Jeremy Warner's Outlook: Corporate Britain seems to be up for sale as Germany's E.ON targets ScottishPower

Bolton's special situations does splits
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Last night's admission by E.ON, the German utilities giant, that it is considering a bid for ScottishPower comes hard on the heels of Deutsche Post's approach to Excel, the logistics group previously known as National Freight Corporation, and Saint-Gobain's £3.6bn hostile bid for BPB. Also awaiting only the Competition Commission's go-ahead is Paris based Euronext with a bid for the London Stock Exchange itself.

Why the sudden rush of European interest in British companies? One reason is buoyancy in corporate profitability. Corporate Europe is throwing off cash as never before. The present penchant for share buy-backs and other forms of capital repayment is all very well, but there is only so much good behaviour executive management can be expected to take before boredom sets in and, attracted by the siren calls of fee-hungry investment bankers, they are tempted back into overseas adventuring.

The other reason is that Britain's open door approach to inward investment makes it easy to come shopping here. It's not nearly so easy the other way around, as Pepsico has discovered in daring to float the idea that it might bid for Danone, the French foods group. Yogurt makes an unlikely national champion, but the furore caused by the mere hint that Danone might fall to the dastardly Americans prompted the French government to issue a list of "strategic industries" which it thought worthy of protection from foreign takeover.

Notwithstanding the increasingly international nature of most share registers, there is still a more tolerant attitude to empire building on the Continent than there perhaps is in Britain and the US. They've yet to learn the hard lessons of value destruction it can bring about.

As it happens, the UK stock market is already about 30 per cent owned by foreign investors - stringent new solvency requirements have driven pension funds and life assurers, the traditional holders of UK equities, into bonds to the advantage of overseas investors - so it may not seem to matter very much if they own it outright.

It is a curiosity that the fastest growing large economy in Europe should find itself under corporate siege from two of the weakest. Yet it is also instructive. It means corporate Europe finds opportunity and value in Britain that it cannot find back home. Countries that reject such inward investment only succeed in damaging their prospects for growth and employment.

Bolton's special situations does splits

Few active fund managers outperform for very long, which is why the Financial Services Authority insists they always add the rider that past performance is no guide to the future. In investment, as in much else, what goes up like a rocket tends to fall back to earth again as a spent stick. Just occasionally, however, a fund manager will make it into orbit. And for a very, very rare few - Anthony Bolton of Fidelity's Special Situations Fund being a case in point - there is the chance to escape gravity altogether.

An investment of £1,000 in his special situations fund when it was founded in December 1979 would today be worth £100,000. Not even property prices in north London has done as well as that. Over both a 25 and 10-year period, no other UK equity fund has performed as well, and on a seven, five, three, two and one-year perspective, Fidelity has consistently been in the top quartile. Yet even Mr Bolton seemed to admit that his success was unsustainable yesterday when Fidelity announced proposals to split the fund in two. There were also measures to deter new investors.

With £5.4bn of funds under management, the special situations fund is already far and away the largest UK equity fund of its type. Over the last few years in particular, a period in which many fund managers have struggled to win any new funds at all, there has been a monumental inflow of capital.

Put simply, Mr Bolton has become a victim of his own success. As all investors know, the bigger an investment pot becomes, the harder it gets to invest the money successfully. There are just not enough special situations or obviously undervalued companies out there for the billions to pour into, or to be more precise, not enough for a single investment team to be able to get their heads around. Unusually for a fund manager as successful as he, Mr Bolton tends to turn his entire fund over every 18 months. The bigger it gets, the more difficult sustaining such a high level of investment churn becomes.

We've been here before. Even the mighty George Soros was forced eventually to split his Quantum fund up to answer charges of poor performance, and today, few hedge fund managers will take on any more than $500m because of the difficulty of investing it profitably. Mr Bolton is perhaps acting pre-emptively before the same thing happens to him.

Mr Bolton made his reputation and fortune from investing in small and mid-caps. As the fund has grown, he's moved progressively into larger, FTSE 100 companies. Fortunately for him, this has coincided with a period when big caps were out of favour, and therefore provided better value for money than they have in the past. That particular investment rotation may now have run its course, so it makes eminent sense to split the fund into more manageable chunks.

Only one problem. Investors in the Fidelity Special Situations Fund are investing in Mr Bolton, and his seeming powers of clairvoyancy. To sugar the pill, Mr Bolton will continue to run both funds until the end of next year, and one of them for a further year after that, before moving off into the ether to provide mentoring for Fidelity's various research teams. Can the success of the funds outlast the man?

It will be interesting to see, but I wouldn't put money on it. Mr Bolton is not really the "quiet assassin" of media legend, a sobriquet he acquired by blackballing Michael Green as chairman of ITV.

In fact he very rarely gets directly involved in shareholder activism of that sort, one other notable exception being the role he played in encouraging small shareholders to form an action group to sue the Government over the effective renationalisation of Railtrack. In practice, he tends to leave the assasination to others.

His rather is a contrarian approach to investment, diligently researched and perfectly executed. It is sometimes said that successful investment is more art than science, and Mr Bolton certainly seems to have an almost uniquely good nose for it. He can sniff the undervalued company a mile off.

He hasn't always got it right. He underperformed in the recession of the early 1990s. There was another period of relative underperformance in the late 1990s, when he failed to ride the growth stock phenomenon quite as vigorously as his some of his peers. A value-driven investor was always going to miss the madness of the technology bubble, for there was ultimately no value in it.

Mr Bolton has made huge quantities of money both for his followers and in his own right. Fidelity is a private company, so it's hard to know how much he's paid, yet his non appearance in "City rich" lists is almost certainly an oversight. The story is possibly apocryphal, but a recent bond issue by Fidelity is said in part to have been to fund Mr Bolton's accumulated bonuses.

He'll be a hard act to follow, but just in case you want to back his final few years before the mast, Fidelity is upping the initial charge from 3.5 per cent to 5.25 per cent. Could Mr Bolton's talents possibly be worth such a hefty upfront charge, or now that there is a clear leaving date, is his star be about to dim? Such is Mr Bolton's notoriety that many will think it cheap at the price. forget the FSA's health warning; 25 years of overperformance is as good an indicator of future as you are ever likely to get in this life.

j.warner@independent.co.uk

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