year. It was formed after the last Family Gathering. We brought in the ac-countants BDO Stoy Hayward to help us draw up a formal family con-stitution, and the Council was part of it. All our procedures are written down and everyone has a copy. There were no elections to the Council on this first occasion, but in time, and as recognition of the Coun-cil grows, we might have to think about elections. We’re already look-ing to replace some members who are now too busy to commit to it. What’s your role as chairman? I’m the big organiser. I make sure the meetings take place and the min-

What’s the purpose of the Family Council? Its role is to air the views and opin-ions of the family shareholders and to help communication between the family (which owns over 95% of each business), the Board of Stra-mongate and Sand Aire. We meet at least twice a year, when a whole range of issues are brought up, dis-cussed and passed on to the board. It’s not our job to make decisions – that’s what the Board are paid to do. We simply give them a flavour of how people are thinking. Can you give an example of the Family Council in action? We were asked for our opinion on the proposed share buyback and we were given the CV of the new Stra-mongate chairman to look at and comment on. I think the Board found our feedback useful. Can’t family shareholders approach the board directly? Absolutely, if they’d prefer to. But some more distant relatives don’t know anyone on the Board and might not feel comfortable approach-

utes go out, and I meet the chairmen of Stramongate and Sand Aire twice a year. The position does demand quite a lot of time. But my opinion doesn’t count for more than anyone else’s. What is the Family Council’s biggest achievement so far? Getting up and running, to be honest. We’ve learnt what the Council can do and what it can’t do, and when not to overstep the mark! I think we’ve laid down some good groundwork on which to build. Fortunately, we’ve had no major disputes to settle yet; no unhappy shareholders. But it’s good to know something’s in place to deal with any issues in the future. So what advice do you have for the next Chairman? Be a good listener. Listen to every-one and value everyone’s opinion equally. Don’t pretend there’s con-sensus when there isn’t. Simply pass on the views as you receive them.

We often get asked about the difference between Sand Aire, Stramongate and the Scott family. Stramongate is an investment company similar to an invest-ment trust. It carries out very few activi-ties aside from investing. Sand Aire is a company who acts as a Family Office and/or wealth provider to a number of significant clients, one of whom is Stra-mongate. Both Sand Aire and Stramon-gate have separate Boards which com-prises both members of the Scott family and external individuals. Finally, the Scott family have their own Family Council which acts as a forum to ensure effective two way communication be-tween the family shareholders and the Boards.

Structure of Family Council

Issue 10 October 2007

Scott Family Council

Stramongate shareholders

(business owners)

Stramongate Board

(appointed by shareholders)

Stramongate Business

(under direction of Board)

Communication

Sand Aire

shareholders(business owners)

Sand Aire Business

(under direction of Board)

Family Council(about 7-10 shareholders)to ensure ef fective 2-way

communication between Family shareholders and

Boards

Family Forum(Discussion and

education forum for shareholders –

operated by the Family Council)

Family

Gathering(biennial gathering of

shareholders)

Sand Aire Board

(appointed by shareholders)

Communication

Communication Communication

Stramongate shareholders

(business owners)

Stramongate Board

(appointed by shareholders)

Stramongate Business

(under direction of Board)

Communication

Sand Aire

shareholders(business owners)

Sand Aire Business

(under direction of Board)

Family Council(about 7-10 shareholders)to ensure ef fective 2-way

communication between Family shareholders and

Boards

Family Forum(Discussion and

education forum for shareholders –

operated by the Family Council)

Family

Gathering(biennial)

Sand Aire Board

(appointed by shareholders)

Communication

Communication Communication

Issue 10 October 2007

4

each other, but the Scott family ap-pears to have succeeded in doing this”. Lord Aldington has had experi-ence of both the successes and the failures over the years. Lord Aldington has known Christo-pher Scott for many years: they both worked at Grindlays Bank and their children were at school together. Christopher introduced him to Alex last year, because he wanted to find out about Sand Aire, which had made a name for itself in the Multi-Family Office business. He was in-vited to become Stramongate chair-man earlier this year.

“The Chairman of Stramongate has to look in two directions”, explains Lord Aldington. “First, he has to un-derstand the needs of the Scott fam-ily, and make sure Stramongate meets those needs and follows the right strategy. Second, he must sat-isfy himself that the assets are appro-priately managed, looking at the management process and the risk/reward structure of the various funds used”. Lord Aldington is well placed to do both of these. Formerly Charles Low, Lord Aldington has had a lifelong ca-reer in investment banking. He spent his early years at Citibank and Grindlays Bank, before joining Deutsche Bank in 1986. After work-ing in Germany for two years, he joined the bank’s London manage-ment team. He became Chairman of Deutsche Bank London in 2002. Lord Aldington’s career has taken him around the world, and he has dealt with family investment compa-nies in the UK, Germany, Switzer-land, Hong Kong and the United States. “I have a genuine affection for this type of business, and understand the peculiar challenges”, he says. “Not every family manages to keep a common focus without crowding in on

“I’m very much looking forward to working with Sand Aire”, Lord Aldington says. “Their investment approach, where they decide which types of investment are needed and then pick skilled outside fund man-agers to make specific investments, is becoming popular in the industry”. In terms of his investment outlook, he believes this summer’s market turmoil will pass, but that as much attention will have to be paid to risk as to reward in the future. Lord Aldington is expected to take up his position later this year.

Outside Interests

The arts and education are Lord Aldington’s two great passions. He

supports the Royal Academy of Arts, which regularly puts on major

exhibitions on themes such as modern art or ancient civilisations. The

organisation receives no Government money and has to keep itself afloat.

In addition, he raises funds for Oxford University, where he read

Philosophy, Politics and Economics as a student.

His connection with Germany is strong. He went there in his gap year and

learnt to speak German. On and off, he has lived there for five years.

He is a member of the Council of the British German Chamber of

Commerce, and is married to Dr Regine von Csongrady-Schopf, a

German art historian.

Lord Aldington also enjoys the opera and the history of gardens.

Lord Aldington Incoming Chairman, Stramongate

Stramongate chairman elect Charles Aldington has worked with family investors around the world and knows what works and what doesn’t. He believes that the Sand Aire investment approach is gaining increasing recognition

David Price

(who is a new

Stramongate

Director), will

be featured

in the next

Newsletter.

Changes to the Stramongate Board At the age of 77 Ewen Macpherson has signalled his request to resign as a Director and the Chairman of Stramon-gate. Following the decision to have a greater representation of independent Non-Executive Directors and in ac-cordance with current best practice the Board has decided to appoint Charles Aldington and David Price as Direc-tors of the Board. Charles is also chairman designate of the Board with effect from the next Board meeting. Below we have interviewed Ewen Macpherson and Charles Aldington. Future newsletters will include profiles of other members of the Board.

5

Ewen Macpherson Outgoing Chairman, Stramongate

Ewen Macpherson, 77, talks about his long association with the Scott family and the changes he’s witnessed in the financial world

become a director, and chairman of their invest-ment committee. I stayed there until they sold off their investment management arm, Prolific, of which I was also a di-rector. And after the Provincial was sold? When Alex was thinking of setting up an invest-ment company, he came and talked to me because of my past involvement and my experience in the investment world. I be-came a director of the company. And when it split into today’s Stramon-gate and Sand Aire a few years ago, I took on the chairmanship of Stramon-gate as Alex couldn’t be chairman of both. You’ve had a long ca-reer in finance. What are the most significant changes you’ve seen? When I first joined the Stock Exchange, it was still a club, with a select group of investors buying and selling mainly UK stocks. Financial news

When did you first know the Scott family? The Macphersons and the Scotts go back a consid-erable amount of time – for me, it’s more than 50 years. My father was stockbroker to John Maynard Keynes, the in-fluential economist, who was a director of Provin-cial Insurance. That’s how he came to be involved with the company and the family. After the war, my father effectively ran the investments for Provincial until they formed their in-house investment depart-ment. When I joined his stockbroking firm, which was called Buckmaster & Moore, I eventually took over the Provincial ac-count. What happened next? By 1977 I’d decided to leave traditional stock-broking and I joined the Swiss investment man-agement firm Notz Stucki. But because I’d been in-volved with the Provincial for such a long time and knew the company very well, they asked me to

was buried away some-where in the newspapers. Today, investment mat-ters attract a wider audi-ence and information is instant, with headlines hitting the Reuters and Bloomberg screens as soon as the story breaks. Regulation plays a huge role now, too. Of course, some things don’t change. Bubbles still appear here and there – and we see the same setbacks, like the one we had during the summer. Any changes within the Scott family? The astonishing thing to me is the continuity within the family – there’s a strong ethos that contin-ues, even several genera-tions after the founding of the original business. I’ve been involved in manag-ing the money of many other substantial families, but no other is still think-ing and acting as one to such an extent. Alex has to deliver, of course, but there’s considerable sup-port through both good and bad times.

What do you plan to do now you have some more time on your hands? I’ll carry on doing busi-ness until I’m compost! The markets are my hobby as well as my liveli-hood. And I’m still chair-man of the London office of Notz Stucki, although non-executive now. I live up on the west coast of Scotland, where I spend my time running the es-tate, fishing and being active in local affairs. My family came from the Isle of Skye; I was born and brought up in England, but I’m back near my roots now. Finally, what advice do you have for Lord Aldington? There are plenty of pitfalls in the investment world and it’s a lot of hard work. You can only do it if you have fun doing it but I’m sure he knows that al-ready!

Ewen Macpherson with the Provincial Board 1978/79 Standing, left to right: Sir Timothy Harford DG Bosanquet Ewen Macpherson TP Naylor SE Hallowell AS Ashton Sitting, left to right: G Randall CFE Shakerley (Chairman) PF Scott (President) RS Clifton HV Walker Not present: Sir James Blair-Cunnynghame

Issue 10 October 2007

Issue 10 October 2007

6

In addition to providing an up-date on the progress of Stramon-gate’s portfolio, we would like to take the opportunity to update you about the recent share buy back. The Board, having decided to proceed with a share buy back in line with its previously advised intention, sent the tender offer to purchase up to 5% of the shares in issue at a 10% discount to the net asset value to all sharehold-ers in July.

At an Extraordinary Meeting held on 12th September 2007, share-holders owning more than 80% of the shares approved the re-purchase of 2,035,657 shares (equivalent to 4.92% of the shares in issue) at a discounted price of £4.865 (based upon the end of August valuation) for a total cost (excluding fees and stamp duty) of £9.9 million. This was the first time since Stramongate was formed in 1996 that the company has of-fered to buy back shares and the

Board believes that it has been a great success for all sharehold-ers. The chart shows the movement in the net asset value of Stra-mongate. This illustrates that the net asset value at the 30th June 2007 was £228.6 million, which is equivalent to 552.9 pence per share. This repre-sents an increase of 4.3% over the net asset value of £218.5 million (or 528.5 pence per share) at the end of last year. When the interim dividend paid in September 2007 of 3.85 pence per share is added back, the total return is 5.1% for the six months January to June 2007. The next section of this newslet-ter looks in much more detail at Stramongate’s asset alloca-tion, i.e. the way in which the company is invested and in par-ticular the changes that have been made since December. Bruce Offergelt Financial Director

Financial Update

Finance & Portfolio Overview

Investment Update

Asset Allocation

The majority of the company's assets are held in two open-ended investment companies, the Generation Fund and the Octane Fund. The Generation Fund has now been in existence for over 10 years, and for the period through to February this year invested its assets broadly along the lines of the stock mar-ket growth index – a blend of domestic equities, overseas

equities, fixed income and cash. The Octane Fund provided a more absolute-return orientation as well as giving the company exposure to specialist areas such as gold or energy. Earlier this year, the Generation and Octane Funds, as part of moves to comply with new FSA regulations, converted to Non-UCITS Retail Schemes (NURS);

this gives the funds wider invest-ment powers. The Generation Fund has already made use of some of these powers to gain exposure to areas such as prop-erty, timber and hedge funds. Going forward, we would expect the portfolio to have a lower correlation with stock-market movements and a more absolute-return bias.

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1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

H1

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Investment Update

Issue 10 October 2007

The Sand Aire team have done a great deal of work over the past 12 months in identifying manag-ers with lower market dependency over the long term, a group they have called “idiosyncratic manag-ers”. The Generation Fund will now have significant exposure to such managers, and they will form the core of the Octane Fund. Stramongate took advantage of an offer allowing it to move £18 million of its assets from the Gen-eration Fund to the Octane Fund. This reduces the Generation Fund to 50% of total in assets. The first half of 2007 was a con-structive one for stock markets, as high levels of liquidity around the world found their way into finan-cial assets. The UK stock market gained 7.6%, marginally ahead of the return offered by overseas equities. Hedge funds had a simi-lar start to the year, gaining over 7%. Bond markets did not share this exuberance, losing just over 3%. After our balance-sheet date, however, the positive moves in equity markets have largely

reversed, as problems in sub- prime borrowing have come home to roost. There has been a great deal of contagion throughout all financial mar-kets and a raft of different inves-tors have been forced to raise cash by selling any assets offer-ing liquidity. Generation & Octane Funds

On the back of strong, liquidity-driven equity markets, the Gen-eration Fund and the Octane Fund both made solid progress in the first half of the year. The Generation Fund gained 5.1%, with its holdings in Asia/emerging markets and energy both sporting gains in excess of 15%. The Octane Fund rose 6.7%, again buoyed by its exposure to Asia/emerging markets and energy and with an added fillip from strong perform-ances from manag-ers such as Findlay Park in smaller US companies and Neptune in Conti-nental Europe. Quarter 3 After springing into life in the second quarter, stock mar-kets around the world gave up their gains (and more) in the fallout from the US subprime crisis. Into September, asset prices have

recovered some of those losses - Asian/emerging markets have gone on to make new highs. Central banks have re-acted to the deflationary implica-tions of a seized up banking system by reducing or pulling back from raising interest rates. After surveying the scene with calm indifference, gold belat-edly recovered its safe haven status rising from $650 to $744 - a gain of just over 14%. The oil price also rose strongly over the quarter. The UK equity market ended the quarter nursing a loss of just un-der 2%, overseas equities (aided partly by the strength of the Yen and the Euro and partly by the surging stock markets in the Far East), sported a gain of the same magnitude. Despite the positive contribution from its exposure to emerging markets, gold and en-ergy, the drag from the holdings in UK equity funds meant the Octane fund slipped back over the quarter from 162.8 pence to 161.8 pence, and the Generation Fund from 569 to 559 pence. Jeremy Suffield Director of Investments

OEICs £161.1m -

71%

Portfolio 1, £6.4m -

3%

EHF £7.6m 3%

3rd Party PE Funds

£10.5m 5%

Hedge Funds £25.6m-

11%

Property Funds

£5.3m 2%

Cash/ Current Assets

£7.8m - 3%SAIM

Investment, £4.3m - 2%

Asset Allocation at 30 June 2007

OEICs£154.3 -

71%Portfolio 1 £6.9m - 3%

EHF £11.1m 5%

3rd Party PE Funds

£7.5m 3%

Hedge Funds

£24.0m-11%

Property Funds

£5.8m 3%

Cash/ Current Assets

£4.6m - 2%

SAIM Investment, £4.3m - 2%

Asset Allocation at 31 December 2006

Issue 10 October 2007

8

Hedge Funds Stramongate invests in hedge funds via its investments in Northbridge Manager Holdings (NMH) and the Northbridge Diversified Fund (NDF; for-merly the Iliad Fund), two funds of hedge funds that are managed by the Sand Aire team.

NMH represents 4.9% of Stra-mongate’s portfolio and NDF 6.4%. Both funds performed well in the first half of 2007 with NMH returning 8.6% and NDF 6.4%. Markets in August were somewhat volatile and we expect to report some losses for this month, but re-turns for the year to date re-main positive. Property Funds Stramongate has direct invest-ments in two property funds, Delancey DV3 and the EMAC Illyrian Land Fund. DV3, led by Jamie Ritblat (recently joined by his father, Sir John), has continued its very strong performance and the return to investors is reported as 42.7% per annum. Delancey buys property all over the British Isles – and improves or ex-tends it. The Generation Fund has committed £10m to De-lancey’s next fund, DV4. The EMAC Illyrian Land Fund buys pockets of land in Slove-

nia, Croatia and Serbia, par-cels it up and sells it on to developers. The fund has re-turned 4.1% since April 2006. Private Equity Funds Over the last twelve months, Stramongate has made invest-ments in several private-equity funds. The amount of capital committed and percentage pf Stramongate total assets is given in brackets. Litchfield Capital (£1.2m, 0.5%) is a collateralised debt obligation of US mortgage-backed securities - a pool of US mortgage debt.

Although we have been very cautious about mortgage debt, this was an unusually strong team that shared our unease about the market. They have not yet spent any of investors’ capital and despite the recent turmoil in the debt markets, none of their planned invest-ments have been downgraded by the ratings agencies. Terra Firma Capital Partners (£3.2m, 1.4%) buys compa-nies that are considered too complicated for many other private equity firms to deal

with. The team consists of financial architects and emerg-ing markets. Stramongate has made an investment in Amoun Pharma-ceutical, an Egyptian generic-drug manufacturer. Coller International Partners V (£2.5m, 1.1%) buys interests in other private equity funds. It focuses on motivated sellers, who are willing to sell at a dis-count. At $4.5bn, Fund V is the largest fund of its type in the world. Stramongate’s largest invest-ment in any single fund at the end of June was its invest-ment in the Equity Harvest Fund. This fund is managed by Dunedin following their ac-quisition of Sand Aire Private Equity at the end of 2005. The amount invested has fallen since December to re-flect the successful sale of the fund’s investment in Buildspan, a building supplies company. Michael Zacharia Investment Executive

Investment Update

The term hedge fund was

coined in 1949 by financial

journalist Alfred Jones when

he started the first one in

1949.

What is private equity? When equity capital is made

available to companies or

investors but not quoted on

a stock market. The funds

raised can be used to

develop new products and

technologies, expand working

capital, make acquisitions or

strengthen a company's

balance sheet.

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do

things differently”. Warren Buffett

“Successful investing is

anticipating the anticipations

of others”.

John Maynard Keynes

Director of Provincial Insurance,

1923 to 1946. Often described

as the Einstein of economic

theory. Keynes’ model became

an economic benchmark and in

1971 president Richard Nixon

stated: ‘We’re all Keynesians

now’.

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than

participate in it”. Warren Buffett

9

Stockmarkets around the world took a battering during the summer of 2007 and Northern Rock

saw panicked customers rush to withdraw their savings. A so-called ‘credit crunch’ was at the root

of it all. We asked Sand Aire’s Chief Investment Officer David Craig what was happening and

whether Sand Aire’s clients (including Stramongate) needed to worry

“A lot of lending is going on in the world – or was. There’s short-term lending between banks so they can

do business from day to day. And there’s longer-term lending to companies and governments so they can

fund their spending plans. Investors, too, borrow money to invest in various markets. In short, the financial

world needs access to high quality sources of credit. What we saw this year was a drying-up of these

sources – a credit crunch – and the knock-on effects. But why did it take place?

The low interest rates of recent times – as low as 1% in the US – led to falling investment returns, and a

bigger appetite among investors for riskier, and potentially more rewarding types of investment. There’s

nothing wrong with a little risk if the return is worth it. More recently, some investment products took on

increased risk that wasn’t compensated for by the return. Once this became clear – that the emperor had

no clothes, as it were – lenders withheld their money and the crunch ensued. Several different markets

caused lenders concern. A high profile one was the US housing market, where there was an increase in

defaults on mortgages that had been given to people with poor or non-existent credit histories (known as

sub-prime mortgages). Because of the global nature of today’s markets, a surprising number of investors

around the world have exposure to this debt – perhaps without knowing it.

The effects of the crunch were chilling and came quickly. Institutions that needed to raise money were

forced into selling other assets, such as shares, at whatever price they could get and share prices around

the world tumbled as a result. Northern Rock (and other banks it was rumoured) whose business model

depended on ready access to credit, faced the prospect of not being able to operate – that was until the

Bank of England stepped in with an open wallet.

So should our clients worry about all this? Not overly, and not in the long term. The crunch is not neces-

sarily over, but markets have begun to stabilise now. Indeed, some credit-linked investments are now un-

der priced and fund managers are beginning to invest in them again. What this episode has shown is that

the financial markets are intertwined more than ever before – they rise and fall together, to varying de-

grees. There’s little you can do to shield yourself totally. In this case, you either lost a little or you lost a lot.

I’m pleased to say we just lost a little, and no serious damage has been done.”

Crunch Time

Issue 10 October 2007

We don’t judge managers by their looks but by

the chance of them making us money. Would

you have invested with these people back in the

1970s?

Turn to the back page to see who they are!

Issue 10 October 2007

10

Marcus Gregson Deputy Chairman, Sand Aire Marcus Gregson, the founder of HSBC Private Bank (UK), explains why he decided to put retirement on hold and join Sand Aire as a fully active Deputy Chairman The ‘Jolly Good Listener’

Deputy Chairman until September 2007. For me, it’s always been very satisfying working with people who’ve made a lot of money. They are fascinating people. As their financial adviser, you have to get very close to them. They can be quite suspicious at first, but over time you earn their trust. Very often, a professional relationship develops into a friendship. It’s very re-warding. People I first met years ago still ask me for commercial opinions, even when I might not know anything about their par-ticular area. But they value the chance to talk things through and appreciate a jolly good listener. How do you advise someone unless you really listen? So as my final days at HSBC approached, I thought long and hard about what I wanted to do. Early retirement was an option but I thought about what I really enjoyed. And that was growing a busi-ness, getting a team to-gether, seeing people around me develop and grow and making them feel good about them-selves. And working with great clients, of course. A family office seemed right up my street. I had met Alex Scott sev-eral times before at vari-ous events and thought him to be a special guy. He’d kept his family to-gether which is no small thing and created the UK’s first genuine Multi-Family

“I think I must have a ser-vice gene because I love pleasing clients. My father was in the army, so it must be something genetic. I’ve looked after clients’ financial needs all my life. I qualified as a solicitor at Biddle & Co, but left imme-diately to join stockbrokers Vickers da Costa for greater excitement. In 1976, I moved to US bank Manufacturers Hanover and became a corporate banker. There I lent US dollars to all manner of arcane projects around the world – it was pretty hairy at times. I ended up run-ning their Financial Institu-tions Group but, after 12 years, decided it would be far more interesting deal-ing with individuals. So I joined Royal Trust Bank as a private banker, but was soon recruited by the Midland group (now part of HSBC) to set up a new private bank under the Samuel Montagu name. I started with noth-ing. I was the first person in the office on the Mon-day morning, couldn’t get into my computer, and had to run down to Ryman’s for stationery. I’m proud of my time at HSBC Private Bank (UK), as it became known. Dur-ing the 16 years that I ran it, the operation doubled in revenue terms every two-and-a-half years. I had a terrific time. But there al-ways comes a time for a change, and in June 2006 I stepped down as Chief Executive. I remained as

Office. He was articulate, well-liked in the market, and hugely entrepreneurial – ideas just poured out of him. Alex and I flirted profes-sionally for about six months, both being terribly polite and not at all to the point. But eventually, on 1 August 2006, I joined Sand Aire to help grow the business and I’ve been as happy as Larry. It’s a cracking place to be, with an enthusiastic and com-mitted team of consider-able talent. I work two days a week in theory – but it’s usually a bit more. Sand Aire and I share two very important beliefs. First, the key to looking after clients well is choos-ing them carefully in the first place. There’s no point in having unhappy clients: they’re a lot of ef-fort to look after; they’re never pleased; and they probably tell everybody else you’re a shambles. So it’s important to take on clients who are right for you and your offering and for whom you can set ap-propriate expectations. The second belief is that targets are evil. Putting pressure on people to sell clients more and more products and meet targets, as is common in so many financial institutions, is never in the clients’ best interests. If someone is offered a £15 million bonus to shift £1 billion of rubbish, they’ll do it; it’s human nature. At Sand Aire, we haven’t products

to sell indiscriminately – just straightforward, hon-est, long-term advice to offer. Your typical interna-tional investment bank has more talent than we could ever have. But I bet we’re richer in ethics. So I’ve found a welcoming and exciting new home in which to spend my so-called retirement. We have ambitious plans – to build something that’s here for the long-term. But most of all, we want an organisation that clients trust and whose employ-ees enjoy earning that trust.”

Did you know?

Marcus was

awarded the

prestigious Spear’s

Lifetime

Achievement

Award for his

contribution to

Wealth Management

in July 2007.

11

David Craig Chief Investment Officer, Sand Aire Sand Aire’s chief investment officer David Craig has been investing money for 40 years. During that time, he pioneered exotic investments that are now taken for granted in the industry. And he still likes to do things differently today

and also to exploit price dif-ferentials across markets (called ‘arbitraging’). David introduced these investment techniques to London. “Then the IBM PC came along, and we were able to build com-plex trading models with pre-cision and speed. And make a lot of money in the process. Where we led, the other banks followed”. When in1983 David was asked to become chief execu-tive of JP Morgan Securities, he decided to leave. For a start, he had no desire to run a team of 500 people. But he also wanted to make some serious money for himself, and with income tax at 60%, he knew the only way to do this was to start and invest in his own business. This he did. With free reign, David’s entre-preneurship went up another gear. His company, IFM was very inventive. It experi-mented with all manner of investment types and invest-ment styles – unknown to most people in London at the time, but now considered conventional. IFM defined the so-called ‘hedge fund’ in Lon-don. David ran it for 11 years, and each year its clients saw average growth of 24.9% after fees. There were detrac-tors, however. “I was treated by many investors as if I was dealing in toxic waste”. David recalls. “Hedge funds were thought to be highly specula-tive and full of fraudsters. But this simply wasn’t true”. In 1995, David sold IFM to Rothschild. He now wanted to take a more passive ap-proach to investing and set up a company called Northbridge. Instead of man-aging its money, Northbridge delegated the task to carefully chosen third party hedge fund managers. It was a so-called

David Craig’s career got off to a faltering start. He dropped out of St. Bart’s medical and then went nowhere as a trainee with Crédit Suisse in Zurich. In 1968, he joined Hambros Bank in London as an administrative clerk. Under the bank’s so-called ‘five-year rule’, he was destined to spend the next five years moving bits of paper around, before being given any real responsibility. By a stroke of luck, however, he was plucked from back-office obscurity. The bank had just started up a new division, international capital markets. “It was where all the bright guys were”, says David. “Someone there told me to sit down and analyse a company called Penn Central – it was a massive bank-ruptcy case in the US. The head of clerks was none too happy about this and tried to get me back; he failed, and I became an investment banker overnight”. David excelled within the team and pioneered a prod-uct called the ‘bought deal’. When a client wanted to issue shares or bonds to raise money, the bank would buy up the whole issue itself and sell it off to investors. “The bought deal gave clients more certainty than they’d had before, and brought us rich margins”, explains David. He became known in Lon-don’s financial markets as a forward-thinking banker who took big, but calculated risks. In 1979, the US bank JP Mor-gan hired David to help set up an investment banking arm in London. At this time, new types of investment called derivatives were being traded in New York and Chicago. They were used to mitigate risks when trading other investments (called ‘hedging’)

‘fund of funds’; the same ap-proach as Sand Aire. The hedge fund environment changed dramatically at the turn of this century. Tradi-tional investors were reeling from the crash following the ‘dot com’ boom. Those who had previously given hedge funds and other alternative investments such as property and private equity the cold shoulder now embraced them. The hedge fund sector subsequently became crowded, and as more funds jostled to make money, the returns began to come down. Northbridge, which had be-gun life as a retirement fund for its investors, now had to compete with big players in the market. If it was to survive, it needed to grow and become a proper busi-ness, with more funds to in-vest. David knew he needed to either take on a marketing team or merge with another company. He also knew he couldn’t rely just on hedge funds anymore. Coincidentally, Alex Scott had met David through his involvement with Provincial’s Investment Committee. In 2003, Alex Scott approached Northbridge and a merger followed – the two businesses were a solid fit. David took on responsibilities for both Northbridge and Sand Aire clients.

Sand Aire today David Craig leads Sand Aire’s in-vestment management team, which is today indirectly responsible for around £1 billion of assets. Jeremy Suffield heads up the finan-cial markets group, which takes control of the more traditional so-called ‘vanilla’ investments such as equities and bonds. Michael Zacha-ria heads up the alternative invest-ments side, looking after hedge funds, property and private equity. Both sides are supported by a re-search team, run by Chris Davis. The research team who are based at a converted farm building in North Yorkshire, monitors and as-sesses the whole array of invest-ment types and investment man-agement firms around the world. Since joining Sand Aire, David’s desire to do things differently has not diminished. “The secret to mak-ing a good investment is to find a yawning gap between price and value. So the better you can value something, the better you can de-cide whether it’s cheap or not”. David and his team are now build-ing more complex pricing models for asset classes and specific in-vestments within them. Any insight gained can be passed on to the third party fund managers. And on the subject of managers, David is keen on what he calls ‘idiosyncratic managers’, those who don’t try and guess what the stock-market will do from day to day, but who take a longer term view of investment. He explains: “My back-ground is not in reading and timing markets. It’s too difficult to make tactical decisions about what to buy based on daily movements. I want managers who are on the lookout for unloved or neglected assets, where there might be real value. It’s a bit of a truffle hunt”. He cites the example of property in the 1990s. Even though interest rates were coming down, nobody was buying property for historical reasons and the banks wouldn’t lend against it. But Northbridge saw an opportunity glaring it in the face and bought property for the long term, a decision that paid off hand-somely. David and his team are hoping for more of these types of investment call. And if it means going against what others are doing, so be it.

Did you know? David has a small charity which provided a bus for the kids’ outings from the Tangalle Blind School after their old coach was swept away by the Tsunami in Sri Lanka.

He’s come a long way since St Bart’s!

Issue 10 October 2007

Issue 10 October 2007

12

Stramongate Crossword

Answer to the riddle on page 9…. Microsoft in 1978. If you invested $10,000 into Microsoft when it floated in 1986 your holding would now be worth over six million dollars!

THE BACK PAGE

During 2007 Sand Aire has expanded significantly and now employs a team of 26 (compared to 20 in 2006). Andrew White Investment Assistant Joined in July

Katherine Hanson Assistant to Chairman, Deputy Chairman and Client Team Joined in January

Kelly Francis Receptionist Joined in April

Paul Reynolds Director, Wealth Administration Joined in February

Sally Highfield Investment Research Assistant Joined in July

Simon Paul Director, Wealth Administration Joined in May

In late October, after four and a half years as Manager of Investment Administration and Operations, Stephen Hunt leaves the company , to take on a challenging role at Russell Investments Limited. We wish him all the best for the future.

Money Slang Pony (£25) First used in 1797, the term is thought to refer originally to the Indian 25 Rupee note, which featured a pony, The word was then brought back to England by returning colonial soldiers. Ton (£100) First seen in 1946, the term is derived from the fact that a ton equals 100 cubic feet. Monkey (£500) The term surfaced in 1832 and is again thought to be derived from Indian currency, as a 500 Rupee note sported a picture of a monkey.

Answers to the crossword and the name of the winner will be published in the next issue!

Sand Aire team expands…...

1 2

3

4 5 1 The publication produced to celebrate Sand Aire's milestone year

5 Sand Aire's offices are located in this area of London6 7 Sand Aire's Director of Investments

7 8 The shareholder meeting is usually held here

9 Provincial Insurance's first office was located here

8 2 A famous bridge

3 Lord Aldington works here9 4 Provincial Insurance was established in this year of the nineteenth century

6 Sand Aire celebrated this milestone year in 2006

ACROSS

DOWN

Produced by Sand Aire Limited on behalf of Stramongate Limited

Interesting facts about Provincial Insurance

1. In 1930 Provincial Insurance introduced a new

pension scheme - thought to be the first offered

by an insurance company.

2. John Maynard Keynes joined the Board of Provin-

cial in 1922. Bertrand Russell cited Keynes as

the most intelligent person he had ever known,

commenting that "every time I argued with

Keynes, I felt that I took my life in my hands and I

seldom emerged without feeling something of a

fool".

3. Sir James Scott's sons Francis and Samuel were

both exempt from military service because of age

and ill health. If this had not been the case, it is

possible that Provincial would have been sold.