The Jarretts Rationale
In the late ’70s and ’80s UK Inflation was at record highs, and there were not many investments producing real returns i.e. a return more than the devaluation caused by inflation. For example, if one “invested” in a UK Building Society or Bank Deposit Account with a one year return of 8%, but inflation was at 15% for the year in question, the result was a guaranteed loss of 7% – not to mention any tax that may have been levied on the “profit”
An example of a national economy doing well at this time was Japan: another international growth area was the resurgent USA technology sector. Significant real growth could also be achieved in natural resources (oil) and other commodities, and some of the Unit Trust funds available provided opportunities for investment in those sectors, with a good chance of achieving “real” returns.
The new Unit Linked Insurance market gave policyholders the chance to link their funds to these higher performing economies and sectors via specific Unit Trusts, and this could be achieved not only with Single Premium Investment Bonds (minimum investment at the time of £250) but also for savings plans with premiums of only £10 per month.
When one added in other benefits – namely the Life Assurance Premium Tax Relief at 17.5 % and the taxfree status on the returns after 10 years – the 10 year Savings plans that we sold at Merchant Investors, and then through NWI, offered an attractive investment product to customers.
The customer could choose his own funds, and independently switch his investment as the premiums paid increased the value of his holdings. If the customer was not confident of managing his own money, or did not have the time to do so, and the sum involved was large enough, he could appoint a professional fund manager. However, “professional fund management” was not available for relatively small sums of money – for example amounts of less than £100,000 – and I recognised an opportunity to offer customers a management service for their unit linked portfolios.
And so I formed Jarretts Bond Management Ltd (JBM) which started trading in 1978.
Company Formation 1978
The company started with five individuals – John Elderton (formerly at Merchant Investors) and working at the time with my brother, myself, Peter Coast and Alistair Binning. I have no idea what happened to Peter and Alistair in later life – I can only find a record of John, (see LinkedIn profile above) who I remember as a friendly and charming individual, and who describes himself now as a Financial Planning Professional: he appears to have had a successful career in the same industry.
Peter and Alistair were also pleasant positive personalities, and at the time we each had a common goal which was to provide a professional management service to our personal clients who had invested in Single Premium Investment Bonds and/or Unit Trusts.
Unfortnately, as with many projects involving independent thinking characters and entrepeneurs, the “partnership” did not last, and within six months or so, I was the sole director and controller of JBM, operating out of 50 Maddox Street.
How Business Was Done
In my opinion, JBM offered an essential fund management service to customers. There was no “selling” at JBM: it was purely there as an optional extra – mainly for unit-linked clients of NWI – and if customers were happy to either manage their own plans or contracts, or stick with the initial fund chosen at the beginning of the contract, then this was fine.
However, in my opinion, it would have been verging on irresponsible for me not to have offered some form of ongoing management advice, and this opinion was shared by many of NWIs customers. It was important for them to have the choice, and since fund valuations were transparent with daily unit prices published in the Financial Times and elsewhere, they could easily monitor the value of their unit holdings.
Professional Qualifications In brief, there were no professional qualifications available for this type of fund management. In 1978 JBM was not buying or selling stocks or Unit Trusts, which would have required the appropriate licence to operate as a stockbroker: it was not responsible for choosing the underlying securities or shareholdings within the various funds. At the beginning, and as the CEO of JBM, my task was to identify promising sectors available for our customers, and switch their holdings accordingly, and hope that the “professionals” actually running the funds or Unit Trusts did their job in choosing the right mix of underlying securities or shares in that sector. This was the route taken by Hargreaves Lansdown as a good example.
After some years, and with the experience gained in fund management, JBM successfully applied to become a Licensed Dealer in Securities, which gave me the ability to deal directly through registered stockbrokers and financial institutions.
Fees The annual management fee was the greater of £25 or 1% of the value of the “portfolio” – so unit-linked customers would normally have unit holdings to a minimum of £2500. Where savings plans were involved, for most customers it would take some years before the funds would reach a value of £2500, so most of the early JBM customers had single premium investment Bonds or a holding of Unit Trusts. JBM also later developed a fee based upon profit sharing, where an annual return or fund growth greater that an agreed amount would result in a larger fee if successful, or a nil fee where unsuccessful.
How Jarretts Developed
Initially, my time was mostly spent managing NWI, but by the early ’80s more and more time was devoted to following the financial press, monitoring investment trends globally, and reading journals like the Financial Times – which I would in any case monitor daily for the unit prices published which were linked to our modestly sized customer portfolios. It seemed to me that Fund Management should have been a logical business, and not one that required any great skill – there were plenty of underperforming Unit Trusts in all sectors, and no way of knowing which would do consistently well.
I started to study the stock markets, and examine how business was really done in the financial institutions that control the process. I began to understand what other instruments were available to stockbrokers and dealers – not only the sale and purchase of quoted company shares but also financial derivatives and traded options for just about anything – commodities, currency futures etc. I also began to understand how much money was being made by the intermediaries who made the decisons as to buying and selling.
Jarretts Own Funds
After some years, in approx 1985, I decided that I could do the job of managing unit linked funds better than most of the professionals I had contact with over the preceding 7 years, and with the help of Skandia Life, who performed the adminstrative and legal functions necessary, I set up three new Jarretts Single Premium Investment Bond Funds – Conservative, Realistic and Speculative. The Jarretts funds were valued by the Insurance Company and the prices were published weekly along with their other unit prices for other funds. I managed the funds as a Licensed Dealer, buying and selling through Stockbrokers and Unit Trust Managers. The holdings for each fund consisted of authorised stocks or Unit Trusts or other quoted funds: the Conservative Fund was primarily invested in the Property Sector and Fixed Interest securities, the Realistic Fund had more of an international flavour and the Speculative Fund was designed to profit from Special Situations, and the new trading instruments and derivatives available.
There was no “hard sell” with the Jarretts Funds – NWI clients could choose between no management service, a fixed annual fee of 1% for non Jarretts funds or an investment into the appropiate Jarretts Fund with no management fee: we obtained dealing commissions in the same way as other fund managers, which more than compensated for the absence of a management fee.
Our funds under management were modest – no more than a £1 million or so – and the Jarretts funds performed better than average over the remaining five or six years that we were allowed to trade.
There were two individuals who were important to me as regards JBM, and for entirely different reasons.
Peter was a Canadian in his ’50s or ’60s at the time I met him in about 1985, and he was running a fund called the Growth Strategies Fund, from a small London office, which appeared to be doing extremely well. Peter was very knowledgable about the Securities Market, and produced a weekly newsletter which I found very interesting.
In his newsletter, he described how one could make money with derivatives even when the price of an underlying security fell – his favourite vehicle was traded options. He also described at some length how he made his investment analysis – he was basically a chartist who used methods such as the Gann theories to make his buying and selling decisions.
He was also an exponent of the major USA stocks that were driving the technical revolution of the time. I invested a modest amount of money from our Jarretts Speculative Fund into his venture, but – as my second wife Michele will confirm – I had my doubts about his integrity, and after a few months, I sold the holding at a profit, much to Peter’s annoyance. As it turned out, his fund was closed by the authorities some months later, and it transpired that client’s money had not been invested and the fund pricing was artificial to say the least. Stealing client’s money is a crime under any circumstances, even for a fund manager……
Richard Furber, Dean Witter Reynolds
As a Fund Manager, I had become very interested in the new investment vehicles available, and needed to find a Broker who could provide an international service. The obvious choice was an American company as the USA was both a market leader in trading derivatives and methods, and also could provide access to some of the most interesting growth stocks of the time, which were in the high tech industry.
Richard Furber was the management contact or Account Executive I worked with at Dean Witter Reynolds and for the next five years or so we developed both a business relationship and a friendship. Richard had a splendid house in the Surrey Stockbroker Belt and was married to Meg, an extremely nice girl and they had one daughter. Michele and I were often guests at their house which boasted a pool and a tennis court. In a previous life, Richard had been a seriously good tennis player, and was on the American College circuit, and was a member of the Queen’s Club. His appearance was very similar to the well known actor Ben Stiller .
When Jarretts was put out of business, we lost touch, but I note that he went on to do exceedingly well in his personal career at Dean Witter until 1998. He has kept a low public profile subsequently.
So What Went Wrong?
Unfortunately, because I was linked to Noble Warren Investments Ltd, when that company became a victim of the Regulator, it was inevitable that JBM would also fall foul of the “system”, and so it turned out.
Jarretts Bond Management lost its License to Deal in Securities and was closed down within a matter of weeks in 1991. Another baby thrown out with the bathwater, and customers left without management advice for their investments, that I am sure they had appreciated.