Select Committee on Treasury Minutes of Evidence

Examination of Witnesses(Questions 420-439)



  420. What does it mean to you?

  (Mr Currie) A zero has a pre-determined redemption price.

  421. Either something is guaranteed or it is not, is it not?

  (Mr Currie) Well, it is a bit like a gilt. It is meant to be guaranteed, but if governments go under, it is not paid out, is it? What we are saying is that the zero as a share class is the lowest risk share class of any capital within split capital trusts and the guarantee was that the expected element of the returns would be that here we have the pre-determined price for which that zero has the first call on all the capital on a certain date at a certain time. If you look back over the history of split capital investment trusts and zeros from 1987 to 1999, the document that we are saying quasi-guaranteed was actually factually correct. What we are now looking at is, with retrospect, what happens when markets fall and what we are saying is that the characteristics of the zero has now changed as a result of falling markets.[10]

  422. It is just that this quasi-guarantee concept keeps appearing in your publicity material and I do not actually understand what quasi-guarantee means and I wonder if people who have bought the split capitals understood what it meant and I wonder if you understand what it means.

  (Mr Fishwick) I would like to try and answer that question because you asked me actually. You have asked, "What does "quasi-guarantee" mean?" We, together with the whole industry, including the AITC, reading their campaign, let's say, on zeros, their words are, "If, for example, you are prepared to take only a minimal amount of risk, then zero preference shares might prove to be the best choice. As their name suggests, they offer no income at all, but do provide a low-risk opportunity for a pre-determined amount of capital growth", and that is what I perceived, together with them and I endorse what they were saying, as a quasi-guarantee.[11]


  423. Mr Fishwick, did you ever visit JP Morgan Fleming or any other fund management houses and suggest that they might consider launching a split trust which invested in other splits and tell them that it would be good for the investment trust industry as a whole?

  (Mr Fishwick) I do not believe so.

  424. You never did?

  (Mr Fishwick) I do not believe so.

  425. So you are sure of that?

  (Mr Fishwick) The reason I do not believe so is because they have had split capital trusts for years and years and years.

  426. So why do you think some blue-chip houses like Fleming, F&C, Henderson and Baillie Gifford have sat by and passed up the opportunity to make a lot of money by launching a split of splits?

  (Mr Fishwick) I think that is a question you have got to ask them. I do not speak for firms like F&C and I have no idea why.

  427. What reasons would they give, do you think, for sitting back and passing up that opportunity?

  (Mr Fishwick) I think that is a question you have got to ask them.

  428. Well, do you know the firm of BFS Investments plc based in Surrey?

  (Mr Fishwick) Yes, I do.

  429. What individuals do you know there personally?

  (Mr Fishwick) I know Tony Reid, I know Nigel Sidebottom, I know William Van Hesewick, I know John Holder, I know—

  430. Thinking of Tony Reid because he earned £3.5 million in the year to September 2001, £2.5 million in the previous year and £1 million in 1999, a level of remuneration similar to your own, how often did you meet with Mr Reid in the calendar year, say, 2000-01?

  (Mr Fishwick) Probably 10 or 15 times, probably the same as I met with the people of all the investment houses in London or less actually with Tony because his business is based down in Guildford. I have actually only been to that office three times.

  431. How often did you ask your subordinates in Aberdeen to contact BFS in those two years?

  (Mr Fishwick) I would guess that we were in constant contact with them, asking them for various information about their trusts, as everyone is.

  432. Are Aberdeen and BFS competitors in the same field of investment trust management?

  (Mr Fishwick) I believe so, very much so, yes.

  433. Is it normal for competitors in the investment management business to speak to each other with real frequency?

  (Mr Fishwick) Yes.

  434. It is?

  (Mr Fishwick) Yes, very much so.

  435. So are you aware that, according to its last annual report dated July 2001 of funds managed by Aberdeen Asset Management, they owned approximately 22 per cent of the voting share capital of BFS Income and Growth Trust plc?

  (Mr Fishwick) We own 25 per cent of probably 50 split capital trust shares.

  436. And these shares have declined from 100 pence, the issue price, to 0.5 pence, have they not?

  (Mr Fishwick) I think there is an interesting point in that because—

  437. Well, can I have an answer first on that, yes or no?

  (Mr Fishwick) The answer is yes. Seventy-eight of the 135 splits, one of the classes of shares has a value of nil, so you pick one, but you can have any of the other 78. Half of them, 56 per cent of them have no value, irrespective of debt.

  438. Are you aware then that the same trust, BFS Income and Growth Trust plc, had an income share portfolio at the end of 2001 of which 23 per cent was itself cross-invested in Aberdeen's split capital investment trust?

  (Mr Fishwick) I would have been aware at the time of what it would have been, yes, but that is not unusual. I can give you 50 other cases of that from ourselves and 30 cases of the—

  439. Well, we will come back to that.

  (Mr Fishwick) It is not unusual.

  Chairman: Okay.

10   Note by Witness: AITC Directors Handbook Chapter 13 Section 8, "zero dividend preference shares (zeros) offer a capital return in the form of a pre-determined redemption value, paid from the assets of the trust at wind up. The assets attributable to each zero rise at a predetermined rate from their issue price to their final redemption value. Zeros usually (but not necessarily) rank ahead of all other classes of share in their claim on the assets of the trust and this makes them relatively low risk." Back

11   Note by Witness: Source: AITC "its" split capital investment trusts factsheet, March 2000. Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2003
Prepared 29 January 2003