Speaking with Stanford
The Stanford Financial Group has progressed leaps and bounds over its many years of offering top quality service to its clients. In the fall of 2008 World Finance spoke with the head of the firm, Sir Allen Stanford10 Feb 2009
19/02/09 Editor's note:
In the light of the accusations made against Sir Allen Stanford by the SEC we have received a significant response regarding the following article and the associated award which was decided upon in the fall of 2008. When we took the decision we felt we had to discount unproven accusations from various sources that were in the news at that time. We determined that if those speculations had come to nothing it would have been an error to count them in our decision. It was a calculated editorial risk.
If the accusations prove to be substantiated, then, with the benefit of hindsight, it will have been the wrong decision - though either way it now stands as a record of the two faces of the financial industry in what was a horrible year for global markets.
We could of course have removed the article but have taken the decision instead to keep the unedited original text of the article on the site in order to document the company message and as a gauge of opinion at the time. Certainly, we were not alone in reporting on Stanford in a positive light and in the honourable tradition of the Great British Judicial System, we will withhold definitive judgement until the appropriate and proper authorities have announced their findings. However, the article should be read in light of recent events, and not taken as a continued endorsement of Stanford Financial Group.
If it seems too good to be true...
Each year World Finance chooses its Man of the Year
This year our nominating committee used the following criteria to determine our finalists:
- rationalisation strategies;
- innovative financial structures;
- use of sport for the good of community development;
- leadership and proven successes;
- proof of development and continued progression within communities;
- positive media coverage;
- level of transparency and good governance;
- Ed Zander
- Philip Green
- Sir Allen Stanford
- Sir Richard Branson
- Geoff Immelt
- Lakshmi Mittal
The current state of the US economy is familiar territory to the fifth-generation billionaire who saw opportunity in the Texas bust of the 1980s while others saw collapse and chaos. During a virtual meltdown of the Texas oil, real estate and banking industries in the 1980s, Sir Allen and his partners invested heavily in real estate. The strategy was simple: snap up depressed properties, hold onto them until the economy improves and make money. It took a decade, but make money they did. Sir Allen is the Chairman, CEO and the sole shareholder of the Stanford Financial Group of companies, founded at the height of the Great Depression by his grandfather in 1932. In the 15 years since Sir Allen took over from his father, the Stanford companies have grown exponentially.
Today, Stanford is a global player in the financial services industry, managing over $60bn in assets and operating in 12 countries. In early December World Finance interviewed Sir Allen to get his views on the current state of the global economy and vision for the future.
With the markets in turmoil, the financial industry in crisis and a global recession staring us in the face, what does the near term business horizon look like for Stanford?
In a nutshell very good. Our investment strategy and business model has never been that of a typical Wall Street firm. We have always positioned ourselves with a long term strategy where consistency, liquidity, minimal use of leverage and a straightforward approach to making investment decisions has been our guide. We had none of the securitised debt and credit exposure that has crippled many in our industry. Our balance sheet is strong and liquidity exceptional. So for Stanford the opportunities to grow our business have never been better.
It is well-known that the first Stanford company was founded by your grandfather in 1932 during the Great Depression. What lessons are you able to draw on from the past as they relate to the present economic difficulties?
My grandfather founded our first company, Stanford Insurance, in a bleak environment in which most businesses were going out of business not starting up. How he not only survived, but in spite of the great odds against him grew his business, is a testament to his ability to clearly understand risks and the values that are necessary in order to attain success. He also followed a no nonsense philosophy of managing his business and that is what he termed “Hard Work... Clear Vision... Value for the Client” and it is the same philosophy that we operate from today.
You have explained before that the objective of the Stanford Investment Model (SIM) is to provide consistent returns regardless of market volatility. How has this philosophy worked during these difficult times?
The Stanford philosophy for investing is based on diversification across global regions, countries, markets, asset classes, products and sectors with the assumption that risk can be minimised while maximising returns. Historically this strategy has allowed for consistent returns regardless of market volatility. While the current investment environment has been very difficult with 99 percent of the world equity markets being negative, the strategy has proven itself successful. Although pure equity returns are negative year-to-date, our overall risk has been greatly reduced and we find ourselves well positioned to take advantage of the many opportunities in greatly undervalued companies and hard assets. We have been able to sustain a positive performance due to the avoidance of sub-prime and securitised debt investments, avoidance of the financial sector globally, our large cash position, minimal use of leverage, investments and profit taking in precious metals, the ability to successfully find and invest in global themes such as agriculture, basic materials, utilities, and energy, and then, just as importantly, monitoring those areas and taking profits at the appropriate time without being greedy. Additionally, we did not invest in areas where we did not fully understand the risks, such as structured notes and various other structured products or baskets of investments. We do not depend on the credit markets as typical Wall Street firms do. We have always operated in a much more conservative mode. Basically, we did not stray from our investment philosophy or assume that history does not repeat itself, and while we may be at extreme levels globally we do believe there are many opportunities to invest in the pursuit of our investment objectives.
How important is technology in managing risk and the overall volatility of a client’s portfolio?
Technology is certainly an important aspect of portfolio management for a number of reasons. First, it allows managers real time information on the markets, their performance and economic data. This flow of information creates the ability to make more timely decisions and conduct more in-depth studies than would otherwise be available if you were relying on less time efficient data. Second, technology allows managers to view portfolios instantaneously to monitor performance, risk, volatility, and so on. Through this broad spectrum a manager is better able to monitor set parameters, performance by asset classes and sectors, and areas of concern. Once specific areas of concern or performance are noted, due to increased technology the manager is then able to drill further into the individual positions to more intricately research and investigate holdings to make better decisions. Finally, technology helps reduce human error caused by manual systems and manual input. While we can never replace the need for human interaction, feel of the market and decision making processes, technology greatly assists in more consistent performance.
Stanford Financial Group has made significant investments in global research. Is this one of the reasons Stanford has withstood the global downturn so well? What is your research telling you?
Research has been a most valuable part of our performance thus far this year. It gives Stanford the ability to keep a finger on the pulse of what is occurring in global economies. Also, as our analysts travel to collect much of their own data, we are not subject to other firms’ biases and opinions but can see firsthand what is actually taking place. While knowing what sector may perform best is certainly important, first you must understand how the global economy is performing.
What performance numbers reflect your success in 2008?
In North America this year we have seen Assets Under Management numbers grow by over $10bn and our US based private client group will do over $100m in revenues in 2008 which will be a 37 percent growth from 2007. We will close the year with 31 offices in the US, six of which were opened in 2008, and we are expanding existing office space in cities where we already do business by 60,000 square feet. Our Latin American region will have a 15 percent growth in Assets Under Management and a 20 percent growth in revenue for 2008. In the Caribbean our Assets Under Management number will grow by over $2bn and revenue will top 20 percent over 2007. In Europe we are looking at a 20 percent growth in Assets Under Management and revenue for the year. However what I think is the most revealing number given the current market conditions is the fact that as of December we have hired 658 new employees worldwide. While most in the industry are laying people off, we are hiring some of the best talent out there and this is going to only accelerate in 2009.
Are there advantages to being privately held?
A huge advantage to being a privately held company is that there is no pressure from shareholders insisting on short term investment strategies to meet shareholder expectations and top management perks. Our number one priority is to our clients geared around a long term investment strategy.
When do you see the global recession hitting bottom and how long will it take to see positive economic numbers return to the markets globally?
First, we have been in a recessionary period for longer than most people realise. Certainly going back to 2007 when commodity prices led by oil began a rapid increase. Easy credit, poor underwriting standards and an unprecedented construction boom simply masked the fact. So I think the bottom is near. Most likely end of first quarter to end of second quarter 2009 we will see a bottom. The US is still the world’s largest economy and will be the key driver to move things globally back to positive territory. However there is going to be at least $2trn in direct government rescue or bailout intervention costs that will place a drag on recovery. What happened to the Houston economy during the anything goes late 70s following the rapid rise in the price of oil to the crash in the early 80s when oil prices collapsed is almost textbook similar to the situation now affecting the majority of the US economy. It took Houston 10 years to recover and in the process a more dynamic economic base was built, one not totally dependent on oil. I am not saying that it will take that long for the US economy to recover, but the US and global economies will look much different a decade from now.
How will 2008 close in terms of earnings and growth?
Our earnings overall will be flat with a few areas of strong performance. So I am quite pleased given that this is the first week of December and I can say we weathered this year’s volatile market in good shape. In terms of growth we are having an exceptional year and 2009 will no doubt be the best year ever to grow our business. I have never in my 32 year professional career seen the opportunities that now present themselves to us.
Stanford clients include wealthy investors and companies from over 136 countries on six continents. How does the Stanford group of companies manage to adapt its services and apply its philosophy to the varying markets and cultures?
It begins with Stanford’s business model which, instead of consolidating all of the companies under one jurisdiction and balance sheet umbrella, allows the Stanford companies to operate independent of each other and operate as such under the legal and regulatory framework in their country of domicile. This model allows each company to be lead by someone who understands the market he is in and make decisions locally in light of the particular jurisdiction’s market and culture. Through common ownership, Stanford is able to maintain global oversight and compliance while benefitting from the strengths of the different companies.
Will Stanford unveil any new investment platforms in 2009?
Yes, our Stanford Global Private Equity Fund which will invest into a globally diversified basket of private equity and the Stanford Gateway Long/Short Equity Fund with a long/short investment strategy that taps both the growth and value opportunities in the US equity markets, as well as foreign equity markets. We also plan to launch a $5bn global distressed asset acquisition fund during the first quarter of 2009. There are going to be incredible investment opportunities in 2009 in both stocks and real estate. We already have our eyes on a number of these that are greatly undervalued due to the current environment.
You have stated in the past that global warming far overshadows any problems facing mankind. Given the current state of the global economy do you still maintain that opinion?
Economic cycles, even severe downturns are just cycles. Markets eventually find a bottom and the growth process starts anew. We may find difficulties and distress along the path to recovery but things will always improve with time. Global climate change, however, is the most serious challenge to our civilisation that mankind has ever faced. If not dealt with immediately before we reach the so-called tipping point, the repercussions of this catastrophic environmental time bomb will be beyond our human capacity to manage. God forbid that things get that out of control, but there is no longer any scientific debate on this subject. It is real, it is here getting worse every day and the world must come together for once in unity to solve this. I strongly encourage everyone to read Plan B 3.0 by Les Brown. Dr Brown gives the most comprehensive and clear picture as to the way forward in how we can address this challenge.
You have often said that Stanford gives back to the communities where you conduct business and where your employees live and work. Is this a long standing tradition of the Stanford companies?
My grandfather began this process of supporting causes that strengthen the social fabric of the communities where Stanford employees live and work. My father continued this tradition during his years as our Chairman and I am simply building on the foundation that was laid by them. This effort is not financial only but also includes volunteering time and other resources to the many initiatives Stanford supports globally. More specifically, we believe that there is a moral and social responsibility to lend support to initiatives that strengthen the development and nurture the growth of children. Our philosophy is that nothing strengthens and benefits a community more than healthy, happy children, and that is why I am so proud and honoured that Stanford is committed to supporting St Jude Children’s Research Hospital in North America and the University Children’s Hospital in Zurich. We are also sponsoring several children’s health programs in Latin America and the Caribbean region and look forward to contributing to the betterment of any community in which we operate.
Why have you chosen professional sports to brand and promote the Stanford name?
In professional sports you have to be at the top of your game both physically and mentally to succeed. Commitment, discipline, team spirit, work ethic and ethical behaviour are what separate the winners from the second place finishers. Nothing could be more true today in financial services. That’s why we proudly sponsor world class professionals such as Vijay Singh to represent Stanford.
Now that your historic Twenty/20 for $20m game has been played, how do you rate the successes given the fact that the Stanford Superstars literally blew away England and where do you go from here?
Cricket is the one unifying bond that ties all the English speaking islands together in the Caribbean and when it is in the bottom of the trough, as has been the case in recent years, we all sink with it. I looked very carefully at how we could revive this sport and bring in a younger more dynamic fan demographic. I also said two years ago I would build a team that would be capable of beating any international team in the world by the end of 2008. We accomplished all of this and had an enormous global TV audience view the game. In fact, in England, it was the one of the largest TV audiences ever for a single game in any sport on SKY. From a success point of view we accomplished what we set out to do. Going forward I think there is little doubt now that the sport must have a bold 21st century leadership and organisational structure. We have laid the foundation and built a business model which the WICB can emulate. I’ve done my part to get cricket in the Caribbean back on the right track so it is time for me to step aside and cheer the WICB on as they hopefully take the sport to the next level.
We will see a new leader of the US in 2009. Do you have any advice for President-elect Obama?
There has never been a President in the history of the United States who upon assuming office will have so many daunting challenges that must all be dealt with simultaneously. Global climate change, the economy, wars in Afghanistan and Iraq, the constant and growing threat of nuclear and biological war, political instability, healthcare and education reform, the list goes on and on. President-elect Obama is a highly intelligent and capable man who I have great confidence in and I trust will surround himself with talented and common sense thinking individuals equally committed as he is to finding the correct ways to deal with these very serious problems facing both our nation and the world today. Those are the people from whom he should seek and receive the advice necessary to make the tough decisions that will soon face him.
Commments
KNIGHT MY ASS
Posted by AnonymousGreat reporting! Sir Stanford clearly is a financial genious.
Posted by Sir MixalotGood timming for the nomination of men of the year!!!!!
Posted by JeanHa ha ha.
Posted by MarkJean - what's a timming? Sir Mixalot - what's a genios? Think I'll hold off on the criticism until the boy's swingin from the gallows (whenever he reappears...)
Posted by John DownesI agree - Stanford is a financial genius - or was until he got caught!
Posted by Donald DuckI see even the queen is trying to distance herself from 'sir' Allen:
http://www.ft.com/cms/s/0/9cd55170-fe25-11dd-932e-000077b07658.html
No flies on her
note you are a limey publication, and yet, and yet the editorial note says the decision to annoint stanford was taken in the "fall" -sick- of 2008, not "autumn" wow, that's a freudian slip
Posted by mangy catMangy Cat, what makes you think the use of fall was "sick" (sic)?
The delicate art of the pun is lost on some it would seem.
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