Primestone Capital timed its intervention at St James’s Place with almost surgical precision (Ben Martin writes). On Monday, the activist investor published a ten-page letter lambasting the upmarket wealth manager for poor shareholder returns and calling for a cost-cutting overhaul. The attack came 24 hours before St James’s Place released its third-quarter update, ensuring that the company’s figures were overshadowed by Primestone’s scathing criticisms of the way the business has been run. Investors will be asking themselves now whether the activist has a point.
St James’s Place was set up in 1991 and has become one of Britain’s biggest listed wealth managers. Known for the high fees it charges, it offers its services to people who have between £50,000 and £5 million in non-property wealth to invest. It has about 2,575 staff and more than 4,300 self-employed financial advisers who serve in excess of 760,000 clients.
The campaign by Primestone comes after what had already been a bruising year for St James’s Place and Andrew Croft, its boss, who joined the business two years after it was founded and has been its chief executive since January 2018. Last autumn the company ran into a storm after details emerged of the lavish rewards and incentives it handed to its advisers, including cufflinks, dinners and luxury cruises. Mr Croft, 56, moved to quell the furore with an overhaul that included scrapping the cruises.
He insisted this year that the controversy was behind the wealth manager, yet now it faces a fresh set of criticisms from the Primestone fund, a top 20 investor with a 1.2 per cent stake. These have included claims that St James’s Place has a “bloated organisational structure” and of “excessive pay” for its staff.
To add to Mr Croft’s challenges, this week’s third-quarter results were somewhat disappointing, too. While funds under management were up by 1.5 per cent in the year to date, reaching a record £118.7 billion, net inflows of £1.44 billion fell short of City expectations.
Mr Croft didn’t have to look far for possible explanations. With Covid-19 and Brexit, as well as the looming American election, he said that the group faced a challenging environment. “When you have uncertainty, you’ve got two sides of the coin,” he said. “People might be reticent to invest. But equally this is a very, very complex world we’re living in today . . . and the financial planning aspect of it is very key.” While demand for trusted advice was “probably as strong as it’s ever been”, it would not “always necessarily translate into investments today”.
He acknowledged that growth had languished recently and that costs, the main focus of Primestone’s criticism, would draw scrutiny. “We’re a growth business and we haven’t grown in the last two years for a whole host of reasons and therefore it wouldn’t be too unsurprising to say that expenses is a key topic to have conversations.
“I don’t recognise a bloated organisation. Do I recognise that we have a cost base for expected growth that hasn’t come through? Yes, I do. Do I think that growth will come through in future years? Yes, I do. To the extent that growth doesn’t come through, one needs to obviously cut your cloth accordingly.”
Shares in St James’s Place were down 4¾p, or 0.5 per cent, at 924¾p, somewhat lower than the 982½p they stood at two years ago and down by a fifth so far in 2020 having been knocked by the onset of the pandemic. Mr Croft clearly is sensitive to the group’s faltering growth and its costs, suggesting that Primestone’s criticism is not falling on deaf ears. As the population ages and financial planning becomes more important, St James’s Place is poised to grow.
ADVICE Buy
WHY Prospects are bright and criticisms appear to have been heeded
Shaftesbury
For years, the West End of London has been seen as among the safest of havens for property investors (Louisa Clarence-Smith writes). The area that includes shops on Regent Street and offices in Berkeley Square is renowned for securing record rents and property prices. Then came the pandemic.
Suddenly, visitor numbers to the area plummeted as international tourists, stymied by travel restrictions, and office workers, encouraged to work from home, stayed away. Things may not return to normal any time soon, either: tourist numbers are not expected to recover until about 2024, while the decision to end tax-free shopping for overseas visitors is expected to further damage the district’s appeal.
The outlook has rung alarm bells at Shaftesbury, the West End landlord, which tapped shareholders for almost £300 million last week. It has a 15-acre estate that includes properties in Carnaby Street, Chinatown and Soho. About two thirds of its portfolio comprises shops, restaurants and bars. The remainder is split between offices and residential property. Only 41 per cent of rent was collected in the six months to September. The vacancy rate doubled from 4.8 per cent in March to 9.7 per cent in August.
Shares in Shaftesbury have halved since the start of the year to 446p and are trading at a near-50 per cent discount to net asset value, which could be seen as an attractive entry point for West End property. However, vacancy rates, rents and property valuations will worsen before they improve. Moody’s, the ratings agency, warned this week that retail property in Britain would suffer sharper valuation falls than anywhere else in Europe between June this year and the end of 2021. It cited retailers’ increasing use of company voluntary arrangements to reduce rents and the government’s extension of a ban on commercial landlords evicting tenants who don’t pay rent until the end of the year.
Shaftesbury said that its placing was important because the company could not guarantee that its lenders would extend the waivers on its debt covenants that are linked to rental income. It is difficult to predict when rental income will recover to a level that removes that threat.
ADVICE Sell
WHY Valuations, rents and vacancies are set to worsen
