Peter Hargreaves and Stephen Lansdown

Doctor of Laws

Thursday 16 February 2012 - Orator: Professor Paul Grout

Mr Pro Vice-Chancellor

I would ask you to cast your mind back to 17^th century London. Then, as now, London had many coffee shops.  However, unlike today, the coffee shops of London in the 1600s had a double purpose, because in these coffee shops businessmen not only met to enjoy a drink, they met to trade shares. Those that bought the shares were aiming to reduce the risk of their money and build up a store of wealth, maybe to see their families and themselves though their old age.

The buying and selling of shares grew rapidly and by 1690 it was possible to buy shares in over a 100 different companies in the coffee shops of London. We all know where this bit of the story ends. Lloyd's Coffeehouse became Lloyds of London, the Baltic Coffeehouse became the London Shipping Exchange, the Jerusalem Cafe became the East India Company, and, most important of all, Jonathon’s coffee house became the London Stock Exchange. From those narrow London streets developed one of the biggest and most famous financial centres in the world.

I have emphasised the history and scale of the City of London because this is where all the attention in finance is focused. It is generally thought that the city has a monopoly, in the UK, on financial companies and that if one wishes to develop a global financial company that is jolly well were you have to be. What will probably be a surprise to most people in this room, and in the UK, is that it does not have to be like this. Peter Hargreaves and Stephen Lansdown have shown that it is possible with sufficient vision and commitment to build, away from the City of London and only working with self generated capital, a major, global financial company, well respected, worth billions of pounds, with over half a million clients around the world. To give some idea of the scale of the company they have created, it is the ninth largest financial company on the London Stock Exchange, one of the hundred largest of all companies on the Stock Exchange, and, measured by the return on equity, the most profitable of all those 100 companies. And all of this has been achieved less than 800 metres away from the building in which we now sit.

But this is where the journey has brought them to, and with your permission Mr Pro Vice-Chancellor I would like to step back to where it all started.

Peter was born in Lancashire and went to Clitheroe Royal Grammar School. His father, Kendal Hargreaves, was a baker and Peter’s first home was above the shop. He picked up his early business acumen by serving in the shop and also during this time picked up a significant piece of business philosophy from his father. Peter’s father only ever borrowed money once in his life, £400 from his brother which was repaid within six months. As we will see, this philosophy has been at the heart of the development of Hargreaves Lansdown.

Stephen, a local Bristol boy, was born a few years later at Almondsbury, just a few miles up the road from here, and went to Thornbury Grammar School. He was keen on sport and Bristol City Football Club. So keen in fact that Stephen states his life ambition is to see Bristol City in the Football Premier League.

Both men trained as accountants and after a short while moved into financial firms. Then, in the typical way that many great partnerships hinge around single chance events, they both applied for the same job in Bristol. Peter got there first but prevaricated, because of another iron in the fire. The iron turned out not to be so attractive so he phoned back to display his enthusiasm only to told another person had been hired. That person was, of course, Stephen Lansdown. However, fortunately for history the employer clearly knew a good thing when he saw it and decided to hire both of them, and that is how they met.

They learnt a huge amount in the brief period with their employer but by 1981 both men decided to take the plunge and go into business together. They have a global business now but the start was as far from this as you could imagine. We have all heard about the big Silicon Valley companies that started life in a garage and Hargreaves Lansdown has a similar story. Of course, anyone who knows a wet Bristol winter knows that you do not start a business in a garage in Bristol. But Peter and Stephen’s story is no less romantic, although it was probably tough at the time and the romance stands tall only with the passage of time. The firm started in Peter’s spare bedroom, here in Clifton. They borrowed a couple of desks, bought a filing cabinet and Stephen’s father converted the wardrobe into a stationary cupboard. The claim is that the company is called Hargreaves Lansdown because it was Peter’s bedroom so naturally his name had to come first.

So just over 30 years ago, on the 1^st July 1981, the two men walked up the stairs to start the first day of Hargreaves Lansdown. It must have been impossible to imagine on that day that the journey would take them so far but the confidence in their own ability was clearly there. And not just Peter and Stephen’s confidence. Stephen’s wife was heavily pregnant with their first child at the time and the fact that she completely backed him in the venture speaks volumes for her confidence too.

With only a few blips along the way the company has grown continuously for the last thirty years. The company does many things, but at the heart of Peter and Stephen’s business model is the idea that customers are offered a one-stop shop, the so-called Vantage platform, where they can transact through the company, choosing between a large number of low-risk investments such as unit trusts. The company only makes a small fee for each transaction, there are no upfront fees and customers only pay for advice when they ask for it. So the company makes its money by taking a very small amount of money from a large number of investments. The model of charging low fees per customer and not imposing upfront management fees is not the way in most financial markets, and the Hargreaves Lansdown model is recognised as being unusual. But being on your own in financial markets is not a bad thing. When a young man asked Warren Buffet how he should develop his career and conduct himself in the financial community, Buffet replied: Take the high road, you will meet a lot less traffic up there.

The touchstone has been low-risk and extreme financial caution, both for its customers and the company itself. This has served the company well during its 30 years. Both Peter and Stephen are justly proud of the fact that they have not borrowed any money to grow the business. All the growth has been organic.

We should remember that many financial institutions around the world borrowed heavily when money was cheap and that is how the companies grew so rapidly. But we now know what happened to these companies. Observing what has happened to Hargreaves Lansdown during this period speaks volumes about Peter and Stephen’s approach. It was when the perfect storm developed and the cost of borrowing in the international wholesale markets escalated, that the financial markets recognised the value of the safety first, organic growth policy. While many financial institutions, many of them household names, either collapsed or had to be rescued wholesale by governments, in contrast the value of Hargreaves Lansdown increased and kept on increasing. Indeed from the cataclysmic day Lehman Brothers declared bankruptcy in 2008 until Portugal’s debt was downgraded last year, its share price went up over three and half times, at the very time that economies were collapsing and financial markets were in turmoil. The approach of resilience and extreme financial caution that Peter and Stephen have preached for years, beliefs that Peter inherited during the days in that bakery shop, and that Peter and Stephen learnt together from watching the consequences of the opposite behaviour in the days before they set up their own company, have served them and their half a million investors well indeed.

This story is also a story for the City of Bristol, one that the city should be proud of. I’ve been a professor here for over 25 years and have come to love the city. We know very many of our students want to stay here when they graduate. The success of Hargreaves Lansdown shows that you do not need to leave the city and rush off to London or New York to build something special. It can be done right here. When Hargreaves Lansdown was floated on the stock market the company was working out of an office in Brighton Mews, just round the corner, off the Whiteladies Road. Incidentally, the office was built for the company and named Kendal House, so Peter’s father Kendal Hargreaves was never far from the business in more ways than one.

The company has also provided employment for our graduates. Indeed, the second ever employee of the company, after Peter and Stephen, was a Bristol graduate hired after she left university. I’m sure, Mr Pro Vice-Chancellor, that you will be proud to know that in Peter’s own words, ‘I can categorically state that she has been no less important than Stephen and myself in the development of Hargreaves Lansdown’. It would be harder to think of a more resounding endorsement of our students. And I should add that three of the current board members are graduates of the University of Bristol.

But the city connection goes deeper than this. These days both have stepped back from running the business. Peter has stayed as an executive director and is in the office most days. Stephen has become non-executive but his connections with the city have not reduced. If you recall, I mention that Stephen’s life ambition is to see Bristol City in the Football Premier League. Well clearly Stephen does not just sit back and wait for dreams to be fulfilled. He has actively thrown his effort and money into trying to make this happen. He is the leading shareholder of the Bristol City Football Club, until recently was Chairman, and is actively involved in trying to help the club move to a new stadium.

On the other side of the river, in 2009 another of Bristol’s sporting institutions, Bristol Rugby Club, formed in the 1880’s and one of the great names in English Rugby, was about to go into administration. At that moment a secret investor stepped forward. Referred to only, in almost Le Carre Tinker-Tailor nomenclature, as ‘White Knight’ in all the official documents, that investor saved the club from extinction. Only last week was the identity of the person revealed, when the final acquisition had been completed. It was Stephen Lansdown, who as a result is now the principle shareholder and financial supporter of the two leading sporting institutions in the city.

I would like to close, Mr Pro Vice-Chancellor, with a few comments about the ceremony. As the students come up one by one it is thrilling to see so many young people making another step in their careers. They will soon walk down the staircase of the Great Hall and into the next stage of their lives. They are leaving with a good education and hopefully a soft spot for the city and university.  As they leave us today, often travelling back home far away from here, seeking to built their dreams and fulfil their ambitions, they have seen today two wonderful examples of what it is possible to achieve. Starting in a spare bedroom in Clifton, to have built a major global financial company in the space of thirty years right here on the University’s doorstep is a stunning achievement. Mr Pro Vice-Chancellor, I present to you Peter Kendal Hargreaves and Stephen Philip Lansdown as eminently deserving of the degree of Doctor of Laws, honoris causa.