Their approach has since found resonance in the various global markets in which the group has established a presence, and has been readily translated to different specialist areas. The pair retain ambitions to extend it further.
Tax planning
Tony McLoughlin, London & Capital’s investment director, says: “Clients are seeking to preserve and enhance their wealth, rather than any kind of ‘get-rich-quick’ scheme. They are not looking to gamble. We look at how we can manage global strategy for investors, focusing on risk and return. We analyse and quantify potential risk for a certain target return.”
The basic model is unchanged from market to market and the group constructs multi-asset portfolios, looking beyond just equities and bonds to achieve those goals. It then creates tax planning strategies on top of this investment engine. Freedman believes that the tax consequences of investing are often neglected and can be just as important as selecting the right investment strategy.
London & Capital has made a point of building up specialist expertise in certain areas, such as US citizens. The group’s main areas of business have been South Africa, Europe and the UK, but it recently opened an office in Hong Kong.
The US and Canada have also been important, particularly the offshore US market. The company briefly opened a sales office in the US, before deciding that it could service its US client base from London.
Tackling US tax
London & Capital’s clients are largely high net worth investors and private families with between £2m ($3.1m) and £50m in investable assets. McLoughlin adds: “We have some with over a billion and others with a few hundred thousand, but most have been with us a long time and have been very loyal.”
The company itself is comprised of a global team of 90 people working from three locations (London, Hong Kong and the Isle of Man) and managing $3.2bn in assets. Across the different regions, revenue is generated by taking a percentage of assets under management.
McLoughlin says: “We have to manage the relationship with our clients successfully and deliver on our promises, because otherwise clients would not stay. Our structure means that we are aligned with our clients. We want the same steady consistent growth that they do, with no surprises.”
Freedman and Leigh learned their trade at Allied Dunbar before starting London & Capital in 1986. They worked closely with professional introducers, such as lawyers and accountants, to build specialist investment portfolios for their clients.
This model is largely unchanged, and at least 85% of the company’s clients come through professional referrals – lawyers, accountants, trustees and other wealth managers. The majority of these relationships are long-established and it has a network of over 100 contacts around the world.
The group has made a virtue of the complexity of some areas of financial planning. For example, most recently, its expertise in dealing with US clients has been in high demand. The tax and information reporting requirements that have come out of the Hire Act, and then the Foreign Account Tax Compliance Act (FATCA), are likely to have a major impact on financial institutions globally.
Several wealth managers are simply exiting the market, unable to take the regulatory hit from serving US clients. This is even true of some fund management groups, which are now seeking to back away from high net worth US clients because of the tax compliance burden.
FATCA complexity
McLoughlin says: “We are now one of the largest independent non-US firms managing assets in that space. There will be a significant fall-out from the UK/US tax legislation and the changes to the domicile rules. We have seen an immediate impact in the number of referrals – even from those we would consider competitors, such as wealth managers, private banks, IFAs or private client stock brokers.”
He points out that many people are extremely nervous about handling US clients. Equally, they may be prevented from looking after them by regulation, or their professional indemnity insurance may not cover them to deal with US clients after the legislation takes effect.
London & Capital has put compliant solutions in place for US citizens, or others who may fall into this legislation, such as those who have a holiday home in the US, or hold a Green Card. In February 2011, it launched five US tax-compliant model portfolios. These invest in US-compliant assets and are designed for US citizens and Green Card holders living outside the US.
McLoughlin believes this offering is likely to see rising demand as the deadline for FATCA moves closer.
Captive insurance
The group has built other areas of speciality, both in terms of client type and expertise. For example, one of its most successful areas has been the captive insurance market.
It is the sole manager for the Caribbean Catastrophe Risk Insurance Facility, a fund for governments in the region which aims to limit the financial impact of hurricanes and earthquakes, by quickly providing financial liquidity. Again, the investment principles remain the same, within a different tax and regulatory framework.
Another specialisation can be seen in the company’s sports wealth management division. McLoughlin says understanding cross-border investment planning and strategy is particularly important for professional sportspeople, who are likely to spend some parts of their career abroad. Also, sporting careers can be short and any wealth generated has to last a lifetime, so it suits London & Capital’s investment approach.
At the moment, the group focuses on footballers, particularly those in the upper divisions. In 1988, it was appointed as an official representative to footballers by the Professional Footballers Association in England and Scotland, so has a lengthy track record in this type of financial planning.
New client groups
The company is building on this expertise to target three further client groups. First, it is looking to expand its presence in the divorce market. Freedman says: “Lots of people are now getting large sums of money in divorce settlements and do not know what to do with it. They need this money to provide an income in a world of zero interest rates.
“Also, divorcees are getting younger. They may have received a £5m lump sum and need to generate an income to look after their children for life. We believe we can do that.”
The second area is immigration. As it stands, the British Government has three types of investor visa: £1m, £5m and £10m. These investments must go into UK securities – either gilts or stocks. Gilts are paying low interest rates, so increasingly investors want to go into dividend-paying stocks. They need advice on how those portfolios are going to be managed, and Freedman says that London & Capital is in a position to service this market effectively.
The third area of expansion is in personal injury claims. Freedman adds: “Where large claims are awarded, a receiver has to be appointed to look after the beneficiaries and the money. It is a specialist niche and we have lots of experience here as well.” In common with divorcees or sportspeople, an initial lump sum has to be managed to last a lifetime, and possibly to pay medical care costs as well.
Clear strategy
Freedman says the group is well-placed for whatever eurozone politicians or global regulators can throw its way: “There is lots of market turmoil. People need a clear strategy and a way to manage money. We are in the stay-rich rather than get-rich market, and have a clear way to manage wealth.
“The Retail Distribution Review and other similar legislation has brought a huge amount of confusion into the market, in terms of who can advise clients on what. We are there for those people who are looking for advice, rather than looking for options. There is also significant confusion about tax products.”
London & Capital has suddenly found that its investment style is fashionable. It may have been doing it for 25 years, but the market has come round to its way of thinking. The company will be hoping that it can find the same resonance among its new target clients.
