Lansdowne Partners chief Sir Paul Ruddock ‘shocked’ that New Years Honours List knighthood was controversial

Hedge fund chief Sir Paul Ruddock addresses the controversy over a decision to award him a knighthood and calls for a more transparent honours system.

Sir Paul Ruddock is not a man who seeks the limelight. As chief executive of Lansdowne Partners he admits during an interview at his central London office that most business people are pretty private. But all that changed last weekend when Sir Paul found himself on the front pages of the newspapers following the announcement that he was to receive a knighthood in the New Year Honours List.

Critics were quick to claim that not only had Sir Paul donated to the Conservative Party but that Lansdowne had also profited from the collapse of Northern Rock. The hedge fund had taken a short position on the beleaguered bank and therefore booked a gain when it collapsed.

In an interview with The Telegraph, Sir Paul said that claims of any connection between his political donations and the knighthood were “clearly not the case” and that the idea that he had “made” £100m from Northern Rock was “ridiculous”.

He also laid out a blueprint for the way he believes things should change so that the honours system is more transparent. He said that details of the reasons for awarding the most senior honours should be made public. Sir Paul also suggested that the organisations or individuals that proposed the award to the honours committees should be revealed.

“I think that in my case that would certainly have been very helpful,” he said.

Downing Street has signalled that the knighthood was not at its instigation and it is believed the proposal came from the arts world.

Sir Paul’s recommendations on transparency are backed by Helena Morrissey, the CEO of Newton Investment Management who received a CBE. She said there was “scope for elaborating on the reasons why people have been selected, particularly for knighthoods”.

Sir Paul said that his donations of around £500,000 to the Tory party played no part in gaining the award.

He explained that he has spent many years supporting cultural and education establishments, including his old school, King Edward’s, in Birmingham, as well as the V&A and the British Museum. Sir Paul and his wife, Jill, funded the development of the Renaissance Galleries at the V&A.

“I am very proud of what I, in partnership with the management at the V&A, have achieved in the past 10 years and what we are doing at the British Museum.

“In my case it was recognised that [the knighthood] was for helping revive the fortunes of the V&A but it would be helpful to go into more detail, without being overly lengthy, so that it is crystal clear why that honour is being given. I had been a very modest supporter of the Conservative Party from 2003 onwards. And when David Cameron became the leader it coincided, to my mind, to a time when the country was being very poorly managed economically and I felt that the policies being suggested by Cameron and his colleagues made a lot of sense, as I still do. As long as I feel the policies make sense I will continue to support them.”

Asked if his political donation bought him influence, Sir Paul said “not at all”.

“My contact with Government falls into one main category, which is that I am chairman of one of the largest arts institutions in the country and I have regular meetings with the Department of Culture Media and Sport to talk about the role of the V&A and arts institutions in the country and how we can stimulate philanthropy.

“As a slightly different role I am obviously a director of the Alternative Investment Management Association and that association has interaction with the Government on economic matters. That is wholly separate.”

Given his long-term commitment to charitable giving, Sir Paul admits he was shocked that the award of a knighthood was controversial.

“It caught me a bit by surprise,” he said. “I had been so involved in arts and education for 20 years and my charitable donations are tens of times what I have given to the Tory party – in the tens of millions. Also the idea that I would have any influence over the Government, except in my role as V&A chairman, is ridiculous.

“I believe fully that this honour has been awarded to me because I have hopefully made some difference in terms of improving the cultural life of this country.

“For me, it will not change how I approach my giving of time and money and skill. And I will continue doing what I have been doing for a long time.

“Clearly this type of publicity, I suspect, would make many people shy away from being as generous to institutions financially because of a fear that it backfires.”

Sir Paul said that people misunderstood the role of hedge funds and that although Lansdowne did make a return from shorting Northern Rock the year before its collapse, it lost money the two years before that.

He also said that Lansdowne was in the main a long-term investor in institutions such as Lloyds Banking Group, an investment which he said had lost the fund far more than it had gained from Northern Rock.

“It is absolutely ridiculous,” he said of reports that he had “made” £100m from shorting Northern Rock.

“Firstly, the money we made from Northern Rock was for our investors, clearly then Lansdowne will take some share in the profits of that.

“The numbers quoted that the firm made are high, and I make a small fraction of that money. We have 18 partners and I am not one of the investment partners. So, I did not take the decision to invest in Northern Rock, but obviously as co-founder and CEO of the firm I bear responsibility.

“As far as Lansdowne is concerned we did not create the problems at Northern Rock, we were not the management that made profligate, poorly funded loans and exploded their balance sheet to a level that was unsustainable.

“We were not the regulatory agencies that failed to spot these huge problems despite investment management firms like ourselves holding short positions in these institutions several years before the problems really became dire.”

He said that hedge funds played a role of “canaries in the coal mine”, giving early warnings where problems may exist in corporates. They also supported the growth of successful businesses and had created a sector in London that was now world beating.

“[Shorting] does allow us to identify problems which hopefully act as a counterbalance to some people getting overexcited about the prospects of companies,” he said.

“I would give the internet bubble as one example. It is just as bad for markets and savers and pension funds if you have extreme valuations as it is if things go down.”