Do You Sincerely Want To Be Rich? (37 page)

clients who worked for the Shell group or Unilever in West Africa when he was there, and he says it was they who first suggested to him the possibility of selling to Europeans in their own countries. It was a lucky contact: for the prospects for IOS in Holland, a country with a strong currency and therefore with no insuperable regulations against investing abroad, were as promising as anywhere in Europe.

    A number of IOS men - Allen Cantor, Dick Gangel, the inevitable Ellenport - had made swift sweeps through Holland before 1961. But it was Landau who first organized Holland as a systematic sales operation. (It is a graphic illustration of the personal, quasi-feudal character of the IOS sales organization that Landau's territory ran literally 'from Greenland's icy mountains' to 'where Afric's sunny fountains, Roll down their golden sand'. Nigeria, Liberia, Morocco, Holland and Iceland have little in common. But because Landau had helped to bring the gospel to each of them, all continued to pay him tribute.)

    In 1961, the Amsterdam bank, H. Albert de Bary, whose dignified eighteenth-century bankhouse is reflected from the waters of the Herengracht canal, became custodian of securities for IIT. About a year later Landau got permission to sell in Holland. The prestige of the de Bary bank was tempting for the salesmen, 'IOS constantly tried to use our name in their publicity,' a director of the bank told us, and added that he was repeatedly obliged to insist on editing IOS sales literature to cut out subtle language intended to suggest that de Bary guaranteed the quality of the fund's investments, where in fact, of course, it merely guaranteed their physical custody.

    Nevertheless IOS sales continued both legally and successfully, having their greatest success, as in most places where sales were legitimate, with self-employed people such as doctors, dentists and businessmen. The only problem was that Dutch law required that foreign shares should be held, not by the client directly, but on his behalf by a Dutch bank, IOS got one of the large Dutch deposit banks to perform this role.

    IOS ran into criticism in Holland from an unexpected direction.

    Consumentengids is the magazine published by the Dutch Consumer Association: it is roughly analogous to the British Which? or the American Consumer Reports. In its May 1966 issue, Consumentengids published perhaps the sharpest and most sophisticated critique of the Fund of Funds to be published in Europe before the spring of 1970.

    It began by pointing out the inherent dangers in any offshore fund. Where, for example, could an investor protect his rights? It quoted the sec's doubts, and then cited seven examples of what it regarded as misleading propaganda used by IOS in Holland: on which it commented that 'the least that can be said is that it is very one-sided'. It tried to estimate the true charge structure on the Fund of Funds, and concluded that the Dutch government ought to forbid the selling of such funds, and that until it did, 'we have only one piece of advice: hands off IOS and the Fund of Funds.'

    IOS immediately sued, claiming that the article was defamatory, inaccurate, insinuating and unlawful. The court of first instance, in the Hague, disagreed. On just one point, it found IOS's complaint justified: it found that the article had gone too far in claiming that because of tax provisions Dutch investors would necessarily lose money. On that one point, the magazine was ordered to publish a correction. But IOS was sentenced to pay four-fifths of the costs. The lower court's verdict was an undeniable defeat, and IOS appealed.

    The appeal was never heard, because the parties settled out of court. In January 1967 Consumentengids published an article which was the result of long conversations between Consumers Association staff and IOS management. It was noticeably less sharp in tone, and conceded several points to IOS. IOS in turn claimed to have reformed certain practices and improved its sales literature. The magazine did not, however, withdraw its serious overall reservations about IOS: it ended its article by saying that it was impossible to make any prediction about the future.

    In spite of this case, which received a good deal of publicity in Holland (far too much, in George Landau's outraged view), sales continued quite satisfactorily in Holland. In both 1967 and 1968, Holland accounted for 2% of IOS's worldwide sales, a handy contribution for a country with less than thirteen million people.

    In March 1969 IOS set up a Dutch subsidiary with its own 'product'. This was ivm Invest Management, organized, the reader will not by now be surprised to learn, under the laws of the Netherlands Antilles, and managing a fund which was used as the vehicle for insurance policies sold by a Dutch insurance subsidiary in Holland.

    The logic of sales took IOS into Sweden in the person of Bret Davidson, another of the veterans who became weary of the adventures inseparable from 'financial counselling' in undeveloped countries. Davidson asked Bernie Cornfeld for a solid territory to manage, and Cornfeld gave him Sweden, even though a market study suggested it would never be a very good market. There was an imperial simplicity about those years.

    Davidson was living in some style on a yacht which he keeps in the harbour at Cannes on the French Riviera, and he at first proposed to run Sweden as an absentee landlord from there. Eventually he was persuaded that this might not be popular with the Swedes, and he consented to move to Stockholm.

    Then he brought off a great coup. Late in 1968 he was introduced to Count Carl Johan Bernadotte, who is a cousin of the King of Sweden. The story is that Davidson asked for advice from the Count who is a prominent businessman, about starting a fund in Sweden, and was astonished to learn that Bernadotte would be happy to join the IOS board. James Roosevelt was even more astonished to learn that Davidson, who had started life as a sailor, had netted a fish that had slipped through the meshes of his diplomatic net.

    In the meantime two lawyers had been despatched to the North and reported that prospects there were better than anyone had dared to hope. There was no problem with Swedish law, and for once the local Establishment was helpful, IOS found itself in association with all three of the big Swedish banks, Stockholm's Enskilda Bank (the one controlled by the legendary Wallenberg dynasty), the Skandinaviska Bank and the Handelsbank.

    A Swedish national fund was set up, called Interfond. But the long-term plan was for an all-Scandinavian or Nordic Fund. Individual national funds in each of the Scandinavian countries would, it was hoped by the planners in Roosevelt's Development Company, eventually merge to form this bigger fund. They actually got as far as getting a charter for a Norwegian Fund, which has never actually materialized. And in fact, Roosevelt and his men exaggerated the speed with which the Scandinavian countries were moving towards Nordic Union, which would have included free capital movement between the member countries. Nordic Union slowed down and stopped: so did IOS's plans for a Nordic Fund.

    By 1969, in fact, Western Europe was not only staked out into sales territories. The prospectors had long done their work.

    Shafts had been sunk in all promising lodes, and the mining of savings had reached an industrial scale. The craft industry of the sales operation in Latin America, and the Middle East, relic of the days when people in IOS still thought $5 million a month was a lot of sales, faded into insignificance in comparison with the volume men like Kunkler and Schneider were achieving in Germany.

    One vast tract of utterly virgin territory remained to tempt the ambition of 119 Rue de Lausanne, where people were beginning to live in a world of strangely unreal dreams. In the final spiralling climb to the wild blue yonder, IOS began to dream of the last great untapped market: the 150 million inhabitants of Eastern Europe.

    For some time, Bernie Cornfeld's own imagination had been tickled by the notion of bringing the benefits of people's capitalism to the Communist countries. It appealed at once to his more high flown ideological notions and to the impish side of him. As early as December 1964, the IOS Bulletin referred to an itinerant salesman who had sold a few investment programmes to people in the Western embassies in Moscow as the IOS man there.

    Our colleague, Murray Sayle, visiting Cornfeld as an old friend in 1967, was given a demonstration of this. Sayle had just come back from Moscow, where he had been working solely as a reporter; Cornfeld hustled him into a meeting of IOS managers from various parts of the world and introduced him proudly, but to his considerable surprise, as Our Man from Moscow.

    It was some of the people in James Roosevelt's Development Company who first thought they had found a way to adapt the national fund, their universal jemmy for levering their way into a closed market, to a Communist economy. One of the top people in Roosevelt's entourage met, by chance, a German businessman who had shifted some of his expensive modern plant down to Yugoslavia, where he was helping the Yugoslav economy, and at the same time improving his profit ratio because of the low cost of labour there. Checking, the IOS man found to his surprise that Yugoslavia had accepted similar industrial partnership deals with several West German and Italian firms recently. Such joint ventures might provide the vehicles a national fund would need to enable it to promise to invest a percentage of its money in Yugoslavia.

    Roosevelt was tremendously excited by the idea of a Yugo-fund. In March, the IOS board was told that there was a number of possibilities in Yugoslavia, including not only a fund but also 'an underwriting'. That would have been a notable 'first' in a Communist country. On May 1, 1969 he announced publicly in Bremen Town Hall that he had been down to Belgrade to work out a plan 'which should contribute to solving some of Yugoslavia's problems'.

    'In Belgrade,' the master diplomat went on, 'we had to listen to an hour long eulogy of socialism, but in the end even our colle

Alger, who was then in his early thirties, had reached New York from San Francisco a couple of years before. In San Francisco he had managed the investments of the Winfield Fund and within a few months he became the hottest fund manager in New York. In 1965 the Security Equity Fund which Alger handled appreciated in value more than any other fund. The fresh-faced young investment expert, whose normal working garb is shirtsleeves and braces, was soon in great demand, and he was a natural recruit for IOS. At the end of 1965 Alger was approached by C. Henry Buhl III, the investment director of IOS, and asked if he would like to handle one of the ingenious Proprietary Funds, through which the Fund of Funds money was now invested.
¹
After a breakfast meeting with Bernard Cornfeld, Alger agreed to take on a slice of the Fund of Funds. 'We'll call it the Alger Fund,' said Cornfeld, 'so we'll know the schmuck to blame if it goes wrong.'

    The stock markets were shaky in the year Alger got his invitation from Clapp, and so he had to stay in New York working to keep his funds high up in the charts. But in 1967 the

    
¹
See Chapters 8 and 9 The Birth of a Superfund and They May Be Schmucks -But They're the Government.

    

    markets rose again, and Alger decided he could take that Bahamas holiday.

    Paradise Island is separated from Nassau by a strip of water just four hundred yards wide. The only way to get across in those days was by boat, and as Alger was being ferried across, he saw that a large bridge was being built across the narrows. He asked Clapp who was building the bridge, and what was it all about. Clapp told him that a company called Mary Carter Paint was going to develop the island, and was starting with the bridge.

    Sam