Mar 20, 2016

After those foreign follies, home is where my wallet is

My greatest professional regret is that I have never lived abroad. 

The reason I have stayed put in Britain is that my career has been here. So I have largely missed out on the vast opportunities offered by emerging economies and booming foreign markets.

But haven’t I invested in businesses abroad? Ah, there’s the rub. My experience of such overseas ventures is that they are mostly a lot of effort for very little reward.

For me the most alluring foreign destination has always been America, the home of modern capitalism and the largest single market on earth. I love their go-getting attitude, they speak English, and the scale of the country means there is an extraordinary number and variety of possibilities. Unfortunately there are also endless pitfalls.

I co-founded a US business in marine terminals that did pretty well. We owned port facilities on both east and west coasts, and sold the company for a tidy profit. But I squandered that gain on a couple of misjudged restaurant projects. One was a start-up in New York; the scheme went over budget and we picked the wrong partners. After only a couple of years we shut it with a write-off of more than $5m. I learnt the costly way that what works in Britain isn’t necessarily the right formula Stateside. The other investment was in a restaurant company run by a rogue from Staten Island who drove it into bankruptcy. Always work with a local, they say — but make sure they are competent, otherwise you risk losing your money.

Some years ago I backed a chain of steak restaurant/bars in Australia. But I was unfamiliar with the antipodean market, where there is ferocious competition between casual dining operators, which suffer from low margins and dismal returns. We did insufficient due diligence into the business; the outlets were in a poor state, the brand was tired, and the management incompetent. After struggling for a number of years, we sold out at a loss. As ever when buying a company, you need to do your homework — even more rigorously when in foreign lands. I paid the price for my laziness.

Owning remote assets is a precarious occupation. Distance diminishes control and encourages unreliability in partners. I prefer to be close to my businesses — to meet my colleagues who run them frequently, and to understand local conditions. It is very difficult to keep to those principles across national borders and time zones and in locations many hundreds, or perhaps thousands, of miles away. Digital communications might mean you feel you are in touch, but that can be a dangerous illusion. Diverse legal systems, cultures, consumer behaviour, business practices — the differences between sovereign nations can be treacherous. I like to touch my capital and see how it is being spent. If you have no real idea, then you should assume the worst. As Homer wrote in The Iliad: “But ruin is strong and swift. She outstrips them all by far, stealing a march, leaping over the whole wide earth to bring mankind to grief.”

Of course, sticking to companies located in Britain can be both parochial and restrictive. We live in a mature, highly taxed and heavily regulated economy, with plenty of frustrations and challenges for the ambitious entrepreneur.

But Britons have crucial advantages that we take for granted: the rule of law applies here; we have strong property rights; we have a decent justice system and pretty incorruptible public servants; our currency is fairly stable; and our banks are solvent. Moreover, local networks should mean you have a much better feel for who is dishonest — and how to fix problems if things go wrong.

I did business in France for a while, but the system is rigged heavily against capitalists — unless you are part of the Paris elite. But at least it ranks higher than Italy in Transparency International’s index of public sector corruption.

Italy comes 69th, and I can believe it. I made the foolish error of buying a stake in a group that owned various assets there. I might as well have flushed my money down the toilet. It felt as if everyone was on the take and no one could be trusted. No wonder institutional investors tend to shun the country. As a foreigner, they see you as gullible prey, to be exploited ruthlessly by any means available — legal or not.

I once looked at investing in Russia, but soon changed my mind. It is a kleptocratic state, and the consequences of running up against the wrong mafia boss can be fatal. Anyone who risks their capital there is exceedingly brave, and probably foolish. Of course, a tiny handful of oligarchs became billionaires overnight there in the 1980s. I suspect most of them used methods to amass their sudden wealth that the rest of us would find abhorrent.

I applaud those who are brave enough to invest and acquire abroad successfully. I wish I had their confidence and talent. In the meantime, I shall stick to domestic deals.