Mercury Asset Management, the investment arm of SG Warburg, was a stellar performer in the period from 1979 to 1992 when it was chaired by Peter Stormonth Darling.
In his memoir, City Cinderella — The Life and Times of Mercury Asset Management, Stormonth Darling, who has died aged 86, declared that this success was the work of others and that he became chairman only because he happened to be around at the right time and was older than most of the other potential candidates.
This was both characteristically self-deprecating and largely true. Growth at Warburg Investment Management, which subsequently became Mercury, was driven by the trio of Milo Cripps, Nicholas McAndrew and Andrew Smithers. They saw the rise of the pension funds as a great marketing opportunity long before their competitors in the fund management business woke up to it. In due course, another trio consisting of Stephen Zimmerman, Leonard Licht and Carol Galley cemented Mercury’s position as the biggest and most powerful British fund manager.
This pre-eminence was achieved despite intense hostility from Siegmund Warburg, founder of the bank that bore his name, whose first instruction to Stormonth Darling as he took the chairmanship was to get rid of the investment business. In Stormonth Darling’s account, Warburg even offered the business to the rival merchant bank Robert Fleming for nothing, although other well-placed sources argue that the gesture was a feint as part of a wider potential deal with Fleming, which had a weak merchant bank and a strong investment arm. In the event nothing came of it.
Warburg disliked the fund management business because there was no hiding place if funds underperformed. He thought it useful only to provide clients for the bank with which to place its new issues and underwritings. Cripps used to joke that Warburg recruited fund managers by approaching people in bus queues and asking if they would like to join his bank’s investment department. The irony is that by the time SG Warburg was sold to Swiss Bank Corporation in 1995, Mercury, having found no takers at that earlier stage, was by far the most valuable part of the business. In 1997, Mercury was sold to Merrill Lynch at twice its market value at the time of the Swiss Bank Corporation deal.
Peter Stormonth Darling, who was born on September 29 1932, came from a patrician Scottish family. He was educated at Winchester College and fought with distinction as an officer in the Black Watch in the Korean war. He then read law at Oxford university and emigrated to Canada, where he joined a small financial firm, Triarch, which Siegmund Warburg had founded in partnership with other banks. This led to an introduction to Warburg and eventually to the promise of a job heading the investment business in London.
When Stormonth Darling arrived at the bank’s offices in Gresham Street in 1963 it turned out that there was already a chairman in place, in the shape of Cripps. Cripps knew nothing about Warburg’s promise and offered him a job manning the North America desk. Stormonth Darling kept quiet about the phantom offer and soon discovered that this was the kind of “ploy” that Warburg used “to create tension and competition among his subordinates”.
Stormonth Darling was fortunate in having a good relationship with this brilliant but volatile figure. Yet, as the investment department grew, friction with the bank became an increasing problem. A harbinger of trouble to come was the bid in 1985 by retailer Burton, an SG Warburg client, for the Debenhams department store group. Mercury held on behalf of its clients 14 per cent of Debenhams’ shares. House of Fraser then put in a rival bid for Debenhams.
Members of Warburg’s corporate finance division expected that Mercury would take Burton’s side. Yet Mercury took the view that its first duty was to its clients. When the Debenhams shares rose in the market above the formal bid level, it sold its shares to House of Fraser, much to the fury of Warburg’s corporate financiers, even though Burton emerged the winner. This was the first time the investment arm of a merchant bank acted in a takeover in defiance of its parent’s interest. Other frictions arose when 25 per cent of Mercury was floated on the stock market in 1987.
The verdict of David Scholey, a former chairman of SG Warburg, on Stormonth Darling’s tenure, is that while he was not really the architect of Mercury’s success, “he was the impresario, the conductor, the paterfamilias, much liked and trusted by everyone”. In his life after Mercury he held many non-executive directorships and advisory roles. And, says Sir David, “he never stopped giving money away [to charity], but very quietly”.
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