There is something absurd about posturing MPs pretending to be upset that the Royal Mail share sale was underpriced and that taxpayers have been massively short changed as a result. Where were these same MPs when it mattered and the taxpayer really was stuffed over Royal Mail?
That was 18 months ago when George Osborne agreed that the state should take responsibility for the Royal Mail pension scheme and with it responsibility for meeting the cost of that fund’s massive deficit. There was no national or economic reason for him to do this; just politics. He did it because he wanted to privatise the Royal Mail, but there was absolutely no chance of anyone wanting to buy it as long as it had the deficit round its neck and was paying £300m a year in special levies to try and bring it under control.
Compared to any profit foregone on last week’s share issue, those pension figures really are breath-taking. As Mr Osborne announced in the April 2012 budget – not in Parliament but in the small print of the documents published at the same time – the deficit was £9.5bn. The scheme consisted of £28bn of assets which he commandeered to bolster his claim that he was on target in his bid to reduce the country’s borrowings, and £37.5bn of liabilities – and it is that £37.5bn for future pensions which taxpayers will now have to pay.
So what Mr Osborne did was take a £9.5bn hit so he could sell the business for £2.5bn – which tells you all you need to know about how his economics is driven by his politics. But barely an MP raised a murmur; there were no demands for a select committee inquiry; and none of them got up early to go on breakfast television to explain what it meant for the taxpayer.
Finally, much as I hate to say this, I don’t think we should be too hard on the investment bankers who advised on the float. There is almost no one still around who worked on the last privatisations 20 or more years ago and the current lot simply did not understand what would happen to demand if the public enthusiasm was rekindled, which in this case it most certainly was.
That, however, was not something which could be predicted in advance, and although in theory the business now has a price of getting on for £1bn more than when it was offered, it does not follow that it could have been sold at that price in the first place.
If people sense a bargain they will open their wallets and then the thrill of the chase sucks them in to chase the price higher. But if something looks a bit costly to start with you don’t get that effect, you don’t get the excitement and you risk the offer languishing neglected and undersubscribed. Then you really have to under-price it to stir up anyone’s interest and it still takes years for the stigma of failure to lift from the business. So there are real downside risks for being too greedy.
That risk has been avoided and the fact the shares have gone well should help people think positively about Royal Mail, boost staff morale and make them feel like winners for the first time in a very long time. If that happens the few hundred millions pounds forgone at the time of the sale will come to be seen as money well spent.
Fund stars at opposite ends of the spectrum
Neil Woodford is one of the most respected fund managers in the country – a notable achievement for all the fact that the majority of fund managers don’t do much.
Over the last 20 years he has been formidably effective at Invesco Perpetual by managing money the old-fashioned way – finding good businesses at reasonable valuations and having the patience to hold them and reap the benefits of their growing prosperity over the long term. It is surprising how rare that is these days – though Terry Smith at Fundsmith has also recently demonstrated how effective it can be.
Anyway, it was obviously big news that Mr Woodford has decided to branch out on his own next year, and it will be fascinating to see if he can continue to excel.
Going for him is the fact that he will have much less money to deploy so won’t have to find so many winners; going against is the fact that he is introspective and hates making public presentations, so one wonders how he will cope with being the man they all want to meet –the glad handing, the sales pitches, the being nice to people you really can’t stand – and having to run a business rather than simply run the money.
However, Mr Woodford’s announcement overshadowed another notable fund-management story this week right at the other end of the spectrum. Where Invesco is huge, Liontrust is tiny, and where the former has gone from strength to strength in recent times, Liontrust is just emerging from a near-death experience.
Five years ago it came close to collapse, but the great achievement since then is that under a new team headed by chairman Adrian Collins and chief executive John Ions, it has been restored to health and now has a small stable of excellent, high-performing funds. This week it announced expansion into multi-asset management as a further step to broaden its appeal and offer to investors – not significant in the greater scheme of things but another milestone in what is also a remarkable success for those involved.Reuse content