Jeremy Warner's Outlook: City's powers of wealth creation make financial services Britain's new industrial revolution

Jupiter on Patrick Healy's radar screen; ITV search turns from farce to tragedy
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The Independent Online

The stock market flotation in a couple of weeks' time of a somewhat obscure hedge fund group which specialises in emerging market debt has, perhaps predictably, failed to excite a great deal of press interest. Even for those of us that make it our business to study the deeper intricacies of financial markets, this is hardly one to set the pulse racing.

Yet perhaps it should do, for Ashmore Group is slated to come to market with a value of around £1bn. That makes it one of the biggest main market listings of the year. We'll forget the tidal wave of foreign secondary listings that has engulfed the London Stock Exchange in recent years.

It also makes the managing director, Mark Coombs, a lawyer by background now in his mid forties, worth around £590m. He's cashing in some of these chips in the flotation, which is perhaps a warning sign that this is as good as it gets for his company.

Yet it is not the fundamentals of Ashmore's prospects I wish to examine here, but rather the City's growing and quite astonishing capacity for creating a new breed of dollar billionaires. Not since the industrial revolution has Britain seen anything quite like it.

Of course, every generation gives rise to a smattering of rich and smart entrepreneurs. In recent years, however, we have begun to see both the number of such winners at the roulette wheel of life, and the scale of the winnings, multiply out of all proportion to anything experienced in recent historical times. As I say, you have to go back to the cotton barons of the industrial revolution to see anything remotely similar.

There have always been a lucky and determined few who have come from nothing to break into the ranks of the world's super rich. Yet at the moment, it is happening all the time and in growing numbers. Not all of them are from the financial services industry, but an awful lot are. The wealth about to be crystallised by Mr Coombs is not exactly commonplace these days, but nor is it rare.

There are literally hundreds of people working in London in various complex areas of the wholesale financial markets who are worth something similar. Because they value their privacy, you tend not to see them on the various rich lists so beloved of certain publishers. Those worth more than £100m can now be numbered in their thousands. They are a big and growing club.

They are not all financiers. Some are only parasites on the City's belly, in the sense that their businesses derive their revenues in some shape or form from the wealth that trickles out of the City into the wider economy. Yet the bulk of them are. Nor is this by accident.

The City is Britain's new industrial revolution. Financial services are an explosive, growth industry in which modern technology has allowed the word globalisation to have true meaning, and, rather in the way that Britain stole a lead on the rest of the world during the early years of the industrial revolution, the City is more successful at them than almost anywhere else.

It now seems almost laughable to think of the angst that was expended worrying about whether the introduction of the euro would catapult Paris or Frankfurt ahead of the City as Europe's leading financial centre.

Today, around 80 to 90 per cent of European capital market transactions of any significance take place through the City. A combination of Sarbanes-Oxley and the madness of George W Bush's foreign policy has meanwhile snuffed out any realistic chance New York had of rivalling London as the world's leading international centre. Instead, it must content itself with servicing only the American domestic economy.

We should enjoy this renaissance in Britain's affairs while we can. History teaches that it cannot last. The speed with which Asia is developing suggests that it may be comparatively short lived.

Jupiter on Patrick Healy's radar screen

Nobody expected Patrick Healy, managing director for Europe of the San Francisco-based buyout specialist Hellman & Friedman to stop at Gartmore when he bought the UK fund manager from Nationwide Mutual Life Insurance in May this year for around £500m. He surely had wider ambitions in London-based fund management, it was widely assumed, and indeed he has, to judge by the usually reliable City rumour mill.

This firmly places his next stop as Jupiter - no, not the planet, but the fund manager which Commerzbank is hoping to IPO early next year with a stock market value of around £800m-£900m. Would Commerzbank sell to him, and, if so, what would he have to pay? Commerzbank has tried to disentangle itself from Jupiter once before, but the bear market of three or four years back eventually forced it to abandon the quest.

Commerzbank's need was great, but it wasn't so desperate that it had to sell at any price, still less did it have any intention of selling to John Duffield, the founder of Jupiter who had quit acrimoniously to go off and set up in direct competition under the New Star Asset Management name.

Since then, valuations have returned to more acceptable levels - hence the decision to IPO. In any such public offering, Commerzbank wouldn't be able to sell the whole thing; there wouldn't be the investor appetite to take the whole lot off the German bank's hands. And for what it is worth, Commerzbank says it wants to retain a big stake in any case for strategic reasons. This sounds like making a virtue out of necessity to me, and I'm sure that, given the chance of a clean exit at a reasonable price, the Germans would grasp it.

Yet even if Mr Healy could get close to the sort of valuation offered by the IPO - in fact he's not prepared to offer much more than £500m to £600m with perhaps another £200m riding on future performance - it's still not clear he would succeed. Asset management is a people business, and if the managers who run the funds don't like it the deal immediately becomes problematic. The managers will walk, and their clients with them. Mr Healy would fast find that he had bought the sum total of nothing.

Crunching fund management businesses together is notoriously difficult, with apparent synergies and cost-cutting opportunities nearly always cancelled out by the effect of plunging morale and loss of momentum. The clients very probably wouldn't like it either. Some have already said as much. Without the support of Edward Bonham-Carter, the joint chief executive of Jupiter, and certain key other managers both at Jupiter and Gartmore, Mr Healy's plan is a non-starter. Everyone's got their price, of course, and I'm sure Hellman & Friedman is prepared to pay handsomely for the acquiescence of key players.

Yet I wouldn't bank on him succeeding. The negotiation will be a fascinating one. For the moment, Commerzbank insists that it is still to be an IPO. Up until a month ago, RWE, the German utilities giant, was saying very much the same thing about plans to dispose of Thames Water. Today it seems certain the company will be sold to private equity. The same fate could befall Jupiter. There are quite a few twists and turns left to go through yet before Jupiter's future becomes clear.

ITV search turns from farce to tragedy

No wonder Sir Peter Burt, chairman of ITV, wants out. If he wasn't planning to go voluntarily, there would already be a posse out looking for his head. The parlous state into which ITV has sunk is a disgrace for which he as chairman must be held accountable. Having tolerated a chief executive who he presumably knew wasn't up to the job, Sir Peter then failed to prepare the succession, and now finds himself without a chief executive at all as the ship sinks steadily beneath the waves.

The charitable explanation for the charade of an executive search which is going on to fill Charles Allen's shoes is that the decision has already been made, and that ITV is only waiting for Stephen Carter, the former Ofcom chief executive, to serve out his gardening leave before appointing him. Virtually every other conceivable candidate, including yesterday the former BAA boss Mike Clasper has ruled themselves out. Mr Carter is the last man standing. Yet even he commands only half-hearted support in the City. What a farce.

j.warner@independent.co.uk

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