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Neil Dwane Discusses Global Investment (Podcast) · Masters in Business

0:02
Speaker 1: This is Masters in Business with Barry Ridholtz on Boomberg Radio.
0:07
Speaker 1: This week on the podcast, I have an extra special guest.
0:10
Speaker 1: His name is Neil Dwayne and he is the global
0:14
Speaker 1: investment strategist for Alian's Global Investors, which is the part
0:20
Speaker 1: of Alien's Proper. They own a number of different properties,
0:25
Speaker 1: Alien's Global Investors and Pimco being two of the largest
0:29
Speaker 1: uh This is really quite a fascinating conversation if you
0:33
Speaker 1: are at all interested in what makes the global economy tick,
0:38
Speaker 1: what the impact of central banks has been and will
0:42
Speaker 1: likely be in the future, what's going to take place
0:44
Speaker 1: with Brexit, and why the rise of Asia in general
0:49
Speaker 1: and China in particular is going to be so important
0:53
Speaker 1: to the world over the next three to five decades.
0:57
Speaker 1: You will absolutely find this to be a fascined inning conversation. So,
1:01
Speaker 1: with no further ado, my conversation with Alians is Neil Dwayne.
1:11
Speaker 1: My special guest this week is Neil Dwayne. He is
1:14
Speaker 1: the global strategist with Alians Global Investors. He's also a
1:18
Speaker 1: portfolio manager. And you've been with Alliance since two thousand
1:22
Speaker 1: and one. But your background is that of a portfolio manager.
1:26
Speaker 1: How did you make that journey from actually running money
1:31
Speaker 1: to being more of a global market analyst. Well, I
1:34
Speaker 1: suppose the way I looked at it, I've always been
1:36
Speaker 1: an investor since uh since the late eighties, UM and
1:40
Speaker 1: I got a tremendous career opportunity to run the European
1:42
Speaker 1: equity business for Alliance in Frankfurt. So I commune was
1:46
Speaker 1: two thousand and one and two thousand two. Yes, so
1:49
Speaker 1: I'd work for the phone for a year. This is
1:50
Speaker 1: when Alliance merged with Dresna, and so we started to
1:53
Speaker 1: put together all the asset management businesses. This is a
1:55
Speaker 1: lot of giant components that Dresner Pimco. So you know
1:59
Speaker 1: we have been a you know, a set of for
2:01
Speaker 1: a fund s, A company has been created out of
2:03
Speaker 1: a set of boutiques around the around the world, A
2:06
Speaker 1: serial acquirer. Well, yes, I think we haven't. We We
2:09
Speaker 1: started like a lot of firms buying teams rather than
2:12
Speaker 1: buying businesses, because you often don't need everything else that
2:16
Speaker 1: comes with the business if you already have the infrastructure.
2:18
Speaker 1: But so for me, it was a career opportunity to
2:20
Speaker 1: become a CEO lead a hundred and thirty investors. But
2:23
Speaker 1: having done it, for thirteen years. I needed a new challenge,
2:27
Speaker 1: bared to be honest, and so I chat to my boss.
2:30
Speaker 1: I mean some people say, if you're Board of London,
2:31
Speaker 1: your board of life. Well after after thirty years, I
2:34
Speaker 1: can tell you I was bored of Frankfurt. I know
2:36
Speaker 1: that might sound slightly disloyal, but I needed a new
2:38
Speaker 1: challenge and we decided to try and help Alliance get
2:41
Speaker 1: its message out. We needed an investor to start talking
2:44
Speaker 1: to clients, talking to people like yourself, so that we
2:47
Speaker 1: could cross the divide and help our clients understand how
2:49
Speaker 1: to look at the risks in the portfolios and how
2:52
Speaker 1: to think about the returns they were looking. So that's
2:54
Speaker 1: my job now is I travel the world trying to
2:56
Speaker 1: help clients navigate the markets. So you're located in the London,
3:00
Speaker 1: now is that correct? How does the entire UK asset
3:04
Speaker 1: management industry compared to the United States, Because there are
3:08
Speaker 1: two very distinct styles of doing business that there are,
3:12
Speaker 1: although funny enough, I would say they're very similar. You
3:15
Speaker 1: know that there's a there's a big retail business which
3:17
Speaker 1: is very domestically biased, so you know, when you're in
3:19
Speaker 1: the US or they want to know about is the
3:21
Speaker 1: NASDAC and the SMP five hundred and what's happening with
3:24
Speaker 1: the mini bonds the UK is the same about UK
3:26
Speaker 1: equities and UK property And what you're referring to is universal.
3:30
Speaker 1: The home country bias, yes, exists everywhere, does even in
3:35
Speaker 1: even in countries like Australia where there's such a tiny
3:39
Speaker 1: percentage of the global equity market, and yet when you
3:42
Speaker 1: look at Australian's portfolios, it's disproportionately Australian. The same with US,
3:47
Speaker 1: the same with UK. Do you try and dissuade people
3:50
Speaker 1: from that home bias? Um? I suppose I try. I
3:53
Speaker 1: think on the equity side that the home biases is
3:57
Speaker 1: hard to deflect simply because if you own fires, you're
4:00
Speaker 1: by you own a global company anywhere in facts listed
4:02
Speaker 1: in the US. Is that is maybe the challenging dynamic.
4:05
Speaker 1: But I think as we think about the world in
4:07
Speaker 1: the next twenty or thirty years, I mean, one of
4:09
Speaker 1: the themes I'm talking to clients about is the rise
4:11
Speaker 1: of Asia, because whatever we think about President Trump and
4:15
Speaker 1: his trade policy, the next four and a half billion
4:18
Speaker 1: emerging people are going to be out of Asia. They're
4:20
Speaker 1: not in the US or in Europe, We've we've emerged,
4:23
Speaker 1: we've over leveraged, we've over consumed. The growth is not
4:25
Speaker 1: going to come from the West. And if and if
4:27
Speaker 1: you look at from a valuation perspective, we're recording this
4:31
Speaker 1: late in the US. Is let's be generous and call
4:35
Speaker 1: it fully valued. Yes, emerging markets tend to be less expensive.
4:39
Speaker 1: In China seems fairly cheap. Yes, and I would definitely
4:43
Speaker 1: agree with that. What coming back to your earlier question, though,
4:45
Speaker 1: I think the challenge I have when I talked to
4:48
Speaker 1: UK or US institutions is I tend to feel that
4:51
Speaker 1: many of them as now quite I would say risk averse.
4:54
Speaker 1: They're managing their liabilities, they're not optimizing their returns, Whereas
4:59
Speaker 1: I think when you talk a retail clients, you know
5:01
Speaker 1: that they're in the game to make money. You know,
5:03
Speaker 1: they don't want to be in the markets when they're
5:05
Speaker 1: going down. They want to be in the stocks when
5:06
Speaker 1: they're going up, and so they're looking for something completely
5:10
Speaker 1: completely different. So so it's the audiences I think are
5:13
Speaker 1: now much the same. I think you you with your
5:15
Speaker 1: four oh one K, you're probably as as as institutional
5:18
Speaker 1: as as cowpers would be. You know, you're looking at
5:21
Speaker 1: how do I get from A to B in the
5:22
Speaker 1: next ten years before I retire? How much money do
5:24
Speaker 1: I need? What risk can I tolerate? What draw downs?
5:27
Speaker 1: It's exactly how I think the big pension funds are
5:29
Speaker 1: thinking about it now. Now. The only question I have
5:31
Speaker 1: is who trades more frequently cowpers or the average for
5:33
Speaker 1: all one key participant. I honestly can't answer that question.
5:37
Speaker 1: What do you know? I'm not sure I can answer
5:39
Speaker 1: it either. What I What I would say, though, is
5:41
Speaker 1: I think, um, the trading has really started to hurt
5:46
Speaker 1: the markets. Even some of our longest and largest sovereign
5:51
Speaker 1: wealth funds now have a rolling twelve month performance horizons.
5:54
Speaker 1: So when you say trading, do you mean the high
5:57
Speaker 1: frequency traders or do you mean just the tendency to
6:00
Speaker 1: trade more than they're used to. People just have this tremendous,
6:04
Speaker 1: tremendous tendency to trade, And I think investment. You know,
6:07
Speaker 1: when we think about the decision you and I would
6:09
Speaker 1: have made when we were younger to buy a house,
6:11
Speaker 1: you weren't sitting there thinking, well, I might flip it
6:13
Speaker 1: in three months time. You're going I'm going to live here,
6:16
Speaker 1: you know, I hope it's a good investment. I hope
6:18
Speaker 1: it goes up in price and and that all goes
6:20
Speaker 1: up in value. But even if it doesn't, you have
6:22
Speaker 1: someplace to exactly can you say the same thing about
6:24
Speaker 1: an equity portfolio. Well, I think actually in the end
6:27
Speaker 1: you can. But I I sense, you know, one of
6:29
Speaker 1: the big journeys that's changed, and it's accelerated post of
6:32
Speaker 1: financial crisis has been I think we I talked to
6:35
Speaker 1: more and more traders now and fewer and fewer investors,
6:38
Speaker 1: And I think that's the same with corporate management. Corporate
6:40
Speaker 1: management is not investing for the next ten years, so
6:42
Speaker 1: investing for the next three three years whilst their incentive
6:46
Speaker 1: plans are at work. So when you say you speak
6:48
Speaker 1: to more traders than investors, is that because there are
6:53
Speaker 1: more traders out there or are people who are formally
6:56
Speaker 1: investors now have a tendency for shorter holder periods, more turnover,
7:03
Speaker 1: just more activity. Despite everything we hear about indexing. Yes,
7:07
Speaker 1: I think people's investment time horizons have really shortened. Um,
7:12
Speaker 1: they don't want to sort of win by just holding
7:15
Speaker 1: something that goes up and down like a rising tide
7:17
Speaker 1: and eventually travels. They want to get out if it's
7:19
Speaker 1: going to fall, and then get back in. And I
7:22
Speaker 1: think that makes this really really tricky for us as investors,
7:24
Speaker 1: because I would say the view of the world that
7:28
Speaker 1: I'm talking to clients about is obvious for the next
7:30
Speaker 1: five or ten years, but for the next five or
7:33
Speaker 1: ten weeks. You know, I have as little clue as
7:35
Speaker 1: anybody else you'll interview about what will drive the markets,
7:38
Speaker 1: and yet clients that's what clients are looking for. And
7:40
Speaker 1: I called I suppose I see that of spurious accuracy
7:43
Speaker 1: quite quite fascinating. There was a quote, Neil in one
7:47
Speaker 1: of your recent research pieces that I found intriguing, and
7:52
Speaker 1: you wrote, quote, the American dream is still alive, just
7:56
Speaker 1: not in America. Tell us what you meant by that?
7:59
Speaker 1: What I think when when we were sort of tapping
8:02
Speaker 1: into the momentum behind President Trump's or Canada Trump's campaign,
8:08
Speaker 1: you know, it was about making America great again. And
8:11
Speaker 1: I think one of the one of the appeals that
8:14
Speaker 1: he had to many parts of the American electorate was
8:17
Speaker 1: that it felt like the world was passing them by.
8:20
Speaker 1: They were able to watch, you know, what the Kardashians
8:22
Speaker 1: are doing on Twitter and and other things, but they
8:25
Speaker 1: couldn't live the same lifestyle because the opportunities were not
8:28
Speaker 1: operating offering themselves inside the US economy. But that's an
8:33
Speaker 1: opportunity set of two or three. You know, for the
8:36
Speaker 1: average American. Are they really thinking if only I could
8:39
Speaker 1: endorse products? Is is that really the appeal or is
8:42
Speaker 1: it something more fundamental? Well, well, I think it's actually elemental. Um.
8:47
Speaker 1: I think that That's why I think politics is under
8:49
Speaker 1: a lot of pressure across the West at this moment
8:51
Speaker 1: in time, because people feel they take for granted that
8:54
Speaker 1: fridges are cheap and TVs are cheap, and you know,
8:57
Speaker 1: the lifestyle has since since the Night in seven has
9:00
Speaker 1: has become more affordable. But now they're not getting a
9:02
Speaker 1: pay rise. Some of them are not even getting a job.
9:04
Speaker 1: And so the ability now for I think young Americans
9:08
Speaker 1: to earn more than their parents is the lowest percentage
9:11
Speaker 1: in first generation. That's not going to the Whereas I
9:15
Speaker 1: think when you go to somewhere and I can only
9:17
Speaker 1: what I normally do is tell clients to travel around
9:19
Speaker 1: Asia and particularly to go to China, but don't go
9:21
Speaker 1: to Shanghai or Beijing, go and see the panda bears
9:24
Speaker 1: in cheng Do or or the Terragotta warriors in Cheanne.
9:27
Speaker 1: The people who take you there, the people who drive
9:29
Speaker 1: you there, um, they work hard, they want to educate
9:34
Speaker 1: their kids, they want to get rich. That's what I mean.
9:37
Speaker 1: Very entrepreneurs. They're very, very entrepreneurial. And so I think
9:40
Speaker 1: that's probably what America felt like around the turn of
9:42
Speaker 1: the century. People had a can do act a century
9:46
Speaker 1: and not to be not to be a wise guy,
9:48
Speaker 1: but turn of the nineteenth century, turn of the twentieth century,
9:52
Speaker 1: I think to turn of the twentie you know, I
9:55
Speaker 1: just think, you know, when America suddenly really got go.
9:57
Speaker 1: You think about um, World War One, you know, America
10:00
Speaker 1: barely had a navy, and you know, within two years
10:03
Speaker 1: you've built the biggest navy in um, you know, the
10:05
Speaker 1: world had ever seen. And that's despite the British being
10:08
Speaker 1: the naval power of of that time. And I just
10:10
Speaker 1: think there was that can do attitude, that can do spirit,
10:13
Speaker 1: that teamwork. I sense that that's moved to Asia now.
10:16
Speaker 1: That's quite fascinating. When when we look at you mentioned
10:20
Speaker 1: a lot of people, a lot of the US electorate
10:25
Speaker 1: might have been left behind. It's very very specific when
10:30
Speaker 1: when we talked about the economic recovery, but it's not
10:33
Speaker 1: evenly distributed. Depending on where you live, your education level,
10:38
Speaker 1: and what industry sector you're in, you're either enjoying a
10:44
Speaker 1: robust recovery or no recovery at all. It is the
10:47
Speaker 1: United States the only country that suffers from that sort
10:51
Speaker 1: of bipolar There are some very very lucky halves, and
10:54
Speaker 1: there are a whole bunch of half not or an participant.
10:57
Speaker 1: I think the West suffers across the board with that.
10:59
Speaker 1: I think they The country that doesn't is Japan, where
11:02
Speaker 1: society has been much more even so, it's interesting, very
11:05
Speaker 1: one of the themes I'm talking to our clients about
11:07
Speaker 1: at the moment is inequality. And you might say, well,
11:10
Speaker 1: what's I got to do with investment and and and
11:12
Speaker 1: asset management? Well, it's got a time. Well, but the
11:15
Speaker 1: thing is, I think we may have been making the
11:17
Speaker 1: world less equal because if I incentivize you against your
11:20
Speaker 1: share price and that's the only thing that makes you
11:23
Speaker 1: rich as a manager, then that's all you care about.
11:25
Speaker 1: That's the goal you manage, and that makes the world
11:29
Speaker 1: more and more unequal. Are you a believer in the
11:32
Speaker 1: theory of short termism that a lot of corporate management
11:36
Speaker 1: is so focused on their stock price they're not making
11:39
Speaker 1: longer term investments. Definitely, because I think, not only I think,
11:43
Speaker 1: and it's clear in the US that I think this.
11:45
Speaker 1: This addiction now to share buy backs, borrowing money from
11:48
Speaker 1: the credit markets. History has always shown management by their
11:52
Speaker 1: stock at the worst prices. They never buy them when
11:55
Speaker 1: nobody wants it, I really cheat, they buy it right
11:58
Speaker 1: at the top of the market. And I think that's
12:00
Speaker 1: what we've been seeing throughout two thousand, sixteen, seventeen and eighteen,
12:03
Speaker 1: and it's a uniquely US phenomenon. And the other thing,
12:08
Speaker 1: just wrapping in the inequality theme, just so you can
12:10
Speaker 1: see where I'm trying to go with it, is Yes,
12:13
Speaker 1: the short share buy backs are incentivizing the CFO to
12:16
Speaker 1: borrow money and leverage the balance sheets and are potentially
12:19
Speaker 1: under invest limiting the longer term growth prospects of the
12:22
Speaker 1: of the company going forwards. But who's the biggest seller
12:25
Speaker 1: of US equities. It's the management management. So we're to
12:30
Speaker 1: blame for this because we have over incentivised them in
12:33
Speaker 1: one way. And when we do, when we've done quite
12:36
Speaker 1: a lot of work on sustainability and this inequality theme.
12:40
Speaker 1: What is interesting and it's funny. I'm here at Bloomberg.
12:43
Speaker 1: Family owned companies do it better. They know they're passing
12:48
Speaker 1: on the franchise to their children or to their grandchildren.
12:50
Speaker 1: So what do they do. They make sure it's invested.
12:53
Speaker 1: They make sure the roofs working, They make sure the
12:55
Speaker 1: central heating is there so that when they pass it
12:57
Speaker 1: onto their children, their children then are running for their children.
13:00
Speaker 1: They never sit there hat thinking how do I maximize
13:03
Speaker 1: returns for my share option scheme? The fascinating thing about
13:06
Speaker 1: to share buy backs, and I can talk about that forever.
13:09
Speaker 1: A It's the result of a nine nineties Clinton era
13:13
Speaker 1: attempt to limit C suite executives compensation, and they put,
13:19
Speaker 1: you know, a hard dollar limit and do as much
13:22
Speaker 1: stock options as you want. Didn't work out the way
13:24
Speaker 1: they expected. I agree with you about stock options, but
13:27
Speaker 1: and buy backs. But every time I bring it up,
13:31
Speaker 1: all my quant friends say the same thing. Hey, when
13:33
Speaker 1: we look at the world of companies that do buy
13:35
Speaker 1: backs versus companies that don't, buy backs outperform the companies
13:40
Speaker 1: that don't. How do we how do we justify being
13:43
Speaker 1: negative on buy backs when they actually help performance well?
13:47
Speaker 1: I think, I think maybe what we're going to find
13:50
Speaker 1: is that it helps performance in the short term, but
13:52
Speaker 1: at the consequence of significant underinvestment, the loss of productivity.
13:57
Speaker 1: You know, when you and I think maybe outside siliconly
14:00
Speaker 1: about all the industries where America has kind of stopped
14:03
Speaker 1: being a world leader, and I'm thinking traditional manufacturing, some
14:06
Speaker 1: of these, some of these type of areas, it's because
14:08
Speaker 1: actually there was no R and D. There's no capital,
14:11
Speaker 1: equipment investment, and and the pushback I get is Apple
14:15
Speaker 1: spends billions of dollars on R and D, as does
14:18
Speaker 1: all these other companies. I couldn't possibly agree with you more.
14:21
Speaker 1: I think you're absolutely right. I would much rather than
14:24
Speaker 1: see a company d I p O on I p
14:27
Speaker 1: O I don't know if there's even a word like that.
14:29
Speaker 1: I would rather see the money. If you're going to
14:32
Speaker 1: return capitalist shareholders, give people dividends and let them spend
14:35
Speaker 1: the money on what they want after you've exhausted all
14:38
Speaker 1: your R and D options. Look at General Motors. They
14:41
Speaker 1: bought ten billion dollars worth of stock while all their
14:44
Speaker 1: competitors were creating new electronic cars, building infrastructures, filing a
14:49
Speaker 1: whole bunch of patents. To me, it's unconscionable that a
14:52
Speaker 1: company in as competitive a market as gm is would
14:57
Speaker 1: waste a penny buying backstock when their technical argically behind
15:01
Speaker 1: all everybody else out there. Let's talk a little bit
15:03
Speaker 1: about what's been going on around the world with you
15:07
Speaker 1: mentioned popularism and the political changes that income inequality has wrought.
15:14
Speaker 1: What do you see happening in Brexit, because from across
15:17
Speaker 1: the ponds, it looks like, Wow, I thought we had
15:20
Speaker 1: some issues that seems to be just completely mayhem from
15:24
Speaker 1: our perspective. Um Barry, You're absolutely right. I mean, there's
15:28
Speaker 1: no doubt. I think for the last two years everyone
15:31
Speaker 1: has been very confused about how Brexit would work out.
15:36
Speaker 1: Hard Brexit, soft Brexit, no Brexit. It's like a Dr
15:39
Speaker 1: Seuss book. It is a part of the fact we
15:42
Speaker 1: have always said there can be no soft Brexit. Brexit
15:46
Speaker 1: is a hard you know, whether we crash out or
15:48
Speaker 1: whether we leave with a deal, that both of them
15:51
Speaker 1: are hard outcomes. There isn't any sort of cuddly toy
15:54
Speaker 1: way of getting from from A to B. And we're
15:56
Speaker 1: already seeing all sorts of negative ramifications for Brexit. ESPEC
16:00
Speaker 1: actually in London. I don't know how the rest of
16:02
Speaker 1: the country is feeling it. But when we look at
16:05
Speaker 1: where companies are relocating, when we look at people, especially
16:09
Speaker 1: executives and professionals relocating to to Paris, relocating to Frankfort,
16:15
Speaker 1: you're right there in the thick of it. What what
16:17
Speaker 1: do you see going on pre Brexit? Well, I think
16:21
Speaker 1: what I would say is, because there's this drop dead
16:23
Speaker 1: date of March the twenty ninth, two thousand and nineteen,
16:26
Speaker 1: the dynamic is we're getting closer to a point where companies,
16:29
Speaker 1: including Alliance Global investors have to decide do we need
16:32
Speaker 1: to change anything inside of our operating business model to
16:35
Speaker 1: stay legal in France or see, if you had a
16:37
Speaker 1: headquarters it would be a problem, but since you don't
16:40
Speaker 1: absolutely um and actually, because we're smaller in the UK
16:43
Speaker 1: that we are in Europe, it's less of a problem
16:45
Speaker 1: for us than some of our larger competitors who are
16:46
Speaker 1: based in London. But what I what what I would
16:50
Speaker 1: get over And I think this comes to the populist side.
16:52
Speaker 1: You know that's in the US is as as you've seen,
16:55
Speaker 1: you know with your recent elections, including the mid terms,
16:57
Speaker 1: America is divided. The way the UK is divide I
17:00
Speaker 1: did over Brexit of the population. All I can tell
17:05
Speaker 1: you is two years on, it's still Is that a fact?
17:08
Speaker 1: Because I keep hearing there's two interesting things I keep hearing.
17:12
Speaker 1: One is if we have a second referendum. People have
17:15
Speaker 1: learned that they were lied to in the first referendum,
17:19
Speaker 1: that a lot of the scare tactics about how much
17:22
Speaker 1: money was being sucked out of national health system, and
17:25
Speaker 1: people realize there was a lot of nonsense. They were
17:27
Speaker 1: fed that all you need is one or two or
17:31
Speaker 1: three other populations change your vote, and they're talking like
17:34
Speaker 1: five or might swing. But then I hear the court
17:38
Speaker 1: the data you give and you're not the first. We're
17:41
Speaker 1: convinced that the vote would still be identical. We're all
17:45
Speaker 1: virtually the same, So so the country is still divided.
17:49
Speaker 1: What I would say is the dynamic that is that
17:54
Speaker 1: is at work, is that it was a dreadful election
17:57
Speaker 1: that might might ring a few bells with you here
17:58
Speaker 1: in the US. That tone, the tone on both sides
18:03
Speaker 1: was awful. Um and I think with the Bank of
18:05
Speaker 1: England coming out with a very very you know, doomsday
18:08
Speaker 1: scenario of the world post Brexit, we're back in Project
18:11
Speaker 1: Fear territory, which simply annoys the half of the country
18:14
Speaker 1: who don't buy the Project Fear story. Now, the other
18:17
Speaker 1: interesting thing I read recently was um, and I know
18:23
Speaker 1: how our court system works. On that fully cargnizant of
18:27
Speaker 1: how your system works. But an advisor to somebody in
18:31
Speaker 1: the High Court said, hey, if the House of Lords
18:35
Speaker 1: decides to vote against Brexit, they're allowed. They're now bound
18:39
Speaker 1: by a nine non binding resolution, which was what effectively
18:43
Speaker 1: the reverendum was. UM, yes and no. I mean basically,
18:46
Speaker 1: the Houses of Commons that the MPs that we vote
18:49
Speaker 1: for get a second chance. So if if they approve it,
18:53
Speaker 1: the House of Lord says no, it comes back to
18:55
Speaker 1: the Commons that the Commons then have the final vote.
18:58
Speaker 1: So how do they need a super majority on just
19:01
Speaker 1: just a majority? So I think the scenario that we're
19:04
Speaker 1: facing at the moment is Theresa May's deal looks great
19:07
Speaker 1: from a European perspective, and that's why it's probably not
19:11
Speaker 1: going to pass in the House of Parliament. Now let
19:13
Speaker 1: me jump in and ask you, are the Europeans going
19:16
Speaker 1: to give anybody anything better than a terrible deal? Otherwise
19:20
Speaker 1: they'll encourage other members. So you've answered your own questions, Barry.
19:24
Speaker 1: They're not going to offer us a better deal. So
19:26
Speaker 1: it's this terrible deal or a hard no deal Brexit. Yes,
19:30
Speaker 1: but the key for me is is a hard no
19:32
Speaker 1: deal are you going to w t O rules? And
19:35
Speaker 1: then the ability to pick up the phone to President
19:37
Speaker 1: Trump and say hey, can we catch the next BA
19:39
Speaker 1: plane to the US and do a deal is of
19:42
Speaker 1: much greater upside to the UK than this deal with
19:45
Speaker 1: Theresa May. But you need a change of leadership. So
19:48
Speaker 1: I think for international investors like yourselves, the calibration is
19:51
Speaker 1: can the Conservative Party change leader if Theresa May's deal
19:56
Speaker 1: is thrown out and not face a general election. But
20:00
Speaker 1: because the way the way I try to, if I'm honest,
20:02
Speaker 1: answer the Brexit question is Brexit is nothing compared to
20:06
Speaker 1: the election of a Jeremy Corbyn led labor government. Let's
20:10
Speaker 1: talk a little bit about some things going on in technology.
20:13
Speaker 1: I was intrigued again. This comes from something you published recently.
20:17
Speaker 1: You said that a new tech cold war could disrupt
20:23
Speaker 1: the global economy. Explain well, I I believe that whilst
20:27
Speaker 1: trade has all the headlines and the President's policy on
20:30
Speaker 1: tariffs is clearly disrupting many of the large traded goods
20:35
Speaker 1: areas of the of the global economy. I think there's
20:37
Speaker 1: a Washington Washington consensus building that China has been cheating
20:42
Speaker 1: on tech. Bloomberg itself launched a huge piece that showed
20:47
Speaker 1: that there were chips on some of the motherboards that
20:49
Speaker 1: are being used this week. Yes, absolutely, and that was
20:51
Speaker 1: you know, but I think that goes to the hardest
20:53
Speaker 1: Apple and Amazon there was. They all pushed back and
20:56
Speaker 1: said it wasn't correct. But I think Bloomber stood by
21:00
Speaker 1: the business, and I think you have You're absolutely right
21:02
Speaker 1: to do so, because when you look outside the headlines
21:05
Speaker 1: that everyone's focused on on trade, you're actually seeing Washington
21:08
Speaker 1: a virtue across the entire government um process is now
21:13
Speaker 1: identifying that you don't want to have suppliers or Chinese
21:17
Speaker 1: supply parts of the Chinese supply chain in your products,
21:20
Speaker 1: especially telecom chips, things, and so I I think what
21:24
Speaker 1: is happening is that America has decided in the same
21:26
Speaker 1: way as Russia is still the old political war horse,
21:30
Speaker 1: China is now the new strategic threat in technology. So
21:34
Speaker 1: why does that matter to investors? Well, the American business
21:37
Speaker 1: model of you know many of the famous American technology
21:40
Speaker 1: companies is you design it in Silicon Valley and you
21:43
Speaker 1: make it in Asia. And that's one of the things
21:45
Speaker 1: that annoys the President of course. UM. Now, if you
21:49
Speaker 1: suddenly can't trust your supply chain because they may be
21:52
Speaker 1: cheating on your I P or they may be putting
21:54
Speaker 1: stuff in your products that allows them to listen and
21:57
Speaker 1: watch and spy. Um, then you have to start readjusting
22:01
Speaker 1: your supply chain. So I think when you think about
22:04
Speaker 1: the fact that say t s MC is the largest
22:07
Speaker 1: supply of anything to a yes, then can you trust
22:11
Speaker 1: I'm not saying you can't at the moment trust that
22:13
Speaker 1: the Taiwanese. But Taiwan is part of China. The Chinese
22:18
Speaker 1: say so the Taiwanese. Well, I I mean, for me,
22:22
Speaker 1: I think it's fairly certain China will fight for Taiwan.
22:25
Speaker 1: I'm not too sure whether America will fight for Taiwan,
22:27
Speaker 1: but hopefully we don't have to get there. But my
22:29
Speaker 1: point is that this that the supply chain of the
22:32
Speaker 1: tech industry is now so complex, and it's so Asian focused,
22:36
Speaker 1: and a lot of it relies on cheap assembly in
22:39
Speaker 1: Vietnam or China or elsewhere, and that assembly is where
22:42
Speaker 1: your confidence in the network could fail. So I think
22:47
Speaker 1: under President Trump, the Americans are going to force disruption
22:50
Speaker 1: into the supply chains. You're either in the American ecosystem
22:53
Speaker 1: or you're going to be in the Chinese ecosystem. And
22:55
Speaker 1: just to balance this out, this isn't just a Washington thing.
22:58
Speaker 1: In the summer, you will a member where that Washington
23:01
Speaker 1: shut down, said t E, the second largest tech company
23:04
Speaker 1: in China. Yes, about a big tech company as well.
23:08
Speaker 1: What did they What did Beijing learn about that? Well,
23:10
Speaker 1: they learned they can't trust American tech because if you
23:13
Speaker 1: pull the American tech out, the company collapses. So from
23:17
Speaker 1: a Chinese strategic perspective, the next twenty or thirty years,
23:21
Speaker 1: our own tech are they Are they going to rely
23:22
Speaker 1: on American tech if it can get taken away? Well,
23:25
Speaker 1: the answer clearly is no. And if you then look
23:27
Speaker 1: at where President g wants to go in the next
23:29
Speaker 1: twenty or thirty years, he wants to become a world
23:32
Speaker 1: leader in many of the industries that the Germans, the
23:34
Speaker 1: Japanese and the Americans still dominate. And the reason he
23:37
Speaker 1: wants to is because he doesn't want to buy it
23:39
Speaker 1: from America or Germany. He wants to make it in China.
23:41
Speaker 1: So let me ask you this about z t E.
23:44
Speaker 1: It wasn't that America wasn't going to sell technology to
23:47
Speaker 1: zt They said, this is on a restricted list. You
23:50
Speaker 1: can't build z t E tech into American tech because
23:54
Speaker 1: we don't trust its ability to safeguard secrets. We think
23:58
Speaker 1: that this is part of the and these intelligent agencies.
24:02
Speaker 1: That's right. So I think in the end President g
24:05
Speaker 1: wants his own Chinese ecosystem, and you're gonna where you
24:08
Speaker 1: and I are going to have to choose because you
24:10
Speaker 1: can't do one and cheap. What do you want a
24:12
Speaker 1: good those are you going to be your choices? Well,
24:13
Speaker 1: I I what I'm a bit more bolish of China
24:16
Speaker 1: than that, you know, I think you know, creating four
24:18
Speaker 1: million mass grads a year means a lot of what
24:20
Speaker 1: they're doing in AI and everything is going to work
24:22
Speaker 1: because they can throw a lot of resources at it.
24:24
Speaker 1: I don't doubt that for a second. And and so
24:27
Speaker 1: so the way I look at it is there's going
24:28
Speaker 1: to be a Chinese ecosystem for China and it's friends,
24:32
Speaker 1: which I would when I closed my eyes think most
24:34
Speaker 1: of Asia will inevitably pivot to to China, and then
24:37
Speaker 1: you have an American ecosystem. Now, it's probably obvious in
24:41
Speaker 1: the short term that Europe would be part of that system,
24:44
Speaker 1: and probably Japan until until it becomes cheap enough, or
24:47
Speaker 1: until the growth in Asia reaches a point where the
24:50
Speaker 1: world sits there And says, who cares about three seventy
24:53
Speaker 1: million rich Americans who are now over leverage. Let's go
24:56
Speaker 1: with the five billion people who are still coming up
24:58
Speaker 1: the value chain and still off growth opportunities. That's quite fascinating.
25:02
Speaker 1: Let me push a little bit back on the whole
25:05
Speaker 1: Chinese intellectual property argument, and and there are two questions
25:10
Speaker 1: that come up, and really these are two very distinct issues.
25:13
Speaker 1: One is it seems that hackers in China managed to
25:18
Speaker 1: access lots of corporate America's deepest stark at secrets. We've
25:22
Speaker 1: seen how fast after I don't remember which company was hacked,
25:26
Speaker 1: but very quickly, the Chinese military had a stealth plane
25:29
Speaker 1: that should have taken them decades to develop. It's clear
25:31
Speaker 1: that they got access to a lot of military technology
25:35
Speaker 1: from the US. But second, and perhaps more important, from
25:38
Speaker 1: the corporate sector. If you want to build a plant
25:41
Speaker 1: in China. If you want to make semi conductors, well
25:44
Speaker 1: you sign it. You don't, you have no obligation to
25:46
Speaker 1: do that. But if you do, well, we want you
25:49
Speaker 1: to sign this agreement, says China, where you're gonna assign
25:52
Speaker 1: us the usage of some of your patents and we're
25:54
Speaker 1: gonna share this. We're gonna share that. And the American
25:58
Speaker 1: companies willingly ended that over. So when people say Chinese
26:02
Speaker 1: are stealing or intellectual property, I understand this is an
26:06
Speaker 1: arm length corporate relationship. The American corporate executives willingly signing
26:11
Speaker 1: No one was under duress. They said, sure, so, so
26:14
Speaker 1: how are they stealing this intellectual property? Are you absolutely right?
26:17
Speaker 1: I think that's one of the Chinese responses is that
26:20
Speaker 1: we've offered them the prospect of one point three billion
26:23
Speaker 1: people to sell to. So bring your staff and let's,
26:26
Speaker 1: you know, let's let's make money together. I think the
26:29
Speaker 1: interesting thing you mentioned at US corporates. I think the
26:31
Speaker 1: interesting thing if you think about the current commercialization of technology,
26:36
Speaker 1: and I don't just mean tech in this. You think
26:38
Speaker 1: about Boeing, it goes out, it does amazing things with
26:41
Speaker 1: the D O D and all this other staff, you know,
26:44
Speaker 1: spacecraft around the moon and all the and and some
26:46
Speaker 1: of that new equipment ends up in a seven eight seven.
26:49
Speaker 1: So what are the Chinese do? They simply to buy one,
26:52
Speaker 1: They take it into a warehouse, they drop it. These
26:56
Speaker 1: are the clues they're using. These are the new ceramics there,
26:59
Speaker 1: you know. So so eventually the commercialization of of of
27:03
Speaker 1: you know, innovation, innovation, it's a five year head start
27:06
Speaker 1: before someone else reverse engineers. And that comes back to
27:09
Speaker 1: the earlier comments that you and I are having about
27:11
Speaker 1: share buy backs, because if you're going to have to
27:14
Speaker 1: stay ahead of the game, you've got to keep investing
27:17
Speaker 1: ahead of the game. You have to be way ahead
27:19
Speaker 1: of it, yes, and you have to keep pushing back
27:21
Speaker 1: on the certainly know that leading edge. And I'm not
27:23
Speaker 1: too sure that we have CEOs now who are sitting
27:26
Speaker 1: there going how do I stay where I am for
27:27
Speaker 1: the next twenty years? And my mentality, having worked in
27:31
Speaker 1: Germany for thirteen years, is if you meet a Volkswagen
27:34
Speaker 1: or BMW, they know they have the best car in
27:36
Speaker 1: the world of let's call it the Gulf. They know
27:39
Speaker 1: that the Koreans and the Japanese are coming, and the
27:41
Speaker 1: Chinese are coming, so they know the next golf seven
27:44
Speaker 1: years down the line has to be like more efficient,
27:48
Speaker 1: half half as heavy and twice as fast. And you know,
27:51
Speaker 1: whatever the improvement is, and they simply design it to
27:53
Speaker 1: be there in seven years time. Then when they launch it,
27:56
Speaker 1: they are still better than the competition. And what are
27:59
Speaker 1: they doing the next For the next seven years, They're
28:01
Speaker 1: getting doing the exact same thing again. They're always engineering
28:04
Speaker 1: the excellence into the next one. I would argue with
28:07
Speaker 1: you that the Gulf is the best part of the world,
28:10
Speaker 1: but but the concept is fascinating. So I want to
28:13
Speaker 1: ask you about what you had written recently about central banks.
28:18
Speaker 1: You had said quantitative tightening might mean less growth for
28:23
Speaker 1: the West, for the whole world. Who are you referring to. Clearly,
28:27
Speaker 1: we have the US, Japan, and Europe that has been
28:30
Speaker 1: going through different phases of quantitative easing. The US has
28:33
Speaker 1: moved off that, Japan is behind US, Europe behind that.
28:37
Speaker 1: What do you see happening with central banks around the world. Well,
28:39
Speaker 1: what the first thing, I say, Barrians, we don't see
28:42
Speaker 1: the Bank of Japan or the ECB doing anything to
28:44
Speaker 1: rates in two thousand and nineteen, really, so we're still change,
28:47
Speaker 1: no change. And obviously in the US as you as
28:51
Speaker 1: you know, recently Chairman Powell started to suggest that maybe
28:54
Speaker 1: we're closer to neutral than he'd implied in October and
28:58
Speaker 1: therefore um and therefore the markets took that as a
29:00
Speaker 1: sign that maybe we were reaching peak interest rates in
29:03
Speaker 1: the US. So maybe maybe in two thousand nineteen, you
29:06
Speaker 1: and I'll be chatting about the fact that we're at
29:08
Speaker 1: the peak now whatever that means for the underlying economy.
29:11
Speaker 1: If interest rates are already peaking um and you know,
29:15
Speaker 1: and and we we fear for the economy. But the
29:18
Speaker 1: concertated tightening point that I that you Alston, I think
29:21
Speaker 1: is potentially the biggest story of two thousand and nineteen.
29:24
Speaker 1: We have been speaking with Neil Dwayne of Alian's Global Investors.
29:29
Speaker 1: If you enjoy this conversation, we'll be sure and come
29:31
Speaker 1: back for the podcast extras, where we keep the tape
29:34
Speaker 1: rolling and continue discussing all things global macro. We love
29:39
Speaker 1: your comments, feedback and suggestions right to us at m
29:43
Speaker 1: IB podcast at Bloomberg dot net. Be sure and check
29:46
Speaker 1: out my daily column. It's at Bloomberg dot com slash Opinion.
29:51
Speaker 1: Follow me on Twitter at Ritolts. I'm Barry Ritolts. You're
29:55
Speaker 1: listening to Masters in Business on Bloomberg Radio. Welcome to
30:07
Speaker 1: the podcast, Neil, thank you so much for doing this.
30:09
Speaker 1: I've been looking forward um to having this conversation. We
30:13
Speaker 1: were previously scheduled and then got snowed out. I don't
30:16
Speaker 1: remember it for was I got stuck at home or
30:18
Speaker 1: your flight got canceled. I don't remember which it was,
30:21
Speaker 1: but something crazy happened with the weather. I think it
30:23
Speaker 1: was just the weather here. I think I was in
30:25
Speaker 1: New York, but I only have to walk here, I
30:27
Speaker 1: think right, I think I got it's called global warming, though, Barry,
30:31
Speaker 1: you've got to get with the program. See. I think
30:34
Speaker 1: the big branding mistake that was made many years ago
30:38
Speaker 1: if they would have called the global weather volatility, nobody
30:41
Speaker 1: can deny that none of us could have spelled it.
30:44
Speaker 1: That's true. That's that's the pro global weather volatility doesn't
30:47
Speaker 1: sort of ring off the tongue. Really it does not.
30:50
Speaker 1: So I the one thing I didn't get to talk
30:52
Speaker 1: to you during the broadcast portion that I really wanted
30:55
Speaker 1: to discuss was um something you've written about white extensively,
31:01
Speaker 1: which is E. S. G. Investing. So let's uh, let's
31:06
Speaker 1: discuss that a little bit environmental, social, and governance investing.
31:11
Speaker 1: You've written that you think this is in the process
31:13
Speaker 1: of being mainstreamed. Is that a fair word. Yeah, definitely.
31:17
Speaker 1: I suppose the way I would look at it, particularly
31:19
Speaker 1: from an American audiences lens, is I think all investment
31:22
Speaker 1: managers have been very conscious of their fight Ucrey duty,
31:25
Speaker 1: and I think many of us have had a very
31:28
Speaker 1: for the last thirty years, very narrow definition of what
31:30
Speaker 1: that means. We turn up and vote, and we check
31:32
Speaker 1: how management get paid, we check the audited ordered accounts
31:35
Speaker 1: work that. But it's a very minor, superficial group of topics. Well,
31:40
Speaker 1: I think it has, it has in the past, whereas
31:42
Speaker 1: I think now many main investors around the world, and
31:45
Speaker 1: many governments and therefore regulators around that are sitting there
31:48
Speaker 1: saying is it possible to it to help allocate capital
31:51
Speaker 1: in a nicer way, a greener way, a more friendly way.
31:55
Speaker 1: So if you think about the environment, you would remember
31:57
Speaker 1: in the mid nineties, Shell announced they were going to
31:59
Speaker 1: ding sink one of the new north sea platforms in
32:02
Speaker 1: the middle of the Atlantic Ocean, you know, somewhere where
32:04
Speaker 1: it was deep, and everyone was horrified that that's what
32:07
Speaker 1: the oil industry were up to. And so you and
32:10
Speaker 1: I were sitting there going, no, we don't want, you know,
32:12
Speaker 1: huge bits of iron just rusting at the bottom of
32:14
Speaker 1: the Atlantic Ocean. That's not environmentally how we want to
32:16
Speaker 1: behave So well, it might have been cheaper at that time.
32:20
Speaker 1: That's a different, different point that pursuit of profit doesn't
32:23
Speaker 1: necessarily always I think, get us where we want to go.
32:27
Speaker 1: If you think about the use of child labor, I
32:29
Speaker 1: think if you were investing in a company that was,
32:31
Speaker 1: you know, by design abusing you know, the children around
32:36
Speaker 1: the world, you and I would sit there and say,
32:37
Speaker 1: that's not how I want to invest I it used
32:40
Speaker 1: to be. Half of what I was wearing was was you.
32:45
Speaker 1: Wasn't it shocking the first time you learned that your
32:47
Speaker 1: sneakers were made by ten year olds in Vietnam? It
32:51
Speaker 1: was horrifying. So so I think that So I think therefore,
32:54
Speaker 1: and I suppose what we're also seeing is the rival
32:56
Speaker 1: of the millennial. The children born after they are much
32:59
Speaker 1: more anxious of where their food comes from, where their
33:01
Speaker 1: clothes come from. They obviously rely on the bank of
33:04
Speaker 1: mom and dad, as you and I know, but they
33:07
Speaker 1: are more conscious of the impact they have on on
33:09
Speaker 1: the environment and and therefore we can see the confluence
33:13
Speaker 1: of the government and regulation against the rising fiducy duties
33:16
Speaker 1: is creating this e s G. This is where my
33:19
Speaker 1: theme of inequalities come from, because I think more and
33:21
Speaker 1: more people now want to be seen to be doing
33:24
Speaker 1: what they can to not just make a profit, They
33:27
Speaker 1: want to make a good profit. If I can use
33:29
Speaker 1: good in that phrase, And you know, you could look
33:31
Speaker 1: at this from a different perspective. I've heard a number
33:34
Speaker 1: of people posit variations of the theme that e s
33:40
Speaker 1: G is becoming mainstreams because E s G is a
33:44
Speaker 1: good form of risk management. So, for example, if you
33:47
Speaker 1: have good corporate governance, and you have a diverse board
33:51
Speaker 1: of directors, and you have a lot of women and
33:52
Speaker 1: senior positions, and that there is not a big pay
33:56
Speaker 1: gap between the genders, you basically end up of the
34:00
Speaker 1: company that's not going to be like Uber with this
34:03
Speaker 1: sort of frat boy mentality. It's not going to be
34:07
Speaker 1: um like the me. Two companies that are being sued
34:10
Speaker 1: left in right because the behavior of executives are so
34:13
Speaker 1: egregious you basically end up with responsible adult companies and
34:18
Speaker 1: that's good risk risk management. What are your thoughts not? No,
34:21
Speaker 1: I definitely think that is that that is the case,
34:23
Speaker 1: and I think the risk management can come through in
34:26
Speaker 1: many other different areas because I think in a world
34:29
Speaker 1: where we're all having to take some risk to earn
34:31
Speaker 1: a return, I think we have to then understand how
34:34
Speaker 1: we manage some of those risks, and I think the
34:36
Speaker 1: E s G lens allows an investor to work out
34:40
Speaker 1: what some of those parameters are and whether they want
34:43
Speaker 1: to change their stock picking. I think where I sit
34:45
Speaker 1: for the American audience, though, is is that you're yet
34:49
Speaker 1: to be convinced that E s G doesn't affect your returns.
34:54
Speaker 1: So you know, the megawe general pushback is, well, you know,
34:57
Speaker 1: if they're free and oil rallies, you're gonna you're gonna
35:01
Speaker 1: miss some gains. Yes, but I think there's increasing evidence
35:04
Speaker 1: now that you can have a good portfolio of outperforming
35:08
Speaker 1: stocks that doesn't underperform a good portfolio of let's say,
35:13
Speaker 1: weaker E s G stock. So we think that the
35:15
Speaker 1: onus is is moving in that direction. But I think
35:17
Speaker 1: the key thing from an institutional perspective. I know there's
35:20
Speaker 1: some leading institutions in the US as well as in
35:22
Speaker 1: Europe who now believe they have to take the lead
35:25
Speaker 1: in this, and I think therefore, to some extent, there's
35:28
Speaker 1: an element of the herding mentality, you know, where some
35:32
Speaker 1: some of the leaders like a cowper's head, inevitably a
35:35
Speaker 1: lot of the state, state pension funds or whatever. We'll
35:38
Speaker 1: head in a similar direction. And what we've seen from
35:40
Speaker 1: the corporate side, you have the CEO of Black Rock
35:44
Speaker 1: writing letters to the executives of the SMP five lamenting
35:48
Speaker 1: short termism. You have the chairman of Vanguard talking about
35:53
Speaker 1: becoming more active in their proxy voting. Those two companies
35:57
Speaker 1: own ten percent of every publicly traded company in the world.
36:00
Speaker 1: And what I like about the way we're trying to
36:02
Speaker 1: solve it for clients in e s G is we're
36:04
Speaker 1: trying we now have fifteen analysts around the world who
36:06
Speaker 1: complement our eight five equity and forty five credit analysts.
36:10
Speaker 1: So we're trying to build s G into all the
36:12
Speaker 1: research we do. And that the key is you, as
36:16
Speaker 1: an American may have a slightly different set of values
36:18
Speaker 1: from say the client I was with three weeks ago
36:20
Speaker 1: and quait now they are they are long oil, so
36:24
Speaker 1: they are thinking about sustainability, climate change and E s
36:27
Speaker 1: G from a lens that's built on an oil economy.
36:30
Speaker 1: Let let's say if we were thinking we were in
36:31
Speaker 1: Texas rather than in New York. So the values for
36:34
Speaker 1: each client can be different. And the beauty of what
36:37
Speaker 1: we're trying to do is have the debate with the
36:39
Speaker 1: client about what they mean by E s G because
36:41
Speaker 1: obviously some clients are not quite sure what it all means.
36:45
Speaker 1: And then when they understand what it means for their portfolio,
36:47
Speaker 1: we can then implement it as you know, so that
36:49
Speaker 1: they get what they want. And the last fun fact
36:52
Speaker 1: I just share with you is if you look at
36:54
Speaker 1: say a classic index like the S and P, and
36:57
Speaker 1: despite President Trump not agreeing with it, you know, the
36:59
Speaker 1: Paris of Core two years ago agreed we needed to
37:01
Speaker 1: control the climate change to only two degrees. Well, the
37:05
Speaker 1: S and P is currently constituted to deliver you a
37:08
Speaker 1: three point eight percent climate change increase. Because we're allocating
37:12
Speaker 1: capital to a lot of the bad industries. So the
37:15
Speaker 1: first thing we're or one of the easy things we're
37:17
Speaker 1: trying to do with our clients is to talk to
37:19
Speaker 1: them about if you believe this influence how you allocate
37:23
Speaker 1: your capital. Start thinking about being a little more green
37:26
Speaker 1: is my favorite sort of phrase to shorthand for this.
37:29
Speaker 1: And don't just look at an index, because you can
37:32
Speaker 1: then you can allocate your capital, allocate your capital differently,
37:36
Speaker 1: And I think that's the key. We can start to
37:38
Speaker 1: shape the world by making making the capital move to
37:41
Speaker 1: where we want it to as as investors. And let
37:43
Speaker 1: me push back against you on on behalf of Texas
37:47
Speaker 1: for a moment. Texas, to their credit, has shifted their economy.
37:53
Speaker 1: They're a big technology location. They're a big real estate location. Also,
37:56
Speaker 1: you look at Dallas, Houston, Austin, go down the list
38:00
Speaker 1: of of San Antonio. They have become a very tech
38:04
Speaker 1: friendly area. And the rise and fall of oil doesn't
38:08
Speaker 1: slaughter Texas the way it did in the eighties. The
38:11
Speaker 1: eighties they lived and died on that. But it's quite fascinating,
38:14
Speaker 1: all right. I know I only have you for a
38:17
Speaker 1: finite amount of time, and I have a million other questions,
38:20
Speaker 1: but I want to get to my favorite questions I
38:23
Speaker 1: asked all of my guests. So let's let's jump right
38:26
Speaker 1: into this and feel free to uh make references to
38:30
Speaker 1: things in the UK that American audiences may not be
38:34
Speaker 1: understand or be familiar with. UM, So tell us what's
38:38
Speaker 1: the most important thing people don't know about your background? UM?
38:43
Speaker 1: I would probably say, I'm as of last month November,
38:48
Speaker 1: thirty years married with four fantastic kids, and I am
38:52
Speaker 1: you know, I work to live, I don't live to work.
38:54
Speaker 1: That's that's great. Who are some of your early mentors? Well,
38:58
Speaker 1: it's very interesting. I would actually saying my father in
39:01
Speaker 1: law and my father. My father was a self employed
39:04
Speaker 1: businessman who went bust, and he taught me everything you
39:08
Speaker 1: don't want to do in the real world. So as
39:10
Speaker 1: I've managed my career, I have thought about not making
39:14
Speaker 1: the mistakes that he did. I know sometimes we want
39:16
Speaker 1: to be as fathers, be remembered positively. I remember my
39:20
Speaker 1: father's mistakes rather than his successes. They're still good lessons,
39:24
Speaker 1: for sure. But my father in law actually inspired me
39:26
Speaker 1: to become an investor, because otherwise I'm afraid you would
39:29
Speaker 1: have been interviewing the world's most boring chartered accountant. So
39:32
Speaker 1: I he was one of my mentors because as I
39:35
Speaker 1: moved into investment management, he was already an investor. We
39:38
Speaker 1: chatted over the Sunday you know, dinner table about life,
39:42
Speaker 1: the universe, and markets. So he really helped kick off
39:44
Speaker 1: my my career. Quite interesting. You mentioned investors one investors
39:49
Speaker 1: influenced your approach to looking at the world of of capital. Well,
39:55
Speaker 1: I I think although I've read a lot of books
39:57
Speaker 1: are from you know, many of the famous investors m
40:00
Speaker 1: after my early UM, I would say quite UK specific
40:04
Speaker 1: expertise or experiences at Flemings and at and at Climb Benson.
40:08
Speaker 1: I joined JPMorgan in the mid nineties and I really
40:11
Speaker 1: learned about fundamental research, about teamwork, about the global network
40:15
Speaker 1: that you you could access. So I feel a lot
40:18
Speaker 1: of my colleagues in in the in what I call
40:20
Speaker 1: the great JPMorgan before it was bought by Chase. I
40:23
Speaker 1: think JP Morgan, by the way, is still probably great, UM,
40:26
Speaker 1: but that was really you know a lot of a
40:28
Speaker 1: lot of my colleagues at the time really helped me
40:31
Speaker 1: to step up my game in terms of how I
40:32
Speaker 1: think about investing. You mentioned books. Tell us about some
40:35
Speaker 1: of your favorite books, finance, non finance, fishing, no fishing,
40:39
Speaker 1: whatever you like. Well, let me tell you a funny anecdote.
40:41
Speaker 1: My my favorite books of all time are still The
40:43
Speaker 1: Lord of the Rings. I used to read that every summer,
40:46
Speaker 1: and the reason for me was back in nineteen seventy
40:49
Speaker 1: three we had the blackouts because of the minor strike
40:53
Speaker 1: and at the school I was at every evening under candlelight.
40:56
Speaker 1: Our teacher used to read us The Lord of the Rings.
41:00
Speaker 1: And so for me, the first, you know, two and
41:01
Speaker 1: a half books until you know that the strike was over.
41:05
Speaker 1: If you can imagine sitting in your classroom, it's dark outside,
41:08
Speaker 1: it's windy, and and you've got a candle and someone's
41:10
Speaker 1: reading you about you know, The Lord of the Ring.
41:12
Speaker 1: That was just the most memorable. I nearly didn't go
41:14
Speaker 1: and see the movies because I didn't want it to
41:16
Speaker 1: destroy what I thought of the world that we created
41:19
Speaker 1: in that period. And and to give Peter Jackson credit,
41:23
Speaker 1: the movies were really, yes, they were so. So what
41:27
Speaker 1: I would say is I read a lot of books. Um,
41:31
Speaker 1: I am actually funny enough celebrating my thirties where they're
41:33
Speaker 1: going with my wife by going to the Antarctic next year,
41:37
Speaker 1: and so I'm reading books about Shackleton and Scott. So
41:40
Speaker 1: have you read Endurance? I have. That's an unbelievable book.
41:43
Speaker 1: Has it not been made into a film? That's what
41:44
Speaker 1: I think it. I think it has to be. It
41:47
Speaker 1: may have recently been. By the way, the story of
41:49
Speaker 1: the book is quite fascinating. The book was originally published
41:54
Speaker 1: way early and did nothing, and then twenty years later
41:57
Speaker 1: someone buys the rights of the book, reissues it and
41:59
Speaker 1: it becomes is a big Yes, I agree with you.
42:02
Speaker 1: I can't believe that has him in a moment because
42:04
Speaker 1: I'm because I'm not a millennial. The book I always
42:07
Speaker 1: go to. I think it can be a bit of
42:08
Speaker 1: a hard read. And I'm sure you've probably interviewed him
42:11
Speaker 1: and read the book as well. But the book, when
42:13
Speaker 1: I think about where technology may lead us is the
42:16
Speaker 1: Singularity is nearby. Ray Kutzwile, who works at alphabet I
42:19
Speaker 1: have not interviewed him, but feel free to make an introduction.
42:23
Speaker 1: I would. I would love to that. That isn't an
42:25
Speaker 1: easy read, is it? It isn't. But the thing is,
42:27
Speaker 1: it tells me where the people who understand technology think
42:30
Speaker 1: we can go. Now what is scary. At the end
42:33
Speaker 1: of the book, he actually thinks that we could be
42:35
Speaker 1: immortal if you place yourself into a you know, place
42:39
Speaker 1: some version of your, for lack of a better word,
42:43
Speaker 1: soul into a computer. But really it's your your personhood
42:48
Speaker 1: into a piece of technology. Whether or not that's actually you,
42:52
Speaker 1: whether or not that is really immortality is debatable, But
42:56
Speaker 1: I guess it's just a function of how advanced that
42:58
Speaker 1: And the reason I find that is my prior life.
43:01
Speaker 1: I was a classicist. So when I when I think
43:03
Speaker 1: about the books I like rereading there all the great
43:07
Speaker 1: myths and legends of Roman. Give us an example, well,
43:10
Speaker 1: just even going back to see you know, Homer's Iliad.
43:12
Speaker 1: I mean I can read it in Greek, still I
43:14
Speaker 1: can read it in English. Um, I just love it
43:16
Speaker 1: because it's a it's a time of myth, it's a
43:19
Speaker 1: time of legend, and it just inspires inspired me as
43:23
Speaker 1: a youngster. But even now I love the stories because
43:26
Speaker 1: you just think, you know, this is how mankind was
43:28
Speaker 1: thinking three or four thousand years ago. It's not all
43:31
Speaker 1: that different from you know, the Odyssey, the Iliad and
43:34
Speaker 1: um trying to remember who recently recommended Joseph Campbell's Men
43:38
Speaker 1: of a Thousand Faces, all those original Greek stories, they're
43:42
Speaker 1: no different than Marvel comics, or any of the superheroes
43:45
Speaker 1: superhero movies from today. It's the same narrative art. Great
43:49
Speaker 1: Dahia was the one who recommended Okay, okay, that's kind
43:52
Speaker 1: of a fascinating So that's a nice list of books
43:56
Speaker 1: from them, from from Lord of the Ring this to
44:00
Speaker 1: something little challenging. That's the classics. I like it. So
44:03
Speaker 1: what has changed since you've joined the industry? What do
44:06
Speaker 1: you think is the single biggest shift we've been seeing personally?
44:10
Speaker 1: As I alluded to earlier, I think it's the pressure
44:12
Speaker 1: for performance. I think clients tolerance for loss in the
44:17
Speaker 1: short term has become very, very acute, and I feel
44:21
Speaker 1: that The other thing that concerns me is can you
44:23
Speaker 1: imagine you've been in the game as long as I have.
44:25
Speaker 1: Can you imagine what bond investor is going to feel
44:27
Speaker 1: like at the end of this thirty seven bomble market
44:30
Speaker 1: when they end up with a thirty seven year bear market?
44:32
Speaker 1: And and here we are in a year that looks
44:35
Speaker 1: like market's going to be flat to marginally up or down,
44:40
Speaker 1: with Barnes also down. Yes, nothing, nothing really has worked
44:45
Speaker 1: is working out well. Although the day before we recorded this,
44:49
Speaker 1: with dividends, the SMP was up about six percent by
44:52
Speaker 1: the time this broadcast. That number is not likely to
44:55
Speaker 1: be spot on whether it's high or lower, as anybody's guess. Um,
45:00
Speaker 1: so what are you excited most about? You mentioned China earlier.
45:03
Speaker 1: What do you think is the most exciting thing that
45:06
Speaker 1: that you get to see? Well, I think on a
45:09
Speaker 1: twenty or thirty of you, it's about Asia, the rise
45:11
Speaker 1: of Asia. I'm very excited the companies you meet there.
45:13
Speaker 1: They're just getting started in terms of how the markets
45:16
Speaker 1: are going to develop. Um, I would say right at
45:19
Speaker 1: this moment in time, because I feel like I want
45:21
Speaker 1: to be slightly edgy fewer people. I love the UK.
45:24
Speaker 1: I look at the valuations of the UK. I look
45:26
Speaker 1: at the valuation of Sterling. I think everyone has given
45:29
Speaker 1: up on Brexit, including the British, and therefore it's priced
45:33
Speaker 1: for a disaster, which I don't think is going to happen.
45:35
Speaker 1: I think it's sold too too long. Quite quite interesting. Um,
45:39
Speaker 1: tell us about a time you failed and what you
45:41
Speaker 1: learned from the experience. Well, you know I I actually
45:45
Speaker 1: UM was gonna when you when I saw the question
45:47
Speaker 1: thinking about this two ways. When I failed in Germany,
45:51
Speaker 1: it was because I thought as a brit and I
45:54
Speaker 1: didn't think as a German. So although I was there
45:57
Speaker 1: as an agent of change, I didn't sit on the
46:00
Speaker 1: the side of the table and think, how do I sound?
46:02
Speaker 1: How do I get them to think in a slightly
46:04
Speaker 1: different way. So so for me, I have learned I
46:08
Speaker 1: think in my management style, and I'm funny if I'm
46:10
Speaker 1: now trying to do this with my wife and my children,
46:12
Speaker 1: to put myself in their shoes so that I see
46:15
Speaker 1: how they see me. And so that's the key that
46:17
Speaker 1: I think is I've got older, I've got better at
46:19
Speaker 1: thinking or anticipating what the person on the other side
46:22
Speaker 1: of the table is. You know where they're coming from,
46:24
Speaker 1: what their issues are. So whether it's a Frenchman or
46:27
Speaker 1: a Japanese or an American, I sit there trying to
46:29
Speaker 1: work out some empathy with that person, so I can
46:32
Speaker 1: I can learn to be more impactful. I think when
46:35
Speaker 1: it comes to investing, I've always looked at and by
46:38
Speaker 1: the way, you know, one of your other questions is
46:40
Speaker 1: you know what advice would you give people. My advice is,
46:42
Speaker 1: you're always going to make mistakes. You're always going to
46:45
Speaker 1: have to learn from your mistakes because you, and I
46:47
Speaker 1: know you never learned from your winning. You just sit
46:50
Speaker 1: there say hey, I'm great, and you move on to
46:52
Speaker 1: the next win. In fact, when you win, you don't
46:54
Speaker 1: even starting as yourself. Am I good? Or did I
46:57
Speaker 1: just get? And so when I look at where I've
46:59
Speaker 1: when as a portfolio manager, when I've when I've failed,
47:02
Speaker 1: it's because actually I have completely over appreciated the edge
47:06
Speaker 1: I thought I had. I've therefore underappreciated maybe things that
47:10
Speaker 1: are not inside the company's control or inside the market's control.
47:13
Speaker 1: But more importantly, I've then built the wrong portfolio because
47:16
Speaker 1: I've had too much of it. I had then haven't
47:18
Speaker 1: right sized the position. So another book I'd recommend, fun
47:21
Speaker 1: enough is a poker players book called by Annie Duke
47:24
Speaker 1: called Thinking in Bets, because what she says about poker
47:27
Speaker 1: players is you get dealt your hand. You know it's
47:30
Speaker 1: a If it's a losing hand, you just fold. If
47:32
Speaker 1: it's a potentially a winning hand or a winning hand,
47:35
Speaker 1: you then play. But as you play, you're watching the
47:38
Speaker 1: dynamic of the cards in front of you. In the
47:40
Speaker 1: moment the dynamics change, you stop playing, unless, of course,
47:44
Speaker 1: the dynamics don't change, and you know you've got the
47:45
Speaker 1: winning hand. And I think that's what you and I
47:47
Speaker 1: are doing every day in the markets. You have to
47:49
Speaker 1: sit there and what is the market telling you? Because
47:51
Speaker 1: the markets every day always telling you something about your portfolio,
47:55
Speaker 1: and you've got to filter out all the noise and
47:58
Speaker 1: you've then got to sit there and say, have I
48:00
Speaker 1: got a winning hand? And if you haven't got a
48:02
Speaker 1: winning hand, you and I know the first cuts always
48:04
Speaker 1: the cheapest. Interesting point. By the way, today as we're
48:07
Speaker 1: we're recording this, the market is telling us we don't
48:10
Speaker 1: really believe that there's much of a trade deal. That's
48:13
Speaker 1: that's what's going on. That's what's happening today. Um with
48:17
Speaker 1: with a lot of red on the screen. Um, what
48:19
Speaker 1: do you do for fun? What do you do outside
48:21
Speaker 1: of the office for giggles? Um? Being a family guy,
48:24
Speaker 1: I love to spend time with my with my wife
48:26
Speaker 1: and family. But I'm a golfer and a skier. That's
48:29
Speaker 1: what I've You know that, that's what I've been. I've
48:31
Speaker 1: resorted to. Okay, And I'll ask two questions. If a
48:36
Speaker 1: millennial came to you and said, we're thinking about going
48:39
Speaker 1: into finance as a career, what sort of advice would
48:42
Speaker 1: you give them. Well, I'm I'm fairly clear about this
48:45
Speaker 1: because having got four millennials as a father, I've had
48:47
Speaker 1: to think about how to get them into the real
48:49
Speaker 1: world as quickly as possible and off the bank of
48:51
Speaker 1: mom and dad. Um. But I suppose I I look
48:54
Speaker 1: back on it, and I enjoy what I do, and
48:57
Speaker 1: so I when I meet a lot of friends children
49:00
Speaker 1: and they come from you know, spend a day with
49:02
Speaker 1: me or a week with me, I have a sense
49:04
Speaker 1: of whether they love the markets. Now. I think it's
49:07
Speaker 1: a phenomenal privilege to manage other people's money. And the
49:10
Speaker 1: thing I love about the markets is as it's as
49:12
Speaker 1: close to being a professional golfer as I will ever be,
49:15
Speaker 1: because every day the golf course is different. Every day,
49:17
Speaker 1: the competition is different, every day, the weather is different,
49:20
Speaker 1: and there's always something fascinating going on in the markets.
49:22
Speaker 1: And I think to have a job that is just
49:24
Speaker 1: so refreshing is a remarkable privilege. Um. So I would
49:29
Speaker 1: want to know that, you know, my millennial was interested
49:33
Speaker 1: in the markets rather than thinking this is how I
49:35
Speaker 1: get paid because you won't be any good at it.
49:38
Speaker 1: And our final question, what is it that you know
49:40
Speaker 1: about the world of investing today, you wish you knew
49:44
Speaker 1: thirty years ago, do you know? I I think, um,
49:47
Speaker 1: although there's not a lot I would want to change
49:50
Speaker 1: about because I do think you have to learn but
49:52
Speaker 1: by your mistakes. UM. I do sometimes feel that I
49:56
Speaker 1: have been quite stubborn in the type of industries or
49:59
Speaker 1: name that I want to own. That has often left
50:02
Speaker 1: me maybe being a classic European not understanding the opportunities
50:07
Speaker 1: of an Amazon or you know, or you know, some
50:09
Speaker 1: of the new technologies because I don't I'm not interested
50:13
Speaker 1: in some of that. And I recognize that that's probably
50:16
Speaker 1: forced me to not anticipate how the world can change.
50:20
Speaker 1: And so it's ironic that I now talk to our
50:22
Speaker 1: clients about how the world is being disrupted by you know,
50:24
Speaker 1: the mobile phone, the millennial and the Internet. And yet
50:27
Speaker 1: I was sitting there for the last twenty years going,
50:29
Speaker 1: you know that, how does that change the stocks I own?
50:32
Speaker 1: And yet it's changing them every day. And that's maybe
50:35
Speaker 1: where where i've I've I've when I look back and
50:37
Speaker 1: think the power of disruption, if I had nailed that
50:40
Speaker 1: thirty years ago, would have helped me think about the
50:42
Speaker 1: type of companies I want to own, very differently, quite fascinating.
50:47
Speaker 1: We have been speaking to Neil Dwayne of Alian's Global Investors.
50:51
Speaker 1: If you enjoy this conversation, we'll be sure to look
50:54
Speaker 1: up an inch or down an inch on Apple iTunes
50:57
Speaker 1: and you can see any of the other two forty
51:00
Speaker 1: or so such conversations we've had previously. We love your comments,
51:05
Speaker 1: feedback and suggestions right to us at m IB podcast
51:10
Speaker 1: at Bloomberg dot net. You could find any of these
51:13
Speaker 1: podcasts at Overcast, Stitcher, Apple iTunes, Bloomberg dot com, wherever
51:19
Speaker 1: finer podcasts are sold. I would be remiss if I
51:23
Speaker 1: did not think our crack staff that helps put together
51:26
Speaker 1: these conversations each week. Medina Parwana is our producer and
51:31
Speaker 1: Karlin O'Brien is our recording engineer. Taylor Riggs is our booker,
51:36
Speaker 1: slash producer, uh Atka val Broun is our project manager,
51:41
Speaker 1: and Michael Batnick is our head of research. I'm Barry Ridholtz.
51:46
Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.