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Investment view

It takes a takeover battle to enliven an otherwise lacklustre market, particularly when the target sits squarely in the FTSE 100. Heaven knows, we need a bit of excitement. As we approach the end of the first half of 2004, little progress has been made in the markets. From my position on the sidelines, it looked as though this was unlikely to change swiftly but then with characters able to mount a multi-billion-pound bid at the drop of a hat, you should never take anything for granted.

All this stimulating stuff put me in mind of two aspects of the investment business that have been thrown into focus by these recent events. The first is that there are few characters who have made themselves serious money in the world of investment management, in this country at least. John Duffield is a well known example, having created several millionaires through the relatively recent ventures of Jupiter and New Star.

Sir Martyn Arbib sits alongside Duffield in the rich rankings, having sold Perpetual to Invesco. His claim to fame is having the foresight to launch his company in the dark days of 1974. The rest, as they say, is history. There are others but they tend to be less high-profile and, in any event, the numbers pale into insignificance against fortunes made elsewhere.

Not so in the US, where the boom in demand for mutual funds in the post-war years created conditions that allowed a number of individuals to build fund management giants, earning significant fortunes as they did so. The really big investment houses are by and large on the other side of the Atlantic.

Looking through a recently published UK rich list, it was interesting that the two highest-placed City families – the Schroders and the Flemings – represent dynasties that have been around for several generations, encompassing a wide range of financial activities. These are seriously wealthy families but they still trail the self-made leaders significantly.

The second aspect is the attention that takeover battles place on the management of the underlying business. In the end, management is what it is all about. Well-run businesses seldom find themselves facing a hostile acquisitor. Bids are more likely to come from those who consider they can make a better job than the incumbent management.

For investment managers and the analysts that support them, the quality of the management running the business in which you are investing, or considering taking a stake, is one of the most important considerations. This is why an unexpected profit shock so often hits shares in a dramatic way. It calls into question the quality of the management. How could they fail to foresee potential disaster lurking round the corner? Become a serial disappointer of analysts&#39 expectations and you can expect retribution, perhaps even the sack.

Some 30 years ago, when I combined the role of investment manager with that of engineering industry analyst for a merchant bank (multi-tasking was all the rage) I made a point of eyeballing as many managers as I could on my rounds visiting West Midlands metal-bashers. You soon got to recognise those capable of running a business from those who added little value. In smaller companies, it is easier. There is an argument that says you do not reach the higher ech-elons of a major business without a high level of competence. But, make no mistake, the quality of management at the top of Britain&#39s bigger companies is as varied as with smaller concerns. We wouldn&#39t have major takeover bids otherwise.


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