Paul Murphy and Pauline Springett
ONE of Britain’s biggest managers of pension money said last week it intended to stick with an extraordinary $15-billion bet that stock markets in Britain and the United States are grossly over-valued and that share prices are due to crash.
PDFM, formerly known as Phillips & Drew Fund Management, which controls funds worth $75- billion, is so convinced Britain is about to face its biggest stock market crash since October 1987 that it has effectively cost the pension funds it manages $4,5-billion during its 18-month gamble.
The FT all-share index has advanced by a third since January last year. But PDFM, part of the investment banking conglomerate, Union Bank of Switzerland, decided in an unprecedented move at about that time to hold up to 15% of the assets under its management in cash.
That meant PDFM, and the funds it manages, have missed out on one of the biggest stock market rallies in recent years. It trails in the City’s league tables, currently under- performing by more than 6%.
The pension funds which invest through PDFM include some of Britain’s biggest companies. They are furious at the strategy, and are threatening to sack PDFM and take their business elsewhere.
But Paul Yates, PDFM’s marketing director, insisted the firm would not alter its views. “We are sticking with our strategy, absolutely,” he said. “The degree of over- valuation in the UK and US stock markets is unprecedented.”
Yates admitted that several clients – ranging from drugs giant Glaxo to Edinburgh University – had voiced concerns. The bet has involved PDFM progressively reducing its holdings of shares and instead building up a mountain of un-invested cash, now thought to top $10-billion.