Any factories that are not crumbling have been displaced by service industry behemoths. Yet, in the world of mortgages, something amazing is occurring – manufacturing is making a comeback.Since the 1980s, the most vogue corp- orate buzzword has been distribution. But how often should this instead have been distress, deficit or demise? Insurance companies routinely acquired estate agencies or took equity positions in IFA businesses. Mortgage clubs and networks prol- iferated as a consequence but the likes of Bradford & Bingley were not alone in discovering that sacrificing profitability and simplicity in the name of distribution could be an expensively flawed concept. I would vouch that only John Goodfellow at Skipton Building Society has genuinely created value from this strategy, as powerful stablemates Connells, HML and Pink Home Loans will testify. As such, last week’s announcement from Beacon that it is to enter the manufacturing fray represents what I believe will be the thin edge of a resurgent manufacturing-based wedge. Let’s face it, distribution, or the management of it, is time and cost intensive. Let’s stop kidding ourselves that M-Day was the root of all overhead evils because operating margins for many distributors were heading south months before then. Consolidations will continue so long as up to half of distributors continue to function as clothes- less emperors at an operating profit level. Manufacturing is going to be where it is at. Yes, you need a swathe of capital to get going but, as the still comparatively adolescent businesses at BMS, GMAC and Platform have demonstrated, barriers to entry are not onerous. TMW’s fast rise is also notable. These lenders have classy management teams possessed of creative mindsets and, ironically, have historical connections with the distribution markets so vital in getting the lenders airborne in the first place. Favourable economic conditions (especially for sub-prime product suites) coupled with the UK’s sophisticated mortgage environment means that North American, Asian or European investment into the UK offers eminently more dynamic returns than available in these continents’ hinterlands. Two specific facets to manufacturing hold added seduction. First, there is the march of securitisation, which can crystallise gains swiftly, reduce risk and allow assets to be concisely valued and contained. Second – and here is the real lure of it all – a manufacturer’s principals can work exit or end-game scenarios far more assuredly than in distribution models, where owners’ plans can be easily manipulated or compromised by markets, people and circumstances outside their control. Hamptons International was recently acquired by a Far Eastern conglomerate which itself is a debt manufacturer. I do not expect to see the UK business following the parental lead in the near future but, along with the likes of Savills and L&C, at some point a discussion will take place as to whether a nationally recognised broker brand should actually be making its own widgets rather than flogging somebody else’s. Watch out for more industry distributors opening product factories of their own. The final conundrum will be whether there is enough demand to support supply.
FC Biz – the five-a-side football team of IFA service company Simply Biz – is throwing down the gauntlet to any other financial services teams looking for a kickabout. During the first half of the season, FC Biz conceded no fewer than 58 goals in 10 matches, leaving them slumped at the bottom of the […]
Former Deutsche Asset Managment European chief executive Paul Manduca is to join the board of supermaket chain Wm Morrison as a non-executive director. Manduca, who ran Rothschild Asset Management and built up Threadneede, is viewed as a potential succesor to the supermarket’s chairman Ken Morrison.
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Baring is introducing its third long/short equity hedge fund, the Emea absolute return fund, which will invest in East- ern Europe, the Middle East and Africa. Launch- ing on November 1, the fund is aiming to deliver returns in excess of 20 per cent a year, with 15 per cent volatility. It will be managed […]
Welcome to the latest update for The Brunner Investment Trust PLC from the trust’s portfolio manager Lucy Macdonald. Market Review Global equities ratcheted higher throughout February, buoyed by optimism about global growth and corporate earnings. All regions advanced, although Japan tended to lag many other markets. In sector terms, healthcare, information technology, consumer staples and […]
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Another investment manager offering enterprise investment schemes has alerted clients of a 10 per cent drop in value for one of its portfolios following new Mifid rules. Mifid II, which came into force on 3 January, requires firms to notify clients when the overall value of their portfolio, relative to its value at the beginning of each reporting […]
The recent enquiry by the work and pensions select committee has reignited the debate about the future of collective defined contribution schemes. Whether these sort of schemes can be incorporated into the current UK pensions landscape is a moot point. Let’s consider some of the arguments for and against CDC. First of all, it is […]
Retirement interest-only mortgages are set to become more popular following the FCA removing hurdles to selling them. The regulator sees RIO mortgages as a possible aid to the waves of maturing interest-only loans with no repayment strategy. However, the FCA also wants RIO mortgages to be sold more widely, for example as an additional option […]