CHRISTMAS finally arrived last Friday for staff at Buckinghamshire-based Heli
Air — and the helicopter company’s 40 employees had plenty to celebrate.
“We’ve just been so incredibly busy we simply haven’t had time for the
Christmas party before,” said Charles Peel, Heli Air’s owner. “But I said to
the guys that we absolutely had to have one, no matter how long we waited.”
Heli Air has the occasional celebrity client — singer Jay Kay bought a
helicopter last year; David Jason, the actor, is having flying lessons. But,
for the most part, Peel says the company’s clients are “ordinary people.” It
is just that there have been so many more “ordinary people” of late hoping
to experience Heli Air’s promise that “To fly is heavenly, to hover is
divine”.
“We didn’t start out with billionaires in mind,” said Peel, who set up the
company after selling Peel Hunt, the stockbroker he co-founded, for $45m
(£22.5m) to KBC, a Belgian bank, in 2000. “We look after the bankers,
accountants and management types.
“You can get a four-seater Robinson [helicopter] for £230,000 — that’s a small
bonus in the City these days. People are earning a lot more and the demand
is high.”
Last year, Heli Air sold 60 helicopters, making it one of the biggest private
distributors in Britain. It is doubling its hangar space in High Wycombe and
Denham and looking for more hangar sites in the Home Counties.
“There are only about 1,250 registered helicopters in the UK,” said Peel. “I
think there could be 10,000 in the next decade. It’s extremely exciting.”
Peel and his workforce are not the only ones celebrating. Record bonuses in
the City and on Wall Street are swelling the pay packets of hedge-fund
managers, while the emerging new economic powers in Russia, China, India and
Brazil are pouring unprecedented amounts of money into the luxury market on
both sides of the Atlantic.
In the Hamptons, preferred summer spot for New York’s millionaires, Sotheby’s
estate agents are already inundated with clients looking for summer rentals
and willing to pay more than $400,000 for the privilege.
Late last year the housing market there slowed, said Sotheby’s Alice Bell, as
sellers feared prices were falling and buyers held back.
Now the market has bounced back, even as the rest of America’s property market
has continued to be roiled by the fear of falling prices and the collapse of
low-end “sub-prime” loans.
“There was a lot of talk about the bubble bursting,” said Bell. “But for
properties above $7m the bubble did not burst.”
Among the properties that Bell currently has on her books is an eight-bedroom
home on 2.5 acres with its own access to the beach. The asking price is $45m
and the property is likely to be long gone before the summer season starts.
“Homes that are reasonably priced are attracting a lot of attention,” said
Bell, without a trace of irony.
In London, the estate agent Savills calculates there are 60 buyers lining up
for every property that comes on the market over the £4m mark. Outside
London the ratio is 45 buyers per property.
Last month Savills announced that its full-year, underlying pretax profits
were up 31% at £75m, boosted by City bonuses and the inflow of new money
from countries such as Russia.
Savills is now about to contribute to that cash pool by handing out £125m in
bonuses, compared with £90m for 2005.
Three-quarters of Britain’s millionaires now own at least one additional home,
and that is driving up property prices in places like Devon and Cornwall,
according to the wealth research house Ledbury.
The luxury goods market grew 12% in 2006 and, barring unforeseen disasters,
Ledbury calculates it will rise a further 11% in 2007. Demand will be driven
by emerging markets — Chinese consumption of luxury goods has risen 15%
annually in the past three years.
Even fears of another interest-rate rise in Britain haven’t dampened consumer
enthusiasm. “The top-end prime markets are less sensitive to the cost of
borrowing,” said Savills.
Business is also booming on the high seas. Camper & Nicholsons has been
building and chartering yachts for 230 years, and according to Laurent
Perignon, marketing director: “The market has never experienced such a boom
and it doesn’t look like it’s going to stop.
“Existing clients are making more money and there are a lot of new clients and
they are all looking for bigger yachts,” he said.
He estimates that the average weekly rate to charter a 40-metre yacht is about
£80,000 for the yacht and crew alone.
The broker has more trouble finding yachts to meet demand than clients to
charter them. Fortunately, by 2010 Perignon said the number of 50-metre plus
yachts under construction will have tripled.
“Twenty years ago a 30-metre yacht was a super-yacht. Now it’s average. The
rich seem to be getting richer every day,” he said.
Much of the money has been generated on Wall Street and the Square Mile. Last
year set new records for mergers and acquisitions and this year has got off
to a spectacular start.
On top of the investment banks, hedge funds are creating huge fortunes. The
top 25 hedge-fund managers made an average of $363m in 2005, up 45% from
$251m in 2004, according to a survey by Institutional Investor’s Alpha
magazine.
According to the Alternative Investment Management Association (AIMA), Europe
accounts for about 20% of the $1,500 billion hedge-fund industry, and the UK
has four-fifths of that.
London is now growing faster than its transatlantic rival and benefiting from
a wave of new money from Russia that has reshaped the top end of the market.
There are an estimated 1,000 Russian millionaires based in London as well as
10 billionaires.
“This round of personal liquidity doesn’t have a precedent at all,” said
Charles Geisst, Wall Street historian and professor of finance at Manhattan
College.
“Wall Street bonuses are always bigger in the good times, but I don’t think we
have ever seen anything like this.
“In the early 1990s the top treasury trader at Salomon Brothers was making
$25m a year. Even if you factor in inflation, bonuses of that size are now
fairly common.”
According to the latest numbers from America’s taxman, the Internal Revenue
Service (IRS), some 9,677 Americans earned more than $10m in 2004 — an
average of $26.5m each. Together this group represents 0.001% of the US
population and took home 3.8% of the nation’s total income.
In 2002 the number of people earning over $10m in the US was 5,309, a sharp
drop from a high of 11,215 in 2000 at the height of the last boom. But then
there were fewer billionaires. The Forbes magazine list of the 400 richest
Americans is now made up exclusively of billionaires.
But Geisst warns that history shows that what goes up must come down. “It’s
difficult to predict if the market will implode or slow down. “My gut
reaction is that it will slow down and take bonuses with it. But there are
some systemic risks out there. “The markets have gotten away from us and I
think we are in a state of denial,” he said.
When the downturn comes, the luxury market will be the first to get hit.
Already, many in New York’s art market fear financial buyers have pushed up
prices too far and could cause panic selling if they pull out en masse.
Steve Cohen, the hedge-fund titan, reportedly paid $17m recently for Jeff
Koons’s Balloon Dog. He’s estimated to have spent a total of $700m on art.
“That sort of spending pushes everything else in the market up. But is Koons’s
work really worth that?” asked one gallery insider. “If Cohen loses his love
of art, we are going to be in a lot of trouble.”
For those at the bottom end of the super-rich league, being overleveraged may
prove costly.
“There’s a classic photo of a guy after the 1929 crash trying to sell a Model
T Ford on Wall Street with a sign that says ‘First $20 takes my car’,” said
Geisst.
“I wouldn’t be surprised to see a modern version: ‘First $25m takes my house’.”
Outside the charmed circle of the super-rich life is tough — even for bankers.
Last week, Citigroup, the world’s biggest bank, announced it was cutting
17,000 jobs world-wide — about 5% of its workforce.
In the US mortgage market the threat of rising rates and the collapse of
“sub-prime” loans threatens millions of homeowners.
Sub-prime loans are mortgages made at high interest rates to people with bad
credit. The loans were pooled together and became a favourite investment of
some hedge funds.
As the sub-prime fall-out continues, Geisst predicts that the gap between rich
and poor is likely to become a hot political issue.
“There’s an amazing myopia in this country. As long as things seem to be going
well no-one cares. But as you start to see people being turned out of their
houses I think we will start having a very different debate,” said Geisst.
Additional reporting: James Scoltock
