The Financial Brain

Tony Jackson

HIGH on the list of clichés about Scotland, along with the Highland fling, alcohol and razor fights, is the idea that the Scots have a peculiar aptitude for finance. There is no special evidence for this, any more than there is for Scots being good at things like building ships' engines and exploring Afri- ca. But that does not matter. Like all good stereotypes, it has a life of its own.

It is also very handy for those who know how to exploit it, such as Scotland's fund managers and insurance companies. When these institutions are after your money, you may have noticed a subtle suggestion that they will guard your savings with a special kind of native shrewdness. The shallow minds of the City may be swayed by fashion, but they will hold fast to fundamental principles. This is not, you understand, a mere matter of style: it has to do with the innate superiority of the Scottish Financial Brain.

There is certainly a great deal of invest- ment going on in Scotland, and Edinburgh handles so much of other people's money that it ranks as a financial centre on a world scale. This is partly because of the native tradition of thrift, which helped establish the great Scottish insurance companies like Standard Life and Scottish Widows. It also has much to do with the fact that invest- ment — whatever they tell you about Guinness and Big Bang — is a dull, respectable business. This makes it the ideal trade for Edinburgh, which is a dull, respectable town peopled by lawyers, doc- tors, actuaries and accountants.

The twin poles of Edinburgh finance are Charlotte Square and St Andrew's Square, at opposite ends of the New Town. Be- tween them, they represent the Scottish Financial Brain's eastern lobe (there is a western lobe, which we shall come to). In Charlotte Square are the fund managers, based in elegant little offices behind Geor- gian façades, but spending much of their working lives criss-crossing America in search of undervalued investments in Brownsville or Tucson.

In St Andrew's Square are the insurance companies, who do not spend their time criss-crossing anywhere. They have so much money that people come to them. The weight of power • in St Andrew's Square is enormous, and so is the weight of respectability. Standing in the square and surveying those solid buildings, it is hard not to believe that behind every shutter sits an actuary, cackling drily over his life tables.

The difference in atmosphere between here and the City is instructive. It partly has to do with the pace of life, but can also be illustrated by visiting the drinking estab- lishments. There are pubs and wine bars in the New Town with galleries of youthful grotesques to match any champagne bar in the City, but the catchment area is not the world of finance. The Scottish Financial Brain does not drink at lunchtime, and in the evenings it goes straight home. These young men at the bar come not from the insurance companies, but from the landed estates of Fife and the Borders. They are not yuppies, but that more traditional type, the Hooray Henry. The Scottish system does not offer the same scope for the lower orders to become as appalling as their betters.

Another instructive difference comes in looking at the Brain's western lobe, which is located in Glasgow. The settled hostility between the two cities is based on differ- ences in practically everything, but the relevant one here is class. In the days when Scotland had industry, it was Glasgow which ran it. It is a city devoted to trade, whereas Edinburgh is devoted to the pro- fessions. Put another way, Glasgow is a town where even the bourgeoisie have the working-class virtues, while in Edinburgh even the working class have the bourgeois faults.

One result of this is that more exciting things happen in Glasgow, such as bank- ruptcies and mysterious fires at unwanted properties. Among individuals, the con- trast can best be defined by reference to cars. The Edinburgh man who had brought off a financial coup might mark the event by trading in his Volvo estate for a new one. The Glasgow man would buy a blaze-red Ferrari and park it outside the Central Station so that the boys could see he'd arrived.

There is no special evidence on which approach to finance works better, but, as we said at the outset, there is no special evidence for the Scots being unusually good at finance at all. The reason for their reputation is rather that they take to finance in great numbers. This tends to follow from the existence of the big institu- tions in the first place, rather as Switzer- land produces skiers because it has -big

SCOTTISH SPECIAL

mountains with snow on them.

A by-product of this is the striking number of people who turn up on national television talking about the stock market and the outlook for sterling in dark glasses and gritty Scottish accents. But these, it has to be stressed, are not true to type. These are the flash lads, the ones who headed for the big time and the City salaries instead of settling for a steady nine-to-five job and going home for tea. It has to be said, in fact, that the Brain its ts parochial side. This is most clearly observable not in the world of investment, but in accountancy. In England, the aspir- ing accountant can do a degree in Old Persian or peace studies and then proceed to articles with an accountancy firm. The Scottish system allows you to .do a degree as well, but it has to be in accountancy.

The resulting career bears thinking ab- out. Starting at one of the schools favoured by the Edinburgh Mafia, such as Heriot's or Edinburgh Academy, the growing lad goes on to his accountancy studies at Edinburgh University. He proceeds from there to articles with an Edinburgh accoun- tancy firm. Then he becomes an Edinburgh accountant. He may acquire sterling qual- ities in the process, but Renaissance Man he is not.

Then again, parochialism has its points. In the investment business, the hothouse atmosphere of the City leads to occasional boitts of pure collective insanity. At such times — the turning points in bull and bear markets, say — the trick is not to follow the herd. This is a great deal easier if the herd is in London and you are 400 miles away. The story is told of a pension ftind in the early 1970s which was managed half by an eminent City merchant bank, half by a grizzled veteran in Edinburgh. By the vvinterof 1974 the stock market was sliding into apparent, extinction, and City stock- brokers, convinced that the Maoists were at .the gate, were heading for the country with a brace of shotguns and a year's supply of tinned food.

The merchant bank went into a flurry of sophistication, putting its half into curren- cy swaps, cocoa futures and butterfly spreads in the silver market. The veteran took the view that either this was the bargain of a lifetime or the game was up, and put all his money in shares. In January the stock market took off like a rocket, and by Easter the veteran was outperforming the bank by a factor of three. There you have the Scottish Financial Brain at its finest. You can bet your life he never pulled it off again.

Tony Jackson is on the staff of the Financial Times.