Latest / Merryn Talks Money / Where Have All the Companies Gone?

Transcript

Where Have All the Companies Gone? · Merryn Talks Money

• 0:00
  Speaker 1: John Man. We've been talking a lot over the last
• 0:04
  Speaker 1: couple of years about the changing geopolitical situation. We've been
• 0:07
  Speaker 1: talking about how the whole world and the financial world
• 0:10
  Speaker 1: in particular, is at an inflection point and everything's going
• 0:13
  Speaker 1: to change. And when we've been talking about it, one
• 0:15
  Speaker 1: of the things that I'm afraid was not on our
• 0:17
  Speaker 1: list was a new Israel Hama's conflict. But this does
• 0:21
  Speaker 1: have massive impacts on the area that we talk about
• 0:26
  Speaker 1: on economics and on finance, and in particular possibly on
• 0:30
  Speaker 1: the way that inflation will move over the next couple
• 0:32
  Speaker 1: of years.
• 0:32
  Speaker 2: Right, Yeah, I mean it's all just more evidence of
• 0:40
  Speaker 2: deteriory and overall kind of like geopolitical kind of sphere
• 0:47
  Speaker 2: and more disruption to what the world that we kind
• 0:53
  Speaker 2: of grew up and if you looked like, and what
• 0:55
  Speaker 2: it no longer looks like, and what everyone's something to
• 0:57
  Speaker 2: get used to it being. You invite them in, you know,
• 1:01
  Speaker 2: a team, make it. You know, got a very long story.
• 1:06
  Speaker 2: Short is just that you know it's going to be
• 1:08
  Speaker 2: more inflationary and more volatile and more disrupted and more
• 1:13
  Speaker 2: kind of nasty surprises, which is not very cheerful, but
• 1:20
  Speaker 2: that is the way it is.
• 1:22
  Speaker 1: It is.
• 1:23
  Speaker 3: And one of the things that I've been thinking about,
• 1:25
  Speaker 3: you know, I think about this a lot is ESG
• 1:28
  Speaker 3: investing and the way that environmental, social, and government factors
• 1:31
  Speaker 3: taken into account when you invest.
• 1:34
  Speaker 4: And we talked after the war and the Ukraine began.
• 1:37
  Speaker 4: We talked about had defense, which had long been considered
• 1:40
  Speaker 4: something that you absolutely could not invest in because it
• 1:43
  Speaker 4: was obviously bad, because owning shares in a company that
• 1:47
  Speaker 4: creates things that kill people is clearly horrible.
• 1:50
  Speaker 1: And then after that war started, everyone started to look
• 1:52
  Speaker 1: at it again and say, well, actually, you know, defense
• 1:55
  Speaker 1: is really a social good. Having an adequate, adequate defense
• 1:58
  Speaker 1: in place for your population is surely a very definition
• 2:01
  Speaker 1: of a social good, assuming you believe in democracy, freedom, etc.
• 2:05
  Speaker 1: Of course, which clearly not everybody does. And so we
• 2:07
  Speaker 1: got to the point where we're like, well, in wartime,
• 2:09
  Speaker 1: maybe defense is about as ESG as you can get.
• 2:13
  Speaker 1: And now everything is shifting as well in terms of
• 2:17
  Speaker 1: energy and fuels, et cetera. And I got a note
• 2:20
  Speaker 1: the other day from a fund manager explaining how investing
• 2:24
  Speaker 1: in mining is now a good thing. And for years,
• 2:28
  Speaker 1: of course, you and I have been told that you
• 2:29
  Speaker 1: can't touch a mine with a barge pole because it's
• 2:31
  Speaker 1: really dirty. And all the diesel big machines and the
• 2:35
  Speaker 1: ecosystem destruction that's basically built in to mining, and of
• 2:39
  Speaker 1: course the use of water. All these things make a
• 2:42
  Speaker 1: mining non ESG. And now of course there's energy security
• 2:46
  Speaker 1: flies to the top of everyone's to do list. Mining
• 2:50
  Speaker 1: is very EESG. What can be more of social good
• 2:54
  Speaker 1: than mining for the messols that allow the energy transition
• 2:59
  Speaker 1: to happen to the extent that it can happen. So
• 3:02
  Speaker 1: ESG is kind of it's disappearing. It's disappearing into reality.
• 3:07
  Speaker 2: Yeah, yes, events have kind of overtaking it. It's I mean,
• 3:12
  Speaker 2: the frustrating thing is this has been blindingly obvious from
• 3:14
  Speaker 2: the start, you know, when all of these idiots were
• 3:17
  Speaker 2: talking about stranded assets and all that sort of stuff.
• 3:20
  Speaker 2: When you were like, well, okay, maybe they'll be stranded
• 3:22
  Speaker 2: one day, But first of all, when you get to
• 3:24
  Speaker 2: the point where we don't need this stuff anymore, you know,
• 3:27
  Speaker 2: And it's somewhat frustrating that we can end up being
• 3:33
  Speaker 2: at the point where it's only once you know, like
• 3:39
  Speaker 2: push comes to shove, the kind of logic starts to
• 3:42
  Speaker 2: kick in again. You know, we wasted an awful lot
• 3:47
  Speaker 2: of time and an awful lot of paperwork because ESG
• 3:52
  Speaker 2: was a useful way basically for you know, one group
• 3:57
  Speaker 2: of people who virtue sign going for another another kind
• 3:59
  Speaker 2: of like group of people in the financial industry, you
• 4:01
  Speaker 2: find the sales pitch for John.
• 4:04
  Speaker 1: It's been the most exciting, if you're a marketing man
• 4:08
  Speaker 1: in fund management, most exciting marketing campaign since the beginning
• 4:12
  Speaker 1: of fund management. You know, the amount of money that
• 4:15
  Speaker 1: is poured into this nonsense because a lot of it
• 4:19
  Speaker 1: is nonsense. Let's be clear at this point, a lot
• 4:21
  Speaker 1: of it's completely nonsense that it's poured into this nonsense
• 4:24
  Speaker 1: since what twenty fourteen, twenty fifteen when it kicked off.
• 4:27
  Speaker 1: This has been a marketing man's dreams, but it's also
• 4:30
  Speaker 1: been deeply misguided.
• 4:32
  Speaker 2: Yeah, it's like a huge piste of time and I'm
• 4:35
  Speaker 2: investment capital in the water cases. So it's it's good
• 4:41
  Speaker 2: that we're coming out of this, but it's uh, you know,
• 4:49
  Speaker 2: it all kind of pop up in other ways, you know,
• 4:50
  Speaker 2: So it's like, so it's rebranded so that it's no,
• 4:53
  Speaker 2: it's ESG. It's okay, it's good. It's good to Maine.
• 4:56
  Speaker 2: As long as you're main in for lithium, you know
• 4:59
  Speaker 2: that is that is you know, it's kind of you know,
• 5:01
  Speaker 2: nobody's it's going to see in the Oh, yeah, it's
• 5:03
  Speaker 2: good to mean for pool.
• 5:04
  Speaker 1: Yeah, you know, I think when we're very nearly there,
• 5:08
  Speaker 1: because let's not forget that you need coal to make steel,
• 5:11
  Speaker 1: and you need steel to put up a wind turbine.
• 5:13
  Speaker 1: Not all coalers, not all steelers is from coal. But
• 5:16
  Speaker 1: you need coal to make the majority of steel around
• 5:18
  Speaker 1: the world. So I don't think it's very long before
• 5:21
  Speaker 1: I get a note from a fun manager saying mining
• 5:24
  Speaker 1: coal for good, feel good with coal.
• 5:29
  Speaker 2: Yes, yes, you can't be too cynical a bit there.
• 5:32
  Speaker 1: Stuff that absolutely right, you can't be too cynical. And
• 5:36
  Speaker 1: in fact, I was talking to someone about it the
• 5:38
  Speaker 1: other day and I was thinking, once, once you take
• 5:40
  Speaker 1: this pragmatic approach to es gee, there's no limit, no
• 5:43
  Speaker 1: limit of where it can end. You know. Take tobacco
• 5:44
  Speaker 1: companies right, amazingly well run, survived, longer, chucked out more
• 5:48
  Speaker 1: cash than anyone could could possibly have begun to imagine
• 5:51
  Speaker 1: when when the consequences of smoking became clear. So there's
• 5:54
  Speaker 1: a lot of punches that's done really well out of that?
• 5:56
  Speaker 1: Is that a social good? And we were told weren't
• 5:58
  Speaker 1: we buy by Paul John the other day that the
• 6:01
  Speaker 1: cash that they pour into our treasuries far was the
• 6:04
  Speaker 1: medical cost of dealing with smokers and finances so many
• 6:07
  Speaker 1: other things that the state do. Wow, what a social
• 6:09
  Speaker 1: good you see? Once you get going, Once you get going,
• 6:12
  Speaker 1: that there's no end. It all means nothing.
• 6:14
  Speaker 2: I mean you're basically saying the bicigarettes to save our NHS.
• 6:21
  Speaker 1: Yes, yes, that is what I said.
• 6:25
  Speaker 2: But tobacco companies stop, just.
• 6:31
  Speaker 1: Stop, just stop right, Okay, Moving on personal finance tip
• 6:34
  Speaker 1: of the week, give me one John.
• 6:37
  Speaker 2: O Well inter streets, interest streets Allo. The long term
• 6:42
  Speaker 2: out look for infleetion is obviously volataile earned up and down.
• 6:47
  Speaker 2: At the moment, it looks as if the Bank of
• 6:49
  Speaker 2: England is probably I think that the Bank England's done
• 6:53
  Speaker 2: at five and a quarter percent. Obviously it may go
• 6:56
  Speaker 2: up a little bit further. But looking at the least
• 6:59
  Speaker 2: we data and obviously we're we're recording this early, so
• 7:03
  Speaker 2: we haven't had the inflation data for September yet, but
• 7:08
  Speaker 2: chances are that it's going to that you can see
• 7:11
  Speaker 2: that the bank is itching.
• 7:12
  Speaker 1: They kind of like.
• 7:13
  Speaker 2: Call an end to rate hikes now. And so we've
• 7:17
  Speaker 2: seen NS and I the government bond kind of like
• 7:20
  Speaker 2: retail facing bit remove its six point two percent interest straight.
• 7:28
  Speaker 1: Not get round to it. I did not get round
• 7:30
  Speaker 1: to that.
• 7:31
  Speaker 2: I didn't. And this is what I'm thinking today is
• 7:35
  Speaker 2: when we should be telling people, Look, okay, so maybe
• 7:37
  Speaker 2: if you've not been getting around this stuff, you should
• 7:40
  Speaker 2: start looking for your your one year fixed straight accounts. Now,
• 7:43
  Speaker 2: if you've got a bit of cash, then you know
• 7:47
  Speaker 2: it's probably time you have a look because you can
• 7:49
  Speaker 2: still get if it's for a that for a tax
• 7:51
  Speaker 2: paying account, you can still get one year at six
• 7:54
  Speaker 2: point one percent, which is half decent. I think that's
• 7:58
  Speaker 2: going through raising, you know, they kind of that's the
• 8:02
  Speaker 2: the place that does the it. It puts your money
• 8:06
  Speaker 2: into the best savings account that you can find, or
• 8:10
  Speaker 2: you can go for a fixed cash Isa Paragan does
• 8:14
  Speaker 2: one for five point five five percent. I'm just looking
• 8:17
  Speaker 2: at money facts five point five percent with all the
• 8:20
  Speaker 2: more Mansfield Building Society five point four we leeds in Yorkshire,
• 8:25
  Speaker 2: so there's still you know, you can get a half
• 8:27
  Speaker 2: decent rate and giving the inflation is probably gonna come
• 8:31
  Speaker 2: down to blow five percent in the final quarter of
• 8:33
  Speaker 2: this year, it's at least going to be getting a
• 8:36
  Speaker 2: kind of real return.
• 8:37
  Speaker 1: So it's looking it's amazing Tasday's John that the best
• 8:40
  Speaker 1: we think we can help for is to get a
• 8:42
  Speaker 1: rid of interest. It is only slightly below the right
• 8:44
  Speaker 1: of inflation.
• 8:46
  Speaker 2: Although this is slightly higher.
• 8:48
  Speaker 5: It will be.
• 8:49
  Speaker 1: It will it will be, it will be. So there's
• 8:51
  Speaker 1: this John predicting inflation for you as well.
• 8:56
  Speaker 2: Dangerous come December.
• 9:00
  Speaker 1: All right, now, listen, I do want to make clear
• 9:03
  Speaker 1: before we before we go on to our interview today,
• 9:06
  Speaker 1: that we did record this interview a little while ago,
• 9:09
  Speaker 1: so it was recorded before the Israel Helmuth conflict began.
• 9:12
  Speaker 1: And that is why it doesn't mention it. Not because
• 9:15
  Speaker 1: not because we didn't mention it. It just hadn't begun by dance.
• 9:17
  Speaker 1: It was recorded a little early. And this conversation that
• 9:21
  Speaker 1: John and I are having it's also been recorded a
• 9:23
  Speaker 1: few days before the podcast comes out, so obviously things
• 9:26
  Speaker 1: of us moving and may have changed by the time
• 9:28
  Speaker 1: it does come out. Welcome to Maren Talk to Money,
• 9:37
  Speaker 1: the podcast in which people who know the markets, Explain
• 9:39
  Speaker 1: the markets. I'm Maren Zumsetweb. This week we bring you
• 9:42
  Speaker 1: a conversation with Douglas abbotead of UK Welfish Rooders and
• 9:44
  Speaker 1: Duncan Lamont, Global head of Pensions and Investments, also at Schroders. Duncan, Doug,
• 9:50
  Speaker 1: thank you so much for joining us today. We really
• 9:52
  Speaker 1: appreciate it. Great to be here.
• 9:54
  Speaker 6: Thank you for having me.
• 9:55
  Speaker 5: Yeah, thanks very much.
• 9:56
  Speaker 1: Yeah. We've been waiting, Duncan to have you on for ages.
• 9:59
  Speaker 1: John and I mentioned you all the time like it's
• 10:01
  Speaker 1: a mini data celebrity, and we talk about you off
• 10:03
  Speaker 1: was when will we get them to come on? When
• 10:05
  Speaker 1: will we come on? And finally you're here. So I
• 10:07
  Speaker 1: hope you're really really good, because you're really disappointing. If
• 10:10
  Speaker 1: you're not, I will do my best.
• 10:13
  Speaker 6: There's a lot to live up to there, I know, right.
• 10:16
  Speaker 1: What I want to want to start by talking about,
• 10:17
  Speaker 1: Duncan is you've done quite a lot of work into
• 10:19
  Speaker 1: the shrinking pool of equities in the UK where we
• 10:22
  Speaker 1: are gradually de equitizing in the extent to which that matters.
• 10:25
  Speaker 1: So I wonder if we can start by talking about
• 10:27
  Speaker 1: what's actually happening. Where is the UK a qreed market going.
• 10:32
  Speaker 6: Yeah, so I think that there is an increased awareness
• 10:35
  Speaker 6: about this, but I don't think people have quite got
• 10:37
  Speaker 6: their head around the scale of what has been happening,
• 10:40
  Speaker 6: both in the UK but also internationally. And maybe you
• 10:43
  Speaker 6: can come on to the international element too. Just to
• 10:46
  Speaker 6: give you some numbers, back in nineteen ninety six there
• 10:49
  Speaker 6: was twenty seven hundred companies on the main market of
• 10:52
  Speaker 6: the London Stock Exchange. Now there is one thousand and
• 10:55
  Speaker 6: seventy seven, a sixty percent reduction if you look even
• 10:59
  Speaker 6: low longer time horizon. So since the nineteen sixties there's
• 11:02
  Speaker 6: actually been a seventy five percent reduction in the number
• 11:05
  Speaker 6: of UK companies. Add an Aim Hey for Aim for
• 11:09
  Speaker 6: a few years actually was attracting loads of companies and
• 11:12
  Speaker 6: actually that kind of makes it look a bit better.
• 11:14
  Speaker 6: But the number of AIM companies has also follow by
• 11:16
  Speaker 6: half now, so there really is a situation where companies
• 11:21
  Speaker 6: have been rejecting a UK stock market listing both from
• 11:27
  Speaker 6: the and there's two sides here. One is less appetite
• 11:30
  Speaker 6: for an IPO, but the other side is also a
• 11:33
  Speaker 6: kind of sustained drip drip drip of de listings which
• 11:37
  Speaker 6: is mainly from mergers and acquisitions.
• 11:39
  Speaker 1: Yeah, and we've seen quite a lot of that this
• 11:41
  Speaker 1: year already, haven't We seen quite a lot of transactions
• 11:43
  Speaker 1: that have taken companies off the market, and pretty much
• 11:46
  Speaker 1: in no IPOs but one one ips. Yeah, they give you.
• 11:50
  Speaker 6: The de listing situation is interesting because it's been happening
• 11:53
  Speaker 6: everywhere around the world. So I did some work looking
• 11:55
  Speaker 6: at the number of companies that were listed on the
• 11:59
  Speaker 6: UK stop market in twenty eleven and then what had
• 12:02
  Speaker 6: happened over the following decade, like how many were still listed,
• 12:05
  Speaker 6: what happened, what direction had gone in, And about a
• 12:08
  Speaker 6: third of them had delisted over that period, and the
• 12:12
  Speaker 6: overwhelming majority, almost all of them, it was because they'd
• 12:14
  Speaker 6: been bought. Not many companies just decide, hey, I've had enough,
• 12:18
  Speaker 6: I'm throw in the towel in and leave the stock market.
• 12:21
  Speaker 6: Most of it's because they're being bought. And this kind
• 12:24
  Speaker 6: is so far so global. It's the same in the US,
• 12:26
  Speaker 6: it's the same in Europe. Lots of delistings, lots of
• 12:28
  Speaker 6: m and A. But the big difference in the UK
• 12:31
  Speaker 6: actually is that who have been the buyers of those companies.
• 12:35
  Speaker 6: In the US, the biggest buyers of US public companies
• 12:40
  Speaker 6: in the delisting trend have been other US public companies,
• 12:44
  Speaker 6: So if you keep investing in the US stock market,
• 12:47
  Speaker 6: you still kind of have exposure to those businesses that
• 12:50
  Speaker 6: have gone just not on a standalone business. They're kind
• 12:53
  Speaker 6: of subsumed in another company. In the UK, the majority
• 12:57
  Speaker 6: of the people down the buyn have been overseas buyers,
• 13:01
  Speaker 6: mainly US and Canadian ones. So what we have had
• 13:04
  Speaker 6: is the UKPLC has been kind of seeping overseas into
• 13:11
  Speaker 6: largely American and buyers and private equity buyers. So UK
• 13:15
  Speaker 6: investors no longer have the same access to those companies
• 13:19
  Speaker 6: if they're investing in the UK stock market, and that
• 13:21
  Speaker 6: is quite a different compared to what we see in
• 13:24
  Speaker 6: other markets.
• 13:25
  Speaker 1: And can do you have a sense of why that
• 13:27
  Speaker 1: is and why are our companies going abroad? Is it
• 13:29
  Speaker 1: because that's so cheap? Because the UK market has been
• 13:31
  Speaker 1: cheap for quite a long time, and so it's an
• 13:34
  Speaker 1: easy thing to do to create growth of foreign companies
• 13:37
  Speaker 1: just to snap up the cheap UK company and subsume
• 13:40
  Speaker 1: intoin deal business.
• 13:42
  Speaker 6: Very much. Yeah, we've spoken about this. I know you've
• 13:46
  Speaker 6: spoken about this on many occasions that UK companies are
• 13:49
  Speaker 6: trading at evaluation discount to those around the world. If
• 13:53
  Speaker 6: you look at kind of forward price earnings multiples, the
• 13:56
  Speaker 6: UK stock market is trading at about almost a fifty
• 13:59
  Speaker 6: percent discount to the US, twenty percent discount to Europe.
• 14:04
  Speaker 6: It's not just about sectors. It's not just because we
• 14:06
  Speaker 6: don't have the tech companies the US has. Every single
• 14:09
  Speaker 6: pretty much every single sector of the UK stock market
• 14:12
  Speaker 6: trades at a pretty chunky discount to the US. Energy
• 14:18
  Speaker 6: sector forty percent discount, Pharma biotech sector twenty nine a
• 14:22
  Speaker 6: M is about a forty percent discount as well. Across
• 14:26
  Speaker 6: all of the sectors it's about thirty percent discounts. So
• 14:29
  Speaker 6: wherever you are looking, we have very kind of obviously
• 14:35
  Speaker 6: very successful, world leading businesses that are very performing, very
• 14:40
  Speaker 6: well operationally, but are not necessarily being valued to the
• 14:45
  Speaker 6: in the same way they would be if they were
• 14:46
  Speaker 6: listed in other country.
• 14:48
  Speaker 1: And what do you put that down to, Well, I mean,
• 14:51
  Speaker 1: I know what most people say that, oh, the UKs
• 14:53
  Speaker 1: is a wreck. You know, we don't grow horrible inflation,
• 14:56
  Speaker 1: we destroyed ourselves with Brexit, et cetera. But looking at
• 14:59
  Speaker 1: the numbers coming through more recently, none of that is
• 15:01
  Speaker 1: really really true. Our GDP our growth is no different
• 15:04
  Speaker 1: to most other European countries, are inflation levels are converging
• 15:08
  Speaker 1: with other European countries. There's really nothing worse going on
• 15:11
  Speaker 1: in the UK than anywhere else that you can really
• 15:13
  Speaker 1: put your finger on, Nothing you can back up with data.
• 15:16
  Speaker 1: So what is the problem here?
• 15:18
  Speaker 6: So the valuation discount we've always it did start emerging
• 15:23
  Speaker 6: kind of post twenty sixteen, so there has been I
• 15:25
  Speaker 6: think there has been an element of international investors in
• 15:28
  Speaker 6: particular being less keen on the UK, and I kind
• 15:34
  Speaker 6: of feel like there's maybe a bit of a situation
• 15:36
  Speaker 6: that we've had with value investing in the same way
• 15:38
  Speaker 6: that people have been saying it's cheap for a while,
• 15:41
  Speaker 6: and then there were perhaps some investors who backed that
• 15:44
  Speaker 6: view for a while. But the longer that valuation discount persists,
• 15:48
  Speaker 6: the people's patience runs out. So I think there's a
• 15:52
  Speaker 6: bit of that been going on. But to give a
• 15:54
  Speaker 6: little bit more of a positive side, So the M
• 15:56
  Speaker 6: and A side means that other buyers, both private equity
• 16:01
  Speaker 6: and over these companies are saying these companies are worth
• 16:03
  Speaker 6: more than they are. The other people who recently have
• 16:06
  Speaker 6: actually started getting very interested in buying UK shares is
• 16:10
  Speaker 6: companies themselves. So share buybacks in the UK about forty
• 16:16
  Speaker 6: five percent of companies listed on the UK market last
• 16:19
  Speaker 6: year bought back more than one percent of their shares
• 16:22
  Speaker 6: in the previous year. In earlier years that figure was
• 16:26
  Speaker 6: something like I'm just looking at a chart right now,
• 16:29
  Speaker 6: we might be talking about twenty percent. So it's absolutely rocketed.
• 16:34
  Speaker 6: So Directors of UKPLC has said, we think our shares
• 16:38
  Speaker 6: are undervalued and we're going to start buying them back.
• 16:40
  Speaker 1: And that's not just the investment trust sector. Just we
• 16:43
  Speaker 1: came because there's a lot of buybacks in the investment
• 16:45
  Speaker 1: trust sector which could be skewing the numbers.
• 16:47
  Speaker 6: No, that's not just the investment trust sector at all.
• 16:49
  Speaker 6: We're seeing there's been very large increases in buybacks across
• 16:52
  Speaker 6: the UK corporate sector in general. So, and this is
• 16:57
  Speaker 6: in previous years it was mainly the US where lots
• 16:59
  Speaker 6: of the buybacks have but what we've seen more recently
• 17:01
  Speaker 6: is that it's been picking up in a lot of
• 17:03
  Speaker 6: non US markets, Japan as well as a market where
• 17:06
  Speaker 6: we're seen buybacks. But I think there is an element
• 17:08
  Speaker 6: here of directors saying well, actually we think our shares
• 17:14
  Speaker 6: are not necessarily fully valued. And people criticized buybacks for
• 17:17
  Speaker 6: the timing of them sometimes, but hey, if your shares
• 17:19
  Speaker 6: are undervalued, then that's actually the ideal time to be
• 17:22
  Speaker 6: doing some buybacks. That can be quite a value generator
• 17:26
  Speaker 6: in time.
• 17:28
  Speaker 1: Yeah. One of the long term criticisms of buybacks is
• 17:30
  Speaker 1: that you quite often see them at levels that are
• 17:32
  Speaker 1: definitely not cheap, and there's a relationship between top management
• 17:37
  Speaker 1: long term bonuses and the buyback. So that's been a
• 17:40
  Speaker 1: long term criticism. But you couldn't say that that was
• 17:42
  Speaker 1: the case in the UK given the valuations.
• 17:45
  Speaker 6: But actually to put a bit of an international perspective
• 17:49
  Speaker 6: on this as well, so some of this has been
• 17:50
  Speaker 6: maybe a bit downbeat on the UK and saying and
• 17:53
  Speaker 6: I think we self flagellation. I do feel like as
• 17:55
  Speaker 6: a British pastime, like war is us Look how awful
• 17:59
  Speaker 6: we are compared with every in the world stage. And
• 18:01
  Speaker 6: actually this trend of de equitization, of companies not wanting
• 18:06
  Speaker 6: to join the stock market, of companies leaving the stock market,
• 18:08
  Speaker 6: it's global. There's nothing, there's nothing that's making us special.
• 18:13
  Speaker 6: And saying that we're having an awful situation and everybody
• 18:15
  Speaker 6: else's is perfectly happy. The number of German companies is
• 18:19
  Speaker 6: down forty percent since two thousand and seven. Like everyone said,
• 18:22
  Speaker 6: puts the US on a pedestal and says how great
• 18:26
  Speaker 6: it is, and it is having an increased share of
• 18:29
  Speaker 6: kind of IPOs and of companies wanting to list there.
• 18:32
  Speaker 6: But the number of US companies is down forty percent
• 18:34
  Speaker 6: since the mid nineties. This isn't just a UK feature.
• 18:38
  Speaker 6: This is something that's happening globally, I think. And when
• 18:41
  Speaker 6: we come onto this, a big part of this is
• 18:43
  Speaker 6: the growth of the private equity industry.
• 18:45
  Speaker 1: Yeah, before we come on to that, I want to
• 18:47
  Speaker 1: ask you possibly the most important question, which is this,
• 18:51
  Speaker 1: why does it matter? Right? I mean, these are huge numbers.
• 18:54
  Speaker 1: It's obviously a big shift, but people will be saying
• 18:57
  Speaker 1: the companies continue to exist just in different ownly, ship abroad,
• 19:00
  Speaker 1: at homes, it merged into other companies whatever. Why does
• 19:03
  Speaker 1: it matter if there are a few elisted companies fall in.
• 19:07
  Speaker 6: If you are a company, it is very easy for
• 19:11
  Speaker 6: you to raise capital wherever you want in the world. Now,
• 19:14
  Speaker 6: like we've seen obviously lots of UK companies raising money
• 19:16
  Speaker 6: in the US. But if the UK stock market ceased
• 19:18
  Speaker 6: to exist, it wouldn't necessarily stop some of these large
• 19:21
  Speaker 6: companies from being able to raise capital. If you're an investor,
• 19:25
  Speaker 6: you can allocate money to funds, to ats, to individual
• 19:29
  Speaker 6: companies anywhere in the world for relatively low cost these days.
• 19:32
  Speaker 6: That wasn't the case in the past. So actually, I
• 19:34
  Speaker 6: don't think that it matters that much for individuals. I
• 19:38
  Speaker 6: don't think it matters that much to companies. Where it
• 19:42
  Speaker 6: matters much more is probably actually for the UK economy,
• 19:47
  Speaker 6: the amount of conservices the industries that actually the financial
• 19:53
  Speaker 6: services sector supports here. If we were to lose were
• 19:57
  Speaker 6: standing on the world stage as a stock market, that's
• 19:59
  Speaker 6: what would lose. And probably, actually I've been a bit
• 20:03
  Speaker 6: simplifying as saying it doesn't matter to companies. It doesn't matter.
• 20:06
  Speaker 6: If you are a big international company with the household brand,
• 20:09
  Speaker 6: you can raise money anywhere. It matters a hell of
• 20:11
  Speaker 6: a lot more for your small and medcap companies. You're
• 20:15
  Speaker 6: going less than America. They've never heard of you. That's
• 20:18
  Speaker 6: going to be a much harder situation. So I think
• 20:21
  Speaker 6: it matters for the ecosystem of small and mid sized
• 20:24
  Speaker 6: companies that we want to grow in the UK. I
• 20:27
  Speaker 6: think it matters to the economy. I actually think it
• 20:30
  Speaker 6: probably doesn't matter as much to investors as perhaps we
• 20:33
  Speaker 6: sometimes claim it does.
• 20:35
  Speaker 5: Possibly, even though we work together, it might disagree on
• 20:38
  Speaker 5: one aspect. I think the decline of the listed market
• 20:42
  Speaker 5: probably is a problem for the average punter who has
• 20:46
  Speaker 5: their savings over time and focused on the listed markets
• 20:49
  Speaker 5: or public securities. So if companies are coming to the
• 20:54
  Speaker 5: market much later in their development, and I guess that
• 20:56
  Speaker 5: kind of hyper gross stage that you see in companies
• 20:59
  Speaker 5: just making funded by private capital, that means that kind
• 21:03
  Speaker 5: of the bulk of the population you have are relying
• 21:06
  Speaker 5: on the public markets to kind of help them generate
• 21:09
  Speaker 5: a pot in retirement or generate you know, turn their
• 21:11
  Speaker 5: savings into returns. Isn't getting access to that growth opportunity?
• 21:15
  Speaker 5: And I think we always look at the history of
• 21:18
  Speaker 5: the equity market and returns from equities and so on
• 21:20
  Speaker 5: as a as a factor as to why you should
• 21:22
  Speaker 5: invest them in the long run. But if the equity
• 21:24
  Speaker 5: market looks quite different, either there's less interesting companies in it,
• 21:28
  Speaker 5: or the companies that are on the market are later
• 21:31
  Speaker 5: stage and where they are in their cycle. That could
• 21:33
  Speaker 5: be a problem for people in the long run as
• 21:35
  Speaker 5: they're sort of trying to beat inflation or save in
• 21:37
  Speaker 5: the long run. So I think there's there's something about that.
• 21:40
  Speaker 5: And actually, while I've been quietly listening in the background,
• 21:42
  Speaker 5: I think one bit we've missed on UK so far
• 21:45
  Speaker 5: in this discussion is actually that structurally we're seeing less
• 21:48
  Speaker 5: domestic investment in the UK equity market from either retirement scheme,
• 21:54
  Speaker 5: so we've had dB switching to more fixed income allications.
• 21:56
  Speaker 5: We see we're seeing a shift from dB to d
• 21:58
  Speaker 5: C schememes. In terms of people who get advice, we're
• 22:02
  Speaker 5: seeing a shift towards passive and global, and those two
• 22:06
  Speaker 5: things are related, right, So those solutions that people are
• 22:09
  Speaker 5: being put into don't include asset classes like private equity,
• 22:14
  Speaker 5: infrastructure and real estate en mass, I think wealth managers
• 22:17
  Speaker 5: probably are offering solutions that do that because of the
• 22:20
  Speaker 5: investment the listed investment trust market and the strength of
• 22:22
  Speaker 5: that over the last ten years in the UK. But
• 22:25
  Speaker 5: then also people are going more global and that's affecting
• 22:27
  Speaker 5: the UK equity market, which kind of comes back to
• 22:30
  Speaker 5: Duncan's point about having a throating economy. So I think
• 22:32
  Speaker 5: there's quite a lot going on here, but the decline
• 22:35
  Speaker 5: of the equity market, I think is it does have
• 22:37
  Speaker 5: an impact if you think about where are people's long
• 22:40
  Speaker 5: term savings being invested in. Have they got exposure to
• 22:43
  Speaker 5: the exciting, innovative growthy asset.
• 22:46
  Speaker 1: Yeah, it also seems important to me on a social level.
• 22:49
  Speaker 1: You know, quoted companies, we can watch them there. I
• 22:52
  Speaker 1: have a certain level of crutiny both there from individuals
• 22:54
  Speaker 1: and from the state financially operationally, and we can see
• 22:57
  Speaker 1: what they're doing. It's much more transparent than companies that
• 23:00
  Speaker 1: are private, and we lose that as companies leave the
• 23:03
  Speaker 1: equity equity market, we lose that sense that we can
• 23:06
  Speaker 1: effectively see the UK economy via listed companies. That matters too.
• 23:11
  Speaker 6: Yeah, hundred percent agree with that transparency to double edsord
• 23:15
  Speaker 6: companies might not like it, but it's a great way
• 23:18
  Speaker 6: to be able to hold management practices to account. It's
• 23:22
  Speaker 6: harder when that's in the private markets. Albeit, then I
• 23:27
  Speaker 6: suppose you can argue that the choice of who you
• 23:30
  Speaker 6: invest with if you want to allocate to private markets,
• 23:32
  Speaker 6: and then the types of investor they are and whether
• 23:34
  Speaker 6: they care about particular things that align with your own beliefs.
• 23:37
  Speaker 6: That starts to matter more, but you don't have the
• 23:39
  Speaker 6: same look through to the companies at an investor. The
• 23:42
  Speaker 6: flip side probably is private equity investors get much much
• 23:45
  Speaker 6: more information than in public market investors. They can get
• 23:49
  Speaker 6: access to regular cash flow projections, lots and lots of
• 23:52
  Speaker 6: really in depth data that can help with their decision making,
• 23:55
  Speaker 6: but it is more closely held between say the company
• 23:59
  Speaker 6: the private equity invest It's not as visible and transparent
• 24:02
  Speaker 6: for the kind of broader social goods that you were
• 24:04
  Speaker 6: talking about.
• 24:05
  Speaker 1: Yeah, and it means that for the individual investor a
• 24:07
  Speaker 1: middle man is required, and one of the things that
• 24:10
  Speaker 1: we really like to get rid of in the men
• 24:12
  Speaker 1: or middle men, or certainly the necessity for middle men.
• 24:14
  Speaker 1: But if you're going to invest in unlisted companies as
• 24:17
  Speaker 1: an individual investor, you really have no choice but to
• 24:19
  Speaker 1: do it via a professional and that makes it different too.
• 24:24
  Speaker 6: Yes, Actually I completely agree with what Doug was saying. Actually,
• 24:27
  Speaker 6: my points around it not mattering as much to investors
• 24:30
  Speaker 6: were much more about the say the demise of the
• 24:33
  Speaker 6: UK stock market relative to the global market still existing.
• 24:36
  Speaker 6: I completely agree on the risks that might come from
• 24:40
  Speaker 6: the public market being less relevant. If you take it
• 24:44
  Speaker 6: to the extreme, it potentially feels inequality because those who
• 24:49
  Speaker 6: have assets can access all of these exciting, sexy companies.
• 24:53
  Speaker 6: Your ordinary retail investors basically cut out of that. They're
• 24:56
  Speaker 6: too small, they f either are too high, they can't
• 24:58
  Speaker 6: They basically don't get a seat at that table. So
• 25:00
  Speaker 6: all the kind of have which is everybody with tons
• 25:02
  Speaker 6: of assets, and here I actually include FIGN benefit pension funds,
• 25:06
  Speaker 6: they get to access all the great areas you have
• 25:10
  Speaker 6: not and in that and I'm going to include the
• 25:12
  Speaker 6: fine contribution investors on the whole, not all of them,
• 25:15
  Speaker 6: but it's a lot harder for them historically to have
• 25:18
  Speaker 6: been able to access some of these private assets.
• 25:21
  Speaker 1: Yeah, so the growth, the growth goes, whether money or
• 25:23
  Speaker 1: already is Okay. Well, there's not much we can do,
• 25:26
  Speaker 1: the three of us on this podcast in thirty minutes
• 25:29
  Speaker 1: about the decline of the number of listed companies globally.
• 25:32
  Speaker 1: We have to take what we have for now. So
• 25:34
  Speaker 1: let's talk a little bit about how the private markets
• 25:37
  Speaker 1: work and how investors can or should be accessing the
• 25:40
  Speaker 1: non listed markets. Doug, is that really all area?
• 25:44
  Speaker 6: Yeah?
• 25:44
  Speaker 5: So, I mean I think it's it's interesting and it's difficult, right,
• 25:48
  Speaker 5: So I think there's a lot of interesting companies and
• 25:51
  Speaker 5: there's a lot of interesting assets you can get access
• 25:53
  Speaker 5: to you but you know, the private markets are I
• 25:56
  Speaker 5: think that I think Duncan you might have some stats
• 25:58
  Speaker 5: on this, but there's something like seventy five percent of
• 26:00
  Speaker 5: economic activities sits in the private markets world. But getting
• 26:04
  Speaker 5: access to that is very difficult because they are assets
• 26:09
  Speaker 5: which are complicated, their assets which are privately held, their
• 26:11
  Speaker 5: assets that don't trade regularly, and the liquidity angle is
• 26:16
  Speaker 5: the piece which a lot of people focus on, but actually,
• 26:18
  Speaker 5: in many ways, the liquidity of these asset classes, because
• 26:22
  Speaker 5: they have to trade between kind of willing bars and
• 26:24
  Speaker 5: willing sellers and it's quite complicated, is where you often
• 26:27
  Speaker 5: get the premium in the long term thinking that supports
• 26:29
  Speaker 5: kind of these assets. So it's difficult. In the UK,
• 26:32
  Speaker 5: we have this remarkable market that has been booming until
• 26:35
  Speaker 5: sort of about eighteen months to two years ago, which
• 26:38
  Speaker 5: is the listed investment trust market that actually tackles that
• 26:42
  Speaker 5: issue really well. You know, there you have listed companies
• 26:46
  Speaker 5: where you have a selection of you know, good, average
• 26:50
  Speaker 5: and bad managers who are doing different things around asset managers.
• 26:53
  Speaker 5: There's been some incredible success stories in that area and
• 26:56
  Speaker 5: a huge amount of growth in terms of raising money
• 26:58
  Speaker 5: and getting it into markets where anyone can buy a
• 27:01
  Speaker 5: share and they can sell a share that gives them
• 27:03
  Speaker 5: access to private assets on a daily basis. Of course,
• 27:06
  Speaker 5: the difficulty of investment trust is when there's lots of demand,
• 27:10
  Speaker 5: they trade really well, and when there isn't as much
• 27:12
  Speaker 5: demand or things change, the share price can controp quite
• 27:16
  Speaker 5: dramatically versus the price of the asset that you might
• 27:18
  Speaker 5: have exposure to you. So we've seen a big decline
• 27:21
  Speaker 5: in discounts in that particular area of the investment trust market. See,
• 27:25
  Speaker 5: there is a really good vehicle there, but there's a
• 27:27
  Speaker 5: whole bunch of new structures they're emerging, and there's a
• 27:29
  Speaker 5: lot of support from the Treasury to try and give
• 27:31
  Speaker 5: different types of access to private assets.
• 27:35
  Speaker 1: Let's just stick with the investment trust for a minute.
• 27:37
  Speaker 1: There are an awful lot of private equity investment trusts
• 27:40
  Speaker 1: in the UK, most of which are now trading at
• 27:42
  Speaker 1: sub science of discounts to the stated NV. But the
• 27:46
  Speaker 1: reason for that is because no one's convinced that the
• 27:48
  Speaker 1: stated NEV is the correct sorry, anyv being net asset value.
• 27:52
  Speaker 1: No one's convinced that the net asset value is correct
• 27:54
  Speaker 1: given the sharp price and interest rates, suggesting that a
• 27:57
  Speaker 1: lot of these private assets should be revalued down. SI.
• 28:00
  Speaker 1: Actually that's what's going on.
• 28:02
  Speaker 5: Here, right, Yeah, that's definitely a feature, man. There's also
• 28:06
  Speaker 5: a you know, there's an element of how do you
• 28:08
  Speaker 5: work that out? What does the share price accurately reflect
• 28:11
  Speaker 5: what the NAV is? And that is quite difficult. You know,
• 28:14
  Speaker 5: that requires research, that requires understanding what's going on. You
• 28:17
  Speaker 5: know that that is not straightforward.
• 28:20
  Speaker 1: But it also involves private really managers confronting the reality
• 28:23
  Speaker 1: of the new macroeconomic situation, which they'd be slow to do.
• 28:28
  Speaker 6: That's right.
• 28:29
  Speaker 5: And when you have a complete change in the regime
• 28:31
  Speaker 5: around inflation and interest rates, that kind of completely changes
• 28:34
  Speaker 5: the cost of capital on which you price everything, and
• 28:37
  Speaker 5: that needs to filter through the system. And I think
• 28:39
  Speaker 5: you know, one of the aspects of private assets versus
• 28:42
  Speaker 5: public equities is that you know that takes time. That
• 28:45
  Speaker 5: lag factor of where the pricing was and where it
• 28:49
  Speaker 5: should be does take a bit of time in that. Yeah,
• 28:53
  Speaker 5: And the question is how far have discounts actually reflected
• 28:57
  Speaker 5: where the pricing should be, how far are they actually
• 29:00
  Speaker 5: too far?
• 29:01
  Speaker 1: And so on?
• 29:01
  Speaker 5: And I guess that's the difficulty for the private investor
• 29:04
  Speaker 5: is that discount versus nab piece is quite difficult to
• 29:07
  Speaker 5: navigate unless you kind of do your research and you're
• 29:10
  Speaker 5: an expert.
• 29:10
  Speaker 1: But what's the answer. What's the answer, you're the expert.
• 29:14
  Speaker 1: I think the.
• 29:16
  Speaker 5: Reality is is that there is no straightforward answer. I
• 29:19
  Speaker 5: think what you have to recognize is that if you
• 29:22
  Speaker 5: want exposure to liquid assets, it isn't as simple as
• 29:26
  Speaker 5: owning a listed public company or a fund that trades
• 29:29
  Speaker 5: daily and so on. This is a fact of life
• 29:32
  Speaker 5: within the area. There's always going to be risks and
• 29:34
  Speaker 5: so on. But what is interesting is I think an
• 29:37
  Speaker 5: awful lot of people own property in the UK. Obviously
• 29:41
  Speaker 5: a large non people want to own more property, sit
• 29:43
  Speaker 5: of the young people. But I think actually, if you
• 29:45
  Speaker 5: think about private assets in the way that we think
• 29:47
  Speaker 5: about real estate, most of us own a house. Most
• 29:50
  Speaker 5: of us know that mortgage rates have gone up quite
• 29:52
  Speaker 5: a bit. Most of us understand that probably things are
• 29:55
  Speaker 5: coming off the boiler bit in terms of where real
• 29:57
  Speaker 5: estate is, and that there's a dynamic there around what
• 29:59
  Speaker 5: you think the house might be worth and what you
• 30:01
  Speaker 5: might be bid for in terms of having an offer
• 30:04
  Speaker 5: on a house, and that's how private assets work. And actually,
• 30:06
  Speaker 5: if we think of it in that way and realize
• 30:08
  Speaker 5: when you're going into an asset class, when you're buying
• 30:10
  Speaker 5: sharing one of these companies, that there may be a
• 30:12
  Speaker 5: risk that things are overvalued and things might come down,
• 30:14
  Speaker 5: or that if you're buying a share and the naves,
• 30:18
  Speaker 5: that the naves are where they are and there's a
• 30:19
  Speaker 5: big discount and the nabs may come down a bit.
• 30:21
  Speaker 5: If you think about it in that way, you know,
• 30:24
  Speaker 5: you can get your head around it, but you do
• 30:25
  Speaker 5: need to kind of people do need to recognize that,
• 30:28
  Speaker 5: you know, this is an area where it's not straightforward
• 30:30
  Speaker 5: and you need to think about more things that are
• 30:31
  Speaker 5: going on, and also recognize that not everyone's purpose in
• 30:35
  Speaker 5: this area, right. Some people are good, some people are averaged,
• 30:37
  Speaker 5: some people are not so good in terms of what
• 30:38
  Speaker 5: they're managing. And there isn't a capsule for private assets.
• 30:41
  Speaker 5: You know, when we think about the equity market, we
• 30:43
  Speaker 5: talk about sectors, we talk about themes, we talk about
• 30:46
  Speaker 5: mids caps, we talk about small caps, we talk about
• 30:49
  Speaker 5: emerging developed and so on, Well, that's exactly the same
• 30:51
  Speaker 5: in private markets. You can't sort of tar let's call
• 30:54
  Speaker 5: private equity. You can't say that is all kind of uniform.
• 30:57
  Speaker 5: You really have to do your homework in terms of
• 30:59
  Speaker 5: what you're trying to get access to. Essentially, So I
• 31:02
  Speaker 5: don't think there is a perfect answer, Marion, but I
• 31:04
  Speaker 5: don't think that means we should write these things off
• 31:05
  Speaker 5: in the same way. There's lots of different ways of
• 31:07
  Speaker 5: getting exposure to interesting investments in public markets.
• 31:10
  Speaker 6: It's the same with private So can I just offer
• 31:13
  Speaker 6: a slight defense of some of the way that the
• 31:15
  Speaker 6: private asset valuations work. So one of the criticisms is
• 31:19
  Speaker 6: that the valuations are not updated often only enough because
• 31:22
  Speaker 6: of various raidings, you don't really know the true market value.
• 31:25
  Speaker 6: And people would then say the volatility is dampened because
• 31:30
  Speaker 6: of that.
• 31:31
  Speaker 1: That is absolutely true.
• 31:32
  Speaker 6: The volatility is effectively smooth because there's lags and the
• 31:36
  Speaker 6: way these are updated. However, if you look at public markets,
• 31:41
  Speaker 6: public market prices swing around all over the place based
• 31:45
  Speaker 6: on factors which are nothing to do with fundamentals. As
• 31:48
  Speaker 6: human beings, we are all prone to fear and greed,
• 31:52
  Speaker 6: and when there is panic in market and prices will
• 31:56
  Speaker 6: fall sharply, and that doesn't necessarily mean the fundamentals of
• 32:00
  Speaker 6: the business have changed. And often these things have a
• 32:02
  Speaker 6: habit of swinging back the other way once people decide
• 32:05
  Speaker 6: that the world was not going to end. So whilst
• 32:07
  Speaker 6: I think it is fair to say that private asset
• 32:10
  Speaker 6: valuations are smooth and maybe under shoot the true volatility,
• 32:18
  Speaker 6: I think you can also make an argument that public
• 32:20
  Speaker 6: equity volatility is almost over egged by the behavioral biases
• 32:26
  Speaker 6: that we exhibit. So I think that both are probably wrong.
• 32:30
  Speaker 6: One is probably too low and one is probably too high.
• 32:33
  Speaker 6: But I think that it's the inability to sell private
• 32:37
  Speaker 6: assets easily during kind of stressy markets stops us all
• 32:41
  Speaker 6: from doing the stupid things we might otherwise be tempting
• 32:44
  Speaker 6: to do. So actually that illiquidity almost insulates us from
• 32:48
  Speaker 6: some of our own behavioral biases. So I think that's
• 32:51
  Speaker 6: kind of often a bit glossed over when people are
• 32:55
  Speaker 6: thinking about about volatility when it comes to private asset.
• 32:58
  Speaker 1: Yeah, it's a great way to protect ourselves from ourselves.
• 33:03
  Speaker 2: I know.
• 33:03
  Speaker 6: It's like a bet of friction is a good thing
• 33:05
  Speaker 6: in that sense. Actually, a betfrection that stops just prevent
• 33:09
  Speaker 6: you from the viney jerky reaction.
• 33:12
  Speaker 1: Interesting, and Doug, there's something else you want to talk about.
• 33:14
  Speaker 1: I know, it's a new structure for private assets that
• 33:16
  Speaker 1: our listeners may find interesting. Yeah.
• 33:19
  Speaker 5: So there's there's a new structure that's emerging in the
• 33:22
  Speaker 5: UK which is called the long term Asset fund. Now,
• 33:24
  Speaker 5: the idea here is that to create a structure which
• 33:28
  Speaker 5: allows people some access to liquidity, so monthly or quarterly
• 33:33
  Speaker 5: liquidity i e. You can get your money in or
• 33:36
  Speaker 5: out fairly regularly, but not daily, and in return for that,
• 33:41
  Speaker 5: you'll get access to a pool of private assets which
• 33:43
  Speaker 5: will be a combination of things that are invested for
• 33:46
  Speaker 5: the long term, the medium term or the short term
• 33:48
  Speaker 5: to kind of help with that liquidity. And the idea
• 33:51
  Speaker 5: there is that you get much more exposure to a
• 33:53
  Speaker 5: pure nav rather than having to worry about, you know,
• 33:57
  Speaker 5: the discount premium problem we discussed before investment trusts. Now
• 34:01
  Speaker 5: that's an emerging structure and the FCA have allowed that
• 34:06
  Speaker 5: for DC schemes because they're trying to encourage DC schemes
• 34:08
  Speaker 5: to give people more exposure to this asset class. And
• 34:12
  Speaker 5: they've also recently allowed people who are advised by a
• 34:14
  Speaker 5: wealth manager or advisor to get access to this structure,
• 34:18
  Speaker 5: and there's a few that are starting to emerge. It
• 34:20
  Speaker 5: isn't established yet, but it's something that's coming. I guess
• 34:22
  Speaker 5: the key point here is that you know, you need
• 34:24
  Speaker 5: to choose the horse for the course. If you are
• 34:27
  Speaker 5: somebody who requires daily liquidity, the investment trust market does
• 34:30
  Speaker 5: a very good job, but you need to do your
• 34:31
  Speaker 5: research and be aware that you can have discounts and premiums,
• 34:35
  Speaker 5: and equally, if you're best worried about liquidity and you've
• 34:39
  Speaker 5: got a long term time frame, then the new structure
• 34:41
  Speaker 5: might be something that works really well for you. But
• 34:43
  Speaker 5: the idea here is to try and give people exposure
• 34:45
  Speaker 5: importantly to some of these companies, sectors, innovators that sit
• 34:50
  Speaker 5: in the private world in order to enable them to
• 34:52
  Speaker 5: kind of meet their financial objective. But I think that's
• 34:54
  Speaker 5: the thing sometimes we forget, is we focus on liquidity
• 34:57
  Speaker 5: and we focus on access and kind of the things
• 34:59
  Speaker 5: that might go. But the reality is what we're trying
• 35:01
  Speaker 5: to do is say, there's an awful lot of interesting
• 35:03
  Speaker 5: investments and innovation that sits in the private world, and
• 35:06
  Speaker 5: we're kind of trying to make sure that we can
• 35:09
  Speaker 5: bring people access to that in their portfolios. And so
• 35:12
  Speaker 5: that's what these structures are all about.
• 35:14
  Speaker 1: Although it's like concern among the holders of pensions in
• 35:18
  Speaker 1: the UK is that structure may be used to force
• 35:21
  Speaker 1: them into investing in the private sector in the UK
• 35:25
  Speaker 1: when they wouldn't necessarily have liked to. There's a type
• 35:28
  Speaker 1: of financial repression built into that structure.
• 35:32
  Speaker 5: Yeah, I think that's how you use the structure, right,
• 35:34
  Speaker 5: and that's kind of pension times to have a fiduciary
• 35:36
  Speaker 5: GT and I think overall the government's trying to encourage
• 35:39
  Speaker 5: and kind of and give new structures. I think obviously
• 35:42
  Speaker 5: they have a Every pension fund trustee has a duty
• 35:45
  Speaker 5: to their underlying members and so it needs to be
• 35:47
  Speaker 5: up to them how they think about this area. But
• 35:50
  Speaker 5: I think our point of view would be let's make
• 35:51
  Speaker 5: some structures available and then decide if you want to
• 35:53
  Speaker 5: get access to private assets and use them, rather than
• 35:56
  Speaker 5: you have to be forced into something like this.
• 36:00
  Speaker 1: A couple more questions for both of you. The first is,
• 36:03
  Speaker 1: I know I said earlier that we couldn't fix the
• 36:04
  Speaker 1: public markets in this podcast, but if there was one
• 36:07
  Speaker 1: thing that either of you could do that might make
• 36:09
  Speaker 1: public markets begin to be more attractive again. What would
• 36:12
  Speaker 1: it be? Is there allegative change, is shift and regulation?
• 36:15
  Speaker 1: What could there be that might bring people back to
• 36:19
  Speaker 1: the listed market? I mean our own view, by the way,
• 36:21
  Speaker 1: John and I have been talking about this, and we
• 36:23
  Speaker 1: have a slight sense that the shift in the interest
• 36:25
  Speaker 1: rate environment might bring people back automatically.
• 36:28
  Speaker 6: The thing that I think we would need I would
• 36:31
  Speaker 6: really love to see in this country, and I'm not
• 36:34
  Speaker 6: sure how we engineer it, is that we have a
• 36:36
  Speaker 6: culture I think where our attitude to risk is that
• 36:38
  Speaker 6: should be minimized. So a lot of the way that
• 36:42
  Speaker 6: people think about investing is trying to think about ways
• 36:45
  Speaker 6: to remove all of the risks, which whereas actually I
• 36:48
  Speaker 6: feel if we can have a culture which is much
• 36:50
  Speaker 6: more were embracing, and I think with that it probably
• 36:52
  Speaker 6: comes with a better understanding from an earlier age. So
• 36:57
  Speaker 6: somebody mystifying investing from people and they're still at schooliage
• 37:01
  Speaker 6: rather than weaken until they're in their for seasons, they
• 37:03
  Speaker 6: decay to talk to a financial advisor.
• 37:05
  Speaker 1: And the only thing I would say about that is
• 37:07
  Speaker 1: that you're very young, right, so you know they do
• 37:13
  Speaker 1: and we're you know, we're an aging society, and the
• 37:15
  Speaker 1: older people get, the more frightened they are of risk
• 37:18
  Speaker 1: perfectly reasonably. You know, if you're in your fifties or sixties,
• 37:22
  Speaker 1: what do you want? You want a risk of capital. Also,
• 37:24
  Speaker 1: you want a six percent dividend yield. I know what
• 37:26
  Speaker 1: I'm going to want in my sixties, and it's certainly
• 37:28
  Speaker 1: not going to be embracing risk in small, growing, unlisted companies.
• 37:33
  Speaker 1: I'm going to want my dividend yield and I'm going
• 37:35
  Speaker 1: to want to protect my capital as best as possible.
• 37:37
  Speaker 1: So in an aging society, there's always a bias against risk,
• 37:41
  Speaker 1: and there is no getting away from that.
• 37:43
  Speaker 5: Well, they're interesting, there maybe none for another podcast. We
• 37:46
  Speaker 5: know that people when they're at are consistently underestimate how
• 37:49
  Speaker 5: long the honey their income for and probably don't take
• 37:52
  Speaker 5: enough risk to keep their capital pool strong. But that's
• 37:55
  Speaker 5: that's probably one for another day.
• 37:56
  Speaker 1: It is one for another day. They also don't take enough
• 37:58
  Speaker 1: out of their part they you know, they don't have
• 37:59
  Speaker 1: to stand the importance of dying broke. Everyone should die broken,
• 38:03
  Speaker 1: of course, you wouldn't have to worry about inheritance. To
• 38:04
  Speaker 1: excite that that list before we finish up you too, Duncan.
• 38:09
  Speaker 1: One of the things that you do at short is
• 38:10
  Speaker 1: that I absolutely love is that valuation table you provide
• 38:14
  Speaker 1: for us every every month. And when we look at
• 38:17
  Speaker 1: that again, of course the UK is consistently looking cheap, cheap, cheap,
• 38:21
  Speaker 1: But what are the markets look cheap on your valuation
• 38:23
  Speaker 1: metrics at the moment? Fan emerging markets as well.
• 38:29
  Speaker 6: Emerging markets have paddy particularly bad period for quite an
• 38:32
  Speaker 6: extending period now compared to developed markets, and valuations are
• 38:36
  Speaker 6: quite a feeling there. I think Japan is a really
• 38:38
  Speaker 6: interesting one though, and you know you've spoken about this
• 38:41
  Speaker 6: before the fact that a large proportion of Japanese companies
• 38:45
  Speaker 6: are valued at less than the book value with the
• 38:47
  Speaker 6: accounting the value of their businesses and the regulator that
• 38:50
  Speaker 6: you had said something Americans, it's explain your anstitution tails
• 38:57
  Speaker 6: for what you're going to do about it. And that's
• 38:59
  Speaker 6: where were we didn't see more changes in share buyback,
• 39:03
  Speaker 6: other worship held for friendly activities. So I think that
• 39:06
  Speaker 6: Japan is people again been saying sheep for a while,
• 39:09
  Speaker 6: but it don't feel like this year is actually having
• 39:11
  Speaker 6: a bit of a resurgence.
• 39:12
  Speaker 1: Excellent, and the final question this is for both of you. Doug,
• 39:16
  Speaker 1: you ready, okay, okay, I'm going to lock you in
• 39:19
  Speaker 1: a run for ten years, well not really metaphorically. And
• 39:23
  Speaker 1: before you go, you can only invest in one thing
• 39:26
  Speaker 1: gold Bitcoin. Not strictly an investment, but you know what
• 39:29
  Speaker 1: I mean. Gold Bitcoin. You can stick your money in
• 39:32
  Speaker 1: a UK deposited account. What's it going to be? Gold?
• 39:39
  Speaker 1: Good answer. We've had a couple of bitcoins recently. We're
• 39:42
  Speaker 1: getting very confused.
• 39:43
  Speaker 6: Duncan yeah, go too.
• 39:46
  Speaker 1: Gold is kind of one of you would be bitcoin,
• 39:49
  Speaker 1: but both Gold is absolutely fine with us. We've been
• 39:52
  Speaker 1: we've been related by the bitcoin as recently. It's made
• 39:55
  Speaker 1: John and I have to think about how we can
• 39:56
  Speaker 1: tell people to invest in bitcoin, which is which is
• 39:59
  Speaker 1: aw OWI thank you both so much for joining us.
• 40:02
  Speaker 1: That was absolutely fascinating. And listeners, there you go. Japan
• 40:05
  Speaker 1: is cheap, the UK is cheap, and you know gold.
• 40:10
  Speaker 1: Thanks for listening to this week's Maren Talks Money catch
• 40:13
  Speaker 1: idea brief on this week's conversation on the Merrin Talks
• 40:15
  Speaker 1: Money after show under our normal feed. Now that is
• 40:18
  Speaker 1: only accessible to Apple new subscribers, but if you're a
• 40:20
  Speaker 1: Bloomberg subscriber lookally after show online in the meantime. If
• 40:24
  Speaker 1: you like a show, rate review and subscribe wherever you
• 40:26
  Speaker 1: listen to your podcast. This episode was hosted by me
• 40:29
  Speaker 1: Maren Sunset where but it was produced by Some Society.
• 40:31
  Speaker 1: Additional editing by Blake matlespcial thanks to Duncan Lamont, Doug
• 40:35
  Speaker 1: Abbott and of course, as ever to John Steppek. Be
• 40:37
  Speaker 1: sure to sign up to John's daily newsletter, Money Distilled,
• 40:40
  Speaker 1: where you can hear something from him every day and
• 40:43
  Speaker 1: it's always good. Link in the show notes