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Anthony Hilton: In praise of the City Grump who blasts with both barrels

Finance: The City of London where fund managers, bankers and entrepreneurs ply their trade
Finance: The City of London where fund managers, bankers and entrepreneurs ply their trade
21 March 2019

n editor of this newspaper said years ago that the way to keep readers loyal was to enrage them at least once a fortnight so they would say that they would never buy the publication again — and it was “buy” in those days.

That way they would always come back to see what further calumny or idiocy would unfold.

The City Grump Rides Out, a selection of almost 10 years of articles by the City Grump, aka Stephen Hazell-Smith, works the same way.

He is a one-time fund manager with over 30 years’ experience.

There must be 100 of his articles in this collection, and much of the City stuff has a sureness of touch which is quite special.

But then he goes on political diatribes which leave this reader cold. Just as my former editor would have wanted.

His muse was Henry Root, aka journalist William Donaldson, who back in 1980 published in book form a series of letters from a supposed nonentity called Henry Root, which was, of course, Donaldson — and his then girlfriend.

He unleashed them on the great, the good and the famous, employing very politically incorrect suggestions to see how people would react.

The idea was to spotlight these targets — a bit like Ali G did with his TV interviews and spoofs — to prick their pomposity and reveal their inner thoughts.

Hazell-Smith’s book is divided into sections, from powerful people, corporate governance, regulation, politicians, the monarchy and Brussels.

There is no shortage of targets when the City is so cowed by regulators and others that it rarely stands up for itself.

His particular love is SMEs and his particular hate is for the regulators, politicians and bankers who make their lives difficult.

His major beef is the shortage of equity to help small firms grow, when the world is instead awash with debt.

Where is 3i, which once filled that role before it succumbed to private equity blandishments and almost blew up? Where are the cuts in capital gains tax to help firms get established?

Why are peer-to-peer finance and crowdsourcing not encouraged more? Why are there not more angel investors who could provide share capital?

And where-oh-where is the regulation of debt and taxation of interest on that debt, so equity is no longer at a disadvantage? He makes very good points but no one seems to be listening.

But there are things which could be done. The Financial Conduct Authority for one, could be less penal in the way it regulates small caps.

It says that they are very risky, so financial advisers do not normally allocate any to retail investors.

Instead the FCA thinks investors should go into WPP, or Marks & Spencer, or Sainsbury’s. It says they are relatively safe: it is utterly mad.

Small businesses are never consulted by government, never make up committees of inquiry, and government has no real ideas about what makes them tick.

They don’t lobby, they don’t make political donations, they don’t provide sinecures for retired mandarins, so they don’t really figure in spite of being a significant sector of the economy.

Politicians say they want to help, but leave it to banks who have long-since stopped lending serious money. Normally less than 3% of lending goes to the small cap sector. Banks would rather lend on domestic mortgages.

Fund managers are blasted too. They could buy small caps but instead too many are losing themselves in a sea of speculation and hypothetical returns.

Speculative trading of this sort conveys no sense of responsibility, and if they are not responsible they are unlikely to care. Fund managers ought to think of society as a whole and think long-term. Few do.

One final point. There is no problem with pay, provided it is earned though entrepreneurship.

Small company bosses generally do that and are much more concerned with the business and innovation — but big company bosses generally don’t. The latter he regards as sloths — not fat cats — because the contents of the full stomach of a sloth is two-thirds of its body weight.

They are far more involved with office politics, getting one up on a colleague and delivering financial rewards for themselves, than they are about sustained growth.

In short, sloths are far more damaging to the economy than the prospect of a China slowdown, or a Trump tweet.

Amen to that.

The City Grump Rides Out is out now, published by Matador