FTwealth

WEST BANK AMBITIONS PROPERTY DEVELOPER BASHAR MASRI CALLS FOR WEALTHY PALESTINIAN EMIGRES TO INVEST IN THE TERRITORY’S FUTURE

BY JOHN REED

CORPORATE ART SALES BILL BROWDER JAGUAR FTYPE INVESTMENT FOCUS ON EUROPE

WWW.FT.COMWEALTH AUTUMN 2013

Ft WEALtH Autumn 2013 this could be boom time for“ au“ction houses as companies downsize their collections

covEr pHotogrApH Status quo shake-up by AHikAm sEri

Special reports editor Michael Skapinker Editor Hugo Greenhalgh Deputy editor Rohit Jaggi Production editor George Kyriakos Art director Sheila Jack Picture editors Michael Crabtree, John Wellings Sub-editors Philip Parrish, Jearelle Wolhuter Illustrator Nick Lowndes Commercial director, Emea Dominic Good Advertising Ceri Williams, Rachel Padhiar Publishing systems manager Andrea Frias-Andrade Advertising production Daniel Lesar

contributors

Daniel Ben-Ami is a freelance journalist and writer Emma Jacobs writes for the FT’s Business Life page Rohit Jaggi is the FT’s aircraft, car and motorcycle columnist Gaza and the West Bank are often thought of as no more than war Ellen Kelleher is a reporter for FTfm zones. John Reed’s article on the development of the West Bank may James Mackintosh is the FT’s investment editor Jonathan Margolis is a contributing editor of change this perception. How To Spend It Palestinian Bashar Masri is a property developer and a man keen to Madison Marriage is a reporter on FTfm encourage émigrés to invest in their homeland. An admirable mission, Jonathan Moules is the FT’s enterprise but, as Reed explores, one fraught with problems. correspondent Bill Browder is also attempting to shake up the status quo, but this Sarah Murray is a freelance journalist Feargus O’Sullivan is a freelance journalist time his target is no less than Vladimir Putin, the Russian president. and writer Browder, formerly one of the largest foreign investors into the country, John Reed is the FT’s Jerusalem correspondent has gone from friend to foe – and, as Daniel Ben-Ami writes, is urging Sridhar Venkatapuram is a lecturer in global governments around the world to do the same. health and philosophy at King’s College, London Matthew Vincent is the FT’s personal Corporate art collections are facing a different set of pressures as finance editor companies experience falling profits. As Madison Marriage explains, Lucy Warwick-Ching is the FT’s online this could be boom time for the auction houses, as companies seek to Money editor downsize their collections in tune with these more austere times. As always we welcome your comments on these and other stories. Please get in touch.

Hugo Greenhalgh, Editor [email protected]

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urope is finally showing expected reduction in the Us’s quanti- Reports may have been exaggerated signs of recovery, prompt- tative easing programme. 28% about the death of European equity ing analysts to suggest now But there are many unresolved issues of all France’s markets, which, despite widespread is the time for investors to within Europe. European banks are still foreign-owned gloom associated with the sovereign buy into this “cheap” mar- believed to have large amounts of bad second homes debt crisis, have posted significant ket in the hope of generat- debt to write down, which means any are British owned gains over the past year. Eing high returns. recovery is likely to be slow. A sustained A combination of factors have con- the eurozone economy grew 0.3 recovery will need growth to return SoURCE tributed, not least European Central per cent in the second quarter of across the region, not just to Germany. AyLESFoRD Bank president Mario Draghi’s speech 2013, driven by an expansion in the But investors should not ignore InTERnATIonAL assuaging the redenomination fears German economy of 0.7 per cent – Europe. there is a difference between the that had stalked European markets. its fastest rate of growth for more health of the economy and the region’s there is growing evidence the periph- than a year. stock markets. Investors should be more eral economies have been undertaking the news spurred a rally in Euro- stock specific and look for strong global fiscal adjustment and structural reform pean stock markets, as investors brands that are financially robust and in with genuine focus. the periphery is sought an alternative to emerging a position to benefit from growth any- now running a current account surplus, market assets thought vulnerable to an where in the world as well as at home. while labour market reform means spain in particular is gaining inward investment attracted by lower labour costs, excellent infrastructure, an edu- cated workforce and excess capacity. Meanwhile, the eurozone as a whole has moved out of recession. But perhaps the single most impor- tant factor behind equity performance has been valuation. Draghi’s speech moved the focus away from the binary debate on eurozone survival, allowing a reassessment of the valuation oppor- tunities the crisis created. that Europe is in a low-growth environment is not in doubt, but the equity valuations of 2012 meant even a “less bad” scenario 26.3% provided significant upside. there is likely to be a slow work- uNeMpLoYMeNt through of the problems built up over rate iN spaiN the excess years – no V-shaped recov- eries here. But Europe is not likely to SoURCE: SpAnISh nATIonAL go back to the cliff edge and, as such, STATISTICS InSTITUTE valuation should be the main focus. The writer is a European equities fund manager at Invesco Perpetual W

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Photos: charlie bibby peace dividends A $4bn economic plAn for The wesT bAnk would Add To The rich opporTuniTies for reTurning exiles

BY john reed photographs BY ahikam seri Long view: Bashar Masri, who is building the new city of Rawabi, is urging his compatriots to invest more in the territory many ordinary Palestinians see the rich as oPPortunistic, self-serving and corruPt

Bashar Masri has a proposal for rich – and even modestly wealthy – Palestinians living in exile, away from the sorrows and risks of the conflict with Israel: come home right away, and bring money. “My request of all Palestinians who have assets of more than $500,000 is that they invest here,” he says. “If 50 per cent of them come to Palestine with 5 per cent of their money, that would be tens of billions of dollars.” Masri, a slim, slight 51-year-old, is speaking to me at his site office at Rawabi, a vast planned Palestinian city of Herculean – or, say critics, Ozymandian – character rising on vast stone terraces carved out of a West Bank hilltop. Bayti (“My Home”), Masri’s property company, won backing from the Qatari sovereign wealth fund’s real estate arm for the $1bn project, which will house 25,000 people when complete and which the developer describes as the largest private-sector undertaking in Palestinian economic history. When I first visited Rawabi in March, the entrance was isolation have accused him of “normalisation”, a grievous a precarious gravel track; now there is a well-signposted charge, because of his occasional dealings with Israeli paved road. In the centre of one is a monument featur- businessmen and institutions. ing a meteorite-type stone piercing the earth, from which Masri was criticised for taking some of the inspiration water and plants rise, symbolising the new life pulled from for Rawabi from Modi’in, a new Israeli town on the Green the unpromising soil of the Israeli-occupied West Bank. Line abutting a West Bank Jewish settlement. Notwith- From the slick 3D film at Rawabi’s visitors’ centre to standing Masri’s design injunctions to ensure Rawabi’s its neat high-rises built from honey-coloured stone, the dwellings do not look like settler houses, many Palestin- planned city is promising middle-class Palestinians a ians think he failed in this. quiet, normal life under their own roof. Below Masri’s He was castigated for accepting trees from the Jewish site office, three schools are rising; higher, a spacious National Fund, a Zionist group activists say is using for- municipal plaza inspired by Beirut’s is being built. estation projects to displace Palestinian Bedouins further But Masri, I discover, has taken considerable grief south in the Negev. “It was a major mistake,” he says, but from his fellow Palestinians for Rawabi. Some accuse adds: “You cannot do business without Israel. All the him of profiteering by building expensive bourgeois people who are anti-normalisation are normalisers them- palaces. Activists in the Boycott, Divestment, Sanctions selves: the cement comes through Israel; the electricity is (BDS) movement that advocates Israel’s total economic all Israeli. Who decides what comes from Israel?”

14 |ft.com/wealth structure and shopping malls. If peace does draw closer, rich Palestinians like Masri will play a leading role. But the controversy surrounding money and wealth in Palestine, which goes well beyond Masri and Rawabi, will not go away. Many ordinary Palestinians persist in seeing the rich as opportunistic, self-serving and corrupt: coddled figures feeding off the monopoly rents offered by the occupation and the political dominance of the PA. Masri is dismissive, even angry at the critics’ claims. “It is nasty to criticise the few Palestinians who came in and he criticism clearly hurts risked their money to create jobs in Palestine, to criticise Masri, who, like quite a few them as monopolisers,” he says in even but firm tones. other Palestinians his age, “We should encourage them to come in and invest.” spent his teenage years in The first thing to know about rich Palestinians is that and out of Israeli administra- the ones you may have heard of – businessmen like Masri tive detention for his political active in the West Bank – are a small minority. Most live activities before heading to the in the diaspora and keep lower media profiles – some in US, where his physician father Jordan or the Gulf and others much further away, includ- lived, to study at Virginia ing the US and Chile. Consolidated Contractors Com- Tech. Nor is the political flak pany, a global construction firm founded by an exile from Tnecessarily the project’s biggest the Galilee town of Safed and thought to be the biggest problem. Masri has also fought Israeli officials, so far in Palestinian-owned company, is headquartered in Athens. vain, to obtain planning permission for a bigger road into Some of the exiles returned home in the early 1990s Rawabi. The Israeli sign-off is needed as the proposed after the signing of the Oslo agreement, when Yasser road runs through Area C, the part of the West Bank Arafat’s Palestine Liberation Organisation returned from under direct Israeli control. Nor has Israel yet agreed to exile and formed the PA’s state apparatus, still waiting for supply water to the project. Because it is in short supply, a state two decades later in Ramallah. construction is being delayed and flats may not be ready Masri was one of these. He founded his company for its first 600 residents on schedule early next year. Massar (“path” in Arabic) in 1994 – its interests include Building blocks: Because of the financial crisis in the Palestinian real estate, financial services and consulting – and business continues in Authority (PA), the West Bank’s biggest employer, Rawabi founded Al-Ayyam, a daily newspaper, which today is the Ramallah, opposite has had to cut prices for its flats. The lower income, second-largest in Palestine. “I had thought I was one of and above, while added to the project’s other delays, means a business plan thousands of Palestinans who were coming back for busi- construction in Rawabi, designed to be solidly profitable will barely break even. ness,” he says. “After a year it sunk in I was one of fewer top, is facing delays In this context, Masri says, claims that he is a profi- than 100 who did. To me that was shocking and still is.” because of struggles with teering capitalist are risible. “If trends continue this way, The exiles who returned did so largely via conglomer- Israeli officaldom it will be a losing project,” he says. ates created to concentrate Palestinian economic influ- Masri’s struggles come at a pivotal time as Israelis and ence and develop the country, notably Padico – chaired Palestinians sit down for renewed peace negotiations. In by Masri’s cousin Munib, the group’s largest shareholder parallel with the talks, US secretary of state John Kerry – and the Arab Palestinian Investment Company. Arafat has enlisted Tony Blair, the Middle East Quartet’s repre- even spoke approvingly of the role that could be played sentative in Jerusalem, to draw up a $4bn economic plan by a “patriotic” capitalist class. for the West Bank and Gaza Strip that would see many Probably the best known returnee was Munib Masri, more grand projects like Rawabi built with private-sector who lives in a vast mansion above Nablus. He styles him- backing, from sewage treatment plants to tourist infra- self as a power-broker in business and politics, and ➤

ft.com/wealth|15 “The PalesTinian PrivaTe secTor The last meeting, it would later emerge, was part of Breaking the Impasse, a joint initiative by top Palestinian has been given a free ride, and and Israeli businessmen, including Munib Masri, aimed ThaT hasn’T been good for The at prodding the region’s leaders to forge peace. The initiative was announced with great pomp at the World PalesTinian consumer” Economic Forum conference in May in Jordan. There, with Kerry and Blair, Israeli president Shimon Peres and played an important role in securing the appointment PA president Mahmoud Abbas listening, Munib took the of the PA’s current prime minister, Rami Hamdallah, stage with Yossi Vardi, an Israeli high-tech entrepreneur. a fellow nabulsi. (A third Masri cousin, Sabih, chair- “Enough is enough!” Vardi all but shouted at hun- man of the Paltel telecoms group and Arab Bank, keeps dreds of participants at the conference. “They called us a lower media profile but is thought to be the richest a silent majority,” Munib Masri said less loudly but with Palestinian of all.) equal emphasis. “We are not going to be silent anymore.” Until recently, the rich returnees were given a fairly smooth ride by Palestinian public opinion because popu- peaking to me beforehand, Munib lar resentment on the street focused mainly on the Israeli Masri took pains to say the initiative, occupiers or the corruption-prone PA. But over the past whose members met Israeli prime year, the same eat-the-rich spirit animating Occupy minister Benjamin Netanyahu, was Wall Street and the backlash against tycoons in Israel not “normalisation” with Israel, nor has reverberated against the wealthy in the West Bank meant to replace the peace process. too. “There is an anti-private-sector feeling,” says Kamel Just as business played a role in Husseini, who runs a Ramallah public relations firm and South Africa’s final apartheid years belongs to east Jerusalem’s best-known land-owning in leading the change of regime, he family. “People want more social investments and jobs.” said, Palestinian and Israeli busi- The harshest critics accuse the rich of effectively prof- Snesspeople could do the same now. iting from the occupation, claiming they benefit from the But back in Ramallah, Breaking the Impasse was PA’s good graces or do business with Israeli companies panned by the Palestinian commentariat, where many that are deeply embedded in the Palestinian economy via critics conflated it with the Blair/Kerry plan, which they local distributors. They reject claims made by those such said could not work under conditions of occupation. as the Masri cousins that they are patriots building the “The Kerry plan is smoke and mirrors to get people infrastructure of a new country, and describe economic back to the negotiating table,” says Bahour. “We don’t have self-reliance as a myth in a territory where Israel controls the capacity to absorb $4bn of investment – that’s more everything from radio frequencies to the movement of than half of the gross domestic product, and it’s a black box.” people and power and water supplies. Bashar Masri says he meant well but others say he “The Palestinian private sector has been given a free miscalculated in some ways, including by meeting Rami ride, and that hasn’t been good for the Palestinian con- Levy, an Israeli supermarket magnate with extensive sumer, whether it’s in pricing, the variety of products or operations in the West Bank, which brought condemna- possibilities for local substitutions for Israeli products,” tion from the BDS crowd. “Munib has made a major con- says Sam Bahour, a Ramallah-based consultant and tribution to the Palestinian economy,” he says, pointing sharp critic of the West Bank’s economic status quo. out the toll the occupation has taken on his cousin: one A recent documentary on Munib Masri by television of Munib Masri’s sons, then a student at the American channel France24 would seem to confirm the sceptical University of Beirut, was severely injured in 2011 by an Master of the view. In the film, called The Godfather of Nablus,Munib Israeli bullet near the border in southern Lebanon. house: Munib Masri complains about “the occupation” from the back The noise around rich Palestinians will only intensify in Masri, below, seat of a limousine when Israeli soldiers stop him at a coming months as peace talks progress and Blair lines up styles himself checkpoint. Later, he is seen dropping in unannounced projects for his $4bn plan from which Palestine’s wealthy as a business on the mayor of Nablus in the middle of a meeting and stand to profit: big-ticket power generation, retail and and politics patting him on the cheek. He also meets an unnamed tourism projects are rumoured. As this happens, the West power-broker Israeli businessman north of Tel Aviv. Bank’s top 1 per cent have at minimum some public rela- tions work to do vis-à-vis the other 99 per cent. Back at Rawabi, Bashar Masri is chewing over the criticism that has been thrown around. It is not the role of the private sector to lead poverty-fighting among Pal- estinians, he says – leave that to government or the non- governmental organisations to which he donates when he makes money. “Today, even if I am building palaces, I [have] created 6,000 jobs that are badly needed,” he says, gesturing to the vast, unfolding building site outside. As Palestinians put down their deposits on Rawabi flats, he adds, the city is taking on a life of its own. “Rawabi is now becoming the Rawabi of the people, not the Rawabi of Bashar Masri,” he says. “We now have 600 new owners – they are Rawabians. Over the next year you will see a change from the city of rich people to a city of the people who live in it.” W PHOTO: AP

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PHOTO: PA heirs and sorrows But for the twists of succession, europe’s Monarchies Might look very different today

BY feargus O’sullivan

Media excitement over the birth of Prince George Alexander Louis, third in line to the British throne, has partly effaced memories of another royal story that came to light this year. Months before the arrival of the UK’s probable future king, his distant ancestor Richard III was rediscovered in inglorious repose beneath a car park in the English midlands. Though he is now remembered mainly through Shakespeare’s scathing portrayal of him, Richard III’s disappearance and humdrum rediscovery – partly thanks to direct descendant Michael Ibsen, a Canadian- born cabinet-maker – is a reminder that when royal power struggles to find a victor, the losers are usually treated with scorn or indifference. Indeed, the world is scattered with little known would-be kings and queens – people whose families lost rank due to war, religion or changes in succession law but whose dynastic rights have not been entirely silenced. One potential king of the UK is an employee at a fabric manufacturer in southeast Australia. Another is an 80-year-old concentration camp survivor from Bavaria. Elsewhere, a septuagenarian who came very close to becoming the king of Denmark is living quietly as a gentleman farmer. As the UK changes its order of succession to place first-born princesses in line for the throne, it is possible this will create yet more pretenders. By George: In Britain, perhaps the most pertinent challengers the House of to the country’s royal status quo are the descendants of Windsor’s youngest the Scottish Stuarts. The thread connecting the current member is unlikely queen with her Stuart ancestors is notoriously serpen- to find his path tine, resembling a speeding car swerving to avoid the to the throne horror of Catholicism. Had Catholic King James II of blocked by Stuart England and Ireland (James VII of Scotland) not been descendants ousted in 1688, Stuart monarchs would have ruled ➤

ft.com/wealth|19 European history, have included among their members even discounting his stuart Bavaria’s eccentric Ludwig II, builder of Neuschwan- ancestry, the duke of Bavaria’s stein castle. Given the duke’s already elevated rank, it is not surprising he has expressed no public interest in faMily Makes the house of his British claim. Asked about the issue, his representa- windsor seeM rather provincial tive, Baron Marcus Bechtolsheim, is terse: “The Duke of Bavaria does not comment on this issue as he sees it as an entirely British question which does not concern him. This frequently asked question makes him smile.” The duke, it should be noted, would have little to gain from attacking the Windsors’ legitimacy. As royal scholar Judith Rowbotham of Nottingham Trent University points out, this would only invite questions about the equally tortuous lineage of his dukedom. “The Bavarians are slightly embarrassed by the Stuarts marking them out as their line of descent,” she says. “They are fully aware that if they make this claim to descent by blood alone, their own claims to the land and riches they pos- sess become distinctly questionable.”

f the Stuarts’ descendants have kept their high rank, not all Britain’s would-be royals have held on so skill- fully. England’s Yorkists, the losing side during the numerous Wars of the Roses of 1455-1485, have fallen harder and further than most. We now know their last king, Richard III, ended up under a Leicester car park; the man some argue is his closest living heir, meanwhile, is living in a provincial Australian town. Simon Abney-Hastings, the 15th Earl of Loudoun, is a 39-year-old bachelor living quietly in Wangaratta, isoutheast Australia, where he works in the textile industry. The claim rests on rumours suggesting Rich- ard’s successor, Edward IV, was illegitimate – a theory Down the lines, not without some basis in conjecture, if not quite histori- clockwise from cal fact. Counting back nine months from Edward IV’s above: Franz, birth, Edward’s mother, Cecily Neville, would have been Duke of Bavaria; three days’ ride from her husband at the probable time of Count Ingolf of her son’s conception. Disqualifying Edward would divert Denmark; Simon the Yorkist line through the Duke of Clarence, who, Abney-Hastings before his execution by drowning in a butt of Malmsey wine, would have passed the baton to his daughter Mar- garet, herself later executed by Henry VIII for suspected catholic machinations against him. Given the sticky ends of the Abney-Hastings’ ances- tors, the family’s ultimate plebeian existence in Australia seems a wise choice. Abney-Hastings himself rarely talks to the media and seems healthily detached from Britain at least until Bonnie Prince Charlie’s death, and royal aspirations: while his Twitter feed refers briefly to the doughy Hanoverian Georges would have remained in watching a series on Richard III, it spends rather more relative obscurity in provincial Germany. The Stuart line time praising US country music act Rascal Flatts. The continues today in present-day Germany. A putative king indifference apparently runs in the family. When his of the UK is alive and well in Munich. father (and previous heir) Michael, who died last year, This current heir is the 80-year-old Franz, Duke of was asked how his deceased wife would have reacted to Bavaria, a man with a rockier childhood than most aris- discovering she was Queen Noelene I, his answer was: tocrats. The son of openly anti-Nazi parents, the 11-year- “She probably would have said, ‘Get me another stubbie old Franz was imprisoned in a series of concentration [beer], Michael, I think I’m going to need it.’” camps in 1944, with different family members scattered While first-born Windsor princesses will now auto- to Sachsenhausen, Flossenbürg and Dachau. matically become heirs, the UK is not the first country to Since liberation, the duke’s rather smoother life has have changed the law to bring more women into the suc- been more akin to those of his British counterparts. A cession line. Neither is it the first country where a gawky, philanthropist with a taste for the arts, he resides in a socially awkward male heir has been upstaged in the pub- wing of a palace – Schloss Nymphenburg – whose splen- lic eye by a photogenic young princess. This happened dour outdoes many current European monarchs’ homes. first in Denmark in 1953, when the public voted to allow Indeed, even discounting his Stuart ancestry, the the son-less King Frederick IX to pass on the throne to duke’s family makes the House of Windsor seem rather his eldest daughter Margrethe, who became Denmark’s provincial. The Wittelsbachs, long a force in central current chain-smoking, intellectual queen.

PHOTOS: GETTY; REX ➤

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Who’s the father: The losers were the king’s brother Knud, with whom pretty, articulate woman who balanced a regal demean- DNA from Canadian- he is said to have had poor relations, and Knud’s son, our with public approachability, she fitted perfectly into born cabinet-maker 73-year-old Ingolf. Until 1953, both men had expected the an age that prized accessibility and communication. Michael Ibsen was crown themselves one day – with good reason. Ingolf, who Count Ingolf, by contrast, had an awkward public pres- used to identify the has lived his adult life as a farmer on the Danish-German ence and raw, wolfish features not unlike those of a silent remains of Richard border, fell further down the royal ranks in 1968, when his film villain. In an age when charming the public through III, top right marriage to a commoner saw him stripped of his princely press coverage became as important as blood and custom, title and demoted to the rank of count. Ingolf’s younger cousin always had the winning edge. While Count Ingolf’s demotion was perhaps a natural modernising move, it is no coincidence that it happened ut while the princess’s ascension got during a time when mass media were becoming ever the flashbulbs popping, Margrethe more important. Foreshadowing later events in the UK, was essentially used as a diversion Margrethe was perhaps Europe’s first media princess. A from questions about Denmark’s true rulers – the country’s parliament. As Danish royal expert Lars Hovbakke the family tree of franz, duke of bavaria Sørensen explains, Margrethe’s pro- motion to heir was a calculated sweet- James I of England and VI of Scotland (1566-1625) ener for other, more drastic political changes: “The 1953 change in Danish Bsuccession laws was just one part of Charles I (1600-1649) sweeping changes to the Danish constitution – such as a move from a bicameral to a single-chamber parliament Charles II Mary James II and VII Henrietta Anne, Duchess of Orléans (1644-1670) – that needed to be put to a referendum. While these (1630-1685) (1633-1701) changes were widely questioned, politicians knew Prin- Anne Marie, Queen Consort of Sardinia (1669-1728) cess Margrethe was extremely popular. By putting a law change allowing her to become queen on the same ballot William of Orange Charles Emmanuel III, King of Sardinia (1701-1773) as the other constitutional changes, lawmakers made it Victor Amadeus III, King of Sardinia (1726-1796) far more likely the Danish people would agree.” Count Ingolf, however, has kept far from the public Victor Emmanuel I, King of Sardinia (1759-1824) eye since the 1950s, helped by whispered-of cool rela- tions with his ruling cousins. Attending family weddings Maria Theresa of Austria-Este, Duchess of Modena (1792-1840) and funerals and little else, he is the only member of his Archduke Ferdinand Karl Viktor of Austria-Este (1821-1849) branch to receive state stipends, arguably as a pay-off for his lost royal career. Kept largely away from the press, Maria Beatrice of Savoy, Queen of Bavaria (1849-1919) the count has apparently never quite resigned himself to missing out on the crown. When cornered by a televi- Rupprecht, Crown Prince of Bavaria (1869-1955) sion crew at Margrethe’s 40th jubilee last year and asked Albrecht, Duke of Bavaria (1905-1996) how he felt, he answered for many a pretender around the world: “Fantastic – though it could have been me 40 Source: www.jacobite.ca Franz, Duke of Bavaria (1933-) years ago.” W PHOTO: GUARDIAN; REUTERS

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Planting the seed: a German bank sold Jeff Koons’s “Tulips” last year for $33m to fund a cultural foundation boardroom legacies company art collections are going under the hammer to raise cash, often on an anonymous basis

BY Madison Marriage PHOTO: eyevine Sotheby’s UK sold more than $62m of art from corporate collections, as well as those of museums and foundations. in the three years to the end of 2012, this figure rose to more than $218m, while this year alone, the UK business has sold more than $33m of corporate art. Christie’s, meanwhile, formed its corporate art team in 2007, just before the financial crisis hit. nick Orchard, head of the Christie’s corporate collections arm in europe, says the auction house had already dealt with corporate clients for several years but “saw there was an opportunity to work more closely with them and service he financial crisis has scored another victim, albeit their needs in a more appropriate way”. one that has attracted less media attention than the Although the global art market was in a state of flux collapse of companies such as Lehman Brothers: at the end of 2009, and “every company was going to the corporate art collections are coming under increas- wall”, Orchard notes that the impact on more stable cor- ing scrutiny as many businesses seek to sell down porate collectors was unexpected. “Companies needed to their holdings. These corporate art divesti- take stock of their assets, which led many to take a much tures are providing valuable opportuni- more proactive approach to their collections and make ties for two of the world’s largest auction sure they resonated with clients or with staff,” he says. houses, Sotheby’s and Christie’s, to boost Orchard has identified growing interest among corpo- their own businesses by swooping on the rate buyers in purchasing local, contemporary artwork. collections of faltering companies. Many companies, particularly banks, are adding pieces tPhotography business Polaroid, consid- worth up to £10,000 by living but lesser-known artists ered a major force for technological inno- to support local talent. Some groups have sold older vation in the 20th century, was forced to sell its artworks to fund new purchases in keeping with their vast archive of photos in 2010 after being declared modernised collections. bankrupt a year earlier. The collection, which dated Artworks held in collections can also appeal to a back to the 1940s, included photos taken by famous wider audience, says Constantine Frangos, head of the artists such as Andy Warhol and Robert Mappletho- corporate art services business at Sotheby’s, as they rpe. The sale of the collection surpassed expecta- are “well documented and have very good provenance, tions, fetching more than $12m. Similarly, Lehman which makes them very desirable for collectors”. Brothers, the US investment bank, sold off its art Another recent driver of corporate art sales has collection in 2010, raising £1.6m – a small step been the merger and acquisition activity before and towards paying back the £282bn the bank owed following the financial crisis. As companies snap up its creditors at the time of the sale. rivals, they often end up with a wide range of art- Both Sotheby’s and Christie’s have increased work, covering genres as disparate as 18th-century their focus on corporate art collectors in recent furniture and silverware, 19th-century maritime years in response to the more organised corporate pictures and contemporary art. “To some extent approach to art holdings and the lucrative sec- you can map the history of a company through ondary market for advice this has created among the art it holds,” Orchard observes. auction houses. But these motley collections might lose Sotheby’s established its dedicated corporate their relevance for hybrid organisations that art team 15 years ago, and has advised on some are looking to convey a coherent corporate of the largest corporate sales in recent years message, leading many to off load legacy from collectors as diverse as HSBC, the bank, pieces and start afresh. iBM, the US technology company, and Commerzbank, for example, charity Unicef. decided to sell Alberto Giacom- in the three years to the end of 2009, etti’s “Walking Man i” in 2010. The sculpture came into the German bank’s possession as part of a larger collection included in the Artworks in collections Are “well acquisition of Dresdner Bank in 2008. But the takeover – now widely considered disastrous – led to Commerz- documented And hAve very good bank’s ¤18.2bn government bailout the following year. provenAnce, which mAkes them The bank gave most of the collection to German museums on permanent loan, while “Walking Man i”, a very desirAble for collectors” surprise discovery for Commerzbank, was put up for

26 |ft.com/wealth /2” (177.8 x 153.2 CM), OveRALL -1 RK; yO

Distressed sales: Alberto Giacometti’s “Walking ManI”, opposite; works from the Polaroid collection “Nine x 20” (61 x 50.8 CM) eACH; 70 x 61 Part Self-Portrait, 24 1987” by Chuck Close, left, and Andy Warhol, above iOn FOR THe viSUAL ARTS, inC / ARTiSTS RiGHTS SOCieTy (ARS), neW nine POLAROiD POLAPAn PHOTOGRAPHS AT y, Ce GALLeR RHOL FOUnD PA WA © CHUCK CLOSe, COURTeSy PHOTOS: © 2013 THe AnDy

auction. it fetched a staggering £65m – the most expen- to raise the spirits of workers on the otherwise dreary sive sculpture ever sold at auction at the time. “The bank factory floor. in the following decades, he added to the knew it was valuable but had no idea it was that valu- works – and chose well; the collection sold in 2010 for able,” says Frangos. more than ¤13m, representing the biggest sale of con- British American Tobacco similarly decided to sell the temporary art the Dutch market had ever seen. collection of contemporary art it took on after acquiring There was much fanfare around the Turmac sale, but Dutch cigarette producer Turmac in 2000. Turmac had approaches to publicity surrounding corporate sales vary amassed an impressive contemporary art collection after wildly. Some companies court press attention around a its managing director, Alexander Orlow, decided in the sale to explain their mission to the public, whether it 1950s to fill his factory’s interior with contemporary art is to give the money raised to a charity or to reinvest ➤

ft.com/wealth|27 that it gives a negative message about the company’s financial position,” Orchard explains. As the financial crisis recedes, companies increas- ingly want advice on lending parts of their collections to museums and galleries for public viewing, which in turn Rich heritage: the proceeds in the collec- helps enhance the value of the collection. estate of Gustav tion. Last year, German Frangos says a large part of his job is to plot the trail Rau, right, sold bank norddeutsche of where artworks are held at any given time, as some Claude Monet’s Landesbank, for example, organisations acquire works anonymously at auction, “Le Pont de sold a Jeff Koons sculp- or – as can be the case with charities – inherit previously Bois”, top right, ture, “Tulips”, for $33m unseen collections from wealthy patrons. and El Greco’s to fund a new cultural “Saint Dominic foundation after seeing erman doctor and in Prayer”, above, the value of his artwork shoot up. philanthropist Gustav this year to fund “Certain collections tell us [they] want a lot of expo- Rau, for example, left his charitable works sure and publicity to put their name and message out,” substantial art collection Frangos says. “Others are modest, and are happy to put to the German arm of [their] name in the catalogue, but they don’t want the Unicef in 2002. The bulk bells and whistles around the sale of their works. The of the collection is on reputation of the corporation is more important than public display until 2026, any amount of financial return.” but several valuable Orchard agrees that companies tend to be skittish pieces by artists such as about how the wider world interprets a sale. Although gJean-Honoré Fragonard, many corporations want to sell their art for seemingly el Greco and Claude Monet have been put up for sale mundane reasons, such as changing locations, “the last this year to fund Unicef’s relief programmes for children thing most companies want to do is [make] a public and a hospital Rau set up in the Democratic Republic disposal of art, because of the connotations”, he says. of Congo. To date, the sale – in which el Greco’s “Saint Christie’s is working with two companies at the Dominic in Prayer” achieved a record price for a Spanish moment on the sale of artworks, but both want to old master – has raised more than £24m. remain out of the public eye. “Most sales we handle are The allure of hidden treasure in companies’ art col- anonymous because companies are very anxious that lections is what tempted Frangos out of his previous people might [interpret] the sale in the wrong way, or role in Sotheby’s european paintings team last year. “What i like most about corporate art services is gain- ing access to pictures that are not available to the pub- “the lAst thing most lic, which enables us to make a lot of discoveries,” he says. “A lot of companies don’t know the value of [their] compAnies wAnt to do is [mAke] works, so it is great to tell them a painting they bought A public disposAl of Art, in 1970 is now worth a fortune. Most people can’t really imagine how many wonderful works of art there are becAuse of the connotAtions” hidden away.” W

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B cr 30 |f to us t. co fr Bi ad on m/ wealth gge om e e Bi ag of ll Be st etr investors western in h aeteaiiyadlnug klsshould skills language and ability the have who sians he dying,” or arrested a says. being taking of are risk they personal – serious risk very financial a taking only not are criminal. a of out ae against sader western called once the into has investors – foreign country largest the of one point one of head the time, tw direction.” horrible very a in eae rvdsaspectacular a provides decades o Br ai In his know: should Browder in it Th fo eun the return, Ru aeapist educated to applies same e s ns g ow sa eas ti only is it because ssia, In re fi Pr Ju on go esident t y a ly, efrom ne Ru er He ey der ig l rwe a a has Browder ill sa uhrte aebaddhim branded have authorities ssian my igopruiisin opportunities eing mtg Capital rmitage Mo th e ce h about ths Vl cwcutfudBrowder found court scow n st adimir ucl eetn hthe what rejecting aunchly of e in ex ha st go eineoe h past the over perience kr Ru Pu Yda BY n n a n htis that and way one ing ve Ru ex ru sat en cru- a being to ssia tin st Ma s cr ml.Drn that During ample. r ann for warning ark sas “Even ssians: ’s aeet– nagement em regime. ni st gon Ru ss el it ssia. ors Be lin ics ia “T n- Ru hey ➤ at ami ge ’s e s- t to entry denied was he before year the Mo Square, Red in Browder Bill cold: the in Out Ru cw n2004, in scow, ssia

PHOTO: EYEVInE PHOTO: GETTY

Fighting the fight: Earl guilty of tax evasion in his absence, his grandfather, who died when Browder, above, on a a charge he denies. Russia has also Bill was nine. Bill did a degree presidential campaign twice requested that Interpol provide in economics at the University of in 1936; a postage it with information on his wherea- Chicago, a bastion of free market stamp, right, depicting bouts. The second time around, it was thinking. He says his choice of imprisoned oligarch with a view to extradition in relation course was partly a reaction Mikhail Khodorkovsky to a charge of “qualified swindling”. against his left-wing family Both times, the international police background. organisation rejected the requests on Browder’s interest in eastern the grounds that they were predomi- Europe emerged suddenly in nantly politically motivated. 1989 – the year of his graduation from Stanford with an MBA and rowder’s the fall of the Berlin Wall. “I had story is as this epiphany that if my grandfa- convo- ther was the largest communist luted as in America, I was going to be a classic the largest capitalist in eastern Russian Europe,” he says. novel. His first step was to get a job However, at Boston Consulting Group, there are broadly two ways to where he worked on reviving failing Polish enterprises. read it. His critics point out he After a stint as an analyst on an eastern European invest- Bavidly supported Putin until ment fund for Robert Maxwell, the British media mogul the regime turned against him. Browder accepts he once and MP, he joined the Russian team at Salomon Brothers, backed the Russian leader, who he saw as bringing neces- a Wall Street investment bank. It was 1992 and Russia sary order, but argues it was Putin who did the U-turn. In had just begun its mammoth privatisation programme. Browder’s view, Putin moved from campaigning against After leaving Salomons, in 1996 he teamed up with the oligarchs to becoming the biggest oligarch of all. Edmond Safra, a Lebanese-Brazilian banker who died in Whichever interpretation is preferred, Browder has a fire in 1999, to set up what became the Hermitage Fund. taken on a dual life as a hedge fund manager and cam- Browder became one of the largest foreign investors in paigner against Russian corruption. He has taken British Russia after achieving spectacular returns for 18 months. citizenship and runs Hermitage from London. The firm During that time he says Russian businesses were relatively long ago became a general emerging markets specialist honest in their dealings with western minority sharehold- rather than having a particular focus on Russia. ers. Any temptation to misbehave was kept in check by The story begins with Browder’s grandfather. Earl their desire to raise funds from Wall Street. Then, in 1998, Browder, born in Kansas, was the head of the Commu- Russia defaulted on its debt. Hermitage made substantial nist Party USA in the 1930s and early 1940s, and twice losses and Wall Street lost interest in the country. ran for president. Earl Browder spent several years in the next came what is in retrospect perhaps the most Soviet Union, where he met and married Raisa Berk- controversial time of Browder’s career. He sided with man, a Russian Jewish intellectual. Together they had Putin, who first became prime minister in 1999, against three sons, including Bill Browder’s father Felix, all of the emerging oligarchs. Browder says: “All the oligarchs whom became top-flight mathematicians. went on an orgy of stealing, which was unprecedented in Bill Browder says his interest in eastern Europe the history of business.” emerged as a belated response to his grandparents’ expe- When in 2003 the Russian authorities arrested

rience – he does not recall discussing the region with Mikhail Khodorkovsky, one of the richest oligarchs, PHOTOS: GETTY, ASSOCIATED PRESS, REUTERS

32 |ft.com/wealth Feisty opponents: protestors in support of Sergei Magnitsky in Moscow in 2012, above; President Vladimir Putin, right, in Siberia this summer

Browder welcomed the move. However, he says when “russians who have the language it became apparent Khodorkovsky, who is still in prison, was incarcerated simply for standing up to the skills should get out of russia, Russian leader, he changed his stance. “When it became Because it is only going one way and clear he wasn’t in jail because he was an oligarch but because he challenged the president, my view started that is in a very horriBle direction” to change,” he says. “Whatever he may have done in the 1990s he has long ago paid his debt to society and fully cleansed his soul.” to pass their own versions of the Magnitsky law. For Until the middle of the last decade Browder says him such laws have not become ends in themselves but there was a coincidence of interests between himself and a way of putting pressure on the Putin regime. “It is my Putin. The Hermitage Fund head became a shareholder expectation that the Magnitsky Act, by freezing assets activist intent on cleaning up Russia’s corporate govern- and banning visas, will become the new policy tool that ance, while Putin embarked on an anti-corruption drive. the west uses not just in this case but in all terrible cases coming out of Russia.” t became clear the Russian authorities Browder views those western leaders who refuse to had turned against Browder when he was take a harsh line on Russia with disdain. This is par- barred from entering the country at Mos- ticularly true of the British government for its failure to cow’s Sheremetyevo airport in november order a public inquiry into the death by radiation poison- 2005. This led to him withdrawing his ing of Alexander Litvinenko, a former Russian intelli- assets from Russia, and unleashed a gence officer who had taken refuge in the UK. chain of events that has made Browder a In Browder’s view, the Litvinenko case represented scourge of the Putin regime. “state-sanctioned murder on British soil”. He goes on to He was particularly angered by the argue: “That the British government is trying to cover up death of Sergei Magnitsky, a lawyer repre- the involvement of the Russian state by not allowing a Isenting his interests in Russia, in a Mos- proper inquest is a terrible, politically motivated decision.” cow prison in 2009. Browder is in no doubt Magnitsky Given Browder’s determination and the entrench- was tortured to death, and last year persuaded the US ment of the Putin regime, it is hard to see an end to their Congress to pass a bill that bars those allegedly respon- dispute soon. The broader climate of tensions between sible for the lawyer’s death from entry to the US or use Russia and the west is also, if anything, likely to fuel of its banking system. In response, the Russian govern- the conflict. ment has denied Americans the right to adopt Russian Under such circumstances it is easy to see Browder children and banned those on a named list of US officials getting substantial support for what has become an from entering Russia. open-ended mission against the Putin regime. It is also Browder’s next goal is to persuade the British, Dutch, hard to imagine him giving up until the Russian leader German and Swedish governments, as well as the EU, leaves office. W

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Photo: Charlie BiBBy 52 50 46 in th ma th “ How pl ju te lo Ho me di ph wH Bo fo su e op e vo st ke ac an ng r il ntH an te ok at sk la ic tH an rc H s ls ni tH -t 19 e re y, us e te en er yo th ng e tH an lo e fa e do vi ra m wo d ab ro -c en ok d u mi ew co re es fr th ou en tH fe d ly py rl af si not ck of tu om e t d’ fo er de el te pr so s ry tH pi un nts r fi es pa th Ha ci it up t tH ne e da en al rt ve an li ri ei st ti t ne si r to on cr “ of ngs isis in si ght ft H8ATiger 82A DH .c gracefully: om is er l,the old, years st rwn old Growing /w l sprightly ill ea lt Mo at h| 82 th 35 L 36 eq in FY as–lne hnthe than longer – days ge counterpar a as it on relied who tors inves- the and bank, overlever- investment the aged of fate the decide to took times Financial the month, this earlier lar). man “Leh- titled articles recent of reams the through flick to not themselves could bring who readers to service a as them, into flow to continues money but crisis, the predate that instruments managers). wealth your of that importantly, view more (or, of point your on depending the rule, disproves or proves either that tion either. thing bad no be arguably would that although and (otC), deriv other any (CDSs), swaps default credit st as well as (MBSs), securities backed mortgage- on based (CDos) obligations have would av it 2007-08, in it to adhered Ju (eL collections record 1980s 1970s/early late clients’ selling into managers wealth UK panic could it – classes asset “alternative” tra- ditional with well less works it Admittedly, give sense. makes managers portfolio 2012. same in the period on cent per to 13.8 year up $148.5bn, the of months seven first the in investment total taking $44bn, of utrdivsmn eils(SIVs), vehicles investment ructured ie osso oltrlsddebt collateralised on losses oided eal holds nerally |f y etFs ly, As xhnetae ud eF)are (etFs) funds traded exchange th nppr h s feF by etFs of use the paper, on ’s ex at ve r ean,hwvr one however, remains, ere t. oversimplifications eay v er n”(rsimi- (or on…” years five legacy: ev ra ouet qiymark equity to posure vstae vrtecounter the over traded ives co ui nwietejr sout. is jury the while en icsfrfieconsecutive five for pieces n at m/ ti rbbytxc osl it or ASAP. sell So toxic. probably is it three-le a by known is investment an if 94: part crisis, financial the from learned essons ev rce lblntinflows net global tracted st I: ti fe hsrl fthumb of rule this offer I r bond ery wealth go od. es ing tt rat an ha o, rabbreviation, er US rat e,PDQ. her, orbank your d t,oMD), XtC, go authorities dBBB. ed h rule the , et s at ex In th cep- the ET ey ty . WE To ET vi BY “ nce ma Fs lE F ar tt nt oF he ss E w he FE co li ri qu nc uha htse n2008.” in seen that as such crisis financial a in security adequate provide would this whether about them,” he back to used collateral the and etFs swap-based on centred con- are “our cerns reason. this for critic a is Saunderson advisers financial track. to supposed ev a ifri volatilit in differ that can assets – swaps those col- against as lateral assets other of holding their and index, underlying an in shares than wp ihacounterpar a with swaps ge their abbreviations: toxic mentioned mt,cifoper chief Smith, Andrew performance. its track to an index of constituents the holding by sibly osten- clients, to cost possible lowest hsrao.“tscnpa a play can “etFs reason. this We ng en ner al Ch ex id alth plains. ge Er at i etn netetdirector investment Sexton, ris ’s oei uligadiversified a building in role gah oteeute hyare they equities the to ography Ex o frtrsfo deriv from returns of ion ma ele nE th htc tsadteabove- the and etFs thetic” vat “W po netetprfloand portfolio investment rk ltom safnfor fan a is platform, e aesrosdoubts serious have e d aiybe larity at eaecommitted are we su n fcro Axa of officer ing ETs ando h simi- the of warned ab in ro ET y, omkn them making to “ uhrte have Authorities bu iudt and liquidity av noquestion. into vE rE says. ty tw Fs ouT encalled been ial, he ailable,” lE feF has etFs of regulatory suitability over papers er,the years, five past the bank, e “syn- een u in But sT va ca ho in luable at “ rat ll mE use, ive n her bu at et nT pl il ihrcags oMg. charges? in higher penalties financial recoup to set are smaller liquid less message: unintended wrong, push liquid etFs mean would “It it: puts mar- ke distorting risks also but – says “illustr an are failures se – trading restricts only not bonds.” high-yield mark enough. quickly funds their ing underly- securities the swap to unable were institutions investing and issuers Po se be to failed transactions etF of worth $3.96bn over worries on for level almost highest its hit to etFs in at mark equity rising when surfaced tsoffering etFs “W around semantics the of mindful crisis. financial the with comparisons false against warns omgeo, provider services trading of at investments of head grigoryants, ef unhealthy an have can etFs non-toxic costs. increased late se of brunt the bear investors retail the told recently an desk of trading head etF the as But force. into come penalties, financial of threat under for proposals Commission european when 2015, ment actually is to what used describe often is term the since transac- tions], etF of context the [in failure’ ay di eto at ftemark the of parts on fect lt asdtelvlo fie trades” “failed of level the caused ility tt po si ie sell-of wider a in ts Fleming n ru,teconsultanc the group, int ieyaso,adilqi etFs illiquid and on, years Five th ev th to tr r atclrycnendabout concerned particularly are e in eet sisiuin aso their on pass institutions as lement, ng dswl eoels ad from tardy less become will ades ’,” et nso, en slc flqiiyi ih etFs niche in liquidity of lack is doubts similar ago, months ree oewat managers, wealth some a st h says. she ,sc smcocpsae and shares micro-cap as such s, tw rT st csdw,adsn very a send and down, ocks csaesafer are ocks years. o va Fa Ma di a Fo tw tt iy& mily ex lu ineBon president Brown, rianne e,acrigt Basis to according led, US -a se o-day ouet esliquid less to posure As lio “W oeaypolic monetary ab vE mark Pa f. at hudbe should e As .” o”o hs he this, of ion” rt W tt rs ‘l lE es says: ners, lement, at grigoryants et et se e y, plunged s Arthur . tt “ iFiE ev setF as lement tt en ‘t le- et ra y, Ft vol- d de ,

Photo: getty

investment social impact CritiCally, the bonds “ bonds re“move or reduCe the risk for soCial enterprises

state care is seen as a promising model, Public spirit however. it has two elements: a low-risk loan to a social housing provider to repay investors’ capital, and a high-risk hey are called bonds but BY virginia marsh Pbr targets are missed, siB investors investment with a variable return linked do not work like them. suffer the loss. if successful, the social to the success of the Pbr care contract. they were created in enterprises repay siB holders, plus pre- “the essex siB was beautifully put the uk three years ago. agreed interest, out of the Pbr proceeds. together,” says Dan hird, head of cor- they are cutting edge Prospective yields vary widely. porate finance at triodos. “there has and starting to take off Peterborough is capped at 13 per cent been strong feedback from all of us that Taround the world. enter a year, while the siB arranged last year the government has to share risk or else social impact bonds: high-risk philan- by triodos Bank, the ethical lender, for the segment will not grow.” thropic investments with the allure of st Mungo’s is aiming for 6.5 per cent, in to date, siBs have been expensive to double-digit returns. part because the homelessness char- set up, often relying on pro bono work, essentially, siBs are loans that ity is co-financing the initiative. the adds adrian Brown, a social invest- enable social enterprises to participate bank raised £650,000 via a placement ment specialist at Boston consulting in “payment by results” contracts. Pbr involving three private investors and group. he says there is not enough is being pushed aggressively in the uk two financial institutions. philanthropic funding to support them in an attempt to cut public spending, in siB investors bring in more than in their present form. part by outsourcing core services. money, says Nick o’Donohoe, Big the critical next step is to get local inevitably, big companies, such as society capital chief executive. as of authority commissioners on board, support services groups serco and g4s, July, the bank had invested in six of the commentators say. But hird says coun- will win most Pbr contracts. however, uk’s 14 siBs. “they bring another level cil staff often lack the skills to negoti- a small but growing number of philan- of governance,” he says, but adds: “they ate these complex contracts. spending thropic investors are backing siBs to are also not philanthropic donations. cuts, meanwhile, have hit capacity. help social enterprises stay in the game. investors aim to get their money back antony ross, co-manager of the James Perry, chief executive of and recycle it.” Bridges siB fund, says it aims to estab- Panahpur, a family-run charitable Despite strong global interest (see lish a track record for siBs and generate foundation, was a cornerstone investor below), o’Donohoe says retail invest- high single-digit returns. in the first dedicated siB fund – the ment in siBs is some way off, being too “the most interesting element is £14m Bridges social impact Bond risky and illiquid at present. funding support services to avert future Fund – having heard about siBs at the recent essex county council problems,” he says. “the savings can be a conference. “i thought it was crazy siB – the first commissioned by a local dramatic and there are great benefits that [many social enterprises] had authority – to help children stay out of [for society].” W no access to capital [to take on Pbr contracts]. interventions work best on a local level,” says Perry. Guarantee Grabs Goldman the first siB provided £5m for a It did not take long for one of the world’s most famous entrepreneurs to jump programme led by st giles trust, the on the SIB bandwagon. Michael Bloomberg (left), mayor of New York, was charity, to cut re-offending among behind the first SIB in the US, bringing in Goldman Sachs. Backed by a $7.2m inmates released from hM Prison guarantee from the mayor’s personal foundation, the investment bank is the Peterborough. the bond was first global financial institution to invest in a “pay for success bond”, as launched in october 2010 SIBs are known across the Atlantic. by social Finance, the sister Last year, Goldman invested $9.6m in a SIB aimed at reducing organisation to Big society recidivism among male adolescents from the city’s Rikers Island capital, the government- prison. MDRC, a local social services provider, is running the project. backed social investment If reoffending is cut by 10 per cent, Goldman gets all its money back; bank. any further cut and it stands to make a profit of up to $2.1m. Thanks critically, siBs to Bloomberg’s guarantee, the most the bank could lose is $2.4m. remove, or reduce in Having a name like Goldman Sachs on board is a significant land- scal Perich, Nick strugNell Pa the case of more recent mark, says Russ Bubley, an ex-Citi banker turned social investment issues, the risk for strategist. But he says investors in the British SIBs have had to be social enterprises. if much bolder without the safety net of someone like Bloomberg. Photos:

40 |ft.com/wealth Helping hands: children in Essex have benefited from a low-risk loan to a social housing provider ft.com/wealth|51

investment

eis funds people like the idea that th“ey are helping to “ stimulate theuk economy Minnow pools

ou might not have heard BY jeremY 17 of Warwick Audio Tech- hazlehurst nologies yet, but with any luck you will. It began as a spin-out from the Uni- 15 versity of Warwick when Ythe experts there realised 14 they could make electrostatic speakers less than 1mm thick that use a 10th of 13 the power of traditional speakers. The speakers project sound very accurately, making them useful for cars or environ- ments where it is important that sound 11 does not pollute adjacent areas, such as museums. The company is concentrat- ing on exports, particularly to south Asian car manufacturers. 9 9 “This is a very disruptive technology, and this is a very scaleable business,” says Derek Mottershead, chairman of WAT and a former managing director 77 of Bang & Olufsen, the Danish audio equipment manufacturer, in northern Europe. “We are just about to break into quite a large league.” 5 5 5 One of the company’s main backers is Mercia Fund Management, a venture 4 4 4 capital fund manager that invested in WAT via a fund that uses the UK 3 government’s Enterprise Investment Scheme. EISs were introduced in 1994 2 to encourage investment in early-stage businesses, and while many people use 1 EISs to invest in individual compa- nies, numerous fund managers use the 00 scheme to create portfolios of start-ups. 0.512.55 10 15 20 25 50 75 EIS fund managers effectively behave like private equity firms, albeit at a smaller level, bringing in their own people, offering advice and boosting EISs, introduced in 2011 to fund very “Quite a few people like the idea that the company’s workforce. Mercia spot- early-stage start-ups) schemes appeal they are helping to stimulate the UK ted the potential of WAT, then a cottage to investors for their tax benefits – the economy,” says Paul Latham, managing industry building speakers by hand, in EIS offers 30 per cent income tax relief, director of Octopus Investments, the 2007, and parachuted in Mottershead. tax-free capital gains and 100 per cent UK’s biggest EIS provider, with inflows A few years and several injections of inheritance tax relief. But the schemes of £100m-£150m a year, £3bn under money later and WAT now produces can also offer a boost to cash-starved management, and whose successes 400,000 speakers a month. smaller companies. The City Pub Com- include Zoopla, the property search EIS funds might work like private pany, which invests in pubs via EISs, is website. “You are a direct shareholder, equity, but the barrier to entry is sig- one of the many providers that has had and [when] you suddenly see adverts nificantly lower – as little as £10,000 an oversubscribed fundraising in the appearing on the television, you feel for some. The EIS and SEIS (Seed past couple of years. that you are part of something exciting.”

42 |ft.com/wealth size of investment, 2010-11 and typically sells the overall business for (upper limit £’000) £10m-£50m. Andy Cunnington, associate direc- tor of Smith & Williamson, the wealth manager, warns, however, that EIS returns might not be realised for seven years or longer. He says understanding the potential exit is crucial: who are the potential buyers and how will you get your money back? “An EIS-qualifying company will be a small, unquoted private business. It will Percentage of investors be illiquid and in the early stages or a start-up. [These businesses] are by their (figures rounded to give 101%) 11 nature risky,” says Chris Tottle, a princi- Percentage of investment pal at Triple Point Investment Manage- 10 ment. Two-thirds of new businesses fail within five years, he adds, and the whole

9 purpose of the tax reliefs is to encourage investment in risky businesses.

8 a company with an eis “is less likely to go bust “ 55 than another start-up 4 Tottle says investors should not be 3 3 “dazzled by the tax breaks”, adding: “There is a risk that people get carried 22 away with those and don’t focus on the nitty-gritty of what they are investing in.” 1 11 1 Investors must understand the business model and where the cash is 000 coming from. EIS fund providers claim 100 150 200 250 300 350 400 450 500 to shelter investors from some risks by investing in a portfolio of diversified Source: HM Revenue & Customs businesses, but it is harder to check out 10 or 15 businesses than just one. Tottle The returns help, too. Latham says Oxford-based company that produces says investors should be sure there is real an Octopus EIS portfolio will give high-purity bacterial and viral antigens diversification in the portfolio. There is a investors exposure to around 15 small for the in vitro diagnostics industry. case, he says, for favouring due diligence companies and even though 20 per The companies Mercia works with, on one business over diversification. cent of those will fail the stellar returns says managing director Mark Payton, However, Stuart Morris, entrepre- from some of the investments usually are “profitable or will be in 18 months”, neur in residence at Henley Business “swamp the losses”, he says. are scaleable and are global businesses, School, says: “A start-up is risky with Mercia is typical of the many smaller with most of their sales outside the UK. or without an EIS, but a company with SSELL BIrKETT EIS managers. It has £17m under man- “We build a portfolio of businesses that an EIS is less likely to go bust than rU agement and specialises in the technol- will get to profitability quickly and exit another start-up, as they have more ogy and medical industries. Another through a trade sale,” he says. Mercia support around them. They tend to be of its businesses is Native Antigen, an will own 10-40 per cent of a business, more experienced entrepreneurs.” W GrAPHIC:

ft.com/wealth|43

planning

healthcare mortality data also sh“ow the efficacy of“ social institutions

BY sridhar venkatapuram illustrations BY tom duxBurY

n July, Public Health England, the public health oversight body, dis- tributed a report that revealed that about 23,400 more elderly people died between June 2012 and June 2013, than over the same period a Iyear before. In addition, week on week, more people were reported to have died in 2012 than at the same time in 2011. And so far in 2013, the excess death rates are reported to be higher than in any of the previous five years. The death rates were higher for women than men, especially in the most deprived areas of England. The causes were not immediately obvious – something the report itself admitted. However, in a letter attached to a report on a related topic released a month later, John Newton, chief knowl- edge officer of PHE, provided some explanation. The July report, he wrote, had been written by an analyst who used a novel statistical approach that was consequently found to have potential methodological weaknesses. There had been excess deaths in 2012-13, Newton continued, but they could be explained by higher-than- expected circulation of influenza and a bout of cold weather. Also, the rise in death rates did not look exceptional, he wrote, when compared with the past 12 years rather than with data from more recent years. Newton observed that many of the deaths were preventable and that the data showed the need to work harder to protect the vulnerable from both flu and extreme weather. Neverthe- less, questions have been raised over a possible link between the rising mortality rates and a drop in the UK’s overall wealth, as measured by its gross domestic product. About 20 years ago, Amartya Sen, the Nobel Prize-winning economist, wrote an article in the journal Scien- tific American about the importance of The meaning of death mortality data. Death statistics can be an important supplement to traditional

44 |ft.com/wealth economic booms such as in the years Rich and poor: Control and Prevention reported a preceding the economic crisis of 2008, a causal link sharp increase of excess mortality there was growing interest among between heath due to influenza during the winter of wealthy nations in moving beyond using and wealth 2012-13. Yet death from influenza or a GDP data or simply focusing on wealth remains elusive harsher winter is not inevitable. as an indicator of people’s lives. What role should the state play in In early 2008, the then French preventing these early deaths – and, President Nicolas Sarkozy set up further, is the harsh economic climate the Commission on Economic Per- taking its toll? formance and Social Progress with People’s health and mortality rates Sen as one of its three chairmen. are due to a combination of factors In late 2010, UK Prime Min- – biological, behavioural and environ- ister David Cameron instructed mental. Economic growth is undoubt- the Office of National Statistics edly important for maintaining and to begin measuring national improving people’s health and life wellbeing using a broader set of expectancy. But it is unclear what the measures than just GDP. link between the two actually is. The Since the recession, however, range of life expectancies across coun-

GDP has come back firmly to tries with the largest economies, as well centre stage. Changes in the latest as health inequalities within countries, set of data make headlines, and show that there is no automatic con-

the justification for any policy is often linked to its effect on the underlying rate of growth. The healthcare is on the“ re-entrenchment of GDP as an indicator might lead us to conclude that po“litical agenda wealth is in fact the most important of many countries economic indicators, he wrote, as they basis of how people live their lives. reveal very clearly what is actually hap- But while many people around the pening in society, namely, if people are world are indeed concerned about dying prematurely. Equally impor- GDP data, particularly on nection between health and wealth. tantly, Sen argued that mortality data how it affects their personal Morbid though they may also show the efficacy of social institu- wealth, they are start- be, Sen was right to argue tions. In contrast, the most commonly ing to recognise that that mortality rates are used indicator of how well a society is other factors are just as an important social doing is often the size of its economy or important. Healthcare, indicator of the state of GDP, as the popular argument among for example, is on the people’s lives and the economists and social scientists holds political agenda of efficacy of social institu- that wealth leads to wellbeing and, many countries. tions. therefore, the wealthier the country the England is not Looking deeper into better off are its people. alone in reporting the causes of deaths, or Sen’s advocacy for the importance rising excess mortal- their inequalities within of mortality data is part of his broader ity rates among the different social groups could work spanning decades on moving elderly. In April reveal much not only about economics beyond just wealth, and 2012, a group of healthcare but also about a measuring social progress beyond researchers pub- country’s social and economic traditional economic indicators such lished a study in the development. as GDP. journal Eurosurveil- With the number of pre- Rather than focus on the means, lance that detailed ventable deaths of the elderly he would see us focus on the quality of increases in excess in many industrialised people’s daily lives. mortality rates of countries on the rise, now is Sen’s arguments have influenced the elderly across 12 surely the time for the rela- development economics greatly and European countries. tionship between health aided wellbeing indices such as the And in the US, the and wealth to come under Human Development Index. During Centers for Disease greater scrutiny. W

ft.com/wealth|45 planning hotels

Home from home

ean Davoren, the BY emma jacoBs The hotel’s most famous long-term black-suited head resident was the actor Richard Harris, butler at the Savoy who in 2002 as he was being taken out hotel in London, has of the building on a stretcher shortly served the world’s rich before his death, raised his hand and and famous for more told diners: “It was the food.” Sthan 30 years. He loves “Of course, it was nothing to do with visitors who make a home of the hotel’s that,” laughs Davoren. “It was the copi- luxury suites for extended periods. “It ous amounts of alcohol that he drank.” makes my job so much easier because I Some famous figures have made know you,” he says. hotels their permanent residence. He notes what side of the bed they Omar Sharif, the actor, has lived in sleep on, for example, to ensure the them since his early 30s. Coco Chanel, Ag water is on the correct bedside table. He the fashion designer, moved into the takes pictures of desks so that he knows Paris Ritz during the second world war how residents lay out their notebooks and remained there for much of the and pens, and will whisk away their following 30 years. Most recently, Mar- clothes, clean and press them, polish garet Thatcher, the former UK prime their shoes and pack their suitcases minister, spent her dying days in the using tissue paper. He observes resi- Ritz in London. dents’ likes and dislikes and Others who spent their final builds up a detailed profile years in hotels include writers on a database. All this to cre- Tennessee Williams (at the Elysée, ate a “home-from-home envi- New York, where he choked to ronment” for residents who prefer death on the cap from a bottle of to live in the hotel for weeks or months, eyedrops) and Vladimir Nabokov rather than buy a London home. (the Montreux Palace on Lake PHOTOS: REUTERS; WIREIMAgE; LEICA CAMERA

46 |ft.com/wealth

When you live in a hotel “you don’t have to “ Worry about anything

just one night, the Savoy will have brought his wardrobe to his room. Davoren, who oversees a team of 25 butlers, is used to the quirks of some wealthy clients. One woman only bathes in Evian water. “I have to boil it in the morning. I have to bring pails and fill her bath.” Others wash their faces in goats’ milk. He usually buys it at a supermarket, but one guest requires it to have come straight from the goat, so Davoren sends a chauffeur to Wales, at a cost of £690 for the car and £35 for the milk. David gest, ex-husband of Liza Minnelli reportedly demanded zebra’s milk. In his 30 years in upmarket hotels Davoren, who is from Limerick in Ireland, has seen a huge change among female residents. There used to be more trophy wives. “They flitted around and shopped all day,” he says. Now, businesswomen are as likely as businessmen to pay for the suites. Discretion is important, he says. And he prefers to keep a distance between himself and the guests. “We geneva, Switzerland), and second world get a lot of Americans [who] like me to war US general Douglas MacArthur call them by their first name. I can’t do (the Waldorf-Astoria, New York). it. I need to keep it professional.” So he Former US vice-president Al gore, meets them in the middle, addressing whose father was a senator, lived in a says. “If you think about having a staff Rooms at the top: them as “Mr Bill” or “Miss Jane”. hotel for much of his childhood. His of 10 running your home and you are Sean Davoren, He has received many gifts from biographers David Maraniss and Ellen not there for half the year, it is quite opposite bottom; guests, including two Cartier watches, Nakashima wrote: “He grew up in a expensive.” Even compared with from Tennessee bespoke shoes and cufflinks. He has singularly odd world of old people and £6,000 a night for the Royal suite. Williams, above never had to buy a tie for himself. “I keep bellhops, separated from the child-filled “When you live in a hotel, you come, right; Richard everything. It’s very touching someone neighbourhoods of his classmates.” you go, your room’s clean, the light Harris, above; would think so much of me,” he says. While the number of permanent bulbs are changed. You have chefs on and Coco Chanel, Long-term residents have invited hotel residents might be on the decline, hand, 24 hours. You wouldn’t have that above left Davoren to weddings and christenings, Davoren has observed an increased in your own home.” but he only attends the funerals. “I number of people who take up suites One resident keeps 150 suits and don’t like to get too involved. I put this for regular, extended periods. “You 200 pairs of shoes at the Savoy; he has uniform on. I am your butler. I take don’t have to worry about anything. You identical wardrobes in Paris and New this uniform off, I’m Sean, a husband, a don’t have to worry about paying your York. He jumps on a plane with only his father, a very different lifestyle. I live in electricity bill or maintenance men,” he briefcase. But if he arrives in London for a nice little semi-detached house.” W

ft.com/wealth|47

philanthropy

lGBt donors it is important to id“entify those who ca“ n serve as role models

lanthropists – their giving increasingly philanthropist who founded Quark, the Joy of giving extends beyond LGBT causes. developer of page-layout software, and For Meck, who makes grants created the Gill Foundation in 1994. through the Palette Fund, the funding As well as equality initiatives, ince Rand Skolnick died BY sarah murraY allocation reflects his relationship with programmes providing easier access to from cancer in 2008, Skolnick. “We didn’t live an exclusively services such as health and education Terrence Meck has gay life. We were out and proud, but it are also well funded. “LGBT people been using the funds didn’t define us,” he says. “And Rand’s have always built their own institutions his partner left to give family business was in vitamins and and communities of concern,” says away $1m a year, with health, so the nutrition side was a big Matthew Hart, founder of the Paris- Shalf going to lesbian, part of his life.” based Lafayette Practice, whose clients gay, bisexual and transgender (LGBT) Of course, philanthropists in the gay include LGBT donors. youth programmes and the rest to community make plenty of gifts to sup- While in the US this reflects a rela- health initiatives. port their peers. “I keep giving because tive absence of government support, For Meck, this honours the man all LGBT people have to be on the front Hart says that in Europe, “more public he loved. However, his strategy also lines in winning their own equality,” resources are set up for communities of reflects a broader trend among gay phi- says Tim Gill, the entrepreneur and concern”.

48 |ft.com/wealth However, in both Europe and the Fund-Africa, which promotes women’s male gay couple was behind their fund US, the nature of gay philanthropy is human rights, to a campaign to create by naming it Mark and Charlie’s Gay & changing. In the early 1990s, pub- the National Progressive Leadership Lesbian Fund for Moral Values. licly gay donors such as Gill were few Campus in Washington DC, an initia- “We use openly gay money to give and far between. Most tended to give tive aiming to promote social justice to non-gay causes so people looking at anonymously or without identifying by bringing together non-profits and annual reports can see that gay people themselves as gay. providing leadership development are giving to cancer research, the “As more people are comfortable to young people from diverse back- Humane Society or clean water,” says about being out in their entire lives, grounds. Rounds. major gay donors are becoming more Emrich, who also supports LGBT Even today, however, being publicly public in that part of their identity,” Honour: Terrence causes, argues that all types of philan- gay – let alone as a prominent philan- says Jason Franklin, executive director Meck developed thropists must work together. “It’s time thropist – is not always easy. For exam- of Bolder Giving, a US non-profit that the Palette Fund to move beyond silos and link organisa- ple, in Russia, a new law has banned works to inspire individuals to give after his partner’s tions and campaigns across issues,” she promotion of homosexuality to children more of their wealth away. death (above), says. and in many US states, it is still legal to Other factors are prompting a rise granting financial From their home in Minnesota, fire an employee for being gay. in giving to gay causes. First, more is help to several Charlie Rounds and his husband Mark Some people may have been rejected known about the problems gay commu- organisations Hiemenz also support non-gay causes by their families – or even disinher- nities face, from the outlawing of homo- like the Mautner such as women’s health and global ited – which means family traditions of sexuality in some African countries to Project (below) human rights. philanthropy are not passed on. the homeless youth in America, 40 per Rounds advocates fiercely for gays “And many of us learn our giving cent of whom are gay young people. and lesbians to become more promi- through our communities of faith,” says

“And as gay people are more visible nent philanthropists. For example, he Rounds. “So if we’ve been rejected by and our issues are understood, not only and Hiemenz made it explicit that a that community, we’ve lost that men- has it made gay and lesbian people torship.” understand where to give their own Given these barriers, Franklin money, it’s also increased giving from believes it is important to identify indi- non-gay people,” says Tim Sweeney, gay donors expand viduals who can serve as role models. president of the Gill Foundation. “ To do so, Bolder Giving uses its website Meanwhile gay donors are expand- th“eir giving to more to highlight stories that might inspire ing their giving to more general causes. general causes other gay philanthropists to become Laurie Emrich, who inherited money more visible. in her twenties, supports organisa- Emrich, who is among those fea- tions ranging from Urgent Action tured, believes this kind of mentorship is critical. “We all know the importance of seeing people who are ‘out’ in public in a broad sense, or supporting a par- ticular position that gay people haven’t participated in before,” she says. And as gay baby-boomers retire, there is a good reason for encouraging more of them to think about giving. Since many have done well financially but few have children to whom to pass on their money, philanthropy offers a means of creating a legacy. “The pos- sible future contribution is huge,” says Rounds. Meanwhile, the other legacy Rounds hopes his generation will leave is a more prominent cohort of gay donors. “At this point we’re not always seen as that visible in giving back to the com- munity,” he says. “And I believe we have to be.” W

ft.com/wealth|49 fo ph il un an da th ti ro ons py BY sa ra h mur raY W Sp ffudto services foundation of n oe”says more,” any donor the not is it remember ignored. be cannot funds couple thropic a of fate the grabs, for and high running tions do. to hard is up breaking foundation, family a to comes it when – indicates table negotiating lawyers of presence the as – Ne Who ioc a ecatc ihemo- With chaotic. be can divorce ho ragmnscnb aebut made be can arrangements w ge ee,i ioc,charitable divorce, a in wever, ts ef ot a o o h agenda. the top not may forts cu lit st d ftefoundation? the of ody to Blane m at fte divorce? they if happens what names, their in foundations create to like couples thropic philan- hile en ev o’Connor “Y rtigup erything y, uhv to have ou at director ’s ’s the philan- money di ngs oioigteother foundation the one monitoring have to is divorce a in spent. are funds its all how reports organisation original the that demand usually requirements regulatory problems. cause can this legal, While foundation. original the maintaining entit spouse new one a into funds the of tion real a be would it “But foundation. the maintain might go will grantmaking future their determine where to also but reason, many for spouses. their with established tions founda- for arrangements post-divorce make individuals fund hedge prominent Lo organisations tax-exempt for co-chairman and partner Green, public.” the to belongs tw you “Usually divorces. high-profile estates-law a Zabel, William tw done. than said easier is this but pose, pur- original their serving from funds philanthropic precious prevent not does foun- family says. the he dation,” with do to what made to be as to has decision a and occurred has divorce a unfortunately, where, foundations new-money more and a davies, a aepti ifrn amounts different in put have may ,” crin nabottle.” a in scorpions o tog people o b ashslwfimi epn several helping is firm law his says eb, digt h complexit the to adding por- a put to be might answer one couple the amicable, is split the if agrees. Blaney No i a evr ifiutto difficult very be can “it mo fmone of iei h n h uddthe funded who one the is wife asBlane says stestainuuul eliot unusual. situation the is r st ooswn oesr divorce ensure to want donors Us “a onain”sy re.“in Green. says foundation,” y. ex dtels hn o want you thing last the nd conac r.“it firm. accountancy i n forcss the cases, our of one “in etwoas handles also who pert y. et nte,i stehus- the is it another, adadhsfamily his and band e ntesm room same the in her Ne ex “W h rgnlfoun- original the eto, says ception,” w aini closed is dation Us ,” r eigmore seeing are e Yo asGreen. says n ud split funds and al,therefore, ually, rk-based at into y, Lo ge couple a tw b& eb the t y, o with ge .” t photo: dreamstime new entities – divided equally or into family with a long-established founda- proportions agreed on during divorce tion. the husband and wife divorced, negotiations. but he died before arrangements for a name change is generally part of the foundation could be made. the process. Blaney cites the example Children from the first marriage of a hedge fund manager who split his did not want to attend awkward board family foundation into two with new meetings with their father’s ex-wife, names, “because the old name brought so the family requested that she leave up memories”. the board but gave her a portion of the some may not want to continue run- funds to grant in her name. ning a public charity after a divorce. in Where divorcing founders create this case, the money can be put into a two new entities, Berman stresses the donor-advised fund. the donation is tax need to be sensitive to children’s feel- deductible immediately but funds can ings and not pressure them into joining be distributed later, giving donors time the boards or forcing them to choose to rethink their giving plan or to appoint between the two. an adviser to distribute the funds. of course, planning well in advance “another option – as part of the makes difficulties easier to resolve. this whole process of unwinding the mar- might mean making provision for a riage – is to spend it out,” says melissa divorce when drawing up by-laws or, Berman, president and chief executive for an existing foundation, by passing a of rockefeller philanthropy advisors. board resolution. “and for a smaller foundation, that can “it is like doing a pre-nup,” says be relatively a simple process.” henry Berman, chief executive of the the question of board membership Us-based association of small Foun- can be thorny, however, with plenty of dations. “they are not very romantic, room for acrimony. “this comes up in but they are becoming more of a different contexts,” says Zabel. “When reality.” sons and daughters-in-law are on the While it may seem family-foundation board [and] they get unpalatable to contem- divorced, the family usually does not plate divorce when want them to remain on the board.” setting up a family Governance structures can also foundation, it should create awkward situations, particularly be part of a couple’s if the foundation has been established responsibility, argues as a trust with lifetime trustees. “this Green. “You can never might mean the ex-wife still has to plan completely against come to all the meetings and still has to family dysfunction,” vote,” says Berman. “and to change that he says. “But it goes a long way is difficult and expensive.” to making sure those dollars death can complicate the situation are spent on charitable causes further. Blaney recounts the case of a rather than on lawyers.” W in a divorce ‘You have “ to“remember it is not the donor’s moneY anY more’ book review the society of equals

Revolution revisited

BY Daniel Ben-ami

he idea of equality often evokes heated passions. For its critics it can represent insufferable political correctness, punitive taxation and Teven the nightmare vision of violent revolution. In contrast, its supporters typically see it as a humane, just and eminently reasonable value. Yet if tempers remain subdued it becomes possible to appreciate the trickiness of the concept. Most people support some notions of equality even if they reject others. For instance, there is no contradiction between favouring equal rights while dismissing the idea of an equal income for all. Indeed, even those who call them- selves conservatives generally uphold some forms of equality nowadays. The notion of equality of opportunity is widely accepted among all shades of political opinion. It is also relatively rare today to hear an explicit defence of the idea that women or particular ethnic groups are inherently inferior. Whether they have achieved true equal- ity is another matter. Pierre Rosanvallon, one of France’s leading public intellectuals, has stepped into this minefield to provide a thoughtful work. Being French, it is more laden with erudite references and theoretical reasoning than an Anglo- Saxon equivalent would be likely to have. Nevertheless it is well worth per- sisting. Partly thanks to a clear transla- tion by Arthur Goldhammer, a Harvard academic, the argument is accessible. Rosanvallon sets himself the task of “restoring the idea of equality to its former glory”. In his view, widening ine- quality – a global phenomenon rather than one restricted to France – is tearing democracy apart. It is severing social bonds and undermining solidarity. For Rosanvallon there are close parallels between what he sees as the

52 |ft.com/wealth Rosanvallon sets himself“ the task of ‘restoring the idea of equality“ to its former glory’

Close parallels: present crisis and the challenges of the is also necessary to examine how he Delacroix’s late 19th century. Back then the world reached them. This is a tricky task as he ‘Liberty Leading was becoming globalised for the first covers an enormous amount of ground. the People’ time, while inequality was widening. From a historical perspective his depicts the Nationalism, protectionism and xeno- clear-cut distinction between demo- Paris uprising phobia were emerging in response. cratic socialists on one hand and sup- of July 1830 – The solution that transpired was porters of xenophobia or nationalism is Rosanvallon a new conception of social justice misleading. Chauvinism was never the sees similarities involving the redistribution of wealth. preserve of the right. The willingness with current Rosanvallon, who was associated with with which Europe’s leftist parties led problems France’s non-Marxist left and the their supporters into the carnage of the ­moderate CFDT trade union, makes first world war is the starkest illustra- clear that he is a supporter of this tion of this. democratic socialist alternative. Nor does Rosanvallon adequately However, he does not claim that the grasp the character of western leaders’ same solution can be replicated exactly. current obsession with the dangers Although there are some parallels, the of excessive inequality. Their concern world has moved on. is not, as through much of the 20th Instead Rosanvallon favours an ­century, with the potential for violent approach centred on three main themes. revolution. Rather, they are acutely First, he is worried that a rigid social anxious about the possibility that soci- structure has emerged with an embed- ety will break apart. ded hierarchy. To tackle this challenge, This exaggerated fear of social he favours a reform of inheritance tax. breakdown informs the discussion Second, he argues for a new develop- of what is sometimes referred to as ment model that downplays the impor- political correctness. Politicians are tance of economic growth. In his view, intent on regulating popular behav- ecological limits need to be respected. iour – including what we say, drink and Finally, he is fearful of what he calls eat – because they are worried that the separatism, or what an English speaker alternative is acute conflict. might refer to as social fragmentation. The obsession with social cohesion He favours a dynamic urban policy as a also explains the hostility to “greedy first step in tackling this challenge. bankers” and corporate “fat cats”. Despite the differences in Contemporary egalitarians are more ­terminology this is an agenda with preoccupied with curbing the excesses which many US or British politicians of the rich than making everyone more would feel comfortable. Support for prosperous. W social mobility, sustainability and social inclusion are mainstream in the Anglo- The Society of Equals, by Pierre phone world. The main differences Rosanvallon (Harvard University Press, would be over the level of taxation he 2013, $35.00) seems to favour. But it will not do to simply endorse The writer is the author of Ferraris for or reject Rosanvallon’s conclusions. It All (Policy Press 2012)

the quote: “The term ‘equality’ was originally identified with ideals of emancipation and autonomy and thus with the creation of a society of proud individuals, living as equals not set apart by

PHOTO: corbis humiliating differences.”

ft.com/wealth | 53

Car review

jaguar f-type The F-Type’s small si“ze makes iT easy To “ place on The road

The company has struggled to find a Fast cat with looks successor to that early aesthetic glory. The F-Type is Jaguar’s attempt to reinvigorate the E-Type heritage with aguar has been responsible BY rohit jaggi low and curvaceous, it even had some a successor worthy of the next letter in for some of the most beautiful of the appearance of a flying saucer, the alphabet. cars in the world in the course with wheels tucked well away inside A two-seater, drop-head sports car, of the UK marque’s near its wheel arches. Speed demons loved the aluminium-bodied F-Type comes 90-year history. My favourites the 150mph performance, and even in three versions – the base model from its early days are the non-drivers could marvel at the length with a three-litre V6 engine packing Jmuscularly graceful SS100, of a bonnet that promised so much 340hp, an S version with 380hp from the stately Mark V, the curvy C-Type performance – a claim that many male its V6, and a V8 S that has a five-litre racer and the finned racing D-Type – owners were happy to extend from the V8 putting out 495hp. Prices run from and, of course, the second series of the automotive to the personal. £58,520, £67,520 and £79,985 respec- original sporty four-door saloon, the The purity of the first, six-cylinder tively. All are supercharged, and the S Mark II, favoured by affluent enthusi- E-Types was compromised with the version adds a limited slip differential VID ShEPhErD, NICK DIMBLEBy asts and villains alike. more bulbous V12s that followed. And and adaptive sports suspension. DA But it was the E-Type that really the 1980s successor, the XJS, was, Weight is about 1.6 tonnes for the seemed out of this world in 1961. Long, looks-wise, a bit of a barge. V6 versions and about 1.67 tonnes for PhoToS:

54 |ft.Com/wealth be said to be underpowered, but the S version is sharper – more of the good bits and no extra drawbacks. The V8 S, though, is less involving because it does not need to be worked as hard. The V8’s engine sounds lazier, too, which made me feel I was going slower than in the V6 S. With congestion soaring and tolerance of speeding declining, no one needs any incentive to go faster. The V6 S also feels slightly better bal- anced – which it is, with 50:50 front- Compact but back weight distribution. muscular: the I drove an original E-Type recently F-Type takes and was struck by how crude it was to style cues from drive by comparison with pretty well other Jaguars all of today’s sportscars. The F-Type in the current effortlessly improves on that aspect of range and nods the marque’s heritage. to the E-Type As for its looks, there are some

aspects of the F-Type that do seem gimmicky, such as the interior lighting

turning red when the dynamic mode selector is in the sporty setting. The The hydraulically rest of the passenger compartment, “ however, achieves its aim of allowing as“sisTed sTeering adds the driver to focus on the driving. To The car’s poise But the E-Type owes much of its success to its looks. The F-Type works within the current when needed are more than just gim- micks, and the retracting spoiler on the boot lid helps glue the rear of the car to the road. on the road, the F-Type immedi- ately feels taut, and its small size makes it easy to place on the road. That is important on European back roads, stats where more and more vehicles seem to EnginEs: take up the entire width of their lane. 2995cc V6 sportscar design vocabulary of The steering, assisted hydrauli- supercharged, muscular, even sharp styling and refer- cally, rather than electrically as many 340hp/380hp ences some of the other cars in Jaguar’s manufacturers are opting for, adds to (V6/V6 s); range, with even a nod to the E-Type – the car’s overall poise. 5000cc V8 a lot of languages to speak at the same the V8 – relatively light by the stand- An active sports exhaust – stand- supercharged, time. That it looks pretty good from ards of today’s bloated cars. Lightness, ard on the S models and available as 495 hp all angles is all the more remarkable, as manufacturers are rediscovering, an option on the base F-Type – brings Top spEEd: therefore. It is not the firebrand revo- has all sorts of benefits, from the abil- the switchable option of the sort of 161/171/186mph lutionary that its 1961 predecessor was, ity of suspension to deal with bumps mechanically busy, booming sound- (V6/V6 s/V8 s) but it is definitely worthy of carrying and cornering forces, to reducing fuel track that sportscars ought to have, ACCElErATion: the flag. W consumption. complete with popping and banging on 0-6omph in Another area that Jaguar has put the overrun – just like the BSA motor- 5.1/4.8/4.2 View a video of Rohit Jaggi driving a lot of effort into is aerodynam- cycles I used to have. seconds the Jaguar(s) at ft.com/f-type, and a ics. Flush doorhandles that open out The base model F-Type could hardly (V6/V6 s/V8 s) slideshow at ft.com/wealth

ft.Com/wealth|55 LifestyLe rohit jaggi

Strut your stuff

very part of the cockpit photographs by worst, when a gust of wind caught it turn. the Moth does. this is where the around me is vibrating at Charliebibby while performing what the tiger Club benefit of an open cockpit comes in. wildly varying frequen- calls a “crazy flying display” in 1963, the out-of-balance turns – with the aircraft cies. the gauge needles resulting crash was so severe top and skidding slightly sideways – can be felt are bouncing across 20-30 bottom wings had to be replaced, and on one cheek. A loose strand of cockpit degree arcs, allowing only the front fuselage and cockpit rebuilt. padding starts to trail sideways instead Efor a rough idea of the happily, the pilot was uninjured. of directly towards my face. performance of the engine that sits just the simple construction, with a steel despite the shaking and noise, a inches from my feet. the control stick and wood frame covered by treated light hand on the controls produces the is shaking as the 80mph slipstream cloth, favours easy repairs – the air- best result. As does the confidence to buffets the ailerons, elevator craft’s most recent rebuild was in 2008. wait until the Moth has settled down and rudder. i can hear the i flew a tiger Moth once before, in after each change of direction or speed wires holding the wood and 2005, seduced by the idea of emulating before making another adjustment. fabric wings in place strain- my grandfather, whose tales of aerial Most Moths can be used for aero- ing in the wind. derring-do in a tiger Moth above delhi batics. Loops can be accomplished A thousand feet above in the 1930s were relayed to me from in a surprisingly small vertical space, the ground, in any other an early age by my mother. and even with the top wing restricting aircraft, that cacophony of the engine needs to be started the visibility, the open cockpit means i feel noise and movement might traditional way, by a helper hand- part of the sky, rather than insulated be a cause for concern. Yet swinging the propeller. once lined up from it. this 1930s de havilland dh 82 on the grass runway, though, dialling A pilot with the experience to finesse tiger Moth, has expe- in full noise and vibration from the the controls can use the Moth for more rienced it all a million engine swiftly produces enough of a than sunny-day pleasure hops. A range times before. designed slipstream to raise the of 300 miles and cruise speed of 70mph to a british government tail off the mean it can be used for going places too. specification for training ground and the thing to look out for is landing. aircraft, the model first flew improve the these aircraft were built when aero- in 1931 and was not supplanted very limited view dromes were simply fields in which in its UK role until 1952. during forward. take-off one landed directly into wind. Laid- that time it was the initial trainer follows swiftly. out runways mean one has to wary of for thousands of pilots. in the air and crosswinds, for which Moths are not About 9,000 were built, and accord- level at 1,000 feet, particularly good at compensating. too ing to the de havilland Moth Club, some of the engine noise is reduced much bank into wind risks touching a about 1,000 survive. the one i am in by throttling back to cruise settings, lower wing on the ground before the was built 80 years ago and is from the but the sound of the wind battling its undercarriage. first batch of six tiger Moths made. way through and around the Moth’s Meanwhile, speed and rate of its Gypsy Major 1 four-cylinder engine structure takes over – so much so that descent are crucial to avoid embarrass-

develops 130hp. As the aircraft weighs hearing anything through the intercom ing or damaging bounces. even without just 1,115 lb empty and only 1,825 lb and over the radio is a battle. brakes, a Moth, aided by a skid at the fully loaded, that would give rocket- Modern aircraft do not require rear rather than a wheel, will stop

ship performance were it not for the much use of the rudder to balance a commendably quickly – within as little drag of two full wings and all the struts as 133 yards – from a well-executed and bracing. the wires holding the approach. this Moth has been operated since “ the venerable tiger Moth is a great 1957 by the tiger Club, based at Lash- wo“od and fabric wings in lesson in ageing gracefully. pilots might enden headcorn aerodrome in Kent. place strain in the wind need to make a few concessions to its not surprisingly for an aircraft used as ancient structure, but it can still be as a military trainer, racer and stunt plane, sprightly, and provide more fun, than it has had its share of mishaps. in the any of its younger successors. W photo: ed robinson

56 |ft.com/weaLth

the open cockpit means i“feel part of the sky, ra“ ther than insulated from it

Flying high: at just 1,825 lb fully loaded, the DH 82A Tiger Moth would give rocket-ship performance were it not for the drag of the two full wings

View a video of Rohit Jaggi flying the Tiger Moth at ft.com/tiger-moth and view a slideshow at ft.com/wealth

ft.com/weaLth|57

the business guru steven murphy With the pace of busine“ ss to“day, there is no such thing as a five-year plan The art of online retail

teven Murphy has “Artists make more money by tour- been chief executive of ing and from YouTube [the video- Christie’s International, sharing website] than from anything the auction house, since else right now in the music business. In September 2010. He held the book industry, Amazon, the online various senior posts prior retailer, now accounts for something Sto that, including chief like 40 per cent of the US market; it executive of Rodale, the US-based pub- was 7 per cent not that long ago. At the lishing company; managing director of same time, ebook sales are increasing Disney Publishing Worldwide; presi- by double-digit percentages. dent of EMI Music/Angel Records; and “The fact that it has not yet division president at Simon & Schuster, happened to the art business does not the publishing house. He holds a mean it will not do so. You can down- bachelor’s degree in English literature load and own a piece of music. You from Georgetown University. cannot quite do the same with art, but “One of my favourite lines is from the interaction is coming. a John Lennon song: ‘Life is what “The big challenge in these busi- happens to you while you’re busy nesses is to make sure you are asking making other plans.’ It is really impor- the right question and solving the right tant to have a plan, but then recognise problem. Here is a case in point. When that you have to let things happen. I was at EMI, we participated in an “I entered publishing without industry consortium choosing the right consideration of any other industry tape to put on a CD to make sure that because I read literature at university no one stole the music from the record and I wanted to be involved in working shop. Meanwhile, several young people with authors, books and publishing. I were creating Napster, the free just knew that was what I wanted to do. online song-sharing service, and the “I learnt swiftly that you can love music went sideways. In trying to books, but you are not there to be an protect against the theft of music at author or a critic. [It is] about the busi- the physical retail level, we were asking ness of getting a book into the shops the wrong question. The right ques- and getting it sold. The same is true in tion would have been, ‘What would be the music and art businesses. the best way to take advantage of this “The second most important thing I new technology to get more music into have learnt is that your challenges can more people’s hands?’ be your opportunities. “With the pace of business today, “The very big challenges we are driven by technology, there is no such facing right now in the arts business thing as a five-year plan. You will be are also huge opportunities, and they writing a new three-year plan almost are similar to what has happened in every year. music and book publishing already. “That three-year plan has to be The main one is the clear disinterme- based on having the courage to ask the diation potential of online connectivity right questions, stepping off your own between collectors and artwork. train, looking back, and deciding where BY jonathan moules “The feasibility of marketing, selling you want to go. The answer to where photograph BY rosie hallam and acquiring music online upended you want to go is best determined by the industry. It has not quite righted your ultimate client/consumers – your itself yet, although it is finding a whole audience – and not by your competitors new form of existence in this new or the competitive set, and not by the environment. business model you currently have.” W

58 |ft.com/wealth