Jeremy Warner's Outlook: Man Group stumbles, but for some reason the institutions keep piling into hedge funds

Blunkett gives clues on pension reform - Lord King flies off into the sunset

In point of fact, the Man figures are not as bad as they seem. Dollar strength against the euro shaved some $600m off funds under management, while a high level of redemptions was only to be expected in a quarter where credit rating downgrades for General Motors and Ford had played havoc with many hedge fund trading positions. Some hedge funds were widely reported to have been in trouble, and many suffered crippling losses.

Yet though the industry's collective reputation has plainly suffered a knock, structurally there is every reason to believe that its position will continue to grow. Personally, I've always been sceptical about "absolute return", which has long seemed to me just a clever way of charging more for managing other people's money. The really clever operators take a fair chunk of the upside too. Some of them achieve spectacular returns, but in the round they've struggled, particularly in recent months, to produce anything out of the ordinary. Whether hedge funds are in truth any more than just a high risk form of building society account is an interesting question.

The Man figures display signs of disillusionment, but few in the industry expect this to be any more than temporary. The amount of institutional money switching from traditional asset classes to hedge funds is expected to continue growing. Man is as well placed as any to ride this switch.

Blunkett gives clues on pension reform

The Fabian Society yesterday became the latest organisation to back the idea of a "citizen's pension", a flat-rate basic pension payable to all, indexed to earnings and set at the poverty-prevention level of the Government's means tested minimum income guarantee of £109.45 a week for a single pensioner. The National Association of Pension Funds and the LibDems, among others, have already suggested something similar as a solution to Britain's looming pensions crisis.

There are a number of drawbacks to this approach, not least how to pay for it. The potentially crippling costs have made the Government sceptical of its merits and the Chancellor is in any case ideologically more in favour of means tested poverty prevention, a system he has championed. Nothing said by Adair Turner, chairman of the Pensions Commission, would lead you to think a beefed up basic state pension will be recommended in his forthcoming report into pensions reform. Indeed, he is highly unlikely to recommend anything the Government might reject.

So if not that, then what? One or two clues were offered by David Blunkett, the Work and Pensions Secretary, in remarks he made yesterday at the launch of the Fabian Society pamphlet, The Politics of Pension Reform. Mr Blunkett gave every indication that he would be attempting to upstage Mr Turner with his own pensions conference this autumn, out of which would come a separate report which would address some of the same issues as the Pensions Commission, but that's a different story. In the meantime Mr Blunkett said the Government would be pushing ahead with plans to issue new guidelines to employers designed to encourage them to introduce "opt out" rather than "opt in" pension schemes.

Research has shown that where firms automatically sign employees up to whatever pension arrangements they have, putting the obligation on the employee to opt out if he doesn't want to participate, membership tends to be some 30 per cent higher.

Yet this of itself plainly won't solve the problem of providing adequate second-tier pension arrangements. Many small employers don't even offer stakeholder pension arrangements, which are generally not worth having anyway.

The big question for business right now is whether the Government might be persuaded to go a stage further and introduce a state sponsored "auto-enrollment" scheme, where unless employees deliberately opt out, a set sum will automatically be deducted from salary to be invested by the private sector through a centrally administered scheme. Just such an approach is being adopted in New Zealand, while the Pensions Commission chairman, Mr Turner, has confessed to being quite taken by the idea.

Whether the Government can be persuaded is not yet clear. For the savings industry, it would be like manna from heaven, dramatically increasing the amount going into long-term savings, though plainly at fund management charges set so low by the Government that everyone might have some difficulty making any money out of them.

The advantages for business are, however, far from obvious. Any such system would involve extra administrative costs, there is bound to be some transitional effect on consumption and wage demands, and if employers were required to match employee contributions, there would be a quite dramatic impact on general business costs. This is a debate that will run and run.

Lord King flies off into the sunset

Lord King of Wartnaby, who died yesterday aged 87, was one of those larger than life industrialists that came to define Mrs Thatcher's Britain, an old war horse of a businessman who though he made his pile in the 1950s and 1960s didn't come to public prominence until he was in his sixties, when he was appointed chairman of British Airways with the seemingly impossible task of privatising what was then a seriously loss-making airline.

He had to fight long and hard to achieve it. When asked at a particularly fraught moment in the process whether he would be resigning over the Government's apparent unwillingness to back him, he replied in characteristically dismissive fashion: "I don't do resignations, I only take them". On another occasion, asked to assess the findings of a staff survey which enquired of employees what they thought their role was at BA, he said: "There was only one honest answer from the lot of them, which was the man who wrote I haven't a clue".

Surprisingly, given how many of them he fired, he enjoyed a curiously affectionate relationship with his staff, born, I guess, out of the success they achieved together. Under his watch, BA did indeed become the world's favourite airline with a reputation for top notch service which helped cement through transatlantic travel an Anglo-American relationship that was to become key to the City's continued success as a financial centre.

Lord King wasn't without his faults, which he wore, well tattooed, on his forearm: he once withdrew all his advertising from The Independent for describing him as a "cantankerous old bully", which he undoubtedly was. And he perhaps defended the fruits of monopoly too fiercely and for too long for anyone's good. He was pretty much gone by the time the revolution in low-cost air travel arrived, but he did leave BA singular unprepared for it.

That said, BA has emerged from the perfect storm of 9/11, Sars, recession, war in Iraq and a spiralling oil price in better shape than almost any other full service, international airline in the world. In part, that's down to the ground work achieved by Lord King and his loyal steward, Lord Marshall. They don't make them like Lord King any longer. He'll be missed.

j.warner@independent.co.uk

Comments