Latest / Merryn Talks Money / Why UK Bosses Need More Skin in The Game

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Why UK Bosses Need More Skin in The Game · Merryn Talks Money

0:03
Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
0:09
Speaker 2: Hello, it's Meren Somerset Web. Here a reminder. I will
0:12
Speaker 2: be at the Fringe Festival in Edinburgh once again this year,
0:15
Speaker 2: hosting four full days of riveting conversations in Adam Smith's
0:18
Speaker 2: Pannier House. I'll be there from August the seventeenth to
0:21
Speaker 2: August the twentieth. Tickets are now on sale. They are
0:24
Speaker 2: going fast. Of course they're going fast. They'll be sold
0:26
Speaker 2: out quickly. Links will be in the show notes, but
0:28
Speaker 2: you can also just head the main Fridge website and
0:31
Speaker 2: search for Mirren. They'll see the availability and you can
0:33
Speaker 2: buy tickets hurry. Plus more information about this amazing venue
0:37
Speaker 2: and what we will be discussing right onto this week's show.
0:40
Speaker 2: My guest has Lead maida founder and managing partner of
0:43
Speaker 2: Gatemore Capital Management. We talk about why he thinks the
0:46
Speaker 2: cost of capital is the key issue facing UK equities
0:49
Speaker 2: and why he thinks the Great British Buyout is going
0:52
Speaker 2: to save the equity market. But first, as always, senior
0:55
Speaker 2: border and author of the Money Distilled newsletter, John Steppik
0:58
Speaker 2: is here with me. John.
1:00
Speaker 1: Hello, Hello man.
1:01
Speaker 2: Okay, so I'm going to preface this conversation by saying
1:05
Speaker 2: to our listeners, this sounds boring, but there's something John
1:08
Speaker 2: and I are going to talk about and it's not boring.
1:11
Speaker 2: It's incredibly important. Willie Gazad is boring and important, boring
1:14
Speaker 2: but important. But I think it's not boring and also
1:17
Speaker 2: very important John, It's important, right.
1:19
Speaker 1: Yeah, and it's actually pretty interesting once you get the
1:22
Speaker 1: guts of it. Yeah, because it's all about pensions.
1:26
Speaker 2: Okay, now then now everyone's turned off, everyone's moved on
1:29
Speaker 2: to another podcast. Pensions are not boring. Pensions are very interesting.
1:33
Speaker 2: And this is a key issue that has been affecting
1:36
Speaker 2: the pensions market, being affecting the balance sheets of big
1:38
Speaker 2: UK companies and being affecting the UK equity market for
1:42
Speaker 2: decades now, right, and it's coming to an end. John
1:45
Speaker 2: tell us about it.
1:46
Speaker 1: Well, this is the new is that define benefit pension schemes.
1:51
Speaker 1: So the ones private sector ones, one's run by companies,
1:54
Speaker 1: ones that you can't be a member of anymore, unless
1:57
Speaker 1: I think you want for CRODA, which is one foot
1:59
Speaker 1: Sea two five, the company which still has a defined
2:02
Speaker 1: benefit pension scheme, could be wrong with that. I'll double check,
2:05
Speaker 1: but have your kids apply there exactly.
2:07
Speaker 2: See if they've got an apprenticeship schame or an intern's
2:09
Speaker 2: game or a graduate schame, do anything for deba.
2:12
Speaker 1: I've already checked. No, So these funds right up. People
2:17
Speaker 1: kept talking about how there's a pensions black ho massively
2:20
Speaker 1: in deficit for years and years and years. Now the
2:23
Speaker 1: interest rates have gone up, thanks obviously to Litz Trust,
2:27
Speaker 1: they're now in surplus because.
2:29
Speaker 2: You have to stop doing that.
2:30
Speaker 1: No, sorry, I can't help myself, not Lizzy's fault. So
2:36
Speaker 1: interest rates went up and that means that basically the
2:39
Speaker 1: future liabilities, so the money that they owe the pensils
2:42
Speaker 1: in the future. That number is big when interest rates
2:46
Speaker 1: at zero percent, and as interest rates go up, that
2:48
Speaker 1: number gets smaller. So it means you need less money
2:51
Speaker 1: in the pot today to pay off your pensioners tomorrow.
2:54
Speaker 1: It's probably the easiest way to think about it, and
2:57
Speaker 1: that's why those schemes are now in subtless.
3:00
Speaker 2: Okay, let's just go back to why. When they were
3:01
Speaker 2: in deficit, everyone's going, oh my god, all these these
3:04
Speaker 2: British companies, they've got these huge deficits. Poor old pensioners.
3:07
Speaker 2: Everyone has to put more money in so constant pressureund
3:10
Speaker 2: the company is to take big junks of what would
3:12
Speaker 2: be profits and slew them off into their pension funds
3:14
Speaker 2: to pay for pensions far into the future. It's a
3:17
Speaker 2: big drag on profitability.
3:20
Speaker 1: Money, real money because the future liabilities. I think that probably,
3:24
Speaker 1: I guess this is important to understand as well. Was
3:26
Speaker 1: obviously a number in the future is uncertain, so it's
3:29
Speaker 1: based on the theoretical value. But the theoretical value translates
3:34
Speaker 1: into something you need to take actual practical action on today.
3:37
Speaker 1: So you need you felt that deficit, and it has
3:38
Speaker 1: to come from real cash that's coming into the company
3:41
Speaker 1: at that point. So yeah, absolutely, as you're saying, it's
3:45
Speaker 1: been a massive drag going money that could have been
3:47
Speaker 1: invested elsewhere are or paid out to no employees and wages,
3:51
Speaker 1: et cetera, et cetera.
3:52
Speaker 2: I remember writing a colum a little while ago. Okay,
3:54
Speaker 2: it damn like distraction alert showing that wages at companies
3:59
Speaker 2: with big pension deficits rose at a slower rate than
4:03
Speaker 2: companies without them, So at a genuine real world effects
4:06
Speaker 2: not on profitability but on the earnings of people working
4:09
Speaker 2: for these companies. So big deal across the board.
4:11
Speaker 1: Yeah, absolutely huge. And what is interesting because the first
4:14
Speaker 1: time I wrote about this because this is they're now
4:16
Speaker 1: recorded the record suplus in May. But obviously that the
4:20
Speaker 1: supplus came about earlier in the year and it was
4:23
Speaker 1: one fifty company. I noticed that it was Coats that
4:26
Speaker 1: had actually been able to basically stop topping up is
4:30
Speaker 1: to find benefit pension scheme and it's sheer place went
4:33
Speaker 1: up on that news. So this is something that's a
4:36
Speaker 1: real world right now. Absolutely you know that this is
4:39
Speaker 1: really important and it has an effect.
4:42
Speaker 2: We did write, didn't we Quite a long time ago.
4:44
Speaker 2: We wrote a couple of columns saying when interest rates
4:47
Speaker 2: go up by companies that have theoretical pension deficits, because
4:52
Speaker 2: their share press will go up. And look, we were right.
4:55
Speaker 1: Basically right, we were We told you so, we told
4:59
Speaker 1: you anyway, So okay, So matters for individual companies, but
5:06
Speaker 1: there's also a bigger effect. So one of the reasons
5:08
Speaker 1: that UK capital markets or UK equity markets specifically have
5:13
Speaker 1: had this kind of drag on them for so long
5:16
Speaker 1: isn't just all of the you know, stuff that's happened
5:19
Speaker 1: kind of like recent years. It's also because the rules
5:23
Speaker 1: around pensions got tightened up so much. Well, it basically
5:28
Speaker 1: meant was that define benefit pension schemes run by companies
5:31
Speaker 1: shifted all of their money out of equities into bonds,
5:35
Speaker 1: and they also shifted their equity allocation out of UK equities.
5:39
Speaker 1: At one point it was something, I mean, they're probably
5:40
Speaker 1: too much in UK equities at one point like something
5:43
Speaker 1: like seventy percent. Now is down to three percent. So
5:47
Speaker 1: the amount of UK equities held by find benefit pension
5:51
Speaker 1: funds has collapsed and that has been a constant drag
5:55
Speaker 1: of outflows for years and years and years. Now. The
5:59
Speaker 1: point being about the fact they've got a subplus now
6:01
Speaker 1: is that A, you know this this is now fixed
6:06
Speaker 1: so they don't have to change the portfolio allocation anymore.
6:09
Speaker 1: And B when it's already down at three percent, there
6:12
Speaker 1: is no you know, there's no further drag. Yeah, it's
6:15
Speaker 1: kind of exhausted. So that big sort of selling structural set,
6:21
Speaker 1: that structural selling force is now gone. And even that
6:25
Speaker 1: just vanishing doesn't need to be replaced.
6:27
Speaker 2: Well, the removal of a negative is effectively a positively.
6:31
Speaker 1: But then on top of that, you've got a positive
6:33
Speaker 1: coming in for hey, because you're obviously wondering now, But
6:38
Speaker 1: what happened when all these define benefit pension schemes closed,
6:40
Speaker 1: and of course they get replaced with define contribution schemes.
6:44
Speaker 1: We define contribution schemes are the ones would you save
6:46
Speaker 1: the money? And the plot is what you get at
6:49
Speaker 1: the end, and what's in it is your problem basically,
6:51
Speaker 1: And if.
6:52
Speaker 2: You are in an order enrollment schame, which if you're
6:54
Speaker 2: in work in the UK, you almost suddenly oh that's
6:56
Speaker 2: what you have, yes.
6:57
Speaker 1: So you've got an auto enrollment pension. So what was
7:00
Speaker 1: happening now is companies aren't putting money and they they'd
7:02
Speaker 1: find benefits schames anymore or not as much, and they
7:05
Speaker 1: are putting increasing numbers amounts of money into the auto
7:09
Speaker 1: enrollment schemes. And the other interesting thing is that in
7:12
Speaker 1: the year to me, the amount of money going into
7:14
Speaker 1: the auto enrollment schemes overtook the amount of money going
7:17
Speaker 1: into dB schemes. And actually I was quite surprised. This
7:20
Speaker 1: is the first time that's happened. So again that sort
7:23
Speaker 1: of shows you just what a drag the dB schemes
7:25
Speaker 1: have been, because it's mostly because companies like the amount
7:29
Speaker 1: of money going into the auto enrollment schemes went up
7:33
Speaker 1: at roughly the same rate it has been going up
7:35
Speaker 1: for years. The dB money collapsed because they don't need
7:38
Speaker 1: to put it in anymore. And the fact that you've
7:40
Speaker 1: got this turn around now, so basically you don't have
7:42
Speaker 1: to mess around your dB scheme anymore, and ever increasing
7:46
Speaker 1: amounts of money are going into the auto enrollment and
7:49
Speaker 1: that means that some of that money will be an
7:51
Speaker 1: inflow for UK markets if you like. So, yeah, you've
7:55
Speaker 1: get one structural headwind has been removed and a structural
7:57
Speaker 1: tail wind is coming up to you child gidding.
8:01
Speaker 2: Here he go. It's all about the floors. Okay, So
8:04
Speaker 2: this is all very positive for the UK market.
8:05
Speaker 1: Yeah it should be.
8:06
Speaker 2: Yeah, and vere with a dB pension which looks like
8:10
Speaker 2: it is going to keep being paid out, John, thank you,
8:13
Speaker 2: And I think amazingly that was not boring at all.
8:15
Speaker 2: It was absolutely fascinating and by the way, everyone, it
8:16
Speaker 2: is very important. Pensions are important and interesting. Welcome to
8:24
Speaker 2: Maren Talks Money, the podcast in which people who know
8:26
Speaker 2: the markets explain the markets. I'm Maren zumzat web. Here's
8:29
Speaker 2: my conversation with lead maida founder and managing partner of
8:32
Speaker 2: Gatemore Capital Management lead. Thank you so much for joining
8:36
Speaker 2: us today. I really appreciate it.
8:38
Speaker 3: Thank you for having me.
8:40
Speaker 2: Now, listen, you and I are on the same page
8:41
Speaker 2: with a couple of things here, right. We both family
8:44
Speaker 2: believe that the UK market is grotesquely undervalued and has
8:47
Speaker 2: been for some time. But I think your thoughts around
8:50
Speaker 2: why that is and why it might change are slightly
8:53
Speaker 2: different to some other people in the market. So talk
8:57
Speaker 2: me through that.
8:59
Speaker 3: Sure. Well, Well, I think a lot of the commentary
9:03
Speaker 3: and and you know, regulators and people in the city
9:07
Speaker 3: are looking for answers in the wrong places and in
9:09
Speaker 3: many ways, you know, they're looking for new regulation in
9:14
Speaker 3: ways of in a sense, manipulating the market to try
9:17
Speaker 3: to get whether it's retail investors and institutional investors to
9:21
Speaker 3: buy more UK equities. I mean, I fundamentally believe that
9:25
Speaker 3: UK equities need to stand on their own right and
9:27
Speaker 3: compete on their own right globally for capital. And I
9:32
Speaker 3: think the answers to that really lie in deregulation in
9:35
Speaker 3: many ways, not adding new layers of regulation. I think
9:39
Speaker 3: the extent that people have been exploring opportunities to deregulate,
9:43
Speaker 3: it's around listing requirements and things that are really incremental
9:46
Speaker 3: around the edges. Good ideas, many of them, but I
9:49
Speaker 3: just don't think are going to really solve the fundamental problem.
9:52
Speaker 2: Okay, So what is the fundamental problem? What is the
9:55
Speaker 2: problem here?
9:55
Speaker 3: You know, we've got great fundamental the fundamental.
9:58
Speaker 2: Economy, isn't that all? Well, nothing is that bad here.
10:01
Speaker 2: I may have a little of political instability, but goodness me,
10:03
Speaker 2: look over to France, right, I mean, you know it's
10:05
Speaker 2: not not so bad, right, companies are good. Economy looks Okay,
10:09
Speaker 2: what is the problem.
10:11
Speaker 3: Well, there are some some long term challenges for the
10:15
Speaker 3: UK economy around productivity, but that is not the core
10:20
Speaker 3: driver of the gap and valuation. The bottom line is
10:25
Speaker 3: that the core issue is, at the end of the
10:28
Speaker 3: day twofold. One is to do with the takeover code
10:32
Speaker 3: and the second is to do with how board members
10:35
Speaker 3: are incentivized. You know, I think that if you look
10:39
Speaker 3: at the difference the fundamental difference between UK equity markets
10:43
Speaker 3: in the US, those I think are the two that
10:46
Speaker 3: you know that that really have the biggest way in
10:48
Speaker 3: terms of driving the valuation gap. Starting really with with
10:52
Speaker 3: with the second point around director and sative. This is
10:55
Speaker 3: something that we've been very vocal about. In fact, we
10:57
Speaker 3: published a public letter for company recently that really highlighted
11:02
Speaker 3: this point. You know, in the US, when you join
11:05
Speaker 3: the board of directors, you are expected to go into
11:08
Speaker 3: your pocket and buy somewhere between three to five times
11:11
Speaker 3: your annual fees in the stock. And whether you do
11:14
Speaker 3: that upfront or over the course of your tenure, that's
11:17
Speaker 3: the expectation, and people indeed do that. In the UK
11:23
Speaker 3: you have nothing like that. The expectation is minimal. You know,
11:27
Speaker 3: you see directors buying very little stock and the in fact,
11:30
Speaker 3: the UK Governance Code discourages companies from incentivizing directors with equity.
11:36
Speaker 3: And so what you have is a situation where there's
11:38
Speaker 3: this concept in the UK of you know, of independence,
11:43
Speaker 3: where the real term for it is disinterested. You know,
11:47
Speaker 3: these are not just independent directors, these are disinterested directors.
11:51
Speaker 3: And so when it's time to explore situations like uh,
11:56
Speaker 3: you know, acquisitions, selling the business, uh, you know, that's
12:01
Speaker 3: real work for directors. And at the end of that
12:03
Speaker 3: work they lose their roles, they lose their the fees
12:08
Speaker 3: associated with their directorship, and there's very little upside for them.
12:11
Speaker 3: And so really there's a fundamental lack of alignment between
12:15
Speaker 3: directors and shawolders.
12:17
Speaker 2: Okay, interesting, So you're talking about the general board of directors,
12:19
Speaker 2: but if we look at a CEO pay, now are
12:23
Speaker 2: you including that in this as well? That incentivized in
12:27
Speaker 2: the same way, Because we talk about this a lot,
12:30
Speaker 2: and you say, well, what difference should the pay as
12:33
Speaker 2: a CEO make valuations less?
12:36
Speaker 3: So I think CEOs more often will have equity incentives.
12:40
Speaker 3: But generally, what I would say is that the UK
12:44
Speaker 3: markets now got a reputation for underpaying CEOs and it
12:47
Speaker 3: makes it harder to attract the top talents. So I
12:49
Speaker 3: think as a result of that, you actually have a
12:51
Speaker 3: situation where we have, you know, a less talented pool
12:55
Speaker 3: of CEOs running UK listened companies. And yeah, that that
13:00
Speaker 3: drive some of the valuation gap itself as well.
13:02
Speaker 2: Interesting. So one of the fixes for the UK, which
13:07
Speaker 2: is not a quick fix obviously, but you think could
13:10
Speaker 2: be a longer term fixes to align not just executive management,
13:15
Speaker 2: but all directors executive and non executive, with shareholder and
13:18
Speaker 2: trust by effectively forcing them into some kind of equity
13:22
Speaker 2: holding or awarding.
13:23
Speaker 3: Yes, I think I think non executive directors should be
13:27
Speaker 3: owning a lot more stock in the UK than they do,
13:30
Speaker 3: and I think if you look at the numbers, you know,
13:34
Speaker 3: US directors tend to own many multiples of stock in
13:38
Speaker 3: the company compared to UK directors, And there is a
13:41
Speaker 3: fundamentally different notion of governance of what is good governance
13:46
Speaker 3: between the two markets. In the US, having that alignment
13:50
Speaker 3: is deemed good governance appropriate governance. In the UK, there's
13:53
Speaker 3: kind of this idea that like serving on a corporate
13:56
Speaker 3: board is like some kind of noble pursuit, like working
13:59
Speaker 3: for a nonprofit or something like that, and it's the
14:01
Speaker 3: farthest thing from the truth. I mean, you know, you
14:03
Speaker 3: are you know, shareholder primacy still exists. It needs to
14:07
Speaker 3: exist for an equity market to function well. And you know,
14:11
Speaker 3: the directors are there to make sure that they can
14:14
Speaker 3: maximize shareholder value, and I think that they need to
14:17
Speaker 3: be aligned with shareholders. I mean, I can't tell you
14:19
Speaker 3: how many situations we've seen where shareholders are extraordinarily frustrated
14:24
Speaker 3: at directors and it just seems like the board is
14:28
Speaker 3: ignoring the demands. And you know, when you think about
14:31
Speaker 3: the setup, it's very clear why. You know, because at
14:34
Speaker 3: the end of the day. The sale of the business
14:36
Speaker 3: or selling a division or moving a listing from the
14:40
Speaker 3: UK to the US means they're losing their roles and
14:45
Speaker 3: they're not interested in that, and.
14:46
Speaker 2: It's an awful lot of work as well. It's interesting.
14:47
Speaker 2: I mean, I do quite a lot of the investment
14:49
Speaker 2: trust industry, and this is one area where there's often
14:52
Speaker 2: a conversation about the extent to which directors should or
14:55
Speaker 2: shouldn't hold stakes in the investment trust and in the
14:59
Speaker 2: main directors, it's expected when you go on board that
15:02
Speaker 2: you buy some equity, and there's a report that comes
15:04
Speaker 2: out every year Skin in the Game, which lists the
15:06
Speaker 2: directors of every investment trust and lists how much they own.
15:10
Speaker 2: But more recently there's been a conversation about the extent
15:14
Speaker 2: that you can expect new directors to buy significant equity
15:20
Speaker 2: stakes if you're also looking for a diverse board of directors,
15:24
Speaker 2: if you're looking for younger people or people who haven't
15:27
Speaker 2: necessarily had many board roles before who aren't in a
15:30
Speaker 2: position to buy. So that's one of the conflicts around
15:34
Speaker 2: expecting directors to make a financial contribution on being employed.
15:39
Speaker 3: That's understood, it needs to be taken into consideration. But
15:42
Speaker 3: you know, it's not to say that only affluent people
15:44
Speaker 3: should be serving on boards, but there's a very easy
15:49
Speaker 3: accommodation which includes allowing them to buy the stock over time,
15:52
Speaker 3: over the course of their tenure. So it's really it's
15:55
Speaker 3: effectively rolling your fees into the stock. And if you
15:59
Speaker 3: are a part of the team and you're one of
16:01
Speaker 3: the key decision makers from a governance perspective, you should
16:04
Speaker 3: be very aligned with the shareholders and you should have
16:07
Speaker 3: skin in the game.
16:08
Speaker 2: Okay, interesting, So the fact that people don't have skin
16:10
Speaker 2: a game is one of the things that might put
16:12
Speaker 2: a spanner of the works of your idea that the
16:15
Speaker 2: Great British buyout is the answer to the valuation problem
16:19
Speaker 2: in the UK. So, as I understand it, your thought
16:21
Speaker 2: is that the M and A in the UK is
16:25
Speaker 2: not a bad thing. We shouldn't be saying, oh my god,
16:27
Speaker 2: well is me we're losing all our companies that disappearing.
16:29
Speaker 2: We should be saying this is absolutely brilliant. Other people
16:32
Speaker 2: want our companies and this is going to force that valuations,
16:36
Speaker 2: bring you listings into the equation and everything will be
16:38
Speaker 2: absolutely fine, thank you very much to the market.
16:40
Speaker 3: Absolutely. I mean it's a question of why are companies
16:43
Speaker 3: looking to move their listening to the US wire companies
16:45
Speaker 3: not looking to Why is London not a competitive venue
16:50
Speaker 3: for new listings. It's very simply because of the cost
16:53
Speaker 3: of capital, because you know, issuers are saying, look, it's
16:56
Speaker 3: too expensive for me to issue equity in London. I
16:59
Speaker 3: have very little liquidity. Why do I want to be there.
17:01
Speaker 3: The way that gets fixed is by putting the UK
17:05
Speaker 3: markets back on a virtuous path, and that virtuous path
17:10
Speaker 3: involves today kind of a shock therapy of sorts. And
17:13
Speaker 3: the shock therapy can't come in the form of new
17:16
Speaker 3: regulation to force, you know, retail investors and to really
17:20
Speaker 3: kind of try to manipulate institutional and retail investors to
17:23
Speaker 3: bi equities. That shock is allowing private equity capital into
17:29
Speaker 3: the markets, and effectively, when you're looking at deals that
17:33
Speaker 3: are getting done, they're being done today at thirty forty
17:36
Speaker 3: fifty percent premiums. And the path that we're on right
17:39
Speaker 3: now is a slow bleedout. Over the last two years,
17:42
Speaker 3: the biggest buyer on margin of UK equities were corporates
17:46
Speaker 3: ie share buybacks. We are effectively liquidating the UK market
17:50
Speaker 3: slowly over a long period of time. Our view is
17:52
Speaker 3: very simple, which is that what you do want to
17:55
Speaker 3: welcome them is kind of a shock to the system,
17:57
Speaker 3: which is a large, in a aggressive wave of take
18:01
Speaker 3: privates that you know will all be done inevitably at
18:04
Speaker 3: significant premiums. And what that's going to do is severalfold.
18:07
Speaker 3: One is it's going to retrain, It's going to bring
18:11
Speaker 3: back kind of the animal spirits in the market. So
18:13
Speaker 3: if you even look at domestic investors that have kind
18:16
Speaker 3: of lost faith and the ability to unlock value in
18:18
Speaker 3: the market, for them to see these waves of takeouts,
18:22
Speaker 3: all of a sudden, they start to think, okay, well,
18:24
Speaker 3: you know, if I buy a stock, somebody might take
18:26
Speaker 3: it out, the value might correct, and so it becomes
18:30
Speaker 3: an interesting game again. Two is you have foreign buyers
18:33
Speaker 3: doing something similar, saying, you know, UK's look very cheap,
18:37
Speaker 3: here's finally a mechanism to unlock the value. And so
18:40
Speaker 3: you have foreign buyers come into the game. And then finally,
18:43
Speaker 3: you know, and importantly is you very quickly realign the
18:48
Speaker 3: supply demand and balance. If you have sixteen seventeen hundred
18:51
Speaker 3: companies today in the UK and one hundred go away
18:55
Speaker 3: very quickly, you know, you still have a large number
18:58
Speaker 3: of companies on the market. But importantly, what you've done
19:01
Speaker 3: is you've shocked the system and you are realigning the
19:05
Speaker 3: supply and demand. And all the institutional investors, particularly the
19:08
Speaker 3: long only funds that we're sitting on these positions, they
19:11
Speaker 3: all of a sudden get a significant return of capital,
19:14
Speaker 3: and what do they do with that capital? They go
19:16
Speaker 3: back and buy other shares in that same market. The
19:19
Speaker 3: UK domestic investors are going to recycle the capital that
19:23
Speaker 3: they get from the sale into new names and what
19:25
Speaker 3: that you know, what that's going to do is all
19:28
Speaker 3: of a sudden put us on that virtues path where
19:30
Speaker 3: there is a rerating across the board. And with that rerating,
19:34
Speaker 3: it's going to come the demand for new listings, and
19:38
Speaker 3: it's going to also slow down the number of companies
19:40
Speaker 3: moving from the UK to the US, and it's going
19:43
Speaker 3: to slow down the number of private equity takeouts because
19:46
Speaker 3: private equity wants to buy cheap, and so we don't
19:49
Speaker 3: you know, ultimately, as public equity investors, we don't want
19:53
Speaker 3: the UK market to be cheap, and so we believe
19:56
Speaker 3: that that needs to be welcomed rather than viewed as
19:59
Speaker 3: a real negative.
20:00
Speaker 2: I suppose that the worry here is not to be
20:04
Speaker 2: negative about this, because I love the story. I want
20:06
Speaker 2: to go with the story. But our pension funds are
20:10
Speaker 2: big public investors of that type who have gradually shifted
20:15
Speaker 2: all their or very large part of their aum out
20:17
Speaker 2: of the UK. And remember well that long ago that
20:20
Speaker 2: most of the UK's big pension funds had forty percent
20:22
Speaker 2: plus in UK equities. Now they're down to three, four,
20:25
Speaker 2: five percent. The wealth managers have been moving out and
20:28
Speaker 2: still are. I've still with wealth managers who are in
20:31
Speaker 2: the process of cutting that down from forty percent thirty
20:34
Speaker 2: percent to five six percent. And you keep hearing about
20:38
Speaker 2: this flow of money that is still going. And every
20:40
Speaker 2: time we look at the flows and you think, surely
20:42
Speaker 2: it's got to be positive by now, it never is.
20:45
Speaker 2: That money is still leaving. That is a juggernaut to
20:47
Speaker 2: turn around. The idea that the big pension funds, I
20:51
Speaker 2: mean you use the words suddenly, quickly, sharp, et cetera,
20:55
Speaker 2: to turn that juggernaut of flows around would seem to
20:59
Speaker 2: be to be more ten fifteen percent.
21:02
Speaker 3: Yeah, first of all, I don't think the UK pension
21:04
Speaker 3: funds are really in the game anymore. I think they've
21:06
Speaker 3: they've reduced their equity holdings across the board, They've a
21:09
Speaker 3: lot of them have significantly derisked. I would not rely
21:12
Speaker 3: on that pocket of capital really for the future of
21:15
Speaker 3: UK equity markets. But let's just take a step back
21:18
Speaker 3: for a second. Fifteen twenty years ago, if you look
21:21
Speaker 3: at a UK institutional portfolio of pension portfolio or an
21:25
Speaker 3: insurance portfolio, you'd find or nonprofit or whatever it is,
21:30
Speaker 3: you would find a vast overwaiting till UK equities, what
21:34
Speaker 3: we call a home bias. Why you know, at the time,
21:37
Speaker 3: the UK had about five percent of the global market cap,
21:41
Speaker 3: and yet you would find portfolios of forty fifty sixty
21:44
Speaker 3: percent UK equities. Why the UK needs to compete globally.
21:49
Speaker 3: We cannot look inside and just say, okay, what new
21:53
Speaker 3: pockets of assets internally can we source? The UK should
21:58
Speaker 3: be a global financial center that really is attractive for
22:02
Speaker 3: global investors and needs to look and compete globally, not
22:08
Speaker 3: just not just for you know, UK share of the
22:12
Speaker 3: UK waalert.
22:13
Speaker 2: Okay, I feel like you're not that keen on the
22:15
Speaker 2: British iSER.
22:16
Speaker 3: No, I listen. I don't think that's a bad idea.
22:19
Speaker 3: I just think it's incremental. I think that could work,
22:21
Speaker 3: I just don't know if it's going to work in time.
22:23
Speaker 3: It doesn't make the UK more competitive globally. I think
22:27
Speaker 3: that the way you make the UK more competitive globally
22:30
Speaker 3: is you fix the alignment first of all between directors
22:33
Speaker 3: and shareholders. And the second point, which I was I
22:35
Speaker 3: was starting to make earlier, is around the UK government, Sorry,
22:39
Speaker 3: the UK Takeover Code, which I think is no longer
22:42
Speaker 3: fit for purpose. You know, the UK Takeover Code is
22:45
Speaker 3: like SACRICYNCT in the city and people like don't want
22:48
Speaker 3: to even debate it, but it's no longer fit for purpose.
22:51
Speaker 3: There are there are things that make that effectively create
22:56
Speaker 3: barriers for takeovers in the UK that are undress necessary
23:00
Speaker 3: and unhelpful and effectively take agency away from from shareholders
23:05
Speaker 3: and that's not positive.
23:07
Speaker 2: Will you give make a couple of examples of the
23:09
Speaker 2: kind of thing that in the code that, yeah, I
23:11
Speaker 2: mean a.
23:11
Speaker 3: Lot of things. You know, sure, the put up or
23:13
Speaker 3: shut up rule, I know that's something that's very unique
23:16
Speaker 3: to the UK. So when a buyer comes in, you know,
23:18
Speaker 3: you think about a foreign buyer comes and says, hey,
23:21
Speaker 3: there's a company in the UK that that we're interested in,
23:24
Speaker 3: we want to approach them. They sit with their lawyers
23:26
Speaker 3: and the first thing they do is they get a
23:28
Speaker 3: rundown of okay, well, do you have to be aware
23:29
Speaker 3: of a few things. One is, if you're even your
23:31
Speaker 3: conversation leaks, forget a bid. If your conversation leaks, then
23:36
Speaker 3: you have twenty eight days to put up a fully
23:38
Speaker 3: funded bid, or you have to so called shut up,
23:42
Speaker 3: You have to stay away for six months, and you
23:44
Speaker 3: have to deal with the public repercussions of the fact
23:47
Speaker 3: that everybody knows about this, et cetera. You know, and
23:49
Speaker 3: you and so that is the kind of thing that's
23:52
Speaker 3: just not particularly helpful in attracting foreign capital. Another example
23:56
Speaker 3: is you need to have a fully funded deal. You know,
24:00
Speaker 3: when you're making an offer. That is a very difficult
24:03
Speaker 3: position to put a buyer into. Now, some buyers can
24:06
Speaker 3: do that if they're making a reasonably small acquisition relative
24:09
Speaker 3: to their size. But you're asking other buyers to not
24:12
Speaker 3: just show the equity capital, but have it fully financed.
24:17
Speaker 3: In other words, get the debt providers on board, do
24:19
Speaker 3: all the work in advance, not knowing that you're actually
24:23
Speaker 3: going to get a transaction consummated. That's a big ask.
24:26
Speaker 3: Whereas you know in the US there's a little bit
24:28
Speaker 3: more of a fluid process. It's not as rigid. You
24:31
Speaker 3: can come to agreement. The board can take a view
24:33
Speaker 3: that you know, this company should be able to get
24:35
Speaker 3: its debt financing. We kind of believe in that, and
24:38
Speaker 3: and we're willing to, you know, to get a higher price.
24:42
Speaker 3: We're willing to take a little bit of that of
24:44
Speaker 3: that risk. In the UK, it's just not even possible.
24:48
Speaker 3: The board can can't kind of make that decision. And
24:51
Speaker 3: so the takeover codes really you know, run its course,
24:57
Speaker 3: but it needs to be revisited. And I think barriers
24:59
Speaker 3: need to come down, and they need to come down,
25:02
Speaker 3: not just you know, in order to make it easier
25:04
Speaker 3: to transact, but also to signal to foreign buyers that
25:08
Speaker 3: the UK is open for business. Hey, come look over here.
25:11
Speaker 3: We are we are heading the right direction here with regulation,
25:14
Speaker 3: and I just think that needs to happen.
25:17
Speaker 2: Anesting, I mean, a lot of people would say, and
25:20
Speaker 2: a big part of the commentariat in the UK would
25:22
Speaker 2: say that it's too easy to take over a UK company.
25:24
Speaker 2: It's too easy to come and snap up a UK company.
25:27
Speaker 2: And effectively take it abroad.
25:29
Speaker 3: Yeah, those aren't people who have bought companies in the UK. Okay,
25:33
Speaker 3: fair enough.
25:34
Speaker 2: I mean it is interesting. I mean books written about
25:36
Speaker 2: how easy it is to buy companies in the UK
25:39
Speaker 2: and how we effectively give away our companies.
25:42
Speaker 3: You know, there is a real issue with a lot
25:44
Speaker 3: of pundits that speak without knowledge or experience, you know,
25:47
Speaker 3: and in fact a lot of our regulators, a lot
25:49
Speaker 3: of people who are involved in regulation. It's just shocking
25:52
Speaker 3: kind of the concepts that they come up with and
25:55
Speaker 3: you know, and what they think is the right solution.
25:57
Speaker 3: And so you see it time and again. People have views,
26:01
Speaker 3: but you have to really understand what's the driver of
26:03
Speaker 3: those us Do.
26:04
Speaker 2: You say that a change in the takeover code would
26:07
Speaker 2: be a really great signal the world that we are
26:09
Speaker 2: open for business. And one thing that we've talked about
26:11
Speaker 2: a lot on this podcast is that another great signal
26:14
Speaker 2: would be to not have one of the highest stand
26:17
Speaker 2: duties in the world, and the cutting stand duty at
26:20
Speaker 2: least down to somewhere roughly in the region of where
26:23
Speaker 2: other countries have it if they have it at all,
26:25
Speaker 2: or abolishing it would be a great way to signal
26:28
Speaker 2: to the world that we are open for business.
26:31
Speaker 3: Absolutely. I mean, I think that's one hundred percent of
26:33
Speaker 3: step that should be taken. I think liquidity in the
26:35
Speaker 3: market is very poor, and I think that that is
26:41
Speaker 3: for sure both a substantive and important signal change.
26:46
Speaker 2: Okay, so we've got a dump stand duty, we've got
26:48
Speaker 2: to fix the takeover code, and we've got to change
26:52
Speaker 2: the obligations on directors anything else.
26:56
Speaker 3: Those are the core points and I think that generally,
27:00
Speaker 3: you know, I think the attitude towards private capital, you know,
27:04
Speaker 3: should change. You know, these are not national treasures that
27:07
Speaker 3: are being taken private. These companies that are being taken
27:10
Speaker 3: private often remain in the UK, very often are very
27:14
Speaker 3: well run. And I think at the end of the day,
27:17
Speaker 3: the sooner we let it in, the sooner we kind
27:20
Speaker 3: of deregulate and welcome transactions and create better alignment with directors.
27:27
Speaker 3: The sooner we do that, the sooner that valuation gap closes,
27:30
Speaker 3: and the sooner you have a slowdown of a way
27:33
Speaker 3: of buyouts. And then the sooner you have companies really
27:39
Speaker 3: vying to list in the UK again, and that would
27:42
Speaker 3: be a good place to be.
27:43
Speaker 2: Yeah. Is there a case also for changing some of
27:46
Speaker 2: the regulations around listing. I mean, it's very onerous to
27:49
Speaker 2: be a listed company in the UK relative to being
27:52
Speaker 2: a private company, and you hear a lot of complaints
27:54
Speaker 2: from listed companies, particularly smaller list of companies who don't
27:57
Speaker 2: have the resources these compliance and departments that in fact
28:01
Speaker 2: that the burden of this is huge. I mean I
28:04
Speaker 2: spoke to a recently retired CEO of a company the
28:08
Speaker 2: other day who'd been a CEO of a UK to
28:10
Speaker 2: sid company for a long time, and he said, in
28:13
Speaker 2: the early parts of his career as the CEO, he
28:17
Speaker 2: was spending maybe one or two days a year dealing
28:19
Speaker 2: with regulatory issues, discussing things with government, dealing you know, lobbying, etc.
28:24
Speaker 2: Towards the end of his career he could say that
28:26
Speaker 2: was maybe one or two days of a week.
28:29
Speaker 3: I think deregulating across the board is helpful. I think
28:34
Speaker 3: that signaling, you know, sentiment matters. And I think that
28:37
Speaker 3: when you inject, you know, when you provide the signal
28:43
Speaker 3: that the UK's is open for business, that the UK
28:47
Speaker 3: is is deregulating, then I think the sentiment that can
28:52
Speaker 3: really drive a shift in sentiment, and sentiment matters.
28:55
Speaker 2: I want to talk about how you invest, you know,
28:57
Speaker 2: the kind of companies you look for, and the way
28:59
Speaker 2: you are a very activate and impactful investor. Before we
29:02
Speaker 2: get to this, I want to pick up on something
29:03
Speaker 2: that you said the very beginning, when you said the
29:05
Speaker 2: UK does have a worse productivity problem than other countries.
29:10
Speaker 2: Do you have a sense of why that is or
29:11
Speaker 2: feeling about what it is and what might change it? Well,
29:17
Speaker 2: you can be rude, I'm fine, no, no, no, no, no.
29:19
Speaker 3: I mean, look, I think that's not really not being rude,
29:22
Speaker 3: but I just knowing what I know and knowing what
29:25
Speaker 3: I don't know, it is a bit perplexing on some levels.
29:28
Speaker 3: But I do think that the problem has been around
29:30
Speaker 3: for a long time, and I think it's been masked
29:33
Speaker 3: by having an economy that was so heavily reliant on
29:37
Speaker 3: financial services, where productivity became extraordinarily high, and it kind
29:44
Speaker 3: of masks the poor productivity in other segments of the market.
29:48
Speaker 3: And so as the economies become less reliant on financial services,
29:52
Speaker 3: I think that that reveals a fundamentally low productivity market.
29:58
Speaker 3: You know. I think the issues when it comes to productivity,
30:00
Speaker 3: I think there's many things at play, and I think
30:04
Speaker 3: that the vast swing in immigration in the UK both
30:09
Speaker 3: and you know, the kind of exodus from Brexit and
30:11
Speaker 3: then you know new forms of immigration makes the data,
30:17
Speaker 3: you know, just a lot harder to interpret.
30:19
Speaker 2: So let's go on to how you invest some of
30:21
Speaker 2: you if there's a special opportunities fund and the idea
30:24
Speaker 2: there is to some summarizing very quickly find value traps
30:28
Speaker 2: and stop them being value traps.
30:30
Speaker 3: Yeah, that's fair. I mean I wouldn't say find value
30:33
Speaker 3: traps as much as we're activist investors, meaning we engage
30:36
Speaker 3: with management, board shareholders to unlock value. The companies are
30:40
Speaker 3: starting point, are really companies that have lost a significant
30:43
Speaker 3: amount of their peak market. Sure, that could involve you know,
30:49
Speaker 3: companies on the verger distressed like which involve significant turnarounds,
30:58
Speaker 3: or companies that really just have lot sty're footing a
31:00
Speaker 3: bit and need the shareholders to push the board to
31:04
Speaker 3: take certain action. And so we find our role to
31:07
Speaker 3: be really identifying those opportunities, aligning, getting kind of some
31:13
Speaker 3: kind of unity amongst the shareholders around these issues, and
31:16
Speaker 3: just really holding the board to account. And that's what
31:18
Speaker 3: we do.
31:19
Speaker 2: What's the biggest mistake do you think that company management
31:21
Speaker 2: make in the UK and smaller companies what do they
31:25
Speaker 2: do that causes them to get themselves enter these problems?
31:27
Speaker 3: But that's a whole other podcast. But where do we start?
31:34
Speaker 3: You know, because of the nature of the kinds of
31:35
Speaker 3: companies that we look at, the sets of mistakes are,
31:38
Speaker 3: you know, a little bit different from I would say,
31:40
Speaker 3: you know, the broader market. Being a public company CEO,
31:43
Speaker 3: or any CEO for that matter, any leader. In a sense,
31:46
Speaker 3: the key attribute of a successful leader is being transparent
31:51
Speaker 3: about the challenges and the issues. And I think that
31:54
Speaker 3: once you are transparent and open about where the challenges are,
31:59
Speaker 3: where the mistakes have and you own those, you build
32:02
Speaker 3: trust amongst your management team, amongst your board, amongst your shareholders,
32:07
Speaker 3: and you know, there are very few problems that can't
32:10
Speaker 3: be solved over some reasonable period of time. But when
32:13
Speaker 3: you don't own those, when you aren't, when you try
32:16
Speaker 3: to kind of hide the mistakes, when you try to
32:19
Speaker 3: brush over them, that's when the bigger problems come up.
32:22
Speaker 3: Too many CEOs are too quick to try to kind
32:26
Speaker 3: of hide the mistakes and or you know, or try
32:29
Speaker 3: to deny that a mistake has been made or that
32:32
Speaker 3: there's a you know, meaningful challenge. They think they need
32:36
Speaker 3: to create a certain appearance at all times, and that's
32:40
Speaker 3: where trust breaks down. And you sometimes see these companies
32:43
Speaker 3: with stock prices that make no sense, and when you
32:46
Speaker 3: really spend more time on it, you just realize the
32:49
Speaker 3: shareholders just don't trust management anymore. I know that's a
32:52
Speaker 3: problem that's hard to solve, and in fact, most often
32:56
Speaker 3: there's only one solution for that, which is for the
32:58
Speaker 3: CEO to go absolutely.
33:02
Speaker 2: All right. So it's the core problem with a smaller
33:04
Speaker 2: company in trouble is that trust is broken down. How
33:09
Speaker 2: does an active investor let you coming in buying a mistake?
33:14
Speaker 2: How do you then build trust with a management team
33:18
Speaker 2: who are already not trusted by their other showholders?
33:20
Speaker 3: How do we build trust? Well, we have a saying internally,
33:24
Speaker 3: which is we seek to understand before we seek to
33:27
Speaker 3: be understood. And so, you know, I do think that
33:31
Speaker 3: we when we enter a position, we have a thesis.
33:33
Speaker 3: We have a view on what's potentially going wrong, and
33:36
Speaker 3: usually that view is more often than not right. You know,
33:39
Speaker 3: we we do it enough homework that we really get
33:43
Speaker 3: a pretty good we build a pretty good mosaic. Having
33:45
Speaker 3: said that, as you get to know the management team
33:49
Speaker 3: as you spend more time with them. You know, you
33:51
Speaker 3: need to be open minded that we don't know it
33:53
Speaker 3: all and there could be factors there that we're unaware of.
33:58
Speaker 3: And so I think that not being open mind, but showing,
34:01
Speaker 3: you know, management teams our ability to be open minded,
34:04
Speaker 3: our ability to change our view. I think it's important.
34:07
Speaker 3: And from a trust respect, we're not out to get them,
34:10
Speaker 3: you know, And in fact, I would say more often
34:13
Speaker 3: than not we play a very supportive role with existing
34:16
Speaker 3: management teams. But the ones where we don't are the
34:19
Speaker 3: ones which make more of the headlines. And so you know,
34:23
Speaker 3: that's that's the nature of the beast.
34:24
Speaker 2: You're in a public letter recently about Elementis, So that's
34:27
Speaker 2: something that that you hold in the front to tell
34:28
Speaker 2: me a little bit about that.
34:30
Speaker 3: Elementis is a company that has underperformed over a long
34:34
Speaker 3: period of time and has significant underperformed during the tenure
34:38
Speaker 3: of the current management team. They made an acquisition which
34:41
Speaker 3: has not panned out as planned. In fact, I'd say
34:44
Speaker 3: it was a very poor result. And you know, and
34:51
Speaker 3: and the management has not met its targets, but in
34:54
Speaker 3: fact has fallen far short of its targets. And so
34:58
Speaker 3: you know, I would actually say that's an example of
35:02
Speaker 3: a company where shareholders have lost trust with management team
35:07
Speaker 3: and we're expecting the board to make the appropriate changes.
35:11
Speaker 2: And what are those appropriate changes.
35:13
Speaker 3: Well, we've highlighted in the letter one of the points
35:16
Speaker 3: we made, which is a topic we just spoke about.
35:18
Speaker 3: This is the lack of alignment between the non executive
35:21
Speaker 3: directors and the shareholders. You know, non execut directors own
35:24
Speaker 3: less than one year of their fees in stock. And
35:28
Speaker 3: so yeah, the changes is that the company is undergoing
35:31
Speaker 3: a significant cost savings program right now and implementing a
35:35
Speaker 3: significant cost savings program, and in the midst of that,
35:38
Speaker 3: we just think that it's not great for company morale
35:42
Speaker 3: to be implementing cost savings while you have a management
35:46
Speaker 3: team that has consistently underperformed keeping their jobs.
35:51
Speaker 2: Yeah, well, maybe they're listening. Listeners. Will put a link
35:53
Speaker 2: to that letter in the show notes so you can
35:56
Speaker 2: go and have a look at it. Learn more about
35:58
Speaker 2: this in general. Right, few of things. You are very
36:01
Speaker 2: very active. Are you concerned that the rise of passive
36:05
Speaker 2: across the world when it comes to investing is a
36:08
Speaker 2: problem for market or is it just a huge opportunity
36:12
Speaker 2: for you.
36:12
Speaker 3: There's two things that have really changed the fundamentals of markets.
36:17
Speaker 3: One is the rise of passive the other is the
36:20
Speaker 3: rise of quantitative trading. You know. In both of those cases,
36:26
Speaker 3: you know, the investors aren't looking at the fundamentals, you know,
36:30
Speaker 3: and and so that leaves a more limited universe of
36:33
Speaker 3: investors who are still looking at the fundamentals. Now, one
36:37
Speaker 3: would argue that there are enough active investors out there
36:41
Speaker 3: to set you know, the prices appropriately for someone like us.
36:45
Speaker 3: That creates opportunity. I mean, for our biggest concern is
36:50
Speaker 3: buying the right way, because we we fundally view if
36:53
Speaker 3: we buy right and we can get what we want
36:56
Speaker 3: to get done, you know, the valuation will will play out,
36:59
Speaker 3: you know. And so there's an important role for passive
37:02
Speaker 3: investing in the investment universe. But I think people need
37:06
Speaker 3: to be reminded that passive only works because there are
37:09
Speaker 3: active investors out there.
37:11
Speaker 2: Yeah yeah, and so then may well become a tipping
37:13
Speaker 2: point when there is too much passive.
37:16
Speaker 3: What's going to happen is just active investors, you know,
37:19
Speaker 3: by definition, should over time be able to capitalize on that.
37:22
Speaker 3: It's just real to require a different kind of capital
37:24
Speaker 3: base where investors maybe aren't providing you know, funds aren't
37:28
Speaker 3: providing daily liquidity, but maybe have a longer term view
37:31
Speaker 3: on their capital and can hold positions and really significantly
37:36
Speaker 3: outperform markets as a result of that. Now, having said
37:39
Speaker 3: all that, I mean, part of the story here is
37:41
Speaker 3: that the vast majority of wealth creation in the markets
37:44
Speaker 3: has been some of the bigger tech names out there,
37:47
Speaker 3: and that's been in recent years. That's a part of
37:50
Speaker 3: the equation that that kind of needs to be taken
37:52
Speaker 3: into account as well.
37:53
Speaker 2: Yeah, the other the other big change along with the
37:55
Speaker 2: rise of passive, we've also have the rise of private acquity,
37:58
Speaker 2: which is something that you're quite close to because you're
38:00
Speaker 2: working and there's a private equity style end of the market.
38:03
Speaker 2: And one of the worries with private equity is day that,
38:06
Speaker 2: you know, it's not necessarily particularly good for companies. They
38:09
Speaker 2: get their cost cut too much, they get loaded up
38:10
Speaker 2: with debt, et cetera, and it's not necessarily the best
38:14
Speaker 2: thing for a company. So if we get to a
38:17
Speaker 2: stage where we see less private equity more IPO, that
38:21
Speaker 2: seems like a good thing. A could shift back of
38:23
Speaker 2: the pendulum.
38:24
Speaker 3: Do you think if we're seeing less private equity and
38:27
Speaker 3: more IPOs, that's because valuations have corrected. Having said that,
38:31
Speaker 3: I don't think that there's anything apherently wrong with private
38:33
Speaker 3: equity owning businesses. In fact that I think that private
38:37
Speaker 3: equity more often than not runs business as well, and
38:41
Speaker 3: is able to do things and invest in the business
38:44
Speaker 3: in ways that sometimes companies standalone independent public companies can't.
38:49
Speaker 3: And so I think that there are some advantages to
38:53
Speaker 3: being held as a private company versus public company, and
38:57
Speaker 3: in some cases it can be in fact better.
39:00
Speaker 2: So the rise of private equity might even be about
39:02
Speaker 2: something other than cheap debt.
39:05
Speaker 3: Yes, as the cost of debt has risen, I think
39:10
Speaker 3: that's going to separate those private equity firms that are
39:12
Speaker 3: creating real value versus the ones that made their money
39:15
Speaker 3: entirely through financial engineering. But I think there are definitely
39:18
Speaker 3: many private equity firms that are the real deal, and
39:22
Speaker 3: you are good stewards.
39:23
Speaker 2: Of that capital, competing with you a bit, though.
39:25
Speaker 3: No, not competing. We welcome private equity into the public markets,
39:29
Speaker 3: and in fact, I think we need to see more
39:31
Speaker 3: of it right now.
39:32
Speaker 2: In essence, let's end on a positive high note in essence,
39:36
Speaker 2: you're pretty bullish on the UK. So all the things
39:38
Speaker 2: that people will look at and might say, well, it's
39:40
Speaker 2: perfectly fair for the UK to be cheap because the
39:43
Speaker 2: companies have badly managed, loudly productivity, political risks, shooting themselves
39:47
Speaker 2: in the foot with net zero and overregulation, etc. All
39:51
Speaker 2: those things are not minor but not going to hold
39:56
Speaker 2: us back from possibly seeing a good res So we
40:00
Speaker 2: should all probably run out and buy the thirty two
40:03
Speaker 2: fifty or even smaller.
40:04
Speaker 3: I don't know if i'd say I'm bullish broadly about
40:06
Speaker 3: UK markets. I think there's a lot of value individual
40:10
Speaker 3: individual names in the UK market, and I think there
40:13
Speaker 3: is a path towards unlocking that value, and I think
40:15
Speaker 3: that boards really need to think very carefully about how
40:18
Speaker 3: to unlock that value.
40:19
Speaker 2: Excellent activist answer, thank you, what we do, that's what
40:24
Speaker 2: you do. The final question of the one that I
40:26
Speaker 2: have to ask everybody on this podcast, and mostly I
40:29
Speaker 2: know which way people are going to go, but I
40:31
Speaker 2: don't know which way you're going to go on this one.
40:33
Speaker 2: If I gave you the choice over a ten year
40:36
Speaker 2: period of holding one I said and one I said only,
40:40
Speaker 2: and I made you pick between gold and bitcoin. Which
40:45
Speaker 2: would you choose?
40:46
Speaker 3: Well, it's never bitcoins, so whatever the other often is.
40:52
Speaker 3: And I know that's a predictable answer.
40:53
Speaker 2: In many No, it wasn't predictable. Most people don't say
40:56
Speaker 2: never bitcoin. So tell me why I never bitcoin? We
40:58
Speaker 2: got it, we get a little our. Well, I don't
40:59
Speaker 2: really know enough about it, but going to ongoing gold bitcoin,
41:02
Speaker 2: you've been very clear, So I'd love to hear a
41:04
Speaker 2: little more about that.
41:05
Speaker 3: Bitcoin is a speculative asset that you know, has has
41:11
Speaker 3: no basis to trade one way or another. In my mind,
41:15
Speaker 3: it really has no intrinsic value. By the way, gold
41:18
Speaker 3: doesn't eat either, but at least gold has been around
41:20
Speaker 3: for thousands of years, and at one point, you know,
41:23
Speaker 3: was was the underlier of some major global currencies. And
41:29
Speaker 3: so you know, I just think bitcoin. It's really interesting
41:34
Speaker 3: when you hear these evangelists talk about bitcoin and talk
41:37
Speaker 3: about fiat currencies, and you know, you look at the
41:40
Speaker 3: US dollar. Americans spend five point five trillion dollars a
41:47
Speaker 3: year on US taxes. Until the IRS starts accepting something
41:53
Speaker 3: other than the US dollar as payment. The US dollar
41:57
Speaker 3: isn't gone anywhere. I mean it, it is it is
42:00
Speaker 3: it is the you know, all all this this this
42:04
Speaker 3: idea that that the US dollar has no fundamental value, Well,
42:09
Speaker 3: it underlies the world's biggest economy. Now, I think from there,
42:17
Speaker 3: you know, you can look at currency by currency and
42:21
Speaker 3: try to think about, you know, what's the fundamental value currencies.
42:24
Speaker 3: But bitcoins certainly just doesn't belong in the conversation. It's
42:28
Speaker 3: not a real asset. It looks like a real asset
42:30
Speaker 3: in some ways, but but it's fundamentally not.
42:33
Speaker 2: If I were to be incredibly generous, because it's you
42:35
Speaker 2: and this has been a really great conversation and say
42:38
Speaker 2: to you that it didn't have to be bitcoin or gold,
42:41
Speaker 2: you could choose one other asset clus to hold for
42:44
Speaker 2: a decade.
42:45
Speaker 3: What would that be, Yeah, that'd be That'd be easy.
42:49
Speaker 2: UKUS Global equity is nice, Vanguard ETF.
42:52
Speaker 3: I think the easy decision is owning SPI. You know,
42:58
Speaker 3: global equities would be you know, would be a close second.
43:02
Speaker 2: Thank you so much, Absolutely brilliant, really.
43:04
Speaker 3: Nice to enjoy the conversation.
43:06
Speaker 2: Thanks for listening to this week's Marin Talks Money. We
43:08
Speaker 2: will be back next week. In the meantime. If you
43:10
Speaker 2: like our show, rate review and subscribe wherever you listen
43:13
Speaker 2: to podcasts, and keep sending your questions or comments to
43:16
Speaker 2: Marriorn Money at Bloomberg dot net. This episode was hosted
43:19
Speaker 2: by me Maren's amst web. It was produced by Samasadi
43:21
Speaker 2: and Moses and Bazil thanks to lead Maidar