Monday, April 17, 2006


Fiscal Paradise Competition

Two articles on London's rise to prominance in financial services caught my interest today, one more than the other. The latter was "London's New Confidence" by Martin Dickson, a writer from the Financial Times and appeared in the Los Angeles Times; it mostly highlighted technical progress and infrastructure, ignoring fiscality, and gave more evidence of success than reasons why.

The article I found much more interesting was Super rich, by James Meek, in The Guardian. It brings to mind a French author's recommendation about twenty years ago to make France a fiscal paradise, although I cannot really recall his arguments. In today's article, we get more than theories and principles, we get lots of research and observations by people close to the action: money managers (who interestingly, speak without the veil of anonymity; perhaps their clients don't know their names?):
After a bit of scenery and context, we get some numbers. For instance, it includes juicy info from Tulip Financial Research, a firm specialising in studying the spending habits of the very wealthy in Britain; using a computer model, it looks not at overall wealth but liquid assets - cash and the things people own that could quickly be turned into cash:
The firm's most recent survey suggests that, in the five years since 2000, Britons' liquid assets have increased by more than 50%, far ahead of inflation, from £1trn (that's £1,000bn) to £1.6trn.

Tulip follows the standard division of the rich into four classes. First is the "mass affluent", 4% of the population, who now have average liquid assets of £144,000. Then comes the High Net Worth (HNW) individuals, 0.7% of the population, with average liquid assets of £665,000. There are 135,000 people in the third class, the ultra-HNWs. What this means is that Britain contains a community the size of Peterborough whose average liquid assets (which doesn't include their first or second home) average £6.4m. This one group, 0.3% of the population, owns almost half the liquid assets in Britain, and they are on average 66% richer than they were five years ago. The last group, the super-rich - the thousand richest individuals in Britain - have seen their liquid assets increase by 79% in five years, to an average £70m each.

79% in five years, when little gals and guys were making 2% per year on their savings accounts, or zero after inflation. So, it is not just in the U.S.A. that the rich are winning the class war.

Then we get clues as to who they are, and why the out-of-sight rich from around the world have the money managed in London: tax breaks, and available competence.

Finally, a nice introduction to "family offices":
[...] The ultimate symbol of true wealth in 2006 is not a Bentley or a house in Kensington Park Gardens, or a diamond as big as the Ritz. It's something called a "family office" - a full-time team of lawyers and accountants dedicated to the sole aim of protecting and cultivating one family's wealth further into the future than most governments, let alone ordinary people, would ever dream of planning. David Harvey of Step suggested that a sensible rich family would be advised to think 100 years ahead. "For a lot of families, the question is: can we take it as far as generation three?" he says.

I vaguely recall reading in the Los Angeles Times several years ago (1990's? Were there a lot of junk-bond billionaires then?) that the challenge for the real estate market was to find enough exceptional properties to satisfy the 10,000 clients with, if not billions each, certainly enough money to own "homes" at several geographically-favored locations. That seemed like too many clients; was I naive?
Seb Dovey says there are about 2,500 active family offices across Europe, three times that number in the US- worldwide, perhaps 11,000 family offices, each with more than $100m to invest. "It's significant that the rate of new family offices opening up has increased," he says. "We now estimate about 20 new family offices are being set up across Europe every month. In the UK, that means two or three offices a month."

Back-of-an-envelope time: 1.1 x 10 4 (11,000) for a global population of 6.5 x 10 9 give a proportion of about one "family office" per 6 x 10 5 (600,000) people. Twenty new offices per month would be proportional to population of growth of 12,000,000 per month, 144 million per year, which is about two per cent. (double-check: 20 x 12 is about two percent of 11,000). "Family offices" are apparently growing at the same rate as population.

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