Fair shares?
• JOHN BULL
Some of the larger unit trust groups in Lon- don have been rubbing their hands with
pleasure at the difficulties of Investors Over- seas Services (los), the Geneva based group which sells the Dover Plan in this country.
They argue that what is bad for their most successful competitor must be good for them. They are wrong. If tos were to col- lapse, public confidence in equity investment would be seriously damaged. Save and Pros- per, M & G and the other big groups in this country would suffer with everybody else. One may not admire the style with which los has conducted its affairs and, one may not approve of its tactics—but its downfall would be very bad news indeed.
As I write the situation is as follows. There has been heavy selling of the shares of the two los companies which are quoted —los Limited and los Management. They have roughly halved in price. The reasons for unease have been manifold—a belief that profits growth has not been as good as hoped because sales have been less buoyant. and because expenses have got out of con- trol (all, it turns out, roughly true). More specific rumours have suggested that Bern- ard Cornfeld, the founder, was leaving (he had certainly begun to pay the business less attention and did seem to be at odds with his colleagues). Salesmen were also supposed to be resigning more often (they have been, though it is not surprising since los now has ambitious competitors for the first time). It was also said that the per- formance of the los funds was not up to standard (largely right, certainly as far as the Dover Plan is concerned). What has the reaction been? los has seen the point about expenses and the axe is now being swung at excesses. A high-powered com- mittee of the top men in the organisation has been set up to find out what went wrong and what can be done. And there is some talk, not altogether reascuring, that specula- tors in the shares will be punished by a mas- sive buying operation from the tos side. Question: who exactly is to buy depressed los shares? Not the los funds, I hope.
How dangerous is the situation now? Quite worrying, I would suggest. In the first place, a group devoted to selling equity-type securities around the world depends upon public confidence. Doubts about ios have been loudly proclaimed and some of them have been shown to be justified. Ios can argue that really its faults are no larger than those of its competitors. That may be so. But what matters is that tos's aura of suc- cess has been shattered. The result has been that many holders of los securities have been wondering whether to cash their policies. Some will do so (whether they should is a question I am leaving until the end). Two other factors.are worth noticing. Ios salesmen are partly rewarded by stock options. How effective is this as a means of retaining salesmen when your stock is plunging down? Second, los has invested some of its funds in unquoted shares—in, to be precise, exotic investments such as oil- bearing acres in Canada and a fashion house in Paris. It sounds great, but how do you value them fairly and are they sound?
As far as holders of the Dover Plan in this country are concerned, my advice to them is not (repeat not) to sell but to main- tain their investment. The Dover Plan is a policy issued by a London registered insur- ance company, International Life Insurance Company(UK)limited. This insurance com- pany is subsidiary of tos but it is also regu- lated by the Board of Trade, making profit and showing reserves. Thus Dover Plan holders have contracts with what appears to be a substantial business. That is why they should not panic. The Dover Plan's invest- ment performance has been poor recently. The good city advisers working for it do not, in combination, seem able to produce such a good performance as they do individually. However, steps are being taken to improve this situation. On the other hand, I would not advise readers to enter into new corn- mitinents with Dover Plan until all the question marks hanging over the parent company in Geneva have been removed.
ffolkes's taxpayers' alphabet
T is for Time to pay
Previous page
