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Investment view

Central banks are now too focused on a single issue of economic management – controlling inflation, says Brian Tora.

It is not every day an invitation to lunch at an Ambassador’s residence lands on your desk. Last week found me in the heart of the West End attending the launch of a asset management company at the Italian Embassy. Situated facing the American Embassy in Grovesnor Square, the ambience was such that you could not help but feel that the diplomatic service might have been a better choice for a career than the financial services industry.

Trinity Capital Management, or TrinityCapM as it is more properly known, is a new fixed income boutique. When the invitation first arrived I felt disinclined to accept. You could after all lunch for England in this business if you are so minded. Indeed, only the previous day I had been reprimanded by my surgeon for allowing too many inches to creep back onto my waist as my recovery from last year’s health problems continued. However, learning that an ex-colleague was part of the new outfit led me to change my mind. I am glad I did.

Among the things I learned at the launch reception was that the oldest bank in the world is the Banca Monta Dei Paschi di Siena. How did I come by this information? Well, the chairman of this bank, the asset management company of which holds a stake in TrinityCapM, told us. Sitting beneath the splendid chandeliers of a room probably used more as a backdrop for politicians and civil servants than fund managers and journalists, I confess I wondered why I was there. But as the morning progressed it became clear how far the fund management industry has developed in recent years. That alone made it worthwhile.

The partnership which had come together to form TrinityCapM includes a number of people with CVs which demonstrate they know what they are doing in this business. JP Morgan, CitiGroup and Merrill Lynch all featured as previous employers with a wide range of senior roles being held. Moreover, Noble Laureate Professor Lawrence Klein, Emiritus professor of Economics at the University of Pennsylvania, is an adviser to TrinityCapM. He was on hand to give us his take on the role of central banks and the usefulness of economic modelling.

It was worth attending to hear him alone. Any concern that much of what he might have to say would sail above my head was unfounded. His principal criticism of central banks was that they were now too focused on a single issue of economic management – controlling inflation. This is the prime goal of both the Bank of England and the Federal Reserve Bank of America. A decade or so ago the Fed aimed to sustain economic growth and full employment as well. Today these are perceived to flow from price stability, yet the global nature of business and commerce dilutes the efficacy of any controls that can be applied.

As to economic modelling, it is clear with so much more data now available, the opportunity exists to gauge what effect a particular course of government economic policy might have on markets. All this, of course, is applied to the investment processes adopted by the fund management firm, where the aim is to limit risk for their clients. This is heady stuff but no more than confirmation that fund management today is both highly professional and very competitive.

Of course, the approach taken by a boutique such as TrinityCapM will not appeal to every investor – nor will it be available to retail investors across the board. One fund mentioned in the information pack disclosed a minimum initial subscription of one million Euros. That should ensure they are not bothered by those wondering if a bond fund is the best option for their Isa. But with Multi Manager now playing an increasingly important role in providing investment solutions for retail customers, I can see the importance of specialist fund management houses growing.

Bond markets lend themselves to quantitative techniques and economic modelling. The number and scope of the managers and analysts in this sector has grown exponentially over recent years – as has the appetite for exposure to fixed income markets. We can expect still more developments in the months and years ahead. Not all of them, though, will be launched in such a stylish way.


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Stewart Ritchie on pensions

Most of the attention on post-retirement changes from A-day has focused on income withdrawal and Alternatively Secured Pensions, but the changes to annuities merit serious consideration. The Inland Revenue plan to change the way annuities will work in the new pensions tax simplification regime after April 6 2006. The primary legislation for these changes is in Finance Act 2005.


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