The Best Place for Billionaires

In the Sunday Times Rich List, which will be published in full this Sunday 18th May, it's revealed that 104 billionaires now call the UK their home. And of these, 72 live in London. That puts the capital top of the list when it comes to billionaires in residence, with Moscow in second place at 48. Here's the list of the top ten:

1. Sri and Gopi Hinduja, £11.9 billion, up £1.3 billion

2. Alisher Usmanov, £10.65 billion, down £2.65 billion

3. Lakshmi Mittal and family, £10.25 billion, up £250 million

4. Len Blavatnik, £10 billion, down £1 billion

5. Ernesto and Kirsty Bertarelli, £9.75 billion, up £2.35 billion

6. John Fredriksen and family, £9.25 billion, up £450 million

7. David and Simon Reuben, £9 billion, up £719 million

8. Kirsten and Jorn Rausing, £8.8 billion, up £3.691 billion

9. Roman Abramovich, £8.52 billion, down £780 million

10. The Duke of Westminster, £8.5 billion, up £700 million

The Duke of Westminster is the only British born billionaire. London attracts others because the UK had a favourable tax regime for 'non-domiciled' residents. As their main residence is abroad they only pay tax on UK income. Additionally, London has good educational facilities, and it's seen as a safe environment.

But what did these people do to become so rich? Let's take a look at each of them.

1. Sri and Gopi Hinduja: - These two brothers run the Hinduja Group, along with two other brothers not resident in the UK. Their father started the business in Mumbai around 1914, and then went international in Iran in 1919. After the Shah was ousted in 1979 it moved to Europe. They now have interests that include finance, energy, banking, real estate, and international trading, to name a few. The shares of some of the group companies trade on the Bombay Stock Exchange and the National Stock Exchange of India.

2. Alisher Usmanov: -  Sixty year old Usmanov is Russian born, and made his money in the mining business. He has since diversified into publishing, telecoms and internet businesses through a holding company, namely USM Holdings, in which he has a 60% share. And he owns 30% of Arsenal Football Club. His strategy seems to centre around making significant investments in companies, rather than owning them outright.

3. Lakshmi Mittal: - Born in India in 1950, Mittal is head of ArcelorMittal, which is the world's leading steel manufacturing company. Mittal's father was also in the steel business in India, but due to restrictions placed on production quotas in 1976, Mittal started his first steel business in Indonesia. Another man with an interest in a football club, this time with a 34% stake in Queens Park Rangers. ArcelorMittal trades on the NASDAQ. Look for symbol 'MT'.

4. Len Blavatnik: - Fifty six year old Blavatnik was born in the Ukraine. He's the chairman of Access Industries, a private company which he founded in 1986. Through it he has investments in companies in sectors such as Natural Resources, Media and Telecoms, and Real Estate. He is an active philanthropist too, donating to organisations like the National Portrait Gallery and the Tate, among others.

5. Ernesto and Kirsty Bertarelli: - He is an Italian businessman, she is a former Miss UK and singer songwriter. In 1996 he became head of a pharmaceutical company founded by his grandfather, and after increasing revenues substantially by moving into biotechnology, it was sold to Merck in 2007. Now his principal business interest is the Waypoint Group, which specialises in asset management and life science investment businesses. He also founded a yachting team that took the America's Cup away from New Zealand in 2003.

6. John Fredriksen: - A Norwegian born in 1944, he is an oil tanker and shipping magnate, who made a lot of money during the Iran-Iraq wars in the 80's, when he collected oil from Iran at high risk and even higher profit. One of the companies he controls through a holding company is Frontline, which trades under the symbol 'FRO' on the London Stock Exchange.

7. David and Simon Reuben: - They were born in India in the 1940's, and the family moved to London in the 1950's. Starting with nothing, they went on to achieve financial success in the metal trading and real estate businesses.  They were heavily involved with Russian aluminium production in the 1990's, and were responsible for 5% of the world output until they sold up and concentrated their wealth into UK property.  They invest in other sectors through their investment company Aldersgate investments, and are active philanthropists through the Reuben Foundation.

8. Kirsten and Jorn Rausing: - These two now control the Tetra Laval Group, which was started by their grandfather in Sweden, and is responsible for the cardboard packaging that you will almost certainly find in the form of milk and juice containers in your fridge. Tetra Laval is a private group. The family has had its share of tragedy. Eva Rausing, wife of Hans, died in 2012 at home, in circumstances suggesting hard drugs were involved. Her husband left her body in the bedroom for two months before police raided their Belgravia home and discovered it.

9. Roman Abramovich: - The Russian born owner of Chelsea Football Club is a well known name in London. He ran a series of small businesses from his flat in Moscow, and became well connected politically when oligarch Boris Berezovsky introduced him to President Yeltsin. He formed a partnership with Berezovsky, and together they gained control of oil company Sibneft in 1997, in a privatisation bid. They paid $100 million, substantially less than the $2.7 billion the company was said to be worth at the time. Abramovich subsequently sold 75% of the shares in Sibneft to Gazprom for $13 billion. He manages his wealth through a private holding company in Moscow.

10. The Duke of Westminster: -  Our very own Gerald Grosvenor, the 6th Duke of Westminster is the UK's richest property developer, owning large parts of Mayfair and Belgravia, and with substantial holdings in Ireland and other parts of the world. All controlled through the Grosvenor Group, a private company. The original investment in Mayfair goes back to 1720.

You can see from the list above that Abramovich, Blavatnik and Usmanov have suffered a decrease in wealth, suggesting that sanctions and a weakening of the Russian economy have taken their toll. And most of those above conduct their business through private holding companies, though if you're interested there may well be a chance to invest in shares through publicly traded subsidiaries.

For more details, make sure you see the Rich List in the Sunday Times this Sunday. 

Darren Winters

Bonds Versus Shares .... Which Is The Right Option For The Investor?

Should you be investing in bonds or shares? That’s a tough question to mull over.  Let’s take a look at both financial instruments.

Bonds are supposedly less risky to invest compared to shares. This is so because in the unfortunate event of business insolvency/bankruptcy, the bond holder (investor in bonds) comes ahead of the equity shareholders in terms of payouts should the entity be made insolvent. On the other hand, the equity investor is last in line to be paid and more often than not business failure to an equity investor equates to an almost certain loss of their entire capital that he/she has invested in the failed business. With respect to bonds, the bond holder is promised by the party receiving the money (the Issuer), to repay the face value of the bond (the principal) at a specified date (maturity date.) In view of this, it becomes apparent that capital is more exposed to risks when it is invested in shares rather than bonds.  

In terms of providing an income there is also a distinction between shares and bonds. In the latter, the investor in bonds is often provided with fixed yields, the main advantage here being that he/she is able to predict income from their investments. This is an attractive feature for investors approaching retirement, when regular income from their investment is more favorable investment strategy than exposing their capital to higher risks.                                     

For example, if an investor where to buy a bond with say 10% coupon at its 1,000 USD par value, the yield is 10% (100 USD/ 1,000 USD).  That seems straightforward. But the investor in bonds needs to bear in mind that the price of bonds fluctuates on the bond market. So assuming the bond price goes down to 800 USD, then the yield goes up to 12.5%. This occurs because the investor receives the same guaranteed 100 USD on an asset worth 800 USD (100 USD/800 USD).

Conversely, if the bond goes up in price to USD 1,200, the yield shrinks to 8.33% (100 USD/1,200 USD).

Shares do offer income to the investor in terms of dividend payments, but income from this is not predetermined and can be unreliable.  Note that dividend payments on shares usually depends on the performance of the company throughout its financial year and the amount of income paid, if any, is recommended by the company’s board directors. So the investor has no real way of deriving a stable income from shares. In some years the shares may pay dividends, whilst in other years, little or no dividends may be paid out. 

Despite the uncertainty of income that shares offer investors their main attraction as an asset class is their potential to offer the investor capital growth. However, the general rule of thumb for investing is applicable in share investing, that being the higher the potential risk to the capital the higher the rewards received by the investor and visa versa.

In other words, there is a positive relationship between rewards and risks. 

If the investor is willing to forsake higher risk for the potential of greater returns, then equities may be the suitable financial instrument for him to achieve his goal. This is one of the main advantages of share investments compared to bonds-the potential of capital growth.  A young investor, a long way from retirement may prefer an investment strategy where their investments are more geared towards growth, rather than immediate income. This means that their investment portfolio may be orientated more towards shares rather than bonds.  So the investment goal of the investor could determine whether investing in bonds is more suitable than shares. 

Indeed, volatility is another distinction between the two financial instruments. Share can fluctuate widely on the future potential profitability of the business, on the expected earnings.  Technology stocks, pharmaceutical stocks investigating in new drugs for say cancer, or prospecting oil/ mining stocks share prices have the potential of gyrating widely on the stock market based on the prospects of positive events influencing the company’s profitability.  Investing in these types of companies before the positive event has been factored into the share price offers investor the potential of large capital gains. A photo looking like a bunch of long haired hippies, featuring micro soft founders in 1978, states, “would have you invested.”

 

If an investor were fortunate enough to have bought 100 shares at 21 USD in MicroSoft in 1986, an investment 2,100 USD, those shares over the course of nine stock piles would have mushroomed to 28,800 shares. Assuming the investor then sold those shares in December 1, 1999 he would have bagged a massive 1.4 million USD.  Sure, this is easier said than done, but no doubt this will probably wets the appetite for shares, even amongst the diehard cynics among you.    

Another bonus of share investing is that the investor owns a piece of the company. There are different classes of shares with different voting rights. Shareholders are invited to attend annual meeting of the company, they can vote on issues that influence the business, such as takeover and acquisitions of the business, changes to members of the board. Naturally, the larger the shareholdings in a company the more voting clout the shareholder investor has in selecting senior executives who will run the company and voting on import issues that could influence the business.   In contrast, a bond holder doesn’t acquire ownership in the business; they have no voting rights and no way of influencing the business.

So the theory goes that bonds are a supposedly the safer bet than shares-they are the more preferred asset by the grey haired people among us.  But so is gold considered the ultimate safe haven, the ultimate rat hole to climb into when things go pair shaped. Despite this common held view gold investors eroded 28 percent of their capital in 2013, it was the worse year for gold since 1981. Bond investors also experienced the worse year in living memory in 2013.  Indeed, playing safe last year has left some investors feeling very sorry for themselves, but will the appetite for risk continue into 2014…?