Investors queue as Europe prepares for privatisation: Nic Cicutti warns that the rewards may not be assured

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The Independent Online
Investors who became part of the Eighties 'share-owning democracy' by buying shares in privatised companies have been rewarded with returns that consistently outstrip the stock market average.

Someone buying pounds 100 of British Telecom shares in November 1984 would now be holding stock worth pounds 350. By comparison, a fund investing pounds 100 in the FT-SE 100 share index would be worth pounds 285.

Water shares have doubled since December 1989 while the FT-SE's value has risen by only 41 per cent.

The potential for privatised companies to perform better than the market has led to massive interest in European firms about to undergo the same fate.

More than 50,000 potential clients have called the hotlines of two fund managers, Kleinwort Benson and Mercury, about their soon-to-be launched European privatisation investment trusts.

Kleinwort Benson's trust has so far attracted pounds 320m from private and institutional investors while Mercury's own fund has raised more than pounds 75m.

Johnson Fry, the financial consultants, have set up a Managed French Privatisation Service that aims to apply for pounds 1,000 of shares for each of the 20 privatisations expected to take place in the next two years. The London private client stockbroker Killik & Co launched a similar service last year.

Yet investors should beware simple comparisons between privatised industries in different countries. Striking workers at Air France, one company about to be privatised, showed they will not accept a restructuring exercise without a fight.

Simon White, managing director of Kleinwort Benson Investment Trusts, admitted: 'There are many differences between privatisation in the UK and Europe. They have much more restrictive labour laws. But we still think that there is a willingness to tackle the structural problems many of those industries are facing.'

Richard Royds, managing director at Mercury Fund Managers, which is launching the second privatisation trust, added: 'Despite the differences between us and the rest of Europe, we are confident that in the next few years the same realities will express themselves over there.'

Not every privatised company has shown the same high returns. An investment in British Steel is worth the same today as it was at launch in December 1988.

Shares in British Aerospace, privatised in February 1981, have not fared so well, either. They rose almost fivefold by mid-1989, when a pounds 100 investment was worth pounds 490. In three years they were worth just pounds 50, although they have now risen to pounds 260. The same amount invested in the FT-SE 100 would be worth pounds 525.

----------------------------------------------------------------- Table: PRIVATISATION PERFORMANCES ----------------------------------------------------------------- FT-SE 100 Launch Change change date % % British Aerospace Feb '81 +160 +425 BT Nov '84 +250 +185 British Gas Dec '86 +145 +108 British Steel Dec '88 0 +90 Water Companies* Dec '89 +104 +41 Power Companies* Dec '90 +140 +59 ----------------------------------------------------------------- *Sector averages Source: Datastream -----------------------------------------------------------------

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