Man who bets pounds 10bn on a crash

You have never heard of Tony Dye, yet he is among the 100 most powerful figures in Britain. Why? Because as an investment manager he is always ready to gamble billions against City trends. Paul Vallely looks at a man going for broke
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The Independent Online
He is an unassuming, bald man with glasses in his late forties. Of medium build, and dressed in a conventional dark suit, he is the kind of chap you would walk past in the street without noticing. But Tony Dye is a flamboyant character in one respect at least. For the past 18 months he has been steadily gambling pounds 10bn of the nation's pension money on the assumption that the stock markets in London and New York are about to come crashing around our ears. His plan, as the rest of us pick up the pieces, is to make a massive killing. And if he fails...?

Failure is not a possibility which Mr Dye contemplates. He has not had to in the past. He is confident in his own instincts, which have made him one of the most successful investors in the City of London.

Most of us have never heard of him. The newspapers have hardly written about him, though three years ago one survey included him in a list of Britain's 100 most powerful individuals. It was an interesting exercise. Tony Dye, who is head of investment at the pension fund managers PDFM, formerly known as Phillips & Drew Fund Management, was ranked No 59.

That put him below such prominent figures as Lord Hanson, Rupert Murdoch, Sir Martin Jacomb, Lord Weinstock, Eddie George, Evelyn de Rothschild and other scions of the financial, banking and industrial sectors. But it ranked him above the President of the Board of Trade, the Cabinet Secretary, the chief executive of Lloyds, the director general of the BBC, the chairmen of British Airways, British Gas, RTZ and Marks & Spencer. He even overshadowed individuals like Sir James Goldsmith, Richard Branson and Lord Hollick.

What Tony Dye does sounds mundane enough. His job is to identify and buy stocks to create a portfolio of shares that, in theory, will deliver the best possible return for top pension funds. Most fund managers do this in a safe and conformist manner. They monitor current performance tables and invest in top-notch companies in sectors that everyone agrees are thriving. They rarely make investment decisions that go against the crowd. When they get things wrong so do most of their peers. They blame the market and thus hang on to their jobs.

Tony Dye is different. He has sold the usual shares and is hanging on to as much as 15 per cent of his fund's money in cash and bonds. That's a total of pounds 10bn in ready money. Let's say it in words: ten thousand million pounds. This is reported as being the highest level of liquidity at a major pension fund group for more than 20 years when most of the industry maintains a mere 6 per cent cash level. In a booming share market he has, therefore, been out-performed by his competitors. PDFM is, according to City tables, under-performing by more than 6 per cent. Mr Dye has sat and watched his firm slip down the league tables unperturbed.

The reason for this wilful under-investment is that Tony Dye is convinced that the City of London and Wall Street are about to crash. He has been gambling on the fact for almost two years, convinced that world equity markets are over-valued by as much as one third. "He's utterly convinced that it's a big bubble that will burst soon," said one of his associates yesterday. "Over the past 18 months he's convinced a lot of other people too. His strategy is just to hold his nerve and wait." The problem is that many of his clients are turning out to have nervous systems of a less steely dispensation. They are becoming rattled.Some are demanding monthly meetings with him to assess the situation.

It is only Mr Dye's past performance that has prevented panic from setting in earlier. "He's a very talented individual," said another pensions industry insider. "He has a quite outstanding long-term record on the funds he has personally managed, it is better by some distance than that of PDFM, which itself has done well over the long term. They own a lot of shares on behalf of their clients and when the battlefield decisions come to be made the buck stops with Tony. His record is absolutely fantastic".

Under the leadership of Tony Dye, PDFM over the past decade has established an impressive reputation as a free-thinking City outfit. Where most of his competitors stick together, PDFM has consistently and successfully moved against the grain. Much of this has been down to Tony Dye's temperament. "He thinks deeply," says one business partner. "He's very sceptical of what people tell him. He doesn't take anything at face value. He probes and tests things for internal consistency. He works through the figures and makes his own decisions."

The result is what the City calls value investment, where a fund resists the temptation to buy large numbers of shares in established companies that are well regarded - banks and drug companies, for example - and instead goes for unfashionable firms that nonetheless can yield real profits.

"The culture of PDFM is distinctive and he's a linchpin of that," said one former employee. "It comes at things from a different angle to the received wisdom of the day. So it does things which are not fashionable. It is always out on a bit of a limb." In the past the strategy has proved a success. PDFM came out of the Japanese market very early at the end of the Eighties. It looked like a poor decision for a while but ultimately it was vindicated. "Japan went up and down like a rollercoaster," said one PDFM partner, "and although they missed the last bit of the final up-curve they missed the whole of the downturn. They held their nerve even though it got difficult. And they held it in 1991 when they went through something similar. But they've never had a period of under-performance like this."

There is more than his clients' money - and that of thousands of pensioners - riding on the outcome. Mr Dye, who is reported to earn more than pounds 1m a year in his total remuneration package, has invested substantial sums of his own money on his hunches. As a result the former grammar school boy from Lancashire is a self-made millionaire. If the market - particularly on Wall Street - does not crash, he stands to lose significant sums. "In the States he is holding a short position," said one business associate. "He has put more of his personal money at risk than I would," said a personal friend.

Tony Dye studied economics at the LSE. After graduating in 1969 he spent a brief spell in industry before joining the investment department of the London Life Association. Then in 1977 he moved to the Colonial Mutual Life Assurance Society to take charge of all areas of investment. His success there led him to Phillips & Drew Fund Management , where in 1983 he became responsible for overall investment policy.

"He's been a key player in their successful long-term strategy," said one pensions consultant. Today he is still fund manager for a number of clients, reflecting the culture of PDFM where everyone is expected to be a practitioner rather than just a strategist. "But he's not a detail man. He's very driven by the big picture, he's very thematic."

"He's a manic depressive when it comes to business scenarios," said another former colleague. "He's big on doomsdays. He believes we won't see anything as over-valued as the present market for another 30 or 40 years. He thinks the present investment fashions are crazy."

The lessons of the market are that for those individuals whose judgements are keen enough, following such hunches can be highly successful, even if it is unnerving for those around them. Nerves of steel like Tony Dye's have been what characterised the four greatest investors of recent times.

Perhaps the most outstanding of these is Warren Buffett of Omaha, Nebraska who started in 1956 with $100 and is today one of the world's richest men, with a personal fortune of more than $8.5bn. He did it by careful, long-term investment in simple, mass-market companies, a strategy that has outperformed the Dow Jones industrial average in every year since 1956.

Warren Buffett is the most sensational example; he has outperformed the US index every year since 1956. His strategy is similar to that of Tony Dye. "Switch off the stock market," was his starting point, by which he meant ignore wild price movements and focus on the fundamental value of the companies invested in. Next "understand the business you're buying" and invest for the long term.

The second, Sir John Templeton, had another distinctive lesson. The founder of the annual $1m Templeton Prize, turned a pounds 10,000 investment in 1954 into more than pounds 300m as a result of "investing at the time of maximum pessimism" - by which he meant moving against current investment fashions, buying when stock markets are lowest, and selling when they rise.

The third showed the virtue of acting against the consensus. Sir James Goldsmith, who is said to be worth pounds 1.15bn, may have made his money as an ultra-acquisitive asset-stripper but he kept it because of an eerie sense of timing that successfully anticipated the financial crash of 1974, the boom of the early 1980s and the great stock-market crash of 1987. Before the latter he sold almost everything he owned, including his New York home, in the months before the third biggest stock-market collapse of the century.

There was a similar ruthless clairvoyance about the timing of the fourth financier, George Soros, whose $12bn Curacao-based Quantum Fund has produced a return of almost 35 per cent a year over 26 years, the greatest growth of any fund in history. A stake of pounds 1,000 invested with Soros in 1969 would be worth pounds 2.15m today. Soros most infamously made pounds 1bn by selling sterling just before it was devalued (after leaving the European exchange rate mechanism), then buying it back. It was a classic example of going against the grain.

But is Tony Dye in this league? The plain-speaking Northerner may not be so personally flamboyant as his exemplars. "He is not ostentatious with his money," said a friend. Though he lives in a large house with its own estate in Berkshire "he doesn't go in for displays of wealth. He drinks wine and beer in moderation, and smokes the occasional big cigar." He lives quietly with his wife, Jan, to whom he has been married for many years. His only indulgence is a little fly fishing.

"But in business matters he has a lot of self-confidence," said a friend. "He's gone through his figures time and again," said one pensions insider, "he's even more convinced now things will move his way soon. Everyone is squealing because it's taking a bit longer than he predicted. But there's no shadow of doubt in his mind."

That may be enough to accord him, in the words of one former colleague, "guru-like status in PDFM". But will his judgement be vindicated in the outside world? His clients have apparently given him another six months grace. It could be a nervous wait.

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