Stanhope filters out the noise to take long-term approach

Daniel Pinto, founding partner of the Stanhope Capital multi-family office, managing $33bn, is a long-term player. His firm’s assets have grown steadily from $10bn a decade ago. And his sartorial appearance, low-key London West End office premises and thoughtful investment approach are all from the same page: smart, diligent but ignoring short-term fashions and knee-jerk reactions to economic vagaries.

“The recent banking crisis reminds us of the importance of a sound financial system to support companies over their life cycle,” he says of the SVB story, drawing attention to his belief that every company is an organism, with prospects for growth and development, depending on the right stewardship and injection of ideas. “Additional regulation will be necessary to ensure that banks do not take undue balance sheet risks with their clients’ deposits. Evidently, measures taken in the aftermath of the great financial crisis were not sufficient.” 

The other conclusion he has reached, as a multi-decade observer of markets and political developments, is that the UK’s star has waned, no longer providing an attractive destination for serious capital, hampered by both the Brexit debacle and a lack of incentives for technological innovators.

“The US today has 25 per cent of its market cap in tech and this segment is not dominated by the speculative side, but by the likes of Amazon, Microsoft, Google, all profitable companies with some of the biggest margins in the S&P,” calculates Mr Pinto.

“On one side of the Atlantic, you have an economy which has given birth to the giants of technology, generating the bulk of earnings in corporate America and on our side, it’s just 5 per cent in Europe and 2 per cent in the UK,” he says, laughing incredulously. “There has never been such divergence in the very fabric of our respective economies and the drivers of value creation going forward.”

Private assets shortfall

The bulk of global wealth creation in the last 25 years has been from digital entrepreneurs, he says, expecting the current boom in artificial intelligence to carry on fuelling this trend in which Europe is vastly underperforming.

“I have discussed this with people in government, that London has missed the boat of attracting tech growth companies,” says Mr Pinto, keen to help boost London as a financial centre and home for mid-size wealth managers in particular.

“But it’s not too late and there are things that can be done to make London more attractive to technology companies, not just from Europe but potentially also from the US,” he insists.

The key to researching this economic vaccine, he believes, lies in first understanding the patient’s condition and symptoms, before they become fatal.

“One has to try and understand why the UK has been so slow in this aspect,” he says, pondering on a “mixture of reasons”, including rules blocking pension funds and insurance companies from investing significant assets in private equity.

“In America, university endowments, pension funds, insurance companies are all geared up for investment in private equity. But Solvency II rules in Europe have prevented large enough allocations,” restricting tech companies’ access to finance.

“We are starting to go part of the way to address London’s shortcomings,” he says, relieved the issue is at last getting an airing. But he is also conscious of the long-term nature of this problem, going back decades, including a failed initiative to address the issue in recent history under the Labour government at the turn of the millennium.

He recalls the 2001 review, delivered by the late Paul Myners, seen as investment royalty for his stewardship of city stalwart Gartmore, before being elevated to the role of city minister under prime minister Gordon Brown in 2008. Mr Myners advocated major allocations to private equity by institutional investors to help revitalise the UK economy.

Never too late

“Sadly, that initiative never happened, but it’s never too late to do the right thing,” says Mr Pinto. “We have been constrained by European rules. While Brexit has created many problems for the UK, at least there are some elements that can be used to our advantage. Now that these rules are no longer affecting insurance companies, perhaps they can be free and invest more.”

But the Brexit bullet is clearly one that hurts him personally, as an internationalist, born in France to a Shephardic Jewish family, with a cross-border network of relatives. Having secured his MBA at Harvard University, Mr Pinto is a strong believer in free trade and a devotee of efficient movement of labour. “When you look at G7 productivity levels, it is appalling that UK is last on the list,” he reflects, seeing the problem as a combination of adverse government policies and failure of local firms to organise vocational training along the lines of Swiss and German counterparts.

Emotional arguments

He is also impatient with those policy-makers who claimed Brexit would succeed, purely to feather their own political nests. “l always made a distinction between the economic and non-economic rationale for Brexit,” argues Mr Pinto. “If you are talking about regaining sovereignty, then I can understand the emotional argument.”

Economic justifications from the ‘Leave’ camp were, however, based on a “string of lies”, he argues. “There is no such thing as cutting links with your biggest trading partner without suffering,” the reality becoming apparent now that the cloak of Covid, shielding economic ills between 2021 and 2023, has been discarded.

“At 10 per cent, we have more inflation than the rest of Europe, which is 2 or 3 per cent below us and that is because of Brexit. Wage inflation is much higher because of Brexit. We have to pay more, because we used to have a lot of employees coming from the EU. Many of these people are no longer around. In critical industries such as health, hospitals and agriculture, there is a shortage of personnel. The people who said Brexit will bring an economic boost were either lying or ignoring the reality.”

City institutions, he believes, have struggled to re-organise themselves for the new reality. “For the big banks, it was all fairly painless, as they already had subsidiaries on the continent and simply sent more people there.” But mid-size wealth managers – “the entrepreneurial firms who make up the true wealth of the city” – have found it harder to respond to the revised architecture, with business models starting to unravel.

“We have eight offices, but we have competitors in the second layer of the city, involved in independent wealth and asset management, who have just a London hub,” he says, contrasting domestic models to that of Stanhope, which employs 160 professionals globally. “It’s very difficult for the UK players, as suddenly they cannot distribute products on the continent without opening an office there, which is proving very costly. This is such as shame, as it means unnecessary pain is being inflicted on the city.”

The challenge for Stanhope, he says, is to keep growing, while remaining independent, spreading the risk through various jurisdictions in which the firm is making its mark. Stanhope has four offices in the US and four in Europe, following the latest acquisition of Arche Associates in Luxembourg, during 2022. While he has not yet started organising an IPO, this remains an important option to be considered.

“Going public might be the solution, provided the majority of equity can stay in the hands of people working there. I am not saying it will happen this year, but in the next three or four years, it is a possibility.”

Clearly, he does not rule out more strategic purchases to boost this growth plan. “A big firm can buy you out, but our clients would not be happy with that. You should run away from any company which does not provide intellectual stimulation. Every time we bought a company, using equity, people stayed with us for a long-term entrepreneurial journey.”

As always, Mr Pinto is looking well ahead of the current market and political uncertainty, in his plan for evolution and improvement. “These wealth managers are not selling out, but buying in to what we do. That is the model I want to pursue – for the next 10 years.”