As a symbol of Britain’s ill-advised romance with banking and dubious foreign money, a new prime London property investment fund is hard to beat.

The investment vehicle from asset manager London Central Portfolio Ltd, which will commit 100 million sterling to prime residential property, amounts to a bet that London retains official policies that make it the corrupt rentier’s bolt-hole of choice.

To be clear, there is nothing illicit about investing in London property, but London is what it is because of official policy choices which are good for banking and for wealthy people from less democratic places. First, a quick take on the fund, which is interesting mostly for the assumptions underlying its mode of doing business.

Citing what it says is a 40-year track record of 9 per cent annual price appreciation in central London property, the fund plans to buy up one- and two-bedroom units, with an eye towards renting them and then flipping them in five to seven years. If you consider eternal 9 per cent growth in property prices, even in districts popular with Russian oligarchs, optimistic, wait until you hear about the annual 14-18 per cent rate of return the fund is targeting. That figure is only therefore achievable, of course, with a liberal dose of borrowed money.

Illiquid asset

So on the face of it, you have a fund with many of the features of a speculative bubble; a leveraged investment in an illiquid asset which is arguably already overvalued. Gross yields on flats in prime central London only amount to a bit less than 3 per cent of the value of the property, according to data from real estate firm John D Wood & Co. And as that is a gross yield, making no allowance for running costs much less periods of vacancy, these are likely to be investments which you pay to own, rather than vice versa.

But that’s not what is really remarkable here. What really sings about this fund is the tacit underlying assumptions: that Britain will continue on its path of ever-greater financialisation with an ever-growing banking sector centred on London; and that this will go hand-in-glove with keeping open house in central London for people who earned, shall we say, their money elsewhere, often through ‘government service’ or at least by being useful to governments.

For Britain, these twin strategies are economically unwise and morally distasteful.

Crimea

Those expectations, though, seem pretty reasonable based on recent developments. A photographed official document showed the British government strategising about countering Russian incursions into Crimea in ways that wouldn’t “close London’s financial centre to Russians”. And though visa or travel restrictions are a possibility, the clear indication is that London’s role as a financial entrepot is central to British policy, a strategy which has historically also led to both money and people finding their way to the city.

From a human standpoint, that’s wrong because it enables corruption. In an un-democratic and massively corrupt country like Russia the principal fear of anyone close to power is that some day power turns on them. Having a vibrant world capital like London, rather than a dreary island somewhere, as a place through which one can dry-clean one’s money and as an escape hatch gives them a special kind of security.

Why work towards security of person and property at home when the money is so good and can be enjoyed in a place like London where those rights are respected? From a purely financial standpoint, welcoming this tide is also unwise, though exceedingly expedient.

Latent risk

Britain’s financial sector is now about four times as large as its annual output. That creates a lot of high-paying jobs in London but also, as we saw during the financial crisis, a lot of latent risk. The tab for that risk won’t be picked up, if we suffer another crisis, by the bankers and oligarchs. It instead becomes, in an extreme, a sovereign liability.

Remarkably, though, Bank of England chief Mark Carney laid out in October a vision of Britain in which banking becomes even more important (and presumably central London property even more valuable).

While stressing that it isn’t his job to dictate how big the financial sector is, Carney laid out a future in which, if current trends hold, banking assets grow by 2050 from four times the size of annual output to nine times. By comparison, US banking assets are just a bit bigger than annual GDP.

For a man whose successor in 2050 might have quite the banking mess to clean up, Carney seemed remarkably relaxed about this.

From fund managers, to investors, to politicians to central bank chiefs it seems money, regardless of its source, is often pleasant enough to blind you to risks.