Which has fared best in the crisis, old money or new?

Which has fared best in the crisis, old money or new? It’s hard to say with any degree of accuracy, or indeed discern any meaningful patterns, without long and academic study.

 

The likes of Bill Gates have become the Rockefellers of the modern age and now look like the new old money. But the past five years certainly seem to have been relatively kind to the sort of new money represented by technology entrepreneurs (albeit often at the expense of other investors).

Russian and other natural resource oligarchs from ex-Sovietstan countries continue to pump money too, while China is beginning to rival the US for billionaires. London property prices bear witness to the success of new money over the past five years.

Old money is harder to track. It can often be tied up in property or in private trusts. The Sunday Times Rich List contains only one truly old money entry in its top 10, which is the Duke of Westminster. There are a couple of families with traditional businesses built up over decades but the elite is nouveau through and through.

Another proxy, however, for old money might be RIT Capital Partners, a quoted investment trust established in the 1960s to husband assets of the Rothschild family. Lord Rothschild remains chairman and the family speaks for a 20pc stake. Rothschilds have created wealth over centuries and have generally been good at keeping hold of it. It’s fair to say an old money approach to wealth creation courses through the trust’s DNA, although that’s not to say old money hangs back from new investments or that old money automatically means old economy.

Being early into opportunities can be the secret of accumulating significant wealth. The trick is to preserve it. RIT’s interim results, out yesterday, showed a 30pc profit, for instance, on the recent sale of half its stake in BTG Pactual, a Brazilian investment bank. It has a £15.5m investment in Dropbox, an American cloud computing company. And, being Rothschilds, they get early sight of many private opportunities most mortals never see. But certainly the past five years appear to have been tough for the old money approach. RIT’s total return is up 8.2pc over the period versus a return of double that for the benchmark MSCI World index. Over a year, RIT is down 5pc while its benchmark is up 9pc.

So what’s the problem? Basically the trust is betting against central banks and policy makers. It fears systemic risks are still building but disguised by various central bank money printing exercises around the world.

Negative real interest rates designed to keep an economic pulse going are forcing investors into ever riskier trades in search of yield. While markets have been driven by short term “risk on/risk off” trading strategies fuelled by ultra-loose monetary policies, fundamental value investing has lost out.

As a quoted trust, anyone can invest. It even has an ISA savings scheme starting at £20 a month. There are other trusts with similar track records and objectives, such as British Empire Securities. Despite short term volatility, old money seems to be faring well and sharing in its success is less exclusive than most people imagine.

 

 

November 30, 2012 5:18 am

Japan unveils $11bn stimulus

Package

By Ben McLannahan in Tokyo

Japan’s government has approved its second round of stimulus in a little more than a month, as prime minister Yoshihiko Noda tries to pep up a flagging economy in the run-up to December’s elections.

On Friday the cabinet announced that it would tap reserve funds to spend Y880bn ($10.7bn) on a variety of measures, including rebuilding areas hit by the March 2011 earthquake, employment support and aid to cash-strapped small businesses. The plan is roughly double the size of a package announced in late October, which was also drawn mostly from reserves and aimed at reconstruction efforts.

The stimulus comes as Japan hovers on the brink of atechnical recession, its fifth of the past 15 years, as manufacturers cut production amid a steady worsening in their sales and profit outlook. Falling exports were the main contributor to a 0.9 per cent contraction in gross domestic product between July and September, and economists are braced for another in the three months to December. Last week the government slashed its quarterly assessment of business sentiment in all 11 regions of the country – the first clean sweep since February 2009 – blaming sluggish output and consumption.

Economic data released on Friday were a little more encouraging, showing an unexpected rise of 1.8 per cent in industrial production from September to October. The nationwide consumer price index (excluding fresh food) was unchanged from a year ago, improving from five months of year-on-year declines to September.

However, with more job cuts expected in amanufacturing sector exposed to tepid demand in developed economies and an uncertain outlook in China, analysts expect renewed deflationary pressure on the world’s third-largest economy.

“We are yet to see any light out of this recession tunnel,” said Takiji Okubo, principal at Japan Macro Advisors, a Tokyo consultancy.

The government fears that if the economy slips further, it could threaten plans to increase consumption tax from 2014. Provisions attached to the legislation, passed in August, require the government to consider the overall economic situation before implementing any increase.

According to the latest opinion poll carried out by the Nikkei newspaper, the Liberal Democratic party is leading with 23 per cent support, followed by the recently created Japan Restoration party on 15 per cent and Mr Noda’s ruling Democratic Party of Japan on 13 per cent.