A passerby at St Paul’s today might conclude that chaos still reigns in our capital, and to paraphrase the title of another Smiths song from a quarter of a century back, money really has changed everything. Indeed, a quick scan over the financial pages from yesterday and it was Big Bang’s legacy as a deregulatory force which has come under question.
But for all the talk of heralding a “new era of excess” where ethics are the ultimate “casualty”, let’s not forget that in eliminating old restrictive practices, opening up the UK to international players and generally dishevelling a few ancient bowler hats, the modern fund management industry has thrived.
What difference does it make? Well, one such, ahem, charming man, who worked in the City during the 1980s, Cavendish Asset Management’s Paul Mumford, remembers very clearly how the Thatcher government’s reforms put into place his career change from being a stockbroker at R Nivison to ultimately launching his first unit trust in 1988, Opportunities Fund, which he still runs today.
He explains: “I think it’s been of great benefit as I found that, after Big Bang, instead of doing all the donkey work myself, I could get the brokers to do it for me which had big advantages in as much as you wouldn’t be talking to a company directly, so no inside information. It made life simpler because there was a whole range of different brokers you could talk to and then, as the industry developed, it became more sophisticated and the access to information was a lot better.”
These things take time
Of course, Big Bang also paved the way for various technological advances, the benefits of which cannot be underestimated.
Mumford adds: “When we went over to the computer systems, company news started coming out earlier and 99% of company results are now out between 7:00am and 7:15am. In the old days the results would start trickling out throughout the course of the day. From a fund manager point of view, this change is of huge benefit.
“From 1988 onwards, there were quite a few stockbroker mergers with a number of banks that wanted their own stockbroker subsidiaries and a whole load of takeovers that took place. The old jobbing system became the market maker system with a computer dealing network as opposed to the stock exchange floor, which led to a much more open market.”
However, Mumford is sympathetic to stockbrokers who miss the old way of life: “In some ways it was better because it was a lot more transparent and easier to deal, though people did miss the jobber/stockbroker relationship which was a comfortable way of doing things and there weren’t the wide fluctuations that we have at the moment. There was a certain stability brought into the market by the jobbing system.”
In this vein, greater market freedom since the 1980s has certainly created its own problems (though more recent banking regulations do attempt to address these). Much of the blame for the banking crisis has been squared at hedge funds, fairly or not, and this is something that retail managers must take into account as their own products become more complex, particularly given the rise of Ucits III products and the growth in shorting which is now common place in many investors’ portfolios.
Hand in glove
For his part, Mumford believes that a stricter environment for hedge funds would be the next logical regulatory change to come in, if he were in power.
He concludes: “Hedge funds can still overstep the market even today. When you look back at the banking crisis, people were shorting the likes of Northern Rock, but if the situation had arisen back in the old stock broking days, I think there might have been a chance that Northern Rock would not have gone belly up because, on the one hand, you wouldn’t have had the hedge funds shorting it and, on the other hand, the problem would have probably been sorted out in a smoke filled room. The disclosure rules were not as strong as they are today and things happened more behind the scenes.”
Stop me if you’ve heard this one before (yes, I know!), but given what we’ve been through in the past three years, I doubt very much there are many who would want to go back to that shady gentlemen’s club setting of yesteryear, bowler hats, briefcases, brollys et al.
