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Rathbones Review

Summer 2016

Twilight’s last gleamingAssessing Obama’s legacy

News knight Sir Trevor McDonald reflects on a life in television

Bringing peace to Syria Lessons from a history of conflicts

4 Twilight's last gleaming Will Barack Obama’s presidential legacy

shine on or fade?

10 Going, going, gone Our initial thoughts on Brexit

12 News knight Sir Trevor McDonald discusses his life

in television

16 Lessons from a history of conflicts

What the past can tell us about hopes for peace in Syria

21 Till when we do part… The wealth-protection benefits of

nuptial agreements

24 Ne plus Ultra How codebreakers transformed the

nature of war

Contents

2 Rathbones Review www.rathbones.com

Contents — Summer 2016

27 Changing fortunes How hard was your start in adult life?

30 A golden legacy? Is the glow of London 2012 still with us?

36 Art, not science The psychology of successful investment

38 The power of ISAs The changing face of individual savings

40 Making sense of the markets Picking apart the puzzles of the global

economy

42 Strings attached Plucking attractive investments from the

guitar world

44 A picture of success Portrait of a hedge fund specialist turned

gallery owner

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4"Yes, we can" — but did he?

16 Syria — what hope?

30 Golden promise

Jim West/Alamy

As we come to terms with the outcome of the UK’s hard-fought EU referendum, another vote that could have significant implications for the global economy draws near.

After the shock the UK electorate delivered by voting ‘leave’, uncertainty over the extent of the political and economic ramifications will persist for some time — not just in the UK, but in Europe as a whole. We take an initial look at some of the economic implications as the UK tries to forge a new competitive role in the global market place at the same time as it renegotiates its relationship with Europe.

Then there is the US presidential election. The potential impact of previous US elections on financial markets has arguably been overstated. Despite sector-specific implications, the US business cycle has been largely indifferent to who won the presidency.

This year could be the exception as Donald Trump goes head-to-head with Hillary Clinton. Trump appears more populist than previous frontrunners and has connected with working Americans, many of whom feel their job security, standard of living and economic prospects have declined. What would a Trump presidency mean for the US economy? We are actively considering such questions as 8 November draws nearer.

Meanwhile, in this issue we consider Barack Obama’s legacy since he swept to power nearly eight years ago on a tide of popular optimism. Was he fatefully hamstrung by the global financial crisis or is ‘hope’ dangerously Faustian for politicians, always likely to end in disappointment?

I hope you enjoy this edition of Rathbones Review and, as ever, would appreciate any feedback you might have.

Welcome to the summer edition of Rathbones Review

If you have any comments on this publication or suggestions for topics that you would like to see discussed in the future, please do let me know.

[email protected]

Connect with Rathbones

@Rathbones1742

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Rathbones Review 3 www.rathbones.com

A word from Paul Chavasse

EditorSamantha BoydInvestment Director

in

12"And finally…"

Paul ChavasseHead of Investment Management

[email protected]

10Brexit wounds

Image: Chip Somodevilla/Getty Images


On the right track?


Twilight’s last gleaming

Twilight’s last gleamingBarack Obama entered the White House on a wave of optimism and with a promise of momentous change. With his presidency heading into its final stages, we ask whether history is likely to judge him as one of the greats or as a leader who fell short of the expectations he set both for himself and for his country.

Peter Thomson, Investment Director, Rathbones


On the right track?





“ There is no doubt that Obama’s election manifesto championed change; and there is no doubt, too, that he inherited a crisis.”

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On the night of 8 January 2008, addressing supporters in Nashua, Barack Obama gave a speech that

would define his subsequent ascent to the White House. It was shot through with anaphora, a form of deliberate repetition much loved by devotees of rhetoric. On no fewer than 11 occasions, most of them crammed into a rousing crescendo, the soon-to-be president of the United States assured his audience: “Yes, we can.”

Obama had just lost the New Hampshire primary to Hillary Clinton. This was supposed to be a concession speech, but it proved a turning point.

“We’ve been warned against offering the people of this nation false hope,” he told the crowd. “But in the unlikely story that is America there has never been anything false about hope. For when we’ve faced down impossible odds, when we’ve been told we’re not ready or that we shouldn’t try or that we can’t, generations of Americans have responded with a simple creed that sums up the spirit of the people: yes, we can.”

His chief adviser at the time, David Axelrod (who later went on to advise Ed Miliband), revealed last year that Obama initially feared such a slogan could count against him. He was worried it might be “too corny”.

It was the future First Lady, Michelle Obama, who persuaded him it would help capture the imagination of a voting public tired of

what they saw as Washington’s deeply cynical brand of government.

Obama would repeatedly return to the same mantra — most notably at his inauguration, when he entered office amid the nascent chaos of the global economic crisis. “Starting today,” the new president declared, “we must pick ourselves up, dust ourselves off and begin again the work of remaking America... All this we can do.” The inevitable question now is whether such brave words were ever matched by effective deeds.

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It was free-market economist Milton Friedman who remarked: “Only a crisis — actual or perceived — produces real change.” There is no doubt that Obama’s election manifesto championed change; and there is no doubt, too, that he inherited a crisis.

Friedman, however, was by no means the first person to make such an observation; and

Obama was by no means the first politician — or even the first Democratic president — presented with a chance to prove it. Franklin D Roosevelt beat both to the punch, not only identifying the link between calamity and opportunity but exploiting it to spectacular and enduring effect.

In the 1920s Roosevelt conceded that his party could expect to regain power only if the Republicans led the US into “a serious period of depression and unemployment”.

9 March 1933Congress passes a bill to stabilise the country’s banks. The public responds with a show of renewed confidence in the industry.

19 April 1933America abandons the gold standard, allowing inflationary forces to begin to lift the economy out of the Great Depression.

The Hundred Days and beyond: how FDR turned crisis into security

4 March 1933President Franklin D Roosevelt takes up office.

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Obama’s promise of change struck a chord with a voting public weary of what they saw as Washington’s cynical brand of government.

The Wall Street Crash prompted a more prolonged and gruelling phase of national misery than he probably ever dared imagine.

His response, the New Deal, did not end the Great Depression, but it laid the foundations for generations of Americans to enjoy a more secure existence. A basic goal was to prepare people for what Roosevelt called “the hazards and vicissitudes” of life, and in this regard a raft of related initiatives succeeded both at the time and for decades to come. Crucially,

Roosevelt also brought about a tectonic shift in the nation’s collective psyche and mindset — a feat that Obama’s “Yes, we can” message would later clearly seek to echo.

American historian David M Kennedy, a Pulitzer Prize winner, was among those who drew attention to the fast-developing parallels between the events of the 1930s and the late 2000s. “Roosevelt could hardly ignore the compelling need to steer the economy out of the Depression,” he wrote

in June 2009, “but he refused to allow the task to deflect him from his more important objective of making American life less hazardous — and more inclusive — ever after. He understood the difference between the urgent and the important.”

For Obama it was the urgent that took precedence. With 850,000 US jobs being lost every month and the unemployment rate destined to account for a tenth of the population, he described the economy as a concern “that rises above all the others”. He pushed through the second half of a multi-billion-dollar bank bailout set in motion by the Bush administration and approved a stimulus package worth more than $800 billion.

There is no dispute that he thus played a part in preventing economic collapse from metamorphosing into full-blown catastrophe. It is also true, as he highlighted in his final State of the Union address, that America has since witnessed the creation of millions of new jobs and the halving of its unemployment rate. Yet so far there is less evidence of the sort of long-term stability and reassurance that Roosevelt was able to deliver.

Some critics have condemned Obama’s approach as too cautious. Nobel-Prize-winning economist Paul Krugman immediately demanded a more aggressive rejoinder to the crisis, essentially advocating that the dire consequences of taking risks should be dealt with by taking more risks.

1934The National Labor Relations Board and the Federal Housing Administration are among the new institutions created.

12 May 1933The Federal Emergency Relief Act releases hundreds of millions of dollars to help those unable to find work.

27 May 1933Congress passes the Federal Securities Act, which commits the government to regulating Wall Street’s activities.

16 June 1933The Banking Act becomes the last of the 15 key acts proposed by Roosevelt and passed during his first hundred days in office.

1935The Social Security Act, the New Deal’s signature legislation, is passed, providing millions of Americans with additional security.

Day 100Day 65 Day 80 1934 1935GraphicaArtis/Corbis

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“ At present it is hard to claim with confidence that any of Obama’s reforms will last long enough to survive the judgment of posterity.”

Obamacare Famously described by vice-president Joe Biden as “a big f***ing deal”, the Patient Protection and Affordable Care Act divided Congress. Even some Democrats have queried the amount of political capital devoted to it. A Republican president is highly likely to repeal it.

An imperilled legacy: Obama and the forces of institutional gridlock

Of course, presidents are less omnipotent than they were. Obama’s was far from the only hand on the economic tiller. As a renowned expert on the Great Depression, Ben Bernanke, the then chairman of the Federal Reserve, was determined not to make the same mistakes as his 1930s counterpart; it seems reasonable to infer that the banks, too, had a bigger say than they were granted during Roosevelt’s tenure. In the words of David Hollinger, emeritus professor of history at the University of California, Berkeley: “The constraints Obama inherited are genuine and truly massive when contrasted with those faced by Roosevelt.”

The fact is that Obama ran out of room for manoeuvre. After less than two years, with the Republicans regaining control of the House of Representatives, the consensus was that any remotely contentious bill would never be passed; and a more dramatic stimulus package represented just such a bill.

Obama’s economic legacy might therefore forever be viewed through the hazy prism of “What if?”. What if he had listened to the likes of Krugman — and, according to some sources, his own advisers — and reacted to the crisis more emphatically?

What is obvious is that the circumstances that came to dictate his economic policy — the loss of his fragile majority, the Republicans’ explicit resolve to thwart him at every turn, the continued polarisation of the American political system — would increasingly dominate his eight years in office and, in tandem, undermine his formative vision of a unified country and meaningful transformation.

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Obama first announced himself to the wider world at the 2004 Democratic National Convention in Boston, Massachusetts, where he appeared in support of Senator John Kerry, the party’s presidential nominee. His speech, entitled The Audacity of Hope, promptly catapulted him from relative obscurity to the ranks of would-be future leaders.

Introducing the themes he would revisit so enthrallingly during his own White House campaign four years later, the then largely unknown senator painted a tantalising picture of a nation no longer riven by irreconcilable political perspectives. “The pundits like to slice and dice our country into red states and blue states,” he said, “but I’ve got news for them. We are one

people, all of us pledging allegiance to the Stars and Stripes, all of us defending the United States of America.”

The idea that partisan differences should — and, moreover, could — be put aside in the interests of a unified America was even then understandably seductive. Unfortunately it was also inherently fanciful. Some might argue Obama proved to be poor at bi-partisan politics; supporters could say his Republican opponents put their power aspirations above the national interest. Perhaps this is evidence of an inherent flaw in the American political system, or maybe it is a safety mechanism, but it undoubtedly stymied radical change.

Obama failed to overcome Republican opposition and in that failure extinguished much of the hope his rhetoric had ignited. Whereas the passing of time has further cemented Roosevelt’s place in the pantheon of outstanding presidents, it is hard to claim with confidence that any of Obama’s reforms will last long enough to survive the judgment of posterity. Most are either the products of compromise or in severe danger of being repealed by a Republican government.

The Patient Protection and Affordable Care Act — more popularly referred to as Obamacare — was a milestone and a millstone of Obama’s first term. It required numerous debates and deals even to squeeze through a Congress under Democratic control. It received not a single Republican vote in favour.

The act was intended to improve the quality

Immigration Obama may yet be remembered as the president who brought millions of undocumented immigrants out of the shadows. But his anti-deportation efforts — made possible only by executive order — have been challenged in court and are wildly at odds with current Republican rhetoric.

Gun control According to his aides, Obama’s worst day as president was 14 December 2012, when 20 children at Sandy Hook Elementary School, Connecticut, were killed by a gunman. His efforts to reform gun laws have fallen short in Congress, again leaving him to rely on executive orders.

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A Left: Race riots underline the scale of Obama’s domestic failure. Internationally he won praise for his handling of China but critics say US withdrawal from the Middle East left a dangerous power vacuum.

Above: Obama vowed to end the polarisation of US politics. His failure to do so means much of his legacy could soon be trampled underfoot.

and affordability of healthcare and to cut the number of Americans without health insurance. The Republicans have made no secret of their desire to torpedo it, conceivably stripping around 17 million people of their health insurance, if and as soon as they can.

Obama’s strides on the vexed issue of immigration stand in comparable peril. His 2014 bid to protect almost five million immigrants from the threat of deportation has already been delayed by legal challenges and could be derailed entirely in the event of a Republican victory later this year — particularly if voters succumb to the manner of demagoguery that has guaranteed Donald Trump so many headlines.

His drive to overhaul the criminal justice system is also in jeopardy. So far the effect has been limited: the US prison population still massively exceeds that of any other country — although it is right to say it has declined — and many jail sentences for less serious offences are still absurdly lengthy. The implementation of further and more

comprehensive measures will depend on Congress. Any prospect of a radical makeover of America’s gun laws, a cause that has reduced the president to tears, is similarly imperilled.

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In January 2015, on the eve of his penultimate State of the Union speech, New York magazine asked more than 50 historians for a prescient appraisal of Obama’s contribution to the US and beyond. The general opinion? Obama is likely to be remembered as a good president — but probably not as a great one.

His work on the global stage might well come to be deemed his best. Unlike Roosevelt, Obama did not win a war; but he did wind down several, shrinking the US presence in Iraq and Afghanistan. He oversaw landmark breakthroughs with Cuba and Iran. Having moderated its chronic addiction to fossil fuels, he enabled America to serve as a positive example for other serial mega-polluters — China foremost among them — in anticipation of the COP21 talks on climate change. As political scientist Mark Lilla has pointed out: “Good historians pay attention not only to what political figures actively accomplish but to what they prevent from happening — a negative but real accomplishment. By that measure, Obama accomplished a lot.”

But critics argue that by turning his attention away from the Middle East to China he helped create a power vacuum in which ISIS has flourished.

The trouble is that the average American cares less about the rest of the world than about America; and Obama’s America, by common consent, has failed to rediscover the type of feel-good factor that imbues the Roosevelt age with a perpetually rose-tinted hue. Productivity gains have been meagre. Year-on-year wage growth has stayed below 3%. Living standards are much as they were eight years ago. The country’s first black president has even had race riots on his watch. Perhaps the disappointment in his presidency is greatest among the black constituency who had the most audacity to believe he could change their lives for the better.

Obama sold hope. Sadly, much of it has gone unfulfilled. He captured an appetite for change but could not quite sate it. The unyielding bifurcation of American politics persists: gridlock has become institutionalised.

The man himself seemed to acknowledge as much during his second inauguration speech. It contained not one “Yes, we can”. “We cannot” occurred four times. Anaphora had surrendered to anathema.

We might conclude that any politician who proclaims “Yes, we can” ineluctably courts an eventual retort of “No, we didn’t” — or, worse still, “No, you didn’t”. In this instance it may be a harsh assessment but one that Obama has largely brought on himself.

“ Obama’s America has failed to rediscover the type of feel-good factor that imbues the likes of Roosevelt’s age with a perpetually rose-tinted hue.”

Along with numerous independent forecasters, we suggest the figure will be between 1% and 2%. Although less headline-worthy than the Treasury’s calculation, such a reduction is still sufficient for investors to be mindful of sectors that are most correlated with GDP growth — among them banking, insurance and consumer goods.

The markets

The FTSE 100 was resilient on the day of the result, despite opening around 8% lower. This is perhaps unsurprising given it is more an index of London-domiciled global giants than a barometer of the domestic economy. With the FTSE 250 and small-cap indices, however, the relationship between UK economic uncertainty and equity risk premiums has been more apparent.

How might the Bank of England react? A cut in interest rates is possible, although we doubt the Monetary Policy Committee will venture into negative territory. Extraordinary measures, such as quantitative easing, could be redeployed if further stimulus is deemed necessary.

Real rate expectations for gilts are likely to move lower, while our modelling suggests sterling should settle between 7.5% and 12.5% lower

balance will collapse post-Brexit, we believe, is an exaggeration.

A key factor is whether continued access to the free trade area will prove possible once negotiations have concluded. If not and the UK has to give up access to the single market, it will have to work hard to strike new agreements with the world’s faster-growing economies. That said, most British exports to Europe will remain attractive, even if tariffs are applied.

The longer-term trade impact of Brexit will in large part depend on how well Europe progresses in reducing the remaining trading barriers between members in the UK’s absence. There are many reasons why the UK is an attractive business arena and the threat of Brexit did not conspicuously deter foreign investment in the 18 months leading up to the referendum.

Domestic uncertainty

We believe the UK faces at least two years of economic uncertainty. This will affect financial markets and weigh on economic growth. Since uncertainty alone is enough to delay spending, hiring and investing, another round of budgetary austerity might be required.

The Treasury estimated that over this period Brexit could result in GDP growth being up to 6% lower than would otherwise have been the case. Thankfully, this forecast is based on various assumptions and economic sensitivities that are notably out of line with the general consensus among economists.


Going, going, goneThe historic vote to leave the European Union signals the end of an uneasy relationship that began more than four decades ago. Although it will be years before the full economic implications become clear, we consider the potential repercussions now that ‘Brexit’, after months of debate and division, is set to become a reality.

Julian Chillingworth, Chief Investment Officer, Rathbones

Going, going, gone

The run-up to the referendum on the UK’s membership of the EU was characterised by misinformation and uncertainty. The

vote answered the big question, albeit by a small margin, yet many issues remain unresolved and new questions have emerged that threaten the future of the United Kingdom.

Below we offer our key thoughts in the immediate aftermath of 23 June. We are long-term investors, but have to make informed decisions as circumstances evolve. These insights are based on our own comprehensive analysis and a review of the arguments put forward by both sides during the referendum.

At the time of writing, just 72 hours after the result, the political situation is changing fast: David Cameron has announced his intention to step down as prime minister and Jeremy Corbyn is facing a leadership challenge. Meanwhile, Nicola Sturgeon is calling for a second referendum on Scottish independence and threatening to block the UK’s secession from the EU.

Politics will continue to impact on investment decisions. To address that fully here is unrealistic and we instead ask you to visit our website or consult your investment manager for our most up-to-date views.

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On the outside, looking in

At present the UK runs a deficit in goods and a surplus in services with the EU. The idea that this

Ne plus UltraThe victories that determined the outcome of the Second World War were ultimately secured by vast armies, fleets and air forces, yet the work of men and women far removed from the battlefield also played a vital role. This was the infancy of “secret war”, a form of warfare made famous by the codebreakers of Bletchley Park and nowadays arguably more important than ever.

Sir Max Hastings

once initial volatility has subsided. We suspect interest rate expectations have been reflecting the possibility of Brexit for some time, which should limit further depreciation.

Financial services

EU legislation could push financial services activity back towards the continent. New regulations are already making it hard to do business in Europe from a non-European platform, and HSBC and Morgan Stanley have already announced they are considering moving euro-related operations to France or Ireland.

We believe such moves are unlikely to result in a rapid loss of business and investment. In addition, given London’s history of financial innovation, record of supportive government policy and well-established role as a centre of global finance, there is scope to ameliorate the long-term consequences.

Significantly, however, the Swiss, whose overall relationship with the EU is based on a complex series of bilateral directives, have never been able to negotiate a deal on financial services access. Most large Swiss financial firms have conducted cross-border business in Europe through their

UK subsidiaries. Operating without a “regulatory passport” could be costly in the longer term.

Those we leave behind

The question of what will happen to the EU without the UK should not be overlooked. The union may well integrate further, in which instance the UK’s market share of European trade would very likely diminish, but there is also a possibility that the whole project will stall.

Euroscepticism is increasingly widespread, and leading consultancies in the field of political risk — not to mention the Organisation for Economic Cooperation and Development — have warned the success of the Brexit campaign could be a major step towards the EU’s disintegration. The likes of the Netherlands, Sweden, Denmark, the Czech Republic and Poland face mounting internal pressure to hold referenda of their own.

Many of these nations are less well equipped for secession than the UK, with some simply too small to have a chance of negotiating beneficial deals. Nonetheless, their populations are demanding their say. One way or another, the UK’s decision may prove a pivotal decision for all concerned.


Going, going, gone

Key conclusions

— A collapse in the UK’s trade balance is unlikely, but new agreements with the world’s faster-growing economies must be struck if access to the free trade area is lost.

— Although Treasury estimates regarding a reduction in GDP growth appear excessive, the UK faces at least two years of economic uncertainty.

— A spike in equity risk premiums is likely to dominate financial markets and might be met with further cuts in interest rates.

— Financial services activity could be pushed back towards the continent, although the City of London’s standing should limit the impact of any shift.

— Brexit may lead to other membership referenda around Europe, although it is unlikely that other countries will leave in the short run.

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Summary

The main conclusion from our own analysis of the issues surrounding Brexit is that the implications are more complex and finely balanced than newspaper headlines have implied in recent months.

An accurate assessment of the possible impact on the pace of UK economic growth is difficult, because there are so many moving parts and unanswered questions. It seems safe to say, however, given that uncertainty is set to persist, that there will be an increase in volatility in financial markets.

Earlier this year we produced If You Leave Me Now, a report into the potential consequences of Brexit (available on rathbones.com). In it we assigned probabilities to show that the likelihood of a sustained negative impact on the UK economy is perhaps at worst one in six and more likely one in 10. While these odds should be taken with a pinch of salt, it is helpful to think in probabilistic terms.

News knightSir Trevor McDonald is one of Britain’s best-loved broadcasters. Knighted for his services to journalism, he has been a familiar face on the nation’s TV screens for more than four decades. Earlier this year he discussed some of the key events in his career as part of the British Academy of Film and Television Arts’ BAFTA: A Life in Television series, sponsored by Rathbones.

Paula Forecast, Investment Director, Rathbones

News knight


News knight


Whatever the explanation, there is no disputing the warmth with which he has come to be regarded. In March this year, at an event sponsored by Rathbones, he reflected on his long and distinguished career — and his place in the nation’s affections — before an audience at the British Academy of Film and Television Arts’ London home, 195 Piccadilly.

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Trevor McDonald was born in San Fernando, Trinidad, in 1939. His father was a self-taught engineer who also mended shoes and raised pigs; his mother was a stickler for proper speech and would often recite poetry during meal times. In an unlikely portent of the profession in which he would one day excel, the cracks in the walls of the family’s modest home were covered with newspaper.

Curiously for someone who for many years appeared on television nearly every day of the week, Sir Trevor

McDonald has long been puzzled, if not downright dismayed, by his own celebrity. “All I do is read the bloody news,” he once protested. “Really, people do make too much of it.”

The argument is by no means water-tight. After all, many presenters and journalists have read “the bloody news” without earning an OBE, a knighthood or, maybe most revealingly, the unofficial and seldom-bestowed status of “national institution”. There must be something that has set him apart from his contemporaries and counterparts.

One popular theory is that if we have to listen to bad news, as is usually the case, then it is better to hear it from someone like Sir Trevor. Unflappable, almost patriarchal, his authoritative delivery as reassuringly familiar as the chimes of Big Ben, he has somehow made us feel just a little more secure in times of trouble.

A related school of thought is that he represents — and has always represented — a better age. Having spent his youth listening to the BBC World Service, modelling his own spoken English on the insistent precision of Richard Dimbleby and the lilting burr of John Arlott, he has never much cared for the aggression and impatience that characterise much of modern-day broadcasting.

Left: Sir Trevor discusses his career with fellow broadcaster Kirsty Young in front of an audience at BAFTA’s Princess Anne Theatre.

Right: As the face and voice of the show for more than 15 years, Sir Trevor remains synonymous with ITN’s News at Ten.Image: REX/Shutterstock

“ I never lost my shock at being employed by ITN. I made a condition of doing everything that the other reporters did. I did not want to be a 'black reporter'.”

News knight


By his own admission, he was “bookish” as a child. A keen follower of cricket — hence his fondness for Arlott’s mellifluous tones — he would settle down by the boundary and divide his attention between spectating and reading. His love of language and literature eventually led him to a job in Caribbean radio and television.

His first boss, Ken Gordon, would later describe him as “an uncomplaining, dependable team player who spoke in a clipped English accent despite never having been to the United Kingdom”. Perhaps mindful of this irony, it was Gordon who made it possible for his young charge to visit the land of his oratorical heroes by dispatching him to London to report on a conference for Radio Trinidad.

By 1969, aged 30, he was living in the city and working for his beloved BBC World Service. “It was what I always wanted to do,” he says. “It seemed to me that these people were getting front-row seats at international events — and that they were being paid to do it. It sounded like a good deal.”

Four years later he moved to ITN, becoming the station’s first black reporter. He maintains he was never aware of his appointment being “totemic” but confesses: “I never lost my shock at being employed by ITN. I made a condition of doing everything that the other reporters did. I did not want to be a ‘black reporter’.”

Given the understandable tendency to remember him as an anchorman, it is easy to forget the breadth of his experience before he gravitated to the studio. As well as serving as a much-travelled foreign correspondent — including stints in Northern Ireland and Beirut — he was a diplomatic editor and even a sports commentator.

Although potentially far removed from the comforting composure that would help cement his position in Britain’s collective conscious, many of his adventures during this period demanded his trademark imperturbability. So, too, did some of his most celebrated scoops. He faced accusations of being “bloody rude” to Saddam Hussein and was offered a job by Colonel Gaddafi after witnessing the bizarre

spectacle of the Libyan dictator trying to demolish a Tunisian border post with an excavator. “I made my excuses and left,” he says.

His most cherished interview, Nelson Mandela’s first face-to-face with a broadcast journalist after his release from prison, came in 1990. “Mandela changed my view of international politics,” he says. “He said: ‘If you are sincere, if you are prepared to compromise, anything is possible.’ Meeting him was one of the most exciting things in my life. In my book there has never been anybody else like him.”

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In spite of his achievements and escapades “on the ground”, many of us, rightly or wrongly, think of Trevor McDonald sitting at a desk. From 1992 until 2008, save one or two high-profile hiatuses, he was the face and voice of ITN’s News at Ten — a role he claims he was “just terribly lucky” to get.

In those early days, with the notion of 24-hour news unheard of and the worldwide web still in its infancy, TV bulletins customarily attracted millions of viewers. “The business of telling people what’s going on is desperately important,” he says. “Information is the lifeblood of democracy. I was obsessed by how vital this was to the society we all aspire to.”

The decision to axe News at Ten in March 1999, the year in which the programme’s host received his knighthood, prompted a public outcry. Schedulers believed there was an appetite for more films and dramas, but they were wrong. Audiences declined.

By January 2001, less than two years after what had seemed Sir Trevor’s last “And finally...”, the show was back — albeit a few minutes shorter and not always commencing at the appointed hour. Sir Trevor stayed until 2005, by which time continued tinkering had transformed News at Ten into News at Ten Thirty.

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“ Mandela changed my view of international politics. He said: ‘If you are sincere, if you are prepared to compromise, anything is possible.’”

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News knight


to an end my association with News at Ten Thirty. Thank you for watching, and thank you for all your generous messages. Goodnight... and goodbye.”

Except it wasn’t goodbye: in 2008 he returned to present the relaunched News at Ten. At the time he said he “couldn’t turn down the move back to that iconic time slot”. Although it lasted just 11 months, his comeback proved one thing: Sir Trevor and retirement were not natural bedfellows.

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Since then Sir Trevor, now in his 70s, has reverted to the globetrotting of his formative years in television, making acclaimed documentary series such as The Secret Caribbean, The Mighty Mississippi, Inside Death Row, The Mafia and Las Vegas. The more recent of these have reinforced his longstanding conviction that there is a lot of unhappiness in the world. For Inside Death Row he interviewed condemned murderers in the US; for The Mafia he questioned individuals sworn to live and die by the unyielding code of omerta; for Las Vegas he exposed the toxic underbelly of “Sin City”.

Filming Inside Death Row had a particularly lasting effect on him. “What stays with you is a feeling of a catalogue of human misery,” he says. “It was their ability to talk about what they had done so clearly... There’s a lot of humanity in hearing people emote about this awful slice of their lives. I was not going there to judge them. I was going there to turn my camera on and hear their stories.”

This much is confirmed by clips of his encounter with an inmate serving a 170-year term for a double homicide. The two victims were killed for just $5. Irrespective of his subject’s “vile act”, Sir Trevor never adopts the confrontational style nowadays favoured by many of his

When Arlott retired from cricket commentary, bowing out towards the end of the Lord’s centenary Test between England and Australia in 1980, he exited in determinedly low-key fashion, confining his valedictory to a brief summary of the score and a routine handover to a colleague. Ever the devotee, Sir Trevor ensured his own farewell was a similarly undemonstrative affair, announcing simply: “And that brings

“ There’s a lot of humanity in hearing people emote about this awful slice of their lives. I was not going there to judge them. I was going there to turn my camera on and hear their stories.”

Trevor McDonald became ITN’s first black reporter in 1973 (1). A face-to-face with Saddam Hussein was among the many scoops that punctuated his illustrious career (2). His love of cricket (3) and his admiration for Nelson Mandela (4) have been among his most enduring influences. More recently he has focused on documentaries, including shows devoted to the prison system (5) and his beloved Caribbean (6).

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4 big-name successors. He will not talk down. His credo has always been — and still remains — that the facts should be allowed to emerge so that viewers can make up their own minds.

“News is the main ingredient of democratic, pluralistic life,” he says. “The thought that you are a programme’s most important person is crazy. It’s not about you. It’s not about one person. It’s about the people. Don’t believe in this nonsense of celebrity.”

The last sentiment sounds especially heartfelt, underscoring his own unfailing humility. On stage he has scorned his early work as “ghastly”, dismissed his verbal jousting with Saddam as “tedious” and claimed a five-year-old could have carried out many of his later interviews with comparable success.

Naturally, nobody agrees with his disparaging assessment of his own canon; and yet it is not hard to accept that he really means it. Why? Because Sir Trevor McDonald, former reader of “the bloody news”, is someone we trust wholeheartedly — and that, ultimately, is the true measure of his greatness.

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The famously clear, authoritative and distinctive tones of Sir Trevor McDonald were heard at the latest BAFTA: A Life in Television event, sponsored by Rathbones. He spoke about his illustrious career and of being the first journalist to secure a face-to-face meeting with Nelson Mandela following his release from prison.

Visit the Rathbones website or www.rathbones.com/knowledge-and-insight for more information.

And finally…


Lessons from a history of conflicts

Lessons from a history of conflictsWith no apparent end to the tragedy in Syria, are there universal rules that can be applied to resolve any conflict? We consider the process of reconciliation and peace and ask whether there is always genuine hope or whether, as the Syrian situation threatens to prove, there may be some instances where the sword is simply mightier than the pen.

Jane Sydenham, Investment Director, Rathbones



The conflict in Syria meets the academic definition of a “wicked problem” — rooted in multiple causes, hard to explain and ill suited to any “right” answer.Image: Ameer Alhalbi/NurPhoto/Corbis



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“ It is not enough to win a war; it is more important to organise the peace.” — Aristotle

In 2013 Hillary Clinton, the then US Secretary of State, labelled Syria a “wicked problem”. The term was first

used in 1973 by Horst Rittel and Melvin Webber, two professors of design and urban planning at the University of California, Berkeley, to describe any issue that has numerous causes, is difficult to explain and to which there is no “right” answer. Syria certainly fits the bill.

Five years after protests demanding democratic reforms sparked the war, more than a quarter of a million people have died. Hundreds of thousands of refugees have fled to Europe, creating one of the most significant mass migrations in history. UN resolutions have come and gone. Peace talks have repeatedly stalled.

The political dynamics at play are Byzantine in complexity. The government forces of president Bashar al-Assad are supported by myriad brigades, resistance movements, tribes and militias; so, too, is the opposition, whose allies include Hamas, the Muslim Brotherhood and al-Qaeda. The Kurds want self-administration. ISIS wants a caliphate. Russia and Iran want to keep Assad in power; the West is unwilling to overthrow him.

Earlier this year, asked to assess the prospects of international efforts to negotiate a solution, former UN Secretary General Kofi Annan insisted: “It’s not hopeless. The world has seen this before.” It is true that many appalling and long-running conflicts have eventually given way to peace; but do any of them offer lessons that might be applied in this case?

The Kroc Institute for International Peace Studies, based at the University of Notre Dame, Indiana, is one of the world’s leading centres for research into the causes of violence and strategies for sustainable peace. In 2011 it launched the Peace Accord Matrix (PAM), an interactive database that compares and contrasts 50 different components of comprehensive peace agreements — ranging from disarmament and demobilisation to human rights provision and “reintegration”.

As well as providing a reference tool for scholars and journalists, PAM is intended to serve as a mechanism for reviving faltering peace processes. It can be used in “real-time” negotiations to identify and analyse different aspects of dozens of accords signed since 1989. The concept is simple: to offer lessons from a history of conflicts and their resolution.

Each agreement is accorded a percentage score that reflects its effectiveness up to 10 years after initial implementation. The idea is that what works and what does not can be quickly discerned. Scores above 90% are rare.

Chapultepec Peace Agreement

Score 10 years after implementation: 96%

The highest score at the time of writing belongs to the Chapultepec Peace Agreement, which ended the Salvadorian Civil War. As with Syria, the conflict was characterised by extreme violence on all sides, including the deliberate terrorising of civilians, the use of death squads, the deployment of child soldiers and the widespread violation of human rights. Around 75,000 people were killed over the course of a dozen years; an unknown number “disappeared”, and a million more were displaced.

The accord between the government and the leftist guerrillas that fought for more than a decade to overthrow it was signed during the first few minutes of 1992. Talks had seemed doomed just days before the decisive breakthrough. The then UN Secretary General, Javier Perez de Cuellar, famously postponed his retirement on an hour-by-hour basis to oversee the successful conclusion of negotiations, which closed with the rival parties’ representatives embracing each other.

The conditions of the settlement included a marked reduction in the size of the military, significant economic and democratic reforms, the establishing of a new civilian police force and the full political participation of the left. All combatants were disarmed, demobilised and “reintegrated”. “Our 10 years of struggle are expressed in these accords,” Salvador Sánchez Cerén, then commander of one of the two biggest rebel armies and now El Salvador’s president, said after the signing. “Fundamental changes are going to take place.” A ceasefire commenced on 1 February 1992 and has not been broken since.

“Former UN Secretary General Kofi Annan insisted: ‘It’s not hopeless. The world has seen this before.’”



Northern Ireland Good Friday Agreement

Score 10 years after implementation: 95%

The Good Friday Agreement ended decades of sectarian violence and signalled an historic turning point in a struggle whose origins lay buried in a deep and centuries-old political quagmire. As with Syria, it was a conflict rooted in mutually exclusive visions of national identity, increasingly entrenched positions and a backdrop of mounting violence and intransigence.

Since the late ’60s the Republicans had regarded the “long war”, an attritional campaign to erode Britain’s presence in Northern Ireland, as their only option. When cross-party talks began in 1996, with then US president Bill Clinton actively and personally involved, weariness and political realism helped clear the path to negotiation. In essence, the rival factions agreed to disagree on the region’s status. The deal, signed on 10 April 1998, was ratified by referendums in both Northern Ireland and the Republic of Ireland.

The resultant power-sharing represented a tectonic shift in Northern Ireland’s political landscape. The provisions included disarmament and the release of paramilitary prisoners. In 2013, marking 15 years since peace was declared, Irish novelist Colum McCann wrote: “The Good Friday Agreement is one of the great stories of the second half of the 20th century... and, by the nature of its refusal to topple, it is one of the continuing marvels of the 21st century as well.”

General Framework Agreement for Peace in Bosnia and Herzegovina

Implementation score after 10 years: 93%

Reached in November 1995 and officially signed a month later, the General Framework Agreement for Peace in Bosnia and Herzegovina, also known as the Dayton Accords, ended the three-and-a-half-year-long Bosnian War. As with Syria, the conflict was fought on religious and territorial lines and featured systematic killing and massacres.

Also as with Syria, US, Russian and European leaders had to work together to bring the warring parties to the negotiating table. The agreement established separate Serbian and Muslim-Croat political entities under a single Bosnian state. One of the signatories, Serbian leader Slobodan Milošević, was later tried for war crimes by a special UN tribunal; he died during the hearing.

The region remains divided. Alija Izetbegović, the first president of Bosnia and Herzegovina, who would eventually die in a Sarajevo hospital room overlooking the graves of victims of the city’s siege, spoke of “drinking a bitter but useful medicine”. Today UK government guidance notes Bosnia’s “multiple layers of government, underdeveloped institutions, low capacity of civil service and weak judiciary”. But the killing has ceased.

“The conflict in Northern Ireland was rooted in mutually exclusive visions of national identity and a backdrop of mounting intransigence.”

Above left: The Salvadorian Civil War claimed around 75,000 lives and forced more than a million people from their homes.

Above centre: US Senator George Mitchell, Irish Prime Minister Bertie Ahern and British Prime Minister Tony Blair signed the Good Friday

Agreement at the climax of negotiations that were in part driven by war-weariness and realpolitik.

Above right: Competing superpowers worked together to end the Bosnian War, whose casualties famously included the historic Mostar Bridge.



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There may well be shreds of hope for Syria in the above examples. There are certainly numerous parallels. It could just be that, as in El Salvador, combatants who are grimly familiar with the most horrendous atrocities can somehow be persuaded to lay down their arms and “reintegrate”. It could just be that, as in Northern Ireland, a combination of fatigue and realpolitik nudges seemingly intractable opponents towards compromise. It could just be that, as in Bosnia and Herzegovina, the superpowers set aside their own interests — at least to some extent — in pursuit of a greater good.

As can be seen elsewhere in the PAM data, however, even the signing of an agreement is no guarantee of peace. What about Senegal’s Lusaka Protocol, which scores 33%, or Sierra Leone’s Abidjan Peace Agreement, which scores 7%? Many countries collapse back into violent confrontation; some descend into stalemate or crime. Top-scoring El Salvador’s ceasefire may not have been broken, but gangs have now restored the country’s bleak standing as one of the most dangerous nations on Earth.

Based on interviews with top international negotiators and mediators, including several veterans of successful reconciliation processes in Central America, the Balkans and the Middle East, US journalist Robert Collier recently outlined a series of key lessons for effective conflict resolution. They can be summarised as follows:

— Negotiate early and robustly

— Include all regional powers

— Make no preconditions about core issues

— Disregard war-crime trials — at least at first

— Be creative

— Freeze out extremists

It is perhaps worrying to observe that attempts to solve the Syrian crisis have long since failed at the very first hurdle.

For his part, Kofi Annan believes inspiration lies in the denouement of a much older conflict: the Thirty Years’ War, which devastated central Europe from 1618 to 1648. “It took the European countries to realise it was a senseless war where nobody wins,” Annan told the BBC earlier this year. “They came together and had their moment at the Peace of Westphalia. And I hope that would also happen in Syria.”

We can only share that hope. In tandem, we can only hope that if and when a solution is finally found, if and when this “wicked problem” is at last solved, there is still a trace of Syria left to stop fighting over.

“I hold in my hand...”

One of the most sobering thoughts in trying to find a lasting solution to the Syrian crisis is that many peace agreements turn out not to be worth the paper they are written on.

Arguably the most famous example in British political history is the Munich Agreement, the non-aggression pact signed by Neville Chamberlain and Adolf Hitler in September 1938. Chamberlain’s declaration, made upon his seemingly triumphant return from Germany, that the document signalled “peace for our time” would forever haunt him. Within a year Hitler would dismiss the pact as “a scrap of paper” and invade Poland, triggering World War Two.

The Vietnam War provides another tragic illustration. In 1973 US Secretary of State Henry Kissinger and North Vietnamese leader Le Duc Tho were jointly awarded the Nobel Peace Prize for the Paris Peace Accords, which were intended to bring about a ceasefire and the withdrawal of American forces. Hostilities were still raging as the award was announced, and the conflict continued for another two years. US humourist Tom Lehrer remarked that the episode “made political satire obsolete”.

The ancient city of Aleppo, pictured here before fighting began, has been devastated by the conflict in Syria.

“It is perhaps worrying to observe that attempts to solve the Syrian crisis have long since failed at the very first hurdle."

Above: Chamberlain returned from Munich in apparent triumph, but his supposed peace agreement with Hitler proved catastrophically meaningless.

Till when we do part...A growing number of couples are entering into nuptial agreements. Such arrangements may seem unromantic, but for many people they are a vital source of security. Why are they of such potentially enormous importance?

Tom Farley-Hills, Partner, Harbottle & Lewis LLP

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Till when we do part...





On 20 October 2010 the Supreme Court of England and Wales handed down their decision in the case of

Radmacher v Granatino and, in doing so, brought about a radical change in the legal status of nuptial agreements under English Law.

Prior to this decision nuptial agreements were regarded as against public policy because they sought to override the jurisdiction of the court to determine (i) how claims arising from divorce should be quantified and (ii) what type of orders should be made to give effect to (i).

Before Radmacher, the status of nuptial agreements under English law was simple, to use a well-worn cliché: they were not worth the paper they were written on. Following the Supreme Court’s decision however, the status of nuptial agreements is that in the event of divorce, the court will uphold the terms of a nuptial agreement provided the effect of the nuptial agreement is fair. Broadly speaking, fairness requires the court to be satisfied that a party and the children have enough money to meet his/her/their financial needs to re-house and enough to pay the bills. Fairness may mean something a little different in cases where the parties have been married a long time or where a spouse has placed him or herself in a financially disadvantaged position because he or she looked after the children. Fairness is a moveable feast and the parameters of it have not yet fully formed. Ultimately, a judge retains the final say on whether any nuptial agreement should stand.

Increasingly, since Radmacher, the courts are holding divorcing couples to the terms of nuptial agreements entered into by them.

As a result of this, increasingly the uptake of nuptial agreements amongst younger generations is increasing. Indeed, nuptial agreements are quickly becoming established as one of the primary legal mechanisms available to wealthy individuals to protect themselves and their assets against the full effects of an English divorce.

A wealthy individual without a nuptial agreement places his worldwide assets in the hands of the English divorce courts and for the following four reasons this is likely to be disastrous:

1. Everything and everywhere

Almost uniquely in the world, there is no marital property regime under English law. What this means is that all assets, regardless of when they were acquired and how they

were acquired, owned by a party at the point of divorce are a “resource” that can be used to meet claims on divorce. This may include assets acquired before the marriage, that were inherited or assets retained in the sole name of one of the parties only.

Most other countries have a marital property regime that separates marital from non-marital assets. Typically the difference will depend upon when the assets were acquired. Assets acquired before a marriage, for example will be non-marital in nature, so too assets held in one party’s sole name.

France has a number of different property regimes. Couples upon marriage can choose which type of marital property regime they want: one of the most common the Separation des biens creates a property regime where only assets that are held jointly are marital

“ The court will uphold the terms of a nuptial agreement provided the effect of the nuptial agreement is fair.”

Breaking up is hard to do — particularly when the repercussions of heading to the English divorce courts without a nuptial agreement can be disastrous for all concerned.Image: Chris Andrews/Getty Images





and therefore to be divided on divorce.

2. What is an asset for the purposes of divorce under English law?

The short answer is anything with a value and/or anything that produces an income however intangible or illiquid the asset may be. Unvested shares, a benefit under a discretionary trust, a minority shareholding in a company and pensions are all valued and added to the overall finances. The court must calculate the total value of liquid and illiquid assets before deciding what type of orders can be made to divide the assets between each spouse.

3. How are claims on divorce quantified?

The Supreme Court said, in determining the case White v White in 2000, that assets

on divorce need to be divided fairly and that a ‘yardstick of equality’ should be applied to each spouse’s share of the assets post separation. Prior to this case, a wife’s claims (for it was nearly always wives in the position of having to seek financial provision from the courts in those days) were limited to what she reasonably needed regardless of the assets built up by both parties during the marriage. Subsequent higher court cases following White have refined the concept of sharing, so that equality of division of assets on divorce is regarded as a starting point and end point unless fairness dictates otherwise. It is not too much of a stretch therefore to suggest that a wealthy individual caught in English divorce proceedings, without a nuptial agreement, should expect to have a 50% ‘tax‘ levied on his/her worldwide wealth in favour of his/her spouse.

4. Uncertainty of litigation

If a couple cannot agree on how to divide their assets one of them is likely to issue an application for a financial order on divorce.

Courts have very wide powers to transfer assets between spouses, to order a sale or even settle in trust assets for the benefit of a spouse or the family’s children.

Given the wide discretion afforded to family division judges many different outcomes are possible. Results can be unpredictable and appealing against bad decisions is difficult.

Sometimes these wide powers are exercised by lower court judges with little regard to tax implications on sale or transfer or how a forced sale of shares may impact upon a company.

The result is that litigating over one's assets on divorce is very unpredictable and it is not unheard of for both parties to come out of a protracted court battle unhappy about the result.

Wealth protection tool

Nuptial agreements can prevent all of this happening because before a marriage (pre-nuptial agreements) or during a marriage (post-nuptial agreements) will set out what each spouse will receive on divorce and thereby the parties have a much greater degree of certainty under English law than they would otherwise without a nuptial agreement in place.

Whilst nuptial agreements cannot prevent a disgruntled spouse taking a claim to court,

the spouse needs to have a very good reason why he or she seeks to depart from the terms of the nuptial agreement.

Nuptial agreements are bespoke documents and should be drawn up by a specialist solicitor with reference to the appropriate formalities which must be adhered to. They should also be drafted with reference to the parties’ circumstances at the time of the agreement but with an eye on what may happen. This requires nuptial agreements to have a degree of flexibility inbuilt to accommodate the family’s changes in circumstances over time.

Nuptial agreements can be used to protect assets in a number of different ways. They can ring fence specific assets e.g. shares in a company or an interest not yet received e.g. an interest under a discretionary trust. A broad brush approach is to create a ‘marital private property regime’ between the parties, so that a difference is drawn between assets acquired before the marriage and inherited assets from assets acquired by the couple through joint endeavour. In this way, money passed down through the family by wills or trusts can be protected from divorce litigation. A common approach, where one party has brought all of the assets to the marriage, would be to limit the potential claims on divorce to the other party’s financial needs and thereby eliminate the ‘sharing principle’ that would otherwise be a factor on divorce.

In any shape or form, nuptial agreements are the only way for a wealthy individual to protect assets from an English divorce. Anyone who is contemplating marriage, or whose child or grandchild is contemplating marriage, should consider a nuptial agreement as a way of protecting wealth. Most wealthy individuals have sophisticated structures to mitigate tax, particularly when it comes to passing wealth down through generations, however few stop to consider the effect of divorce litigation on those same assets. Just as trusts and wills are seen in the private client world as essential wealth protection tools, slowly but steadily nuptial agreements will be seen in the same way.

“ Nuptial agreements are bespoke documents and should be drawn up by a specialist solicitor”


Work undertaken by codebreakers in wooden huts at Bletchley Park has proved to be the foundation of today’s hugely sophisticated intelligence gathering operations. Im

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Soldiers, sailors and airmen are the most conspicuous participants in all wars, but outcomes are also profoundly

influenced by a host of men and women who do not fire a shot. Through espionage and codebreaking, every nation wages an unceasing secret war — a struggle for knowledge of the enemy — to empower its armies, navies and air forces.

It was during the Second World War, with the prodigious expansion of wireless communications, that intelligence-gathering became a major industry. Never in history had such huge resources been lavished upon garnering information: the Americans alone spent half a billion dollars a year on so-called sigint — signals intelligence.

As late as January 1943, in the heyday of Bletchley Park, the minister Lord Beaverbrook expressed his scepticism, saying that in Cabinet he heard “very little secret information of real value”. He even questioned Ultra, Bletchley Park’s output, saying that “the enemy could put out deception messages in a code they knew we had just as easily as we could”.

It deserves attention that a warlord could say such things, since the only question that matters about intelligence is how far discoveries change outcomes and prompt action. Intelligence-gathering is not a science. There are no certainties. There is a cacophony of so-called “noise”, from which what the trade categorises as “signals” — truths large and small — must be winnowed.

Statesmen and commanders must be willing to analyse this evidence honestly. Many German generals blamed their defeat on Hitler’s refusal to do so. Good news was given priority for transmission to Berlin, while bad received short shrift. Field-Marshal Keitel, the Nazi defence chief, eventually instructed the army to stop submitting intelligence reports that might upset the Führer.

By contrast, the Western democracies profited immensely from their relative openness. Churchill sometimes vented spasms of anger towards those who voiced unwelcome views, but in general a remarkably frank debate was sustained in the allied corridors of power.

I am always struck by the number of spies of all nationalities whose only achievement abroad was to stay alive, at hefty cost to their employers, while collecting information of which not a smidgen assisted anybody’s war effort. Perhaps one thousandth of one per cent of secret source

material changed battlefield outcomes. Yet that fraction was of such value that nations grudged not a life nor a pound, rouble, dollar, Reichmark or yen expended upon securing it.

Until halfway through the global struggle the signals intelligence competition was much less lopsided in the allies’ favour than legend suggests. Hitler had his own Bletchley Parks. The Germans broke important codes, with consequences for both the Battle of the Atlantic and the North African campaign. During the spring and summer of 1940 they read 2,000 British naval messages a month. In 10 days of March 1943, when the Germans were for a time ahead in the sigint contest, each of four allied Atlantic convoys lost one in five of its ships, a disastrous attrition rate.

As for the land war, for the first three years German and allied sigint were in about the same place. In the desert the Afrika Korps thought British wireless discipline very slack and attributed to this some of Field-Marshal Rommel’s triumphs. It was a serious blow to Rommel’s fortunes when, in July 1942, Field-Marshal Montgomery’s troops overran and destroyed his radio interception unit.

Worse for the Germans, Washington belatedly changed its diplomatic codes. For months Rommel had been reading what he gratefully called his “little Fellers”, the dispatches of Colonel Bonner Fellers, the American military attaché in Cairo, who reported almost every detail about British deployments and intentions. The Germans never again enjoyed such a superb source after Bletchley persuaded the Americans to repair this gaping security breach.

In the end, despite some important successes, the German codebreakers could not match the stellar achievements of the men and women of the Government Code & Cipher School outside a dreary suburban town in Buckinghamshire. Bill Williams, the Oxford don who served as Montgomery’s intelligence chief, wrote in an important 1945 secret report: “It must be made quite clear that Ultra and Ultra only put intelligence on the map.”

“ Until halfway through the global struggle the signals intelligence competition was much less lopsided in the allies’ favour than legend suggests.”

Ne plus UltraThe victories that determined the outcome of the Second World War were ultimately secured by vast armies, fleets and air forces, yet the work of men and women far removed from the battlefield also played a vital role. This was the infancy of “secret war”, a form of warfare made famous by the codebreakers of Bletchley Park and nowadays arguably more important than ever.

Sir Max Hastings

The codebreakers transformed the very nature of intelligence, and one key reason the democracies did this better than the dictatorships is that they gave free rein to clever civilians. Before 1939 most secret services got by — or at least did little harm run by second-rate people. Once a struggle for national survival began, intelligence became part of the guiding brain of the war effort. Brilliance was suddenly required, and Britain, more than anywhere else, was where it was found.

The Bletchley story is much more complicated than such populist films as The Imitation Game suggest. Far from anybody persecuting him, at Bletchley Alan Turing’s genius was always recognised — especially by Bletchley’s director, Alastair Denniston, who in the movie is cruelly caricatured. The breaking of Enigma was a team effort by one of the most remarkable groups of human beings ever assembled, and Turing — although in a class of his own — could have accomplished nothing without that fellowship.

It is also important to note that open access to the enemy’s communications was never gained. Though what was done was indeed miraculous, Britain’s codebreakers could not walk on all the water all the time. While a lot of Luftwaffe and naval traffic was read from 1941 onwards, army Enigma posed chronic difficulties. As late as September 1944 Bletchley could solve only 15% of army messages; in October 18%; and in November 24%. Many breaks took days

to achieve and reached battlefield commanders too late to influence events. Ultra was a marvellous tool, but it was not an Excalibur. And knowing the enemy’s hand did not diminish its strength.

Even so, the evidence suggests that secret knowledge made an important contribution, especially at sea, in both the Pacific and the Atlantic. Ultra’s exposure of Germany’s U-boat codes — with a terrifying nine-month interruption in 1942 — and the American codebreakers’ warning that the Japanese fleet was targeting Midway Island were huge achievements.

In the 21st century it seems ever less plausible that the massed uniformed forces of the Great Powers, numbered in millions, will again clash in arms. By contrast, the importance to national security of intelligence, eavesdropping, codebreaking and counter-insurgency has never been greater. Cyber-warfare represents merely the latest stage of the electronic revolution that began in the Second World War.

Although it would be extravagant to suggest conventional warfare has become redundant, scrutiny of communications is now the foremost Western weapon in combatting non-state enemies within our own frontiers and abroad. The old historic delineation between peace and war is defunct. Secret war, as it was practised by the nations that fought the1939-1945 struggle, is likely to prove to be future war.

Ne plus Ultra


Napoleon famously said: “History is the version of past events that people have decided to agree upon.” The 2016 Chalke Valley History Festival, held from 27 June to 3 July, provided an opportunity to learn about, discuss and debate history and its implications. This year’s festival featured a Rathbones-sponsored evening at which Max Hastings gave a presentation entitled The Secret War: Spies, Codes and Guerillas — 1939-1945.

It is especially important for young people to have a good understanding of what has come before, which is why Rathbones sponsors the Chalke Valley History Festival for Schools. A two-day event that forms part of the wider festival, this year it featured a range of curriculum-based lectures delivered by leading and best-selling historians, as well as living history and interactive demonstrations.

Thousands of visitors, ranging from primary school pupils to sixth-formers, attended the festival to see history brought to life. We are delighted to have played a small part in ensuring that the events of the past continue to inspire the young of today.

The Chalke Valley History Festival for Schools

“ Secret war, as it was practised by the nations that fought the1939-1945 struggle, is likely to prove to be future war.”

Intelligence derived from codebreaking played an important role in the Battle of the Atlantic for the Allies and Germany.Image: Corbis

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Changing fortunes

Changing fortunesIt is easy for each generation to believe the difficulties they face are the hardest. The Baby Boomers came of age in the 1970s in an era of instability with high interest rates, high living costs and low access to education. Generation X came of age in the 1990s and had to contend with high youth unemployment. The Millennials, who are reaching adulthood this century, struggle to get on to the property ladder and often have high student debts. As our data overleaf shows, in each era there have been unique challenges.

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Baby Boomers

Born: 1946 to early 1960sCame of age: mid 1970s

George left school in 1971 at age 16 and joined an insurance company, working his way through the ranks. “University just never occurred to my family,” he says. Approaching retirement, he is now a department head. He has a final salary pension, a house in the home counties and a cottage in Scotland. “It sounds like we’ve done well, but we had to make real sacrifices starting out. Clothes and furniture were much more expensive in those days and we've worked long hours to achieve this,” he says.

Generation X

Born: mid 1960s to early 1980sCame of age: mid 1990s

Mark was the first in his family to go to university — where he enjoyed a local authority subsistence grant, graduating in 1992 and going on to work as a journalist. “I bought my first home a year later for £30,000 — 3.5 times my salary,” he says. He is now a business owner and married with two children. He owns a five-bedroom semi in the Midlands. “I consider myself lucky, but I’m seriously concerned about my kids and how I can give them a similar start to life.”

Millennials

Born: mid 1980s to early 1999Coming of age: now

Catherine graduated with a law degree in 2014 — she has a £31,000 student loan. She recently started working for an asset management company in London as a trainee analyst. She rents a flat in London with two friends. “The rent eats up nearly half my income,” she says. She is saving to buy a flat with her boyfriend. “My gran thinks I waste too much money on clothes and technology but I only buy really cheap things and it’s very dispiriting when house prices are rising faster than I can save for the deposit.”

£

£

£

£


Access to education

17 yr olds in Further Ed Number of first degrees awarded

59%31% 77%

423,000

77,000

51,000

Cost of Higher Ed

£ £

£9Kper year

Career opportunitiesEmployment rates of men and women

56%90% 63%76% 68%78%

Youth unemployment rate

Cost of housing

8% 15.6% 14.3%

1975 1995 2015Mid 1990sUK

NowUK

NowLondon

£ £ £

Getting on the property ladderRatio of average earnings to first time buyer house price

1:2

1:5

1:10

Average house price

Came of age: mid 1970s

Came of age: mid 1990s

Millennials

£197,044Generation x

£51,084

Baby boomers

£10,388

£

££

£Changing fortunes

£

£

£

£

Coming of age:Now

£

££

£


Financial landscapeInflation and interest rates

Active members of defined benefit pension schemes (private)

1.6m

5.1m

5.8m

Relative consumer costsFalling cost of consumer goods

149%109%100%

Clothing and footwear Household goods Food

100% 100%100%

46%

30%

46%53%

93%82%

Rising cost of fuel and light

0

5

10

15

20

25

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

1980

1979

1978

1977

1976

1975

Interest

Inflation

£

££

££

£

Changing fortunes

£

£Sources: Nationwide House Price and Affordability estimates, Dept for Education, HESA, Dept for Business, Innovation and Skills, ONS, Bank of England


A golden legacy?

Image: PA


A golden legacy?

A golden legacy?Hosting the Olympic and Paralympic Games represents an increasingly vast investment, which is why grand promises of myriad long-term benefits have become de rigueur. With history suggesting these pledges are seldom fulfilled, is the legacy of London 2012 proving a welcome exception to the rule?

Libby Barrett, Assistant Investment Manager, Rathbones

It is sometimes hard to tell whether a Wikipedia entry has been tampered with or whether

truth really is stranger than fiction. The page headlined “Legacy of the 2012 Summer Olympics” offers a classic illustration.

The concluding sub-section, entitled “Proven legacy”, might best be described as cursory. According to this account, the demonstrable repercussions of London’s hosting of the Olympic Games four years ago can be condensed into the following bullet points:

— The continued use of Olympic Javelin trains

— The Olympic Park’s staging of four Sport Relief events

— A concert at the same venue by Chigwell Popchoir

With all due respect to the choristers of Essex, such a modest list of accomplishments scarcely chimes with the inspirational tone of Lord Coe’s speech to the International Olympic Committee in Sentosa, a holiday

island off Singapore, in July 2005. Nor does it reflect the euphoria that was unleashed when, a few hours later and in front of a global audience, IOC president Jacques Rogge tore open an envelope, removed a small slip of paper and declared simply: “London.”

By common consent, what swung the IOC’s members on that remarkable day was Britain’s determination to be different. IOC custom dictates that would-be host cities focus their bids almost exclusively on infrastructure — stadia, transport links, urban transformation and so on. Coe and his team covered the economic angle but chose to place much more emphasis on the personal, the individual, the human. “Choose London today,” Coe told the panel, “and you send a clear message to the youth of

“Uniquely, Britain set itself apart with an additional vow: to restore sport to the young.”

Goodbye, world — hello, West Ham

The London Olympics closed with a ceremony that featured 41,000 performers and reportedly cost £20 million. The global audience was estimated at 750 million.

Although in large part a celebration of the history of British music, the event featured speeches from IOC president Jacques Rogge and Lord Coe. Rogge described the Games as “happy and glorious”. Coe, appointed “Olympic legacy ambassador” on the same day, said London had “lit up the world”.

In March the following year, following a protracted bidding process, a proposal from West Ham United FC was judged to offer the best prospects for the Olympic Stadium’s future use. The club was awarded a 99-year lease. “If we ever have a chance to get our great club back on the path to glory,” said World Cup hero Sir Geoff Hurst, who made 499 appearances for the Hammers, “this is it.”

Image: View Pictures/Rex/Shutterstock


A golden legacy?


A golden legacy?


A golden legacy?

the studies is to favour the hosting of the Games.”

Another recurring theme is the ephemeral nature of any increase in economic activity. As the sole bidder for the 1984 Games following the loss-making travails of Montreal in 1976 and Moscow in 1980, Los Angeles arguably enjoyed more bargaining power and freedom than any host before or since; yet still the resulting legacy was only fleeting, with a 2002 study noting: “There is no economic residue that can be identified once the Games left town.”

Often it is not even necessary to search for answers in august journals: the evidence is in plain sight. The scenes in Athens and in Sarajevo, which hosted the Winter Games of 1984, are particularly bleak. In Beijing, where China lavished $40 billion on London 2012’s predecessor, only the Bird’s Nest stadium and the Water Cube have been spared ruin.

London’s Queen Elizabeth Olympic Park is a long way removed from such profligacy. In 2005 the site was largely a wasteland in a neglected corner of the East End; now it is a

spectacular, thriving and practical example of regeneration.

It was built with the future in mind. Some structures were temporary; others were designed for rapid refurbishment in anticipation of serving as public sports facilities, offices and housing. It is now home to the Lee Valley VeloPark, the multipurpose Copper Box Arena, the London Aquatics Centre and, of course, the Olympic Stadium — which from later this year will become West Ham United FC’s new ground.

With the Olympic Village already converted into apartments, some 7,000 properties are due to be built. The International Quarter will soon count the Financial Conduct Authority and Transport for London among its tenants. The Olympicopolis, centred on

the world: ‘More than ever, the Olympic Games are for you.’”

This eloquent entreaty was undoubtedly decisive in delivering one of the most improbable triumphs in the country’s sporting history, yet it also heaped expectation upon expectation. In recent decades every host nation has promised lasting benefits in terms of investment, trade and regeneration. Uniquely, Britain set itself apart with an additional vow: to restore sport to the young.

……………………………………………………………

Many scholars have sought to analyse the long-term economic benefits of hosting what are known in academic circles as “mega-events”. What is clear from the literature is that genuine success stories are few and far between.

One common finding is that would-be host cities’ boasts are rarely matched by reality, with official projections frequently exposed as woefully optimistic and even disingenuous. As tourism researcher Dr Evangelia Kasimati cautioned ahead of the financially disastrous 2004 Athens Olympics, which some commentators have cited as a major contributor to Greece’s economic decline: “Most [estimates] could be considered potentially biased, because the ambition of those commissioning

“Would-be host cities’ boasts are rarely matched by reality, with official projections frequently exposed as woefully optimistic and even disingenuous.”

Right and below: Many Olympic venues have not stood the test of time. In Sarajevo, which hosted the Winter Games of 1984, the bobsled track was used as an artillery position during the Bosnian War. In Athens, home of the 2004 Games, the open-air training pool has been filled with rubbish.

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A golden legacy?

Above: The derelict Hackney Wick Stadium once stood on the current Olympic Park site. London Mayor Boris Johnson and Karren Brady, vice-chairman of West Ham United FC.

“For now the positive effects of a triumph made possible by an impassioned plea to inspire a love of sport can be measured only in terms of wealth and not in terms of health.”

culture and education, is due to open in 2019, with spaces for the V&A Museum, Sadler’s Wells and the University of the Arts. Nearby Stratford is now second only to King’s Cross in terms of transport links, with two Underground lines and, sure enough, the high-speed Javelin trains that even Wikipedia saw fit to acknowledge.

Coe had maintained from the outset that Britain’s Games-related bill of £9 billion — a sum that appears commendably frugal in light of Beijing’s extravagance and the $50 billion lavished on the 2014 Winter Olympics in Sochi, Russia — would not be wasted. In 2013 Boris Johnson, the Mayor of London, went even further, claiming: “London is succeeding where virtually no Olympic city has succeeded before.”

These pronouncements are at present difficult to refute. This element of London 2012’s legacy, for now at least, seems intact. Unfortunately, there is less reason to believe that the pledge widely credited with securing the Games in the first place has been similarly fulfilled.

……………………………………………………………

One of the most striking inquiries into the alleged benefits of “mega-events” was written by Stefan Szymanski, a professor of sport management at the

University of Michigan. Entitled About Winning: The Political Economy of Awarding the World Cup and the Olympic Games, it echoed Coe’s grass-roots sentiments by concluding: “Organisations such as the IOC and FIFA could better serve their constituents by diverting competition away from lavish promotion of facilities and towards goals that would raise participation in sport.”

The article was published in 2011, six years after Coe’s pivotal appeal to the IOC. It is satisfying to think London’s bid presaged academia’s demand for a radical new approach based on an understanding that economic masterplans seldom come to fruition; yet the irony, as Coe has discovered, is that non-economic dreams can be equally tricky to realise.

When he was appointed the government’s “Olympic legacy ambassador” on August 12 2012, the last day of the Games, Coe inherited a challenging situation. With £162 million of ring-fenced funding for sports

partnerships scrapped and the Department for Education squabbling with head teachers over spending, provision of sport in schools was patchy. A frustrated Coe threatened to quit his role after less than a year.

He carried on, but the necessary momentum was fading. In July 2013 the Commons Education Committee described post-Olympics school sport as “on life-support”. Many projects went ahead only with backing from the National Lottery. Several targets were quietly dropped. Coe lamented that the issue had become “tribal” and later conceded: “That’s probably the only thing we didn’t deliver in the same spirit that everything else was delivered.”

A 2015 Youth Trust survey of 1,329 primary schools confirmed as much, showing a fall in children’s involvement in sport since 2009. Other research has since reported fewer people engaging in at least half an hour’s exercise each week, especially among the lowest socioeconomic

groups, and the continued rise of childhood obesity.

……………………………………………………………

In 2013 David Cameron wrote that the legacy of the London Olympics should “last a lifetime”. This choice of phrase might well reveal a politician’s uncanny knack for expert bet-hedging, for the fact is that nothing lasts forever.

As “mega-event” researchers repeatedly stress, there are numerous “intangibles”. Olympic Park’s glory may eventually fade; equally, sport could yet be restored to the young. There is still time.

For now it is certainly disappointing that the positive effects of a triumph made possible by an impassioned plea to inspire a love of sport can be measured only in terms of wealth and not, as was so memorably proposed 11 years ago, in terms of health. All things considered, though, that Wikipedia page is surely a joke. It remains to be seen whether Lord Coe will have the last laugh.

Rarely has the validity of behavioural finance been more evident than in today’s capital markets. For many years,

business school academics espoused the Efficient Market Hypothesis, under which investors always act rationally and asset prices reflect all available information while following a ‘random walk’, meaning they react instantly to new 'news' and cannot be predicted. Latterly this has been challenged and it appears there might be more to economic decisions than rational reasoning.

Consider the yield on Swiss government bonds, which for the first time in history is less than zero, meaning people are paying the Swiss National Bank to give them back less than they deposit; or the shares of Twitter, the social media company, which prior to suffering a fall of more than 70%, changed hands for more than 100 times the company’s earnings. From such extraordinary phenomena, it is clear that we do not live in a precise, rational world. Psychology holds the answer. This article uses recent examples of financial

events to reveal repeated patterns of irrationality, inconsistency and bias in human decision-making.

Lies, damned lies, and statistics lead to much misunderstanding in financial markets. To make sense of the world, we seek precision using mathematics. This works much of the time but it can lead to excessive confidence, with devastating consequences. Mathematical models are just that: they help explain reality and provide examples of potential future realities. However they are not reality and to consider them as such can lead to catastrophe.

Long Term Capital Management (LTCM) was the pinnacle of mathematical modelling. Founded in 1994 by John Meriwether, a highly successful trader, LTCM was an investment fund managed by the best in the business. Six of its partners had PhDs from the Massachusetts Institute of Technology while two, Robert Merton and Myron Scholes, were professors of finance at Harvard and Stanford universities respectively. They got off to a flying start, generating returns after fees of 21% in the first year, 43% in the second, 41% in the third and 27% in 1997, the year Merton received the Nobel Memorial Prize in Economic Sciences for his earlier work on how to price derivatives.

As LTCM’s confidence grew, so did its bets. Forgetting that human behaviour is neither

“ Mathematical models help us to explain reality. However, they are not reality — and to consider them as such can lead to catastrophe.”

Art, not science


“ We now seem to experience ‘once-in-a-lifetime’ crises every three or four years. Black swans have been breeding.” Im

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entirely consistent nor predictable, and therefore unreliably modelled, the partners at LTCM were flabbergasted when in 1998 the fund lost $4.6 billion in less than four months. The Federal Reserve had to intervene to avoid a collapse of the financial system, ultimately leading to the dissolution of the firm. There is no better example of the limitations of mathematical modelling.

Within a decade investors had forgotten these limitations. They started to rely again on the forecasts of financial models, this time to make big bets on the US housing market. The fundamental problem with mathematical models is the concept of a ‘normal’ environment. Under assumptions of normality embedded in modern portfolio theory, it was assumed that over the course of a career one would observe at most a single one-day market fall in excess of ‘four standard deviations’ or ‘four sigma’ — a statistical term which describes the degree of variation in a set of values. Statistically the frequency of a four

Understanding behavioural biases in financial marketsFew would dispute that a grounding in economics is a vital weapon in any professional investor’s arsenal, but evidence increasingly suggests an understanding of psychology could be just as or even more important. Recent financial events reveal repeated patterns of irrationality, inconsistency and incompetence in human decision-making.

James Maltin, Investment Director, Rathbones

Art, not science


“ The job of the professional investor is to strike a balance between being nervous over losing money and being anxious about missing opportunities.”

sigma event was once every 63 years, a five sigma event once every 7,000 years, six sigma once every two million years, and a seven sigma event once every 1.5 billion years.

All well in theory. In 1998 it took four months to obliterate LTCM. In 2008, four months were all it took to rewrite the history of stock market volatility: from the end of August to the beginning of December, the stock market experienced 10 one-day market falls exceeding four standard deviations, including one six sigma and two seven sigma events. We now seem to experience ‘once-in-a-lifetime’ crises every three or four years. Black swans have been breeding.

We all fall into the trap of looking at something in a particular way. Then something happens and we view the same thing very differently, and may struggle to see it how we saw it before. This is the reason why financial markets function: if everyone thought alike there would be no transactions, for no one would sell the shares one wants or buy those one chooses to sell. Greed, fear, and confidence play their part, and this is where the inefficiencies lie. To quote Warren Buffett, “I’d be a bum on the street with a tin cup if the markets were always efficient.”

Generally we give far too much weight to previous experience and extrapolate recent trends that are at odds with long-run averages. We tend to become more optimistic when the market goes up and may grow despondent when it goes down. We often see order where it does not exist and attribute accidental success to personal skill. We are overconfident in our abilities. We all like to think we can beat the market just as most of us consider ourselves better than the average driver. Statistically this is simply not possible. People tend to remember their successes but ignore their failures, leading to unjustifiable increases in confidence. When buying a share you have to believe you are smarter than the person selling it and vice versa.

Cognitive illusions, like optical illusions, lead to false conclusions. We use

representativeness to identify people and situations based on similarity to prior experiences when in reality they may be quite different. We have a misconception of randomness, instinctively seeking patterns in information where none may exist. We rely too heavily on the first piece of information when making decisions, which anchors our interpretation of future data. And we succumb to a herd mentality. Once the majority of market participants share the same view, and therefore sit on the same side of a trade, the

price will often move in the opposite direction, simply due to the law of supply and demand: if there are no more buyers, what will drive the price higher?

Fear is a major psychological characteristic of the short-term trading herd and when it takes over, investors make the most irrational decisions. This is Prospect Theory in action: because we are more distressed by prospective losses than we are happy about equivalent gains, we take more risk to avoid losses than we do to realise profits. Such behavioural biases are the prime cause of speculative investment bubbles. Investors follow the crowd and conventional wisdom to avoid the possibility of a regrettable decision, for it is much easier to buy a popular stock that falls in price than to be wrong and alone. Psychology moves markets and it is risky to be a contrarian. As Keynes wrote, “worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally”.

The job of the professional investor is to strike a balance between being nervous over losing money and being anxious about missing opportunities. While a degree in economics may be helpful, an understanding of investor psychology is essential. We need to know how to take the temperature of the market, which as Benjamin Graham explained in The Intelligent Investor (1949), is not a fundamental analyst but a barometer of investor sentiment.

Market participants may have limited insight into fundamentals and any intelligence that could be behind their buy and sell decisions is clouded by emotions. The rate of change in economic fundamentals does not equal the pace of change in market prices. This is why the market can move 5% in a single trading day. This is indicative not of scientific evaluation, but of selective perception and skewed interpretation. Sometimes investors take note of only positive news, ignoring the negative headlines, while at other times the opposite is true. Rarely are our collective perceptions and interpretations balanced and neutral.

The world today may seem more uncertain than ever. In such an environment, one must remain cognisant of emotions and their role in creating biases in financial markets, aware that notions of market efficiency — the idea that assets are correctly priced — are based on investor rationality and objectivity, traits rarely observed in real life.

The power of ISAs


The power of ISAsIt is wise to be aware of the fast-changing ISA landscape and how it is transforming the way we save for and spend in retirement. Most of the innovations in the sector are to be welcomed, but are some of the more recent too far removed from the simplicity that made their predecessors so attractive?

Matt Hawkins, Financial Planner, Rathbone Investment Management

Individual Savings Accounts (ISAs) have developed significantly in recent years as successive Chancellors of the Exchequer

have increasingly seen the product as a way to help the pensions crisis. As a result, ISAs have become essential to financial planning.

The first ‘ISA millionaires’ emerged recently — that is to say, investors who have managed, through regular saving, patience and good fortune, to amass over £1 million in tax-free savings. They have been accumulated by making full use of the annual allowances and reinvesting the income to benefit from the effect of compounding.

With recent increases in the annual subscription limit, such sums will be far more common in future. In 2009, Alistair Darling increased the annual ISA limit significantly and this has since been increased further to £15,240 for the current tax year. In the recent Budget, George Osborne announced the allowance would rise to £20,000 for 2017/18 — £40,000 for a couple.

ISAs were first introduced in April 1999 to replace Personal Equity Plans (PEPs) and Tax-Exempt Special Savings Accounts (TESSAs). Initially, there were just two basic types — either stocks and shares or cash ISAs, which were similar to the products they replaced. In recent years, various restrictions

have been removed from ISAs to make them even more appealing. A surviving spouse can now ‘inherit’ a deceased spouse’s ISAs and with flexible ISAs money can be withdrawn from and repaid to an ISA within the same tax year.

Similarly, the range of investments that can be held in an ISA has widened significantly. As well as UK shares, investors can now select bonds or international equities. ‘Help to Buy ISAs’ for first time buyers have been created, although these are more like cash ISAs. From this April, ‘innovative finance ISAs’ are now available, which make it possible to use ISAs for peer-to-peer lending investments.

Rathbones watches these developments closely and offers those products that we feel are beneficial to our clients. In general, we are very supportive of the development of ISAs — they have proved highly effective

at increasing saving rates and, until now, they have been relatively simple and straightforward.

We have concerns, however, about innovative finance ISAs. While the returns can appear attractive, peer-to-peer lending may involve higher risk than might be apparent to a non-specialist. The sector has not yet been through a testing downturn, so claims about zero default rates should be taken with a pinch of salt. At a time when the regulator is rightly concerned about the suitability of investments for a client’s attitude to risk and capacity for loss, pushing ISAs into higher risk areas may be counter-productive.

It is also helpful to know how to use ISAs most effectively. Whereas it used to be better to spend your pension and keep savings for a rainy day, it may now be better to spend your ISAs before dipping into your pension. Following recent changes, money purchase pensions do not form part of your estate and, in certain circumstances, can now be inherited tax free.

It is of course crucial to get advice before making such decisions as each client’s personal situation is different. The broad point, however, is that the pensions and ISAs landscape is continually shifting and investors should ensure that they are saving and/or spending in the most tax-efficient way.

“ In general, we are very supportive of the development of ISAs. We have concerns, however, about innovative finance ISAs.”

The power of ISAs


Type of ISA Subscription permitted in 2016/17 tax year

Subscription permitted in 2017/18 tax year

Offered by Rathbones

Can be transferred into

Notes

Stocks and shares ISA £15,240 £20,000 Yes* Cash ISA £20,000 will be limit for all ISA types.

Cash ISA £15,240 £20,000 No Stocks and shares ISA £20,000 will be limit for all ISA types.

Flexible ISA £15,240 £20,000 Yes Stocks and shares or cash ISA

Introduced in 2016, flexible stocks and shares or cash ISAs allow withdrawals to be replaced in the same tax year.

Junior ISA £4,080 £4,080 Yes "Full" ISA at age 18 For child under 18.

Child Trust Fund £4,080 (for existing a/cs) £4,080 (for existing a/cs) No Junior ISA No new accounts can be opened (only Junior ISAs can now be started for children) but you can top up an existing CTF.

Help to Buy ISA £200 per month (+ initial deposit of £1,200)

£200 per month (+ initial deposit of £1,200)

No Lifetime ISA from April 2017 to April 2018

Potential 25% government bonus. New accounts not allowed after 2019**.

Lifetime ISA n/a £4,000 Yes — from April 2017

Any subscriptions are part of £20,000 limit. Government pays 25% bonus if saving for 1st time property or until aged 60. Aged 18 to 40 when you start.

Additional Personal Subscription

Value of previous ISA Value of previous ISA Yes ISA of deceased client's spouse or civil partner

The additional subscription allows a surviving spouse to 'inherit' the value of their partner's ISA into their own ISA.

Innovative finance ISA £15,240 £20,000 No Other ISA types For investment in peer-to-peer loans. Potentially higher risk. No protection from Financial Services Compensation Scheme.

N.B. It is possible to have multiple ISAs up to the annual personal subscription limit.

* Rathbones ISAs are now flexible, except Junior ISAs.** A non-Rathbones Help to Buy ISA can be transferred in to merge with a Rathbones Lifetime ISA.

“ We have not quite reached the stage of overt currency wars, but we are well into the ‘phoney war’ stage.”

Making sense of the marketsIn an age of quantitative easing, negative interest rates, low oil prices and limited spending, many investors could be forgiven for finding the global economy increasingly difficult to understand. We look at some of the driving forces and consider how best to respond to a frequently puzzling picture.

John Nugée, Laburnum Consulting

developing nations and between oil exporters and oil consumers. In the 1970s 80% of world GDP was accounted for by the West — in other words, developed and mostly oil-importing countries — so a rapid rise in the oil price was unequivocally bad news for world consumption and GDP growth. Now developing and emerging economies, including oil exporters, have a much larger share of world GDP — by some measures over 50% — and a fall in the oil price creates real difficulties in places like Saudi Arabia, Brazil, Nigeria, Russia and other countries that comprise a far more significant share of the world economy than they did 40 years ago. Forced sales from the sovereign funds of oil-rich countries have been among the main causes of stock-market weakness since the peaks of April 2015, and there is little sign of this selling easing off.

Another major difference between this and earlier periods of oil-price weakness is that consumers may have been benefiting at the pumps but have hardly been rushing out to spend their gains. Levels of indebtedness, both public and private, were very high as we entered 2016, and governments and consumers alike appear to be nervous of loosening the purse strings just yet. Austerity remains the watchword, and for most people the emphasis remains on reducing debt and rebuilding personal balance sheets rather than increasing spending.

The start of 2016 was not kind to some investors. Markets fell sharply in January and February and at the time

of writing have not yet fully stabilised. The economic outlook is dominated by talk of slowdowns in China and the developing world and the vulnerability of recoveries in the developed world.

Compounding the general sense of unease is a widespread feeling that the global economy has become not just slower and more fragile but markedly more difficult to understand and make sense of. Consider, for example, one of the key features of markets at the start of the year: the weakness in the price of oil, which led to weakness in equity markets, which in turn fed back to renewed weakness in oil.

For anyone who remembers oil price rises of the past — not least during the miserable decade of the 1970s, when OPEC, the oil exporters’ cartel, inflicted so much pain on Western consumer societies — this is bizarre. If a rise in the oil price is bad news for consumers, which in general it is, then surely a rapid fall in the oil price should be good news and positive for the economy as we all rush off to the shops to spend the money we have saved at the pumps.

The first reason why this is not necessarily so is that the global economy is now much more balanced between developed and

And so, with China and the developing world slowing down, oil producers feeling the pinch and consumers in the developed world unwilling to pick up the slack and spend, the global economy faces an overall deficit of demand. Along with sales of assets from oil-exporting countries’ sovereign wealth funds, this is for many commentators the main underlying cause of the current market weakness.

The response of more and more central banks is to rely on unorthodox policies. Both the Bank of Japan and the European Central Bank (ECB) have increased their quantitative easing, and negative official interest rates are now in place in a growing number of economies — the latter phenomenon itself another of those “markedly more difficult to understand and make sense of” events mentioned earlier. Such moves are put forward as “supporting economies” and “encouraging demand”, but the reality is rather simpler: they are part of a widespread — though so far mostly covert — drive towards lower exchange rates.


Making sense of the markets

“ For most people the emphasis remains on reducing debt and rebuilding personal balance sheets rather than increasing spending.”

John Nugée is an independent commentator on financial, economic and political issues (www.laburnum-consulting.co.uk). The major part of his career was spent at the Bank of England, where his last post was as Chief Manager of the Reserves.

We have not quite reached the stage of overt currency wars, in which central banks actively and openly engage in competitive devaluation, but we are well into the “phoney war” stage. There is no doubt that governments and central banks — the ECB, the Bank of Japan and the Bank of England included — are far from unhappy when their currency shows signs of weakness. It is as if policymakers have despaired of actually increasing global demand and global economic activity and have instead decided to concentrate on grabbing for themselves and their economy as large a share of the remaining activity as they can.

What is the prudent long-term investor to make of all this? Perhaps the first observation is that there are good reasons for some of the market nervousness. Central banks’ increasing use of unorthodox policies such as extended quantitative easing and negative interest rates does take the world into uncharted territory, and there are few — if any — historical precedents we can draw on for understanding how economies work in such circumstances and equally few

roadmaps to take us back to more normal levels.

Moreover, central banks have neither the remit nor the power to abolish global slowdowns and recessions. Indeed, some commentators have argued that central banks have been trying too hard to boost economic activity in the past five years: they were right to pull out all the stops in 2009-2010 to avoid a rerun of the Great Depression, but since then they have been taking ever more aggressive (and distorting) measures to achieve ever less success.

Crucially, those who have the patience to bide their time may be able to take advantage of lower prices later in the year. It might be difficult to believe as prices are falling and confidence is thin, but this is when the real bargains can be found!

To take advantage of lower prices, though, investors do need to be able to ride out the storm. As the old market maxim has it:

Optimism means expecting the best.

Realism means accepting that the best may not happen.

Confidence means knowing that you will survive even so.

Generating in clients the confidence that their portfolios will survive market volatility is a key goal for any asset manager. The Rathbones team will undoubtedly have this at the top of their priorities as 2016 continues its uncertain path.


Making sense of the markets


Strings attached

Ronnie Wood and Mick Jagger of the Rolling Stones performing in 1976.

Rock legends are some of the most popular artists in the auction room.Image: Homer Sykes/Corbis

Image: [credit]

Rathbones Review 43

Strings attached

Strings attachedThe deaths earlier this year of rock legends David Bowie, Ian ‘Lemmy’ Kilmister and Glenn Frey sparked renewed interest in pop culture and its long-term investment attractions. Does the guitar market offer the ultimate and most enduring value for would-be buyers of music memorabilia?

Harvey Cammell, Deputy Chairman, UK Board, Bonhams

So what to look for in a guitar at auction? Bonhams never gives specific investment advice, but there are some general tips which the would-be collector should bear in mind.

Artist: An instrument owned by a one-hit-wonder will not attract much attention. Legends of rock, queens of pop, icons of an era — the Beatles, the Rolling Stones, Nirvana, Madonna, Oasis, Abba, Jimi Hendrix — are some of the most popular artists in the auction room.

Ownership: Ideally the guitar will either be currently owned by, once have been owned by, or played on several occasions by the artist. A signature is desirable, but ownership more so — buyers want to feel the frets their idol once thumbed, and take home the instrument their hero adored. The American guitarist and singer/songwriter Joan Jett once said: “My guitar is not a thing. It is an extension of myself. It is who I am.” An auction provides fans with the opportunity to take home a part of their favourite musician’s legacy.

Condition: If the instrument is still playable, it adds to the appeal. The new owner can play their hero’s songs, on their hero’s guitar — not much beats that.

Rarity: If the instrument itself is a limited edition, or perhaps the artist had just one special guitar they used whilst in concert, that will increase its desirability and price.

Cool factor: Was this the guitar used during a particularly momentous occasion in musical history?

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Pop memorabilia is big business. Signatures, posters for concerts, tickets, signed albums, even clothing — all

attract fans and collectors keen to acquire a little rock and roll glamour. One of the most sought-after and desirable items is the celebrity guitar. A sprinkling of stardust can turn even the humblest instrument into a very valuable piece indeed. A used Vincente Tatay Tomas acoustic guitar, for example, will generally fetch around £250. Add to the mix a world famous musician, the fact that it was his first guitar and used on his debut album and it’s a very different story. Chris Martin’s Vincente Tatay Tomas played by him on the recording of Coldplay’s first album, Parachutes, sold at Bonhams last year for £18,750 — that’s an increase of 7,400%.

Although the media often use the terms ‘Rock Gods’ with a touch of irony and even envy, some iconic artists do inspire a loyalty bordering on the religious. Many fans of the older generation of rock stars have grown up idolising them and, in successful middle age, can afford to relive their youth by owning something used by their heroes.

Bonhams has been selling guitars in its entertainment sales for many years now and instruments owned and played by some of the most famous names in rock music — Jerry Garcia, Peter Townshend, Eric Clapton, Mick Jagger — have passed through our hands.

On the whole, electric guitars are more in demand than their acoustic counterparts because they have more sex appeal. The great riffs of rock music are inextricably linked in people’s minds with the sounds of a screaming electric guitar and sometimes the accompanying bad boy — or girl — image.

Collectors follow their passion in a variety of ways. Most will collect guitars and other

memorabilia by one artist or group only. Others will be more eclectic and collect from a particular era or style. Some, of course, collect guitars because they’re important musical instruments.

Others buy to invest, less concerned with sentiment or romance than with generating a return. Glamour is important to them only to the extent that it enhances the value of the guitar. As with any investment, people taking this route need to do their homework carefully, to assess whose popularity will stand the test of time and, if they’re feeling lucky, to try and spot the next Bowie or Jagger. In any market, scarcity counts and the world of Rock Legends is no exception. Anything that ends or restricts the supply — death, of course, or retirement — will have an inevitable effect.

Enthusiasm for rock memorabilia shows no signs of flagging and, while nothing is ever certain, logic suggests it will continue to grow. While the path to rock fame and the nature of the music business have changed dramatically over the decades, stars will continue to emerge and join the ranks of established names whose possessions create such demand in the auction room. Although we may never see another Beatles or the Rolling Stones, today’s names are already attracting the attention of collectors. Ed Sheeran’s ‘Green T’ Fender Stratocaster, used on his X world tour in 2015, was estimated at £4,000-6,000 in Bonhams 10 December 2015 Entertainment Memorabilia Sale. The guitar was among the first pieces of Sheeran memorabilia to come to auction, and sold for £12,500. At 25, Sheeran is already one of the world’s biggest recording stars with a stellar career behind him and a glittering future ahead. The fortunate buyer of the guitar might just have got themself a bargain.

A picture of successSteve Swallow has always had a passion for art, particularly that of the North of England. Now, in part thanks to his investment skills, he is able to indulge it to the full. Here he explains his life as a hedge fund specialist and Lake District gallery owner — and the challenges of showcasing and selling art outside London.

Claire Wrathall, Editor and writer, Art Quarterly and the FT


A picture of success

Not long married, 23 years old and so stretched by their first mortgage that

they couldn’t afford holidays, Steve Swallow and his wife, Christine, used instead to go on day trips around the North of England from their home in the Pennines. One weekend in 1994, prompted by a sign promising bacon sandwiches and tea for £1, they stopped in Uppermill on the edge of Saddleworth Moor, where they happened upon an artist’s studio. Curious, they wandered in, and Swallow had an epiphany.

“I knew nothing about art,” Steve says when we meet at the offices of East Lodge Capital, the London-based hedge fund where he is a partner. “As far I was concerned it was something you bought at IKEA to decorate your home. But I was completely blown away by what I saw.”

The artist was the Oldham-born painter John Thompson (1921-2011), “a chronicler of a world that’s disappeared”, whose subject matter tended to be groups of flat-capped men. “There was one painting in particular that I was mesmerised by.” It was £900. (Today they go for four or five times that.) Sensing Swallow’s enthusiasm, Thompson said he could pay him £200 and owe him the balance until he had the funds. “If he’d said £50, we still couldn’t have afforded it,” says Swallow. “But it completely changed what we viewed as art and what we wanted to own.”

Two decades on, he has not just acquired dozens of works by Thompson (and many other artists besides), but the gallery he has owned and managed since 2012, Castlegate House, now sells the paintings of Thompson. “So it’s come full

circle.” Without that chance encounter he might never have become an art dealer.

Having started work in the mortgage department of a commercial bank, it wasn’t until a job brought him to London in the late 90s that he was in a position to buy art. He would save for six months and buy paintings by Thompson, Geoffrey Key, Theodore Major and other painters associated with the Northern School of mid to late-20th-century British painting — for a few hundred pounds. Then, as his career took off, he began to buy more expensive works: by Winifred Nicholson (1893-1981) and the Royal Academician Sheila Fell (1931-1979). “I became

somewhat obsessed with her,” he says.

The decision to open a gallery came as he turned 40 in 2008, prompted by something his seven-year-old daughter said. “I was stood in the kitchen one evening,” he remembers, his accent proudly northern, “and I said, ‘I’m just going to get some wood out of the garidge.’ And she said, ‘Don’t you mean garaaage, Daddy?’ And I looked at my wife and said, ‘Right, we’re moving back north.’

“I’d been wondering whether I really wanted to do what I was doing. It wasn’t that I could afford to sit back and not work. But I didn’t want to get to 55 or 60 and say, ‘I wish I’d done something

else.’ So I decided to try and create a business on the back of my passion. Not a hobby business; it had to work economically.“

He took his time, did his due diligence and quit his job in 2010, after which “It took a while to get everything sorted, to buy stock, approach artists and find a space.”

The work he deals in is very much an extension of what he collects: modern and contemporary British, mostly figurative painting, as well as studio ceramics, by a range of artists, the best known of whom are arguably John Bellany, John Bratby, Joan Eardley, Mary Fedden, Duncan Grant, David Hockney, Grayson Perry, Barbara Rae, Ruskin Spear and Carel Weight.

He has never yet sold a work he wouldn’t give houseroom to, but he has learned to let go.

“ I knew nothing about art. As far as I was concerned, it was something you bought at IKEA to decorate your home.”

Left: Sheila Fell Maryport I

Far left: John Thompson Group Series



Indeed he vividly remembers the first work he sold, “a brilliant, haunting painting”, The Check Dress by Alistair Grant. “When you buy things for the gallery you know psychologically that you’re going to sell them. Having to pay your bills crystallises the mind somewhat. And actually I got a huge thrill out of selling it. [The buyer] clearly loved it in the same way I did, so I didn’t mind. It was as though I was passing the baton on to someone else.”

Much of what he sells he buys privately. And he has also been proactive in finding up-and-coming artists: Jessica Pigott, for instance, whose work he encountered at her graduate show at Wimbledon College of Arts; and Richard Fitton, who actually approached him, and whose most recent batch of paintings — the oil not yet dry — sold out the day they arrived. About five artists a week, he says, ask to be represented by the gallery; in four years he has taken on three.

But once he commits, he is in for the long haul. “Catalogued exhibitions of recent graduates are absolutely guaranteed to lose us money even if we sell out the show,” he says. “But it’s about looking forward to the next 10 years.”

He is also beginning to represent artists’ estates, notably that of Norman Cornish (1919-2014), the County Durham-born miner who learned to paint at what became known as the Pitman’s Academy, another artist about whose work he has long been passionate and whose reputation he is resolved to take from being “a very highly regarded regional artist to a highly regarded national one”.

As to the space they sell from, they settled on an established gallery in a handsome Georgian townhouse in Cockermouth on the northwestern edge of the Lake District. “Naively,” he admits, he had thought this would mean “a lot of the hard work had been

done”. But art dealing, he soon learned, is a business driven by relationships. The gallery did not bring with it an established client base, merely their names, email and postal addresses. “You don’t inherit a predisposition to spend money with you. That disappears with the previous owner.” The existing clientele was keener to sell what they’d bought from the previous owner back to him than keep buying. “So in a lot of ways it’s been like starting from scratch.”

One solution was to focus on the gallery’s website: investing in its design and navigability, high-quality photography, videos about the artists and search-engine optimisation so “that when someone types in ‘Grayson Perry works for sale’, we’re first on Google.”

The online business is supported by regular exhibitions in London, not least at the London Art Fair, where he had a stand for the first time last January. Four years on about 75 per cent of the gallery’s client base is within commuting distance of the capital, which also partially explains why, since 2013, he’s been “working four days a week” at a City hedge fund. Initially reluctant to go back when he was approached to help set up ELC, he thought “Well, I’m coming down south every other week anyway because so much of our client base is there.”

With work he has sold online, he prefers to deliver it in person because that is how you build relationships. “If I turn up with a painting, and it turns out it isn’t what they wanted after all, then we reverse the transaction.

“ I’m building this business for the next 20 years. It’s about integrity and relationships and trust.”

I’m building this business for the next 20 years. I want people to buy a painting from me every year. It’s about integrity and relationships and trust, and you can’t just make that happen.”

In any case he found he was missing his old life. “When you’re located somewhere like Cockermouth, you can be in the gallery all day and see almost no one. I missed the immediacy of what I’d been doing, and the intellectual side too.”

For the moment, then, he has two jobs. “When I finish here I work until midnight on gallery stuff. And then I’m back in the gallery at weekends to take over from my wife. It’s a seven-day-a-week job.” Could he not hire some staff? “I’m a bit of a control freak. I find it terribly difficult to delegate.” In any case, he loves it. “The only hard bit is that from Monday to Friday my wife and kids are 325 miles north in Cumbria.” But it’s worth all the hours he spends on the road, not least because his daughter, he beams, “now pronounces it garidge”.

Left: Alistair Grant The Check Dress

Bottom: Steve Swallow and his wife, Christine, at their gallery in Cockermouth in the Lake District.



Important information

Unless otherwise stated, the information in this document was valid at 28 June 2016. Not all the services and investments described are authorised or regulated by the Prudential Regulation Authority or the Financial Conduct Authority. Rathbones, Rathbone Unitised Portfolio Service and Rathbone Greenbank Investments are trading names of Rathbone Investment Management Limited, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered office: Port of Liverpool Building, Pier Head, Liverpool L3 1NW. Registered in England No. 01448919.

Rathbone Unit Trust Management Limited is authorised and regulated by the Financial Conduct Authority and is a member of the Investment Association. Registered office: 1 Curzon Street, London, W1J 5FB. Registered in England No. 02376568.

Financial planning and self-invested personal pension (SIPP) services are provided by Rathbone Pension & Advisory Services Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 1 Curzon Street, London, W1J 5FB. Registered in England No. 05679426.

Tax, trust and company administration services are supplied by trust companies in the Rathbone Group. Rathbone Trust Company Limited is authorised and regulated by the Solicitors Regulation Authority. Registered office: 1 Curzon Street, London, W1J 5FB. Registered in England No. 01688454.

All above companies are wholly owned subsidiaries of Rathbone Brothers Plc. Head office: 1 Curzon Street, London, W1J 5FB. Tel +44 (0)20 7399 0000.

Rathbone Brothers Plc is independently owned, is the sole shareholder in each of its subsidiary businesses and is listed on the London Stock Exchange. ‘Independent’ and ‘independence’ refer to the basis of Rathbones’ ownership as a corporate entity, and not to our use of non-life packaged products for clients of our advisory or non-discretionary investment management.

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*Rathbone Investment Management International is the Registered Business Name of Rathbone Investment Management International Limited which is regulated by the Jersey Financial Services Commission. Registered office: 26 Esplanade, St. Helier, Jersey JE1 2RB. Company Registration No. 50503. Rathbone Investment Management International Limited is not authorised or regulated by the Prudential Regulation Authority or the Financial Conduct Authority in the UK. Rathbone Investment Management International Limited is not subject to the provisions of the UK Financial Services and Markets Act 2000 and the Financial Services Act 2012; and, investors entering into investment agreements with Rathbone Investment Management International Limited will not have the protections afforded by those Acts or the rules and regulations made under them, including the UK Financial Services Compensation Scheme. This document is not intended as an offer or solicitation for the purchase or sale of any financial instrument by Rathbone Investment Management International Limited. The information and opinions expressed herein are considered valid at publication, but are subject to change without notice and their accuracy and completeness cannot be guaranteed. No part of this document may be reproduced in any manner without prior permission.

© 2016 Rathbone Brothers Plc.

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