Latest / Merryn Talks Money / Why UK Pensions Triple Lock Must Go and How ESG Threatens Democracy

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Why UK Pensions Triple Lock Must Go and How ESG Threatens Democracy · Merryn Talks Money

• 0:00
  Speaker 1: John Man gat that you've been getting yourself in a
• 0:04
  Speaker 1: little trouble with retirees this week.
• 0:07
  Speaker 2: It's surprising how defensive they can be of their state pension.
• 0:12
  Speaker 3: Look, we can all be defensive of our stuff. No
• 0:15
  Speaker 3: one wants stuff taking away. Everyone wants stuff, and then
• 0:18
  Speaker 3: they want more stuff. They don't want less stuff. Why
• 0:20
  Speaker 3: should pensioners be different?
• 0:22
  Speaker 4: Oh?
• 0:22
  Speaker 2: Absolutely, and weirdly enough, a pole have more sympathy for
• 0:25
  Speaker 2: the pensioners than a lot of the other stuff. I
• 0:27
  Speaker 2: things should be taken away from people.
• 0:30
  Speaker 3: That's because you're quite close to pensionable age.
• 0:32
  Speaker 2: Yeah, exactly, No, he's not, by the way.
• 0:34
  Speaker 3: Everybody, I am joking, here's nowhere near it.
• 0:36
  Speaker 5: They're talking about the UK pensions triple log, obviously, as
• 0:40
  Speaker 5: everyone knows the way, and that the UK pensions UK
• 0:43
  Speaker 5: state pens as are basically pegged to the highest number
• 0:45
  Speaker 5: anyone can find anywhere. Something that used to work when
• 0:48
  Speaker 5: the state pension was far too low. But now, of
• 0:50
  Speaker 5: course the.
• 0:51
  Speaker 1: State pension is actually pretty good, and it's beginning to
• 0:54
  Speaker 1: look a bit weird for pensioners to get a higher
• 0:58
  Speaker 1: rise in their realtim's income than pretty much anyone else
• 1:00
  Speaker 1: in the UK is that basically what you're thinking, John.
• 1:03
  Speaker 2: That's basically it. I suppose it's the main issue here
• 1:08
  Speaker 2: is so the triple lock that was introduced in twenty ten,
• 1:12
  Speaker 2: and that was at a time when the state pension
• 1:14
  Speaker 2: was considered to be too low, and that was probably
• 1:17
  Speaker 2: fair at the time. And so we've got in a
• 1:20
  Speaker 2: situation where now pensioners and pension of households are less
• 1:24
  Speaker 2: likely to be in poverty than other houses. And this
• 1:26
  Speaker 2: is relative poverty, by the way, but let's not even
• 1:29
  Speaker 2: start going into.
• 1:29
  Speaker 6: That on that.
• 1:31
  Speaker 2: Yeah, so at some point pension households were poorer or
• 1:36
  Speaker 2: more likely be poorer, and now they're more likely be richer.
• 1:39
  Speaker 2: And so it does seem odd that we have this
• 1:41
  Speaker 2: triple lock, which makes sure that pension has either get
• 1:43
  Speaker 2: two point five percent or CPI or average journings, whichever
• 1:49
  Speaker 2: is highest, and not only whichever is highest, but whichever
• 1:52
  Speaker 2: is highest in the specific month, because you know, just
• 1:56
  Speaker 2: because they want to make the decision in September. And
• 1:59
  Speaker 2: so what ends up happening as you get it's the
• 2:01
  Speaker 2: July figure for wages, and it's the August figure I
• 2:05
  Speaker 2: think for CPI, and so basically it's one off numbers,
• 2:09
  Speaker 2: so you can also get completely derailed by some quite
• 2:12
  Speaker 2: arbitrary thing, and to an extent, that's happened this time
• 2:16
  Speaker 2: round because average wages came in at eight point five percent,
• 2:21
  Speaker 2: that's like including bonuses, and that bonuses bit was actually
• 2:26
  Speaker 2: including the pay settlements made to the NHS and other
• 2:29
  Speaker 2: civil servants to kind of stop the strikes basically, So
• 2:33
  Speaker 2: it's not just that's not even an annual bonus, is
• 2:36
  Speaker 2: a kind of one off kind of payment that's distorted
• 2:39
  Speaker 2: the figures higher. So it just seems nuts that the
• 2:43
  Speaker 2: state pension is going to got by eight point five
• 2:45
  Speaker 2: percent in April twenty twenty four because a we've got
• 2:49
  Speaker 2: a distorted figure.
• 2:51
  Speaker 7: But being more.
• 2:51
  Speaker 2: Importantly, you know, is this what we're trying to affixt anymore?
• 2:56
  Speaker 2: Given that we'll apparently have a finite amount of money
• 2:59
  Speaker 2: which we do to spend on things, you.
• 3:01
  Speaker 3: Can print as much money as you like. Everyone as
• 3:04
  Speaker 3: that it doesn't close reflection.
• 3:05
  Speaker 2: Either, is that the MMT people have they been, have
• 3:08
  Speaker 2: they been? Have been handing you printed.
• 3:10
  Speaker 1: Money unviriginally, No one pays me for my opinions.
• 3:18
  Speaker 2: Moving on, but yeah, no, so yeah, is our priority
• 3:24
  Speaker 2: as a nation at the moment to increase the state
• 3:27
  Speaker 2: pension in real terms, being in mind that the state
• 3:29
  Speaker 2: pension a universal benefit, so you know all of these people,
• 3:33
  Speaker 2: you know, whenever people complain about it on Twitter, it's
• 3:36
  Speaker 2: like they're talking about the group of pensioners who are poor.
• 3:40
  Speaker 2: So I'll tell you what, if you're worried about poor pensioners,
• 3:42
  Speaker 2: how about we focus on giving them, you know, benefits
• 3:46
  Speaker 2: or whatever kind of section of the the welfare system
• 3:50
  Speaker 2: should be targeted, rather than just increasing that kind of
• 3:53
  Speaker 2: universal essentially universal basic income for the over sixty eight
• 3:57
  Speaker 2: year old is what we're talking about here. And when
• 4:00
  Speaker 2: we don't have the money to pay.
• 4:03
  Speaker 1: For that, the system does already do that in that
• 4:09
  Speaker 1: you know, it provides a raft of other benefits for
• 4:13
  Speaker 1: people who are living in poverty or people who don't
• 4:15
  Speaker 1: have the income to sustain themselves. And you may say
• 4:18
  Speaker 1: that there's other benefits aren't good enough, but there is
• 4:21
  Speaker 1: a case to be made for simply, as you say,
• 4:23
  Speaker 1: increasing housing benefit for all the people, increasing the payouts
• 4:27
  Speaker 1: for energy, et cetera, et cetera. There's lots of different
• 4:29
  Speaker 1: things that can be done to help the increase not
• 4:33
  Speaker 1: huge group of people who don't have any other income
• 4:36
  Speaker 1: that would be more efficient.
• 4:38
  Speaker 2: Well, yeah, well that is the other point, because it's
• 4:40
  Speaker 2: not the majority, you know, it's it's definitely a minority
• 4:44
  Speaker 2: that you know, completely dependent on the state pensions. So again,
• 4:49
  Speaker 2: if you're qualm about reducing the triple lock to just
• 4:53
  Speaker 2: an inflation index, and thing is that it may hit pensions,
• 4:58
  Speaker 2: well the answers will focus on the pension. What I
• 5:02
  Speaker 2: do think is an interesting question one I would like
• 5:04
  Speaker 2: to ask you is the other response that comes back
• 5:09
  Speaker 2: a lot. Does it mean you start means testing the
• 5:11
  Speaker 2: state pension, you know, so that you know, whatever, I'll
• 5:14
  Speaker 2: ensure young people like that aren't getting it anymore or
• 5:18
  Speaker 2: entitled to anymore. And I mean, I'm it's the kind
• 5:25
  Speaker 2: of ones I'd be a lot into the open. But
• 5:27
  Speaker 2: I can definitely see the argument for it.
• 5:29
  Speaker 1: Yeah, I can see the argument for it as well,
• 5:31
  Speaker 1: but I also think it's politically impossible.
• 5:35
  Speaker 6: Much better to do it we just discussed and hold
• 5:37
  Speaker 6: it at its current level in real terms, or even
• 5:40
  Speaker 6: you know, let it slide in real terms and provide
• 5:42
  Speaker 6: a high level of benefits to those who need it.
• 5:44
  Speaker 6: I mean, you know, we have to work within the
• 5:46
  Speaker 6: realms of reality. Don't we.
• 5:48
  Speaker 1: I mean another thing, another thing that people sometimes suggest
• 5:51
  Speaker 1: and that I have some sympathy with, is to say, Okay,
• 5:54
  Speaker 1: you think the state pension isn't high enough, well we
• 5:56
  Speaker 1: can we can fix that by simply removing all relief
• 6:00
  Speaker 1: on private pension savings outside outside the state pension, and
• 6:06
  Speaker 1: then transfer the money saved from that tax really directly
• 6:10
  Speaker 1: into the state pension. That will come for about five
• 6:12
  Speaker 1: grand an old person, making the state pension more like
• 6:16
  Speaker 1: fourteen to fifteen grand than it's current level of knocking
• 6:18
  Speaker 1: around ten. So, you know, that's kind of an interesting idea,
• 6:22
  Speaker 1: although of course again it would widen the pension divide
• 6:26
  Speaker 1: between the public sector and the private sector.
• 6:29
  Speaker 2: Yeah, and it kind of I'm always reluctant a bit
• 6:33
  Speaker 2: the tax really argument for the same you know reason
• 6:36
  Speaker 2: that you point to it before. What it is that
• 6:37
  Speaker 2: thing if you're not, if you're not often taxually for
• 6:41
  Speaker 2: the pension, then you're you can ordinary person if youel
• 6:46
  Speaker 2: like through the work in life, who kind of has
• 6:48
  Speaker 2: to get the pension at the time when they're earning
• 6:52
  Speaker 2: lots of money. It's to or you know, the maximum outain.
• 6:55
  Speaker 2: You know, so when there are forty percent taxpayer is
• 6:57
  Speaker 2: when they should be you know, contributing the getting the
• 7:00
  Speaker 2: tax relief. Then it sort of feels like, what's the
• 7:05
  Speaker 2: point you're saving the pension there? And I mean, actually, yeah,
• 7:10
  Speaker 2: you can see how actually is has probably become much
• 7:12
  Speaker 2: more popular because they don't get taxed on the way out.
• 7:17
  Speaker 1: So you know, you can put twenty grand a year
• 7:19
  Speaker 1: into an ISA, so you can use that to build
• 7:21
  Speaker 1: up a perfctly good retirement fund. Don't have to call
• 7:24
  Speaker 1: it a pension, but it's the same thing, right, yeah,
• 7:27
  Speaker 1: And I mean.
• 7:27
  Speaker 2: Maybe maybe it all comes back. I mean, I remember
• 7:30
  Speaker 2: you wrote something a while ago about basically they know,
• 7:35
  Speaker 2: the light time allowance sort of being gradually placed at
• 7:38
  Speaker 2: the point where the government thinks how much money you
• 7:42
  Speaker 2: need to level in retirement without you know, having any
• 7:46
  Speaker 2: state help. And that's the whole point of the private
• 7:48
  Speaker 2: pension saving set.
• 7:49
  Speaker 1: Absolutely, it's not designed to give you money beyond the
• 7:52
  Speaker 1: money you need to not be dependent on the state.
• 7:55
  Speaker 1: And as soon as any any tax reliefs or any
• 8:00
  Speaker 1: thing like that get to a point where the system
• 8:03
  Speaker 1: incentivizes you to sav into these products more than you
• 8:06
  Speaker 1: required and not be dependent on the state, then it's
• 8:08
  Speaker 1: pointlessly expensive.
• 8:09
  Speaker 3: That was a very long sentence, But I know you
• 8:11
  Speaker 3: understand what I meant.
• 8:15
  Speaker 2: I mean, maybe maybe if we just what a little
• 8:19
  Speaker 2: bit more up front and said, well, look, this is
• 8:22
  Speaker 2: what we think a pension should be leving on as
• 8:26
  Speaker 2: a minimum, and.
• 8:28
  Speaker 1: What should be not what they should be living on,
• 8:31
  Speaker 1: what what the state should be providing for them to
• 8:34
  Speaker 1: live on. We're not going to be judgmental about what
• 8:37
  Speaker 1: people have or don't have, are we not.
• 8:39
  Speaker 2: I mean that means if you if that's the sort
• 8:42
  Speaker 2: they go, look, here's the minimum have you owned by
• 8:45
  Speaker 2: to this date? It's not going to need to worry
• 8:46
  Speaker 2: about you anymore? Then maybe a rate. Maybe we should
• 8:49
  Speaker 2: be just scrat tax and reason it to that minimum
• 8:53
  Speaker 2: and then clawing back. You know that the minimum in
• 8:57
  Speaker 2: the form attacks from the kind of wealthier pensions anyway, ye.
• 9:03
  Speaker 3: Might ridiculum that.
• 9:04
  Speaker 6: See how many people get angry about that? All the
• 9:07
  Speaker 6: response that you've had to your column about how the
• 9:11
  Speaker 6: UK pensions triple lot needs to go. Have there been
• 9:14
  Speaker 6: any any responses that you've particularly compelling.
• 9:18
  Speaker 2: Well, it's it's more the the split. It's kind of
• 9:22
  Speaker 2: you've obviously you've got lots of young people who are
• 9:25
  Speaker 2: kind of you know, pro it and kind of liking
• 9:27
  Speaker 2: it on Twitter and all that sort of stuff. And
• 9:30
  Speaker 2: the people who object are the lastly already pensionals, and
• 9:37
  Speaker 2: it is one of those things where you know they feel, well,
• 9:39
  Speaker 2: I've you know, paid in or you know, I've paid
• 9:41
  Speaker 2: my staff my national insurance all my life, so you know,
• 9:45
  Speaker 2: why am I not entitled to this? And most of
• 9:47
  Speaker 2: the time it is kind of you know, I don't
• 9:52
  Speaker 2: I hate to say, but it's kind of missing my
• 9:54
  Speaker 2: point because you know, I'm not actually saying that we
• 9:56
  Speaker 2: should scrap the state pension of even reducing real terms,
• 9:59
  Speaker 2: I'm literally saying that actually the reason that we airmens
• 10:02
  Speaker 2: every year seems a little bit excessive something real.
• 10:10
  Speaker 1: For misunderstanding of how national insurance national insurance actually works,
• 10:14
  Speaker 1: isn't it.
• 10:15
  Speaker 2: Oh yeah, law, we're not going to get I can't
• 10:19
  Speaker 2: blame them given that is, you know, they need me
• 10:23
  Speaker 2: as national insurance and income tax which help perhaps with
• 10:29
  Speaker 2: some of this.
• 10:30
  Speaker 1: Well I'm on all this, John, and that you know,
• 10:32
  Speaker 1: as you know, I'm I always worry about state spending
• 10:35
  Speaker 1: or about the deficit, where about the debt, worry about
• 10:37
  Speaker 1: getting all the money where the money comes from et cetera.
• 10:39
  Speaker 1: But on the other hand that I would just love
• 10:41
  Speaker 1: to get a really great state pension money sent to
• 10:44
  Speaker 1: me every month by the government. I don't do anything
• 10:47
  Speaker 1: for it. I don't have to worry about my ass
• 10:49
  Speaker 1: of allocation or think about my you know, my shares,
• 10:52
  Speaker 1: my bonds, etcetera.
• 10:53
  Speaker 3: And the money just comes. Oh, that's like being a
• 10:55
  Speaker 3: public sector employee, right.
• 10:57
  Speaker 7: Yeah, I mean I would love I would love that.
• 11:01
  Speaker 1: So I'm torn between my my feelings that it's not
• 11:04
  Speaker 1: appropriate in this environment and my desperation to have a
• 11:09
  Speaker 1: high rail income at myself on retirement. So you know,
• 11:12
  Speaker 1: there you go swings and roundabouts.
• 11:14
  Speaker 2: At the one thing that I did spot which I
• 11:16
  Speaker 2: thought was interesting, it was it was a separate There
• 11:20
  Speaker 2: wasn't some respect some responding directly to what I was said,
• 11:23
  Speaker 2: But there was a calculation that you'd need something like
• 11:26
  Speaker 2: quarter a million and a DC pension port to actually
• 11:29
  Speaker 2: buy the state pension now after it goes up. And
• 11:33
  Speaker 2: I think that just that does give some perspective on
• 11:38
  Speaker 2: a how you know, how valuable the state pension is,
• 11:43
  Speaker 2: and b on just how valuable a dB pension, particularly
• 11:49
  Speaker 2: in the public sector, which is the only place you'll
• 11:50
  Speaker 2: get one now really is as well, and maybe and yeah,
• 11:55
  Speaker 2: that probably is the kind of this party that we
• 11:57
  Speaker 2: really need to be looking at. But again that's so
• 11:59
  Speaker 2: politically talks. It can also all of the people who
• 12:01
  Speaker 2: are in charge of that get dB pasions themselves.
• 12:04
  Speaker 1: So I can see that you think you got hate
• 12:06
  Speaker 1: mail for talking about the triple locked as.
• 12:08
  Speaker 3: Wait what happens when you start.
• 12:09
  Speaker 1: Writing about public executor defined benefit pensions?
• 12:13
  Speaker 7: Right?
• 12:14
  Speaker 1: Welcome to Marin Talks Money, the podcast in which people
• 12:17
  Speaker 1: who know the markets explain the markets.
• 12:19
  Speaker 3: I'm there in some set web.
• 12:21
  Speaker 1: This week, our guest is Matt Cole, chief executive officer
• 12:24
  Speaker 1: and chief investment officer of Strive Asset Management.
• 12:28
  Speaker 3: Matt has a long.
• 12:29
  Speaker 1: Career behind him, at one point overseeing more than seventy
• 12:32
  Speaker 1: billion dollars in actively managed fixed income portfolio.
• 12:35
  Speaker 3: Now Strive you might have heard of.
• 12:37
  Speaker 1: It's an anti activism fund management company co founded by
• 12:41
  Speaker 1: Republican presidential hopeful Vivek Ramaswami, who you may have heard
• 12:45
  Speaker 1: from on this podcast before. Drivers recently crossed one billion
• 12:49
  Speaker 1: dollars worth of the assets. That doesn't sound much in
• 12:51
  Speaker 1: the context of the big asset managers in the US,
• 12:54
  Speaker 1: But given that it only launched in twenty twenty two
• 12:57
  Speaker 1: with backing, by the way from billionaire investors including to
• 13:00
  Speaker 1: Feel and Bill Ackmann, it's not bad at all. Now
• 13:04
  Speaker 1: the idea is to be the opposite of the investment giants.
• 13:07
  Speaker 1: It's black Rock, which you will emphasize the environmental, social
• 13:10
  Speaker 1: and governance at ESG focus investing.
• 13:13
  Speaker 6: Above all sorts of other things.
• 13:16
  Speaker 7: Hi, Matt, thank you so much for joining us today.
• 13:19
  Speaker 4: Hi Maren, it's a pleasure to be here.
• 13:20
  Speaker 7: Okay, we're going to go straight in. Matt. I'm going
• 13:22
  Speaker 7: to ask you a very simple question that I think
• 13:25
  Speaker 7: has a simple answer, and lots of people think has
• 13:27
  Speaker 7: a complicated answer. So let's see which way you go
• 13:29
  Speaker 7: on it, Matt. What should a company do?
• 13:33
  Speaker 8: A for profit company's primary purpose should be to maximize value?
• 13:39
  Speaker 8: The idea that all stakeholders aren't traded equally. The shareholder
• 13:44
  Speaker 8: is more important than other stakeholders. That too an our
• 13:48
  Speaker 8: view is the purpose of a corporation?
• 13:50
  Speaker 7: Are other stakeholders important at all? Or is the shareholder
• 13:53
  Speaker 7: the only important group when it comes to how a
• 13:57
  Speaker 7: company operates?
• 14:00
  Speaker 8: All stakeholders do matter, But our view is that you
• 14:04
  Speaker 8: can't serve two masters, and so you actually have to
• 14:07
  Speaker 8: pick a priority.
• 14:08
  Speaker 4: You have to pick a purpose.
• 14:10
  Speaker 8: So amongst all stakeholders of which the shareholder is one,
• 14:15
  Speaker 8: the shareholder is the most important stakeholder for a for
• 14:18
  Speaker 8: profit company. Now, to maximize value over the long run,
• 14:24
  Speaker 8: you have to as a company care about the stakeholders,
• 14:27
  Speaker 8: the other stakeholders. You have to care about the customer.
• 14:31
  Speaker 8: The customer needs good products, good services to keep coming
• 14:35
  Speaker 8: back to your company. You have to have employees that
• 14:39
  Speaker 8: are motivated, that are satisfied, that want to stay and
• 14:42
  Speaker 8: want to work hard for your company.
• 14:44
  Speaker 4: They matter.
• 14:45
  Speaker 8: You obviously have to work friendly with the areas of
• 14:49
  Speaker 8: whence you operate, the communities in which you operate. They
• 14:52
  Speaker 8: all matter, but they matter to maximize value. And I
• 14:56
  Speaker 8: think that's the thing that's missing in today's world, and
• 14:59
  Speaker 8: it's typically in the asset management industry, the idea that
• 15:03
  Speaker 8: you can both do good and make money at the
• 15:07
  Speaker 8: same time.
• 15:09
  Speaker 4: You might be able to do good, but you have
• 15:11
  Speaker 4: to define your purpose.
• 15:12
  Speaker 8: And I think that's what's missing in the current stakeholder
• 15:15
  Speaker 8: capitalism movement that is growing across America at the moment.
• 15:21
  Speaker 7: It's interesting and.
• 15:22
  Speaker 1: One of the things that we have been told, haven't
• 15:23
  Speaker 1: we the last fifteen years or so, with the huge
• 15:25
  Speaker 1: rise of the ESG market, is that investing with a
• 15:29
  Speaker 1: view to ESG principles, or putting ESG principles at the
• 15:32
  Speaker 1: top of your list of things you look for when
• 15:34
  Speaker 1: you invest, is something that will automatically give you better returns.
• 15:38
  Speaker 1: We've been told that consistently, companies with good ESG make
• 15:43
  Speaker 1: more money, and I've looked at that all the way through,
• 15:45
  Speaker 1: and I maybe you have as well, and said, well, hang.
• 15:47
  Speaker 7: On to take care. All that's happening here is that
• 15:50
  Speaker 7: we're in a growth environment, and in a growth environment,
• 15:54
  Speaker 7: growth companies tend to have better ESG metrics, and some
• 15:57
  Speaker 7: older companies for obvious reasons. So if you have a
• 16:01
  Speaker 7: growth bubble building, it will look like companies with better
• 16:06
  Speaker 7: ESG scores outperform. But that's a short term thing related
• 16:09
  Speaker 7: to very low interest rates and related to the way
• 16:11
  Speaker 7: low interest rates encourage the asset the prices of growth
• 16:15
  Speaker 7: acces to rise.
• 16:17
  Speaker 8: Absolutely, and that is why I also personally haven't done
• 16:21
  Speaker 8: a victory lap of saying it's now proven that ESG
• 16:25
  Speaker 8: underperforms now that energy stocks are doing better. It's purely
• 16:29
  Speaker 8: a sector view when it comes to ESG funds outperforming
• 16:33
  Speaker 8: or underperformed because they're sector biases in many of those funds.
• 16:39
  Speaker 8: And I think that another thing that you said that
• 16:41
  Speaker 8: stuck out to me is the idea that companies that
• 16:45
  Speaker 8: do better with ESG, and that gets to a problem
• 16:50
  Speaker 8: that I have with the ESG movement. Since day one,
• 16:54
  Speaker 8: we've said at Strive that we're not anti ESG, but
• 16:57
  Speaker 8: I think it's also fair to say that we think
• 17:01
  Speaker 8: the corporate ESG movement has been very value destructive. And
• 17:05
  Speaker 8: I think that's important for a couple of reasons. Because one,
• 17:09
  Speaker 8: as a portfolio manager, I've been someone that's been in
• 17:11
  Speaker 8: the asset management industry now for over seventeen years. I
• 17:15
  Speaker 8: believe strongly that any portfolio manager needs to look at
• 17:18
  Speaker 8: every single risk factor that they can. I believe in
• 17:21
  Speaker 8: the mosaic theory when it comes to portfolio management of
• 17:24
  Speaker 8: looking at all risk factors. That would include environmental risk factors,
• 17:27
  Speaker 8: it would include social risk factors, it would include governance
• 17:31
  Speaker 8: risk factors. Heck, our companies Strive its core differentiators corporate governance.
• 17:35
  Speaker 8: We're clearly not anti corporate governance, but what I think
• 17:39
  Speaker 8: has happened in the corporate ESG movement is it's there's
• 17:43
  Speaker 8: not an allowed wide range of views when it comes
• 17:46
  Speaker 8: to E risk factors, S risk factors, or G risk factors.
• 17:49
  Speaker 4: It's quote unquote the ESG risk factors.
• 17:52
  Speaker 8: And I think that's a problem, and it's very different
• 17:54
  Speaker 8: from other risk factors in portfolio management. If you were
• 17:58
  Speaker 8: to ask a portfolio manage to give their view on
• 18:01
  Speaker 8: recession risk or inflation risk, if you ask five different
• 18:04
  Speaker 8: portfolio managers, you would get five different answers. But for
• 18:07
  Speaker 8: some reason, when it comes to ESG, you're either pro
• 18:11
  Speaker 8: ESG or your anti ESG. It's not just what are
• 18:15
  Speaker 8: your views of those risk factors. And I think that's
• 18:18
  Speaker 8: where it's gone wrong in the corporate ESG movement. But
• 18:21
  Speaker 8: it's also where it's gone wrong in the pushback against
• 18:24
  Speaker 8: ESG as a whole, where many states in the United
• 18:27
  Speaker 8: States have tried to ban considering es or G risk
• 18:31
  Speaker 8: factors and investment decision and I think that's also an
• 18:34
  Speaker 8: incorrect solution.
• 18:35
  Speaker 3: Okay, so we.
• 18:36
  Speaker 1: Do need to consider ESG, but only in the context
• 18:41
  Speaker 1: of having an eye to it enhancing the long term
• 18:44
  Speaker 1: profit making potential of a company.
• 18:47
  Speaker 8: I think the correct debate is actually shareholder capitalism versus
• 18:52
  Speaker 8: stakeholder capitalism. How you started this conversation, what is the
• 18:57
  Speaker 8: purpose of a for profit corporation? The debate that needs
• 19:00
  Speaker 8: to be had, And what we see in the asset
• 19:03
  Speaker 8: management industry today is every large asset manager or almost
• 19:08
  Speaker 8: every large asset manager in America saying that they subscribe
• 19:13
  Speaker 8: to the stakeholder capitalism mindset, that shareholder primacy is outdated.
• 19:19
  Speaker 8: And so then when you go downstream of that, of
• 19:22
  Speaker 8: course the ESG movement is not being viewed from a
• 19:25
  Speaker 8: fiduciary lens of value maximization. If the top at the
• 19:30
  Speaker 8: top level, there was a recommitment to corporations making money,
• 19:36
  Speaker 8: then you go downstream of that, then you're looking at
• 19:39
  Speaker 8: E factors, S factors, and G factors to the correct
• 19:42
  Speaker 8: fiduciary lens. And I think if they were being looked
• 19:46
  Speaker 8: at through those lens, they would be treated very differently,
• 19:49
  Speaker 8: both in terms of the outcomes, what type of views
• 19:53
  Speaker 8: are being talked about in those risk factors, but then
• 19:56
  Speaker 8: also the materiality of those risk factors.
• 19:58
  Speaker 4: I don't think you would.
• 19:59
  Speaker 8: See d ESG as a top headline in Bloomberg News
• 20:05
  Speaker 8: every single day if it was actually thought about in
• 20:09
  Speaker 8: the correct order of magnitude of risk factors and portfolio
• 20:13
  Speaker 8: management decisions.
• 20:15
  Speaker 7: There's legal risk for fund managers that are looking at
• 20:19
  Speaker 7: ESG factors above returns to shareholders and they're not fulfilling
• 20:24
  Speaker 7: their fiduciary duty to their clients.
• 20:28
  Speaker 8: I do think that there is legal risk factors. It
• 20:31
  Speaker 8: kind of gets back to the where has the pushback
• 20:34
  Speaker 8: to ESG gone wrong? And I think some of the
• 20:36
  Speaker 8: initial legal cases that I've seen push back at considering
• 20:42
  Speaker 8: those risk factors versus I think what you said is
• 20:46
  Speaker 8: not trying to maximize value, and when asset managers explicitly
• 20:52
  Speaker 8: say that. As an example, in twenty nineteen, the Business
• 20:57
  Speaker 8: Roundtable Statement that Redefine the Purpose of a Corporation to
• 21:02
  Speaker 8: move American corporations away from shareholder primacy, that was signed
• 21:06
  Speaker 8: by one hundred and eighty one CEOs, including the CEOs
• 21:10
  Speaker 8: of Blackrock and Vanguard, that to me introduces legal risk
• 21:16
  Speaker 8: as a fiduciary Yeah.
• 21:18
  Speaker 1: And particularly because at that point the majority of clients
• 21:21
  Speaker 1: wouldn't have understood how that was going to work. And
• 21:25
  Speaker 1: even now, I imagine the scores of retail clients in the
• 21:28
  Speaker 1: US and in the UK who don't quite understand that
• 21:32
  Speaker 1: shareholder returns are not absolutely at the top.
• 21:34
  Speaker 3: Of the list.
• 21:36
  Speaker 8: Absolutely, and it's a very challenging subject to understand. And
• 21:41
  Speaker 8: even this year, as we were wrapping up the twenty
• 21:45
  Speaker 8: twenty three proxy voting season, you're starting to see articles
• 21:48
  Speaker 8: come out that talk about how Blackrock supported only nine
• 21:54
  Speaker 8: percent of ESG proposals. Vanguard was even lower than that,
• 21:58
  Speaker 8: and on the headlines might make one think, oh, they're
• 22:01
  Speaker 8: actually changing their views because of this pushback. They say
• 22:06
  Speaker 8: the opposite, They say no, there's redundancy in them. But
• 22:09
  Speaker 8: what's important to note. A couple of years ago you
• 22:13
  Speaker 8: might remembered the Dealbook conference with Andrew Ross Sorkin where
• 22:17
  Speaker 8: he was interviewing Larry Fink, and Larry Fink says, we
• 22:20
  Speaker 8: are forcing behaviors and this clip goes viral right and
• 22:24
  Speaker 8: to thirty minute conversation. But what was important was actually
• 22:28
  Speaker 8: the context of why he said that, and that's never
• 22:31
  Speaker 8: actually shown in the clips that go viral. What he
• 22:34
  Speaker 8: was talking about was how do you force behaviors? What
• 22:37
  Speaker 8: are we trying to force behaviors to do? And he
• 22:40
  Speaker 8: talks about how you actually force behaviors is by changing
• 22:44
  Speaker 8: the incentive compensation structure across corporate America. And so why
• 22:49
  Speaker 8: is this important? Because if you were to compare in
• 22:53
  Speaker 8: twenty eleven, almost no companies had incentive compensation at the
• 22:58
  Speaker 8: C suite tied to EOG or D and I measures. Today,
• 23:04
  Speaker 8: over seventy five percent of the companies and the SMP
• 23:07
  Speaker 8: five hundred directly tied part of incentive compensation to these
• 23:12
  Speaker 8: non pecuniary ESG and DEE and I factors. And so
• 23:15
  Speaker 8: when you look at the proxy season today and you
• 23:19
  Speaker 8: see that black Rock and Bank are largely voted for,
• 23:23
  Speaker 8: I think it might be that they voted for one
• 23:25
  Speaker 8: hundred percent of the time.
• 23:26
  Speaker 4: We're still confirming.
• 23:28
  Speaker 8: The resolutions on the proxy ballot that were suggested by
• 23:34
  Speaker 8: management with regards to ESG and d, E and I,
• 23:36
  Speaker 8: but they largely voted against the ones that were put
• 23:40
  Speaker 8: forth by nonprofits. Well, they've already implemented the stakeholder capitalism
• 23:45
  Speaker 8: and ESG agenda by changing the incentive compensation structure. That
• 23:49
  Speaker 8: was how you force behaviors.
• 23:51
  Speaker 7: Okay, so they make management, they make management do it
• 23:53
  Speaker 7: for them. They don't need the nonprofits to come up
• 23:55
  Speaker 7: and put down new resolutions because they've already put the
• 23:57
  Speaker 7: incentives in place to make sure that manage do it first.
• 24:01
  Speaker 4: Exactly.
• 24:02
  Speaker 8: So when we think about how do you actually restore
• 24:06
  Speaker 8: value maximization across corporate America, you have to undo that.
• 24:11
  Speaker 8: You have to undo that compensation system that's already been
• 24:15
  Speaker 8: put in place. And when it comes to that, we
• 24:18
  Speaker 8: pretty much stand alone currently as one of the to
• 24:21
  Speaker 8: our knowledge, the only asset manager that's standing for re
• 24:25
  Speaker 8: implementing shareholder capitalism across America. And so that's why I
• 24:29
  Speaker 8: think this debate, this fight has a long ways to go.
• 24:34
  Speaker 7: I'm with you on the fight. I'm a great believer
• 24:36
  Speaker 7: in shareholder capitalism. But let's look at it another way
• 24:39
  Speaker 7: for a minute. Why does it matter. Why does it
• 24:42
  Speaker 7: matter if shareholders get slightly lower returns, but along the
• 24:46
  Speaker 7: way the world becomes a better place.
• 24:49
  Speaker 8: That's a decision for the government to decide, the people
• 24:53
  Speaker 8: to decide. The people in a democracy decide. As an
• 24:57
  Speaker 8: asset manager, we have a fiduciary duty to maximize value.
• 25:01
  Speaker 8: It gets into kind of the why for myself of
• 25:05
  Speaker 8: why did I get into this Even in the first place,
• 25:07
  Speaker 8: I was at CalPERS, the largest pension fund in California,
• 25:11
  Speaker 8: I joined there during the middle of the Great Financial Crisis,
• 25:15
  Speaker 8: which I know in your conversation with Vivik you talked
• 25:18
  Speaker 8: a little bit about how that Great Financial Crisis is
• 25:21
  Speaker 8: really what brought the uprise of stakeholder capitalism at ESG
• 25:26
  Speaker 8: in America, which I completely agree with and for myself,
• 25:30
  Speaker 8: I was going to school finance major. My parents were
• 25:34
  Speaker 8: law enforcement officers who had their pensions tied to CalPERS,
• 25:38
  Speaker 8: and great Financial crisis happens in the funded ratios of
• 25:41
  Speaker 8: pensions across America, across the world plummet, and I went
• 25:46
  Speaker 8: to CalPERS to try to help fix that problem, to
• 25:49
  Speaker 8: maximize value, to provide a secure retirement pension to my parents.
• 25:54
  Speaker 4: That was my why.
• 25:56
  Speaker 8: And I got there and literally on day one there CalPERS,
• 26:01
  Speaker 8: the board had forced the pension to divest from tobacco stocks,
• 26:06
  Speaker 8: and it was a decision that even almost everybody in
• 26:09
  Speaker 8: the investment staff did not want to do, pushed back against,
• 26:13
  Speaker 8: but the board made it happen anyways, and I think
• 26:16
  Speaker 8: that's a lot of what happens is I didn't feel
• 26:20
  Speaker 8: some might say, you know, CalPERS is the tip of
• 26:23
  Speaker 8: the ESG you know movement and Blackrock State Street vanguard.
• 26:27
  Speaker 8: They're the they're the weight behind them. But but you
• 26:30
  Speaker 8: know the a lot of these pensions are the tip
• 26:32
  Speaker 8: of the movement.
• 26:33
  Speaker 4: Well, I didn't.
• 26:33
  Speaker 8: Actually, I do believe that's true, but I don't believe
• 26:36
  Speaker 8: it's true at the investment staff level. I think there
• 26:40
  Speaker 8: there is mostly a commitment to fiduciary duty, and that's
• 26:44
  Speaker 8: part of what gives me hope that we actually can
• 26:47
  Speaker 8: succeed if this is worded well, and it's not worded
• 26:51
  Speaker 8: in a way of don't look at a risk factor
• 26:53
  Speaker 8: but maximize value.
• 26:56
  Speaker 4: That is your purpose period.
• 26:58
  Speaker 7: Is there any sector that you would invest in that
• 27:01
  Speaker 7: you find genuinely distasteful?
• 27:03
  Speaker 1: I have one.
• 27:03
  Speaker 7: It's the house building sector in the UK. The houses
• 27:07
  Speaker 7: that they build us to such a pool and quality
• 27:09
  Speaker 7: and so absolutely horrible. I always think to myself, I
• 27:11
  Speaker 7: have a moral aversion to the housebuilding sector, which, given
• 27:14
  Speaker 7: that I have a moral aversion to almost very little
• 27:16
  Speaker 7: else and investing, everyone always thinks is slightly odd. But
• 27:19
  Speaker 7: I just think there's such a distasteful group of companies.
• 27:21
  Speaker 7: Is there any group of companies that do you feel
• 27:23
  Speaker 7: similarly about.
• 27:25
  Speaker 8: I grew up with the same I grew up as
• 27:28
  Speaker 8: a fixed income manager and the fixed income there is
• 27:31
  Speaker 8: a saying that there's no bad bonds, there's only bad pritices,
• 27:34
  Speaker 8: and so absolutely, when it comes to prices or an
• 27:38
  Speaker 8: outlook on a sector or companies, yes, but when it
• 27:41
  Speaker 8: comes to if the price is right, I believe in
• 27:45
  Speaker 8: asset management it's kind of like a sport. Our job
• 27:50
  Speaker 8: is to maximize risk adjusted returns and to do that,
• 27:53
  Speaker 8: you can't exclude a sector.
• 27:56
  Speaker 7: And everything else is the government's responsibility.
• 27:58
  Speaker 8: Yeah, and I think that you can have open conversations obviously,
• 28:03
  Speaker 8: like there's no reason that we can't have open conversations
• 28:06
  Speaker 8: about trade offs. Right if you implement some sort of
• 28:10
  Speaker 8: regulation that might constrain returns and it might be better
• 28:13
  Speaker 8: for society. That is, for the citizens to decide the
• 28:17
  Speaker 8: rules of which asset management operates in, the rules of
• 28:20
  Speaker 8: which corporations operate in. And there's no reason that we
• 28:24
  Speaker 8: can't have an open conversation about some of those trade offs.
• 28:27
  Speaker 8: But once the rules are set, our job is to
• 28:30
  Speaker 8: maximize value.
• 28:34
  Speaker 1: Okay, let's talk about how you are investing now. I
• 28:37
  Speaker 1: am very interested in your most recent ETF launch because
• 28:41
  Speaker 1: this is what you do, right, it is maybe an
• 28:42
  Speaker 1: ETF business the launch of a new business called Fang
• 28:46
  Speaker 1: two point zero ETF. Now, I've written about the new
• 28:49
  Speaker 1: Fangs before, but tell us about differently your point of view,
• 28:52
  Speaker 1: Who are what are the new Fangs and why have
• 28:55
  Speaker 1: you created this ETFEA.
• 28:57
  Speaker 8: Our first several ETFs were more about market equity beta
• 29:02
  Speaker 8: with a corporate governance differentiator to get foot corporations focused
• 29:06
  Speaker 8: on value maximization. But I'm an investor at heart and
• 29:11
  Speaker 8: have have many views, and I think there's many secular
• 29:14
  Speaker 8: changes that are happening right now are well underway, and
• 29:18
  Speaker 8: one of them is persistently higher inflation over the next
• 29:23
  Speaker 8: market cycle, and another one is a trend of deglobalization
• 29:29
  Speaker 8: that I think is pretty well underway. And then I
• 29:32
  Speaker 8: think both of those contribute to higher geopolitical tensions. And
• 29:37
  Speaker 8: so those are the macro secular environment that we see
• 29:42
  Speaker 8: happening over the next five to ten years. And I
• 29:46
  Speaker 8: think that changes which sectors have telwinds that could lead
• 29:51
  Speaker 8: to out performance. And so if we think about the
• 29:54
  Speaker 8: prior fifteen years, you had low interest rates, quantitative easing
• 29:59
  Speaker 8: program that were very supportive of the growth sector, and
• 30:04
  Speaker 8: in the growth sector, the Fang tech stocks were among
• 30:08
  Speaker 8: the best performing stocks. The current secular trends, I think
• 30:13
  Speaker 8: support five different sectors, and those sectors are fossil fuels,
• 30:19
  Speaker 8: aerospace and defense, agriculture, nuclear energy, and then gold and
• 30:25
  Speaker 8: precious metals. So we created a new ETF. It's thematic
• 30:30
  Speaker 8: ETF that holds those five sectors, the new FANG. We
• 30:35
  Speaker 8: call it FANG two point zero.
• 30:38
  Speaker 7: From any ESG point of view, almost all of these
• 30:41
  Speaker 7: are things that would previously have been considered to be
• 30:44
  Speaker 7: very anti ESG and people wouldn't have been keen on it.
• 30:46
  Speaker 7: But you look at them again now fossil fuels people
• 30:49
  Speaker 7: are coming around to the idea that perhaps we've tried
• 30:51
  Speaker 7: to go net zero a little bit too fast, and
• 30:53
  Speaker 7: that fossil fuels are going to be part of our
• 30:55
  Speaker 7: energy makeup almost indefinitely, so we mustn't be too mean
• 30:58
  Speaker 7: to them because we need them. Zerospace, you know, defense,
• 31:01
  Speaker 7: until well not even eighteen months ago, was considered to
• 31:04
  Speaker 7: be an absolute no no in any ESG portfolio. But now,
• 31:08
  Speaker 7: of course defense is considered to be a genuine social good.
• 31:11
  Speaker 7: Bit of a shift there. Agriculture is still working away around,
• 31:14
  Speaker 7: aren't we, and nuclear as well, So you know, you
• 31:18
  Speaker 7: could have advertised this not as Fang two point zero,
• 31:20
  Speaker 7: but as the anti ESG portfolio.
• 31:24
  Speaker 4: You might be able to.
• 31:25
  Speaker 8: But it's pretty surprising to me, and it's one of
• 31:27
  Speaker 8: the things we've talked about since day one of Strive,
• 31:29
  Speaker 8: specifically around nuclear energy, that nuclear energy should not be
• 31:35
  Speaker 8: something that's considered anti ESG. It actually should be considered
• 31:40
  Speaker 8: very pro ESG as the most reliable, scalable source of
• 31:45
  Speaker 8: clean energy that we know and obviously has been constrained
• 31:49
  Speaker 8: from through regulation. We see some shifting winds there and
• 31:55
  Speaker 8: a little bit more acceptance of nuclear in the es movement,
• 32:01
  Speaker 8: But for ourselves, we also think that nuclear represents a
• 32:04
  Speaker 8: great solution of reliable, sustainable energy. And obviously it's a
• 32:10
  Speaker 8: very long cycle to get new nuclear plants live, but
• 32:15
  Speaker 8: we see the winds moving in that direction, and so
• 32:19
  Speaker 8: think that you know that sector can can benefit. So
• 32:22
  Speaker 8: if you think about all the sectors combined, I think
• 32:25
  Speaker 8: that's where it might be a little less anti EESG
• 32:29
  Speaker 8: and on on on the gold side.
• 32:31
  Speaker 4: It's sorry, can.
• 32:33
  Speaker 7: I keep you with nuclear for a minute, because I'm
• 32:36
  Speaker 7: absolutely with you that nuclear is a solution to the
• 32:38
  Speaker 7: majority of our problems as long as we can get
• 32:40
  Speaker 7: our electricity grids up to speed in order to you know,
• 32:43
  Speaker 7: send the electricity that we create with our nuclear energy.
• 32:45
  Speaker 7: So nuclear is the answer. So what what companies are
• 32:49
  Speaker 7: held in the ETF that represent that theme.
• 32:52
  Speaker 8: So it's it's based on a market cap weighting. And
• 32:56
  Speaker 8: what it looks at right now is is it looks.
• 32:58
  Speaker 4: At the bloom Berg Nuclear.
• 33:02
  Speaker 8: Bi Index, and so it's it's primarily energy producers that
• 33:08
  Speaker 8: have a majority of their energy from nuclear energy.
• 33:13
  Speaker 4: Is mainly what it is right now.
• 33:15
  Speaker 7: Okay, right, moving on to gold. Was it gold you're
• 33:18
  Speaker 7: about talking about? I mean, I'm on a long term
• 33:21
  Speaker 7: gold but long term gold bug and always ask questions
• 33:24
  Speaker 7: about gold on this podcast, but it rarely comes up
• 33:26
  Speaker 7: quite so early in the conversation. So this is exciting
• 33:29
  Speaker 7: for my gold bug listeners.
• 33:32
  Speaker 8: Well, historically I've been more of a over the last
• 33:35
  Speaker 8: five years, more of a bitcoin bug than a gold bug.
• 33:37
  Speaker 4: But when it comes to don't we don't like that on.
• 33:40
  Speaker 1: This podcast, by the way, we don't really We don't
• 33:42
  Speaker 1: really go for the biggin.
• 33:43
  Speaker 4: It's it's okay, we don't. We don't have to agree
• 33:45
  Speaker 4: on everything.
• 33:47
  Speaker 8: But but when it comes to gold, it's it's precious
• 33:50
  Speaker 8: metals miners more broadly than just gold. And so when
• 33:55
  Speaker 8: I think about just bringing it back to the ESG
• 33:58
  Speaker 8: anti es she, well, some of those miners are actually
• 34:04
  Speaker 8: very important to support different industries that would be very
• 34:09
  Speaker 8: friendly in the ESG movement that need batteries, right as
• 34:13
  Speaker 8: an example, So it is primarily gold, but I think
• 34:18
  Speaker 8: it kind of gets to some of the inconsistencies of
• 34:22
  Speaker 8: the ESG movement is where does these batteries, Where do
• 34:25
  Speaker 8: some of these solutions come from that are needed to
• 34:28
  Speaker 8: support when solar, non reliable sources of energy, electric vehicles,
• 34:35
  Speaker 8: those sorts of things, and that component of thing two
• 34:40
  Speaker 8: point zero does have some of those stocks in it.
• 34:42
  Speaker 8: And I think you're right that in one of the
• 34:45
  Speaker 8: criticisms of some of these sources of energy, the reliable
• 34:47
  Speaker 8: sources of energy, is that they're not as clean as
• 34:49
  Speaker 8: they might appear. So that does support the anti ESG
• 34:54
  Speaker 8: nature of it.
• 34:55
  Speaker 7: It's interesting. There is a problem, you know, I was
• 34:56
  Speaker 7: reading a art called the other day about how difficult
• 34:59
  Speaker 7: it is for mining, the big mining companies to get
• 35:01
  Speaker 7: employees these days. You know, nobody's studying mining engineering the
• 35:04
  Speaker 7: young and not interested in the industry because they consider
• 35:07
  Speaker 7: it to be a an unpleasant, dirty and environmentally unfriendly industry, whereas,
• 35:11
  Speaker 7: of course they genuinely believe in the importance of the
• 35:14
  Speaker 7: energy transition. Are young should be running towards these mines
• 35:18
  Speaker 7: because we need the mining industry to get out the
• 35:21
  Speaker 7: metals that are absolutely vital to make the batteries to
• 35:25
  Speaker 7: make the transition work, if it's ever going to work.
• 35:28
  Speaker 7: So the miners are one of the most important parts
• 35:31
  Speaker 7: of the energy transition, but that's not how they're.
• 35:33
  Speaker 8: Perceived, no, exactly, and I'm sure it's a lack of
• 35:37
  Speaker 8: understanding there. And one of this last interesting things about
• 35:41
  Speaker 8: the g the gold section sector within the thing two
• 35:46
  Speaker 8: point zero is how do we think about just owning
• 35:49
  Speaker 8: gold outright versus owning miners. Well, if you've been following
• 35:54
  Speaker 8: gold and sounds like you have as a gold bug,
• 35:56
  Speaker 8: you know that miners have not performed very well, have
• 35:59
  Speaker 8: not kept up with gold itself in the gold rise, right,
• 36:04
  Speaker 8: And and we've looked into that pretty deeply, and I
• 36:07
  Speaker 8: think that there is an opportunity for a mean reversion
• 36:10
  Speaker 8: trade to happen there and actually like owning the miners
• 36:15
  Speaker 8: themselves over over gold.
• 36:16
  Speaker 7: Okay, So holding gold for you is not about a
• 36:18
  Speaker 7: hedge against a long term hedgi against inflation or anything
• 36:21
  Speaker 7: like that. It's simply an investing equation.
• 36:25
  Speaker 8: Holding holding the miners is, but holding but the g
• 36:28
  Speaker 8: is will benefit I think both from the heightened inflation,
• 36:32
  Speaker 8: but I think gold also benefits from heightened geo political
• 36:36
  Speaker 8: tensions as well.
• 36:38
  Speaker 7: Let's talk briefly about agriculture them, which is another one
• 36:40
  Speaker 7: of them, another one of the things you hold on
• 36:42
  Speaker 7: this fangs two point zero. How does that fit in?
• 36:45
  Speaker 8: Well, if it's in in a couple of different areas.
• 36:48
  Speaker 8: So we think that the ag sector will benefit from
• 36:51
  Speaker 8: that outperform versus other sectors when it comes to sustained
• 36:56
  Speaker 8: higher inflation. And the easy way to play that is
• 37:00
  Speaker 8: pretty simple, and it's that the pricing power of the
• 37:04
  Speaker 8: elasticity and price when it comes to our food supply
• 37:09
  Speaker 8: is pretty simple to understand. It's going to be one
• 37:11
  Speaker 8: of the last things that people will stop eating or
• 37:16
  Speaker 8: and so we think that it's it's more of like
• 37:19
  Speaker 8: a value we type sort of story and value We
• 37:22
  Speaker 8: at the at the base layer of the actual food
• 37:26
  Speaker 8: supply itself and think that you know, when you think
• 37:29
  Speaker 8: about growth stocks versus value stocks, that that that's a
• 37:34
  Speaker 8: that's a sector that just grows with the need for
• 37:37
  Speaker 8: more food and it has ability to push higher prices
• 37:42
  Speaker 8: directly to the consumer and and not get bogged down
• 37:47
  Speaker 8: from higher inflation.
• 37:49
  Speaker 1: Interesting does one of your other ETFs I wanted to
• 37:52
  Speaker 1: ask you about, which is that your Emerging markets CTF
• 37:54
  Speaker 1: is X China and you've written a bit about China risk.
• 37:59
  Speaker 7: Can we talk about that a little bit?
• 38:01
  Speaker 8: So when we think about X China hy x China,
• 38:05
  Speaker 8: we make a statement that we see China risk as
• 38:10
  Speaker 8: investment risk. And there's a lot of reasons why that
• 38:15
  Speaker 8: is a big one is the geopolitical tension side and
• 38:19
  Speaker 8: deglobalization in movements away from importing in to the US
• 38:26
  Speaker 8: from China. But there's actually a deeper reason that I
• 38:32
  Speaker 8: think makes China completely uninvestable in America, even if you
• 38:39
  Speaker 8: discounted the China risk that I'd said and had a
• 38:42
  Speaker 8: bowcase on China, bullview on China.
• 38:45
  Speaker 4: And that gets into the securities.
• 38:47
  Speaker 8: That an American investor can invest in when they investing
• 38:51
  Speaker 8: in China, and the largest companies the most critical to
• 38:57
  Speaker 8: China's natural national security interest like Ali Baba, like Tencent.
• 39:03
  Speaker 8: As a US investor you cannot own true equity in
• 39:07
  Speaker 8: those corporations. You can only own what's called a VIE,
• 39:12
  Speaker 8: a variable interest entity. And what that is is it's
• 39:16
  Speaker 8: a shell corporation, typically incorporated in the Cayman Islands. That's
• 39:20
  Speaker 8: a pass through entity that where the profits would be
• 39:23
  Speaker 8: passed through that entity and to the American investor. And
• 39:27
  Speaker 8: the risk with that structure is because you are not
• 39:30
  Speaker 8: a true owner of the actual equity, there's risk that
• 39:35
  Speaker 8: even the SEC talks about that those entities could be
• 39:39
  Speaker 8: written off for written to zero, while the actual true
• 39:43
  Speaker 8: entity in China remains unharmed. The American investor can be
• 39:47
  Speaker 8: wiped out. And we think that's that's classic G risk.
• 39:52
  Speaker 8: And if we go to ESG terms governance risk, although
• 39:54
  Speaker 8: I think in the ESG movement, G doesn't actually typically
• 39:58
  Speaker 8: refer to true G risk, but that is unheedgeable governance risk.
• 40:03
  Speaker 8: And we think that as an American it just makes
• 40:06
  Speaker 8: China uninvestable. And and so we don't think that you
• 40:10
  Speaker 8: should have China exposure as an American investor.
• 40:15
  Speaker 7: At at any price. You said earlier, there's always a price,
• 40:19
  Speaker 7: So no price for China.
• 40:21
  Speaker 4: There's there's always a price.
• 40:22
  Speaker 8: I mean, but this is really you know, zero to
• 40:26
  Speaker 8: one risk, and I think I think that's that's really
• 40:29
  Speaker 8: tough to head. If if they started trading at a
• 40:33
  Speaker 8: ninety percent discount, maybe we could we could talk about it,
• 40:36
  Speaker 8: but at that price, at that point, it's probably going
• 40:39
  Speaker 8: to zero.
• 40:39
  Speaker 7: Fair enough, Let's talk a little bit about the bond market,
• 40:43
  Speaker 7: because you are really a bond investor, aren't you. I
• 40:45
  Speaker 7: mean that's how you started, and you got You've got
• 40:48
  Speaker 7: a couple of bond dtfs seven you yes, the Strive
• 40:50
  Speaker 7: Total Return and the Strive Enhanced Income Short Maturity DF.
• 40:53
  Speaker 7: So you're still involved in the bond market. You haven't
• 40:55
  Speaker 7: gone completely out to the dark side.
• 40:59
  Speaker 4: No. I I love the bond market.
• 41:01
  Speaker 8: And so we just launched two bond ETFs in mid
• 41:05
  Speaker 8: August of this year, like you said, a total return
• 41:09
  Speaker 8: bond fund and then an Ultra short Enhanced Income bond fund.
• 41:13
  Speaker 8: And both of those are actively managed products versus all
• 41:18
  Speaker 8: of our equity products are passive. Although the FANG two
• 41:21
  Speaker 8: point zero one is a passive thematic product, which is
• 41:25
  Speaker 8: obviously a pretty pretty fun one.
• 41:26
  Speaker 4: To talk about. On the bond side, it's completely active.
• 41:30
  Speaker 4: So the total return.
• 41:31
  Speaker 8: Bond fund, we're going toe to toe with the pimcos
• 41:34
  Speaker 8: the double lines of the world, and kind of have
• 41:36
  Speaker 8: a very similar setup for the structure of that fund.
• 41:39
  Speaker 7: The top market out there there isn't it. I'm in
• 41:41
  Speaker 7: the great bond ball market that we've will happily lived
• 41:43
  Speaker 7: for over the last forty years is pretty much pretty
• 41:46
  Speaker 7: much gone. Not coming back.
• 41:50
  Speaker 4: It is, it is gone.
• 41:52
  Speaker 8: And several friends and mentors spent their entire career and
• 41:57
  Speaker 8: fixed income in a bond bull market and then retire
• 42:00
  Speaker 8: when interest rates are at one percent. I applaud them
• 42:03
  Speaker 8: for their their career timing.
• 42:06
  Speaker 7: Would they just get so rich they sort of started,
• 42:08
  Speaker 7: I'll go as just said, look, not career timing.
• 42:12
  Speaker 4: Maybe maybe maybe a little bit of both.
• 42:15
  Speaker 8: But but it is. It is a more difficult environment,
• 42:17
  Speaker 8: right Like you're you're seeing correlations between equities and bonds
• 42:21
  Speaker 8: become a little bit more mixed to where you know,
• 42:23
  Speaker 8: for the last forty years you've had negative correlations that's
• 42:26
  Speaker 8: been great for for returns of portfolios. It's a different environment.
• 42:32
  Speaker 8: But my belief is that most portfolios, most individuals should
• 42:37
  Speaker 8: have exposure to fixed income as part of a core
• 42:40
  Speaker 8: portfolio holding. And so our our view is one of
• 42:44
  Speaker 8: expecting for interest rates to remain elevated. Although right now
• 42:48
  Speaker 8: we have a pretty neutral view on on duration over
• 42:52
  Speaker 8: the rest of the year, and I think that short
• 42:54
  Speaker 8: term there's there's some teil ones that could lead to
• 42:57
  Speaker 8: a little bit of a bond rally, But we're actually
• 43:00
  Speaker 8: positioned neutral when it comes to duration and or total
• 43:03
  Speaker 8: return bond fund and positioning for an expectation eventually of
• 43:07
  Speaker 8: yields to kind of continue to move higher.
• 43:10
  Speaker 7: So when you say that people should still have exposure
• 43:13
  Speaker 7: to bonds and some credit risk in their portfolios, you're
• 43:16
  Speaker 7: not really talking about an old fashioned sixty to forty portfolio.
• 43:19
  Speaker 7: It sounds like you wouldn't go anywhere near that at
• 43:21
  Speaker 7: the moment.
• 43:23
  Speaker 4: That really depends on that's not what we do. That
• 43:26
  Speaker 4: depends on the individual.
• 43:28
  Speaker 8: I think that generally, over the next market cycle, I
• 43:33
  Speaker 8: would probably want to own less fixed income, but not none.
• 43:38
  Speaker 8: I would want to own less growth stocks, but not none.
• 43:42
  Speaker 8: I would want to own more value E stocks, and
• 43:45
  Speaker 8: obviously we have a view of what within the VALUEEE
• 43:49
  Speaker 8: around the thing two point zero stocks energy also just generally,
• 43:54
  Speaker 8: but you still don't want obviously you're not going to
• 43:58
  Speaker 8: want to go all in on those. It's more of
• 44:00
  Speaker 8: an overweight versus the standard positions.
• 44:04
  Speaker 7: If you had to pick one sector from all these fascinating,
• 44:06
  Speaker 7: exciting sectors, and of course you would never have to
• 44:09
  Speaker 7: do this and as not investment advice, but if you
• 44:12
  Speaker 7: did have to pick one sector that you find the
• 44:14
  Speaker 7: most interesting over the next decade or so from an
• 44:16
  Speaker 7: investment point of view, what would it be?
• 44:18
  Speaker 8: Definitely the energy sector, and that was why we launched
• 44:23
  Speaker 8: our first fund as Drill. We are incredibly bullish, We
• 44:26
  Speaker 8: remain incredibly bullish on the energy sector and think that
• 44:30
  Speaker 8: the ESG movement is a contributing factor to why we
• 44:35
  Speaker 8: are so bullish on the energy sector, as well as
• 44:37
  Speaker 8: some of those secular trends that we talked about already.
• 44:41
  Speaker 8: But deathitely had to choose one energy but when we
• 44:44
  Speaker 8: think about the five of them in totality, they do
• 44:47
  Speaker 8: have different tailwinds behind them, and when we think about
• 44:50
  Speaker 8: portfolio diversification, that's why we like not just only owning
• 44:55
  Speaker 8: one sector, but within them for sure, Energy O.
• 45:00
  Speaker 7: I have questions, but they'll have to wait for another time.
• 45:04
  Speaker 7: Let it never be said that we're not open minded
• 45:06
  Speaker 7: on the Merin Talks Money podcast. Okay, final question.
• 45:09
  Speaker 1: And I already know the answer to this, which is
• 45:11
  Speaker 1: kind of irritating, but I'll ask it anyway. Because they
• 45:13
  Speaker 1: ask everybody, You've got the whole one of them. As
• 45:15
  Speaker 1: you know, we've changed the question slightly back to the beginning.
• 45:18
  Speaker 1: We've started asking a new question, a slightly wider question.
• 45:21
  Speaker 7: We used to ask everybody ten years bitcoin or gold,
• 45:25
  Speaker 7: but now that rates are quite a lot, we've refined
• 45:27
  Speaker 7: it and we asked ten years bitcoin, gold or cash.
• 45:33
  Speaker 7: You can only choose one.
• 45:34
  Speaker 8: You see, I will answer that question, but I'll say
• 45:37
  Speaker 8: the timing of ten years makes it a little bit
• 45:40
  Speaker 8: more challenging, as.
• 45:41
  Speaker 7: It does, but it's not supposed to be easy, Matt.
• 45:45
  Speaker 7: It's not supposed to be easy.
• 45:48
  Speaker 4: But I would still go bitcoin. I know that you
• 45:52
  Speaker 4: will disagree with that.
• 45:53
  Speaker 7: No, it's not not be disagreeing. I think this is
• 45:55
  Speaker 7: so exciting. You are the first person to ever take
• 46:00
  Speaker 7: bitcoin over a ten year period. On this podcast, I'm
• 46:03
  Speaker 7: going to extend this podcast by two minutes so you
• 46:06
  Speaker 7: can explain to us why that is, Oh yours.
• 46:10
  Speaker 8: Well, when it comes to the security of bitcoin, every
• 46:14
  Speaker 8: single day, every single year that it exists without a
• 46:19
  Speaker 8: hack in the actual code of bitcoin to me makes
• 46:22
  Speaker 8: the riskiness of it over the next ten years decline.
• 46:27
  Speaker 8: And so I think that's one reason that if you
• 46:30
  Speaker 8: were to ask me the same question in twenty sixteen,
• 46:33
  Speaker 8: when I first started getting into bitcoin after having followed
• 46:37
  Speaker 8: it even for multiple years before that, just thinking it
• 46:39
  Speaker 8: was a scam, I would have answered gold for sure,
• 46:41
  Speaker 8: even though I was investing in it at the time
• 46:43
  Speaker 8: more from a short term horizon. But when I think
• 46:46
  Speaker 8: of acceptance of bitcoin as an asset to hold into
• 46:52
  Speaker 8: the future, I think it's going nothing but up. When
• 46:54
  Speaker 8: I think about the younger generation that are growing up
• 46:58
  Speaker 8: that are much more digital native, I think that it's
• 47:02
  Speaker 8: gonna change how the investors' millennials think about what they
• 47:07
  Speaker 8: are investing in, and I think those are all going
• 47:10
  Speaker 8: to be important tell whens to support long term investment
• 47:13
  Speaker 8: in bitcoin. I mean, even if you look at you know,
• 47:16
  Speaker 8: obviously we are rivals with Blackrock and talk about them
• 47:20
  Speaker 8: in negative manners a lot. But on that same deal
• 47:24
  Speaker 8: book conference that I talked about with you know, forcing
• 47:27
  Speaker 8: behaviors and that I think he talked about bitcoin is
• 47:30
  Speaker 8: only being a tool for money laundering, and now Blackrock
• 47:34
  Speaker 8: is leading the charge to launch the first Bitcoin ETF.
• 47:37
  Speaker 4: They have changed their views. Jamie Diamond has changed.
• 47:40
  Speaker 8: It's starting to change views take a little bit more
• 47:42
  Speaker 8: of a friendly approach towards bitcoin. And I think you're
• 47:45
  Speaker 8: starting to see institutional adoption of bitcoin. And I think that,
• 47:50
  Speaker 8: you know, the the return potential of bitcoin as it
• 47:53
  Speaker 8: obviously matures and is trading that much higher prices, is
• 47:57
  Speaker 8: not what it once was. Where in the case for
• 48:00
  Speaker 8: one hundred x and the price of bitcoin, that's not
• 48:03
  Speaker 8: a scenario that we want because that would probably be
• 48:05
  Speaker 8: the felling of the US dollar. And that's not that's
• 48:07
  Speaker 8: not a belief that I believe. It's something that's going
• 48:12
  Speaker 8: to happen in the next ten years, hopefully never. But
• 48:15
  Speaker 8: I do think that bitcoin can still outperform gold over
• 48:18
  Speaker 8: the next ten years, and and and and and cash.
• 48:23
  Speaker 8: I would not want to be a cash investor over
• 48:26
  Speaker 8: the next ten years.
• 48:34
  Speaker 3: Well, John, I thought that was completely fascinating.
• 48:36
  Speaker 2: What did you think, Yeah, that's a really interesting I
• 48:39
  Speaker 2: suppose you. I think it's I like you because it's
• 48:42
  Speaker 2: going back to that sense that we should be worrying about,
• 48:45
  Speaker 2: you know, the Milton Friedman thing of the thing that
• 48:48
  Speaker 2: basically keeps a company honest is focusing on shareholder of value,
• 48:54
  Speaker 2: and that is the one thing that you should be
• 48:56
  Speaker 2: focusing on and the one thing.
• 48:58
  Speaker 6: We can properly measure, one thing we can probably know
• 49:00
  Speaker 6: is happening, and.
• 49:01
  Speaker 1: Everything else should be how companies should behave and what
• 49:04
  Speaker 1: they should do should be the responsibility of government.
• 49:06
  Speaker 6: I mean, it's a it's a pretty compelling argument, isn't it.
• 49:11
  Speaker 2: I Mean, the I mean, this was really weird thing
• 49:14
  Speaker 2: is that we have a lost state of it in
• 49:16
  Speaker 2: the fast place. But then that's said, that's what happens
• 49:20
  Speaker 2: whenever you've got zero interest rates for so long and
• 49:23
  Speaker 2: everything becomes detached from reality.
• 49:26
  Speaker 1: I think kind of a luxury product, isn't it. Share
• 49:28
  Speaker 1: price is all going up anyway, so you can you
• 49:31
  Speaker 1: can do this stuff. And one of the things you
• 49:32
  Speaker 1: talked about that I found kind of interesting was about
• 49:35
  Speaker 1: how CEO.
• 49:37
  Speaker 6: Pay is increasingly linked to ESG.
• 49:40
  Speaker 1: Targets, so you know, you get extra money if you
• 49:43
  Speaker 1: if you achieve this, that or that in the ESG
• 49:46
  Speaker 1: metrics world of metrics, which is kind of meaningless anyway.
• 49:49
  Speaker 1: Is it just a way to pay CEOs more, because
• 49:51
  Speaker 1: we're was looking for ways to pay cz CEOs.
• 49:54
  Speaker 3: More and more and more aren't we And the data
• 49:56
  Speaker 3: shows that.
• 49:58
  Speaker 1: ESG pay doesn't have any impact on financial performance over
• 50:03
  Speaker 1: that matter, but as it doesn't.
• 50:04
  Speaker 2: Make Yeah, I think that's a good points. There's always
• 50:06
  Speaker 2: been that thing with chief execs that there's always ways
• 50:12
  Speaker 2: to look for fluffyer methods and measure in the performance
• 50:16
  Speaker 2: so it gets easy and easier for them to keep
• 50:18
  Speaker 2: getting paid what they're getting paid. And yes, she's been
• 50:22
  Speaker 2: kind of classic in that, and I don't I think
• 50:25
  Speaker 2: that will continue to be the case for ever and
• 50:27
  Speaker 2: never because it's always an incentive to find ways around that,
• 50:30
  Speaker 2: but you just have to keep raining it in. And
• 50:34
  Speaker 2: that's I mean, I like this and I like that.
• 50:35
  Speaker 2: I also like the ideas that are in the portfolio,
• 50:40
  Speaker 2: you know, I mean obviously, I mean they've they've raised
• 50:44
  Speaker 2: an awful lot of money off the back of this,
• 50:48
  Speaker 2: and you can see that that's definitely got something to
• 50:50
  Speaker 2: do with the you know, the political side of things,
• 50:55
  Speaker 2: because it's the founder, isn't it. Vivik Ramaswami is.
• 51:00
  Speaker 3: The Gramaswami who we had a recording with the other day.
• 51:03
  Speaker 3: I mean, I do think there's there's a lot of
• 51:04
  Speaker 3: value in this and Obviously a.
• 51:05
  Speaker 1: Lot of PR comes from from the connection with Ramaswami,
• 51:09
  Speaker 1: who founded this company, And obviously they're getting a lot
• 51:11
  Speaker 1: more attention than another relatively small asset manager would, which
• 51:16
  Speaker 1: which by the way, comes at a price, because there's
• 51:18
  Speaker 1: much more attention paid to some former employers who have
• 51:21
  Speaker 1: filed lawsuits against the company in the last few months,
• 51:24
  Speaker 1: or mistreating staff and putting employees to violate securities law,
• 51:27
  Speaker 1: that kind of thing.
• 51:28
  Speaker 7: And I would imagine you'd find a fairly large number
• 51:31
  Speaker 7: of lawsuits against most big management companies fund management companies.
• 51:34
  Speaker 3: But that's not really mentioned elsewhere.
• 51:36
  Speaker 1: The company, by the way, inten vigorously defend itself from
• 51:39
  Speaker 1: these lawsuits. But it's interesting that the PR that they're
• 51:45
  Speaker 1: getting is not just making people look at them, but
• 51:48
  Speaker 1: making people put money with them.
• 51:50
  Speaker 2: Well yeah, and because if they don't, I mean, there
• 51:52
  Speaker 2: seems you talked about of interesting. I mean, like nuclear
• 51:55
  Speaker 2: is a good example, that's a particularly hot theme just now.
• 52:00
  Speaker 2: And you know, you know, weirdly, you know, given that
• 52:03
  Speaker 2: just sort of we're talking about this in the context
• 52:06
  Speaker 2: of not being in very eesg I mean, nuclear is
• 52:10
  Speaker 2: actually one of the greenest things that you could get
• 52:13
  Speaker 2: as long as you you know, will to kind of
• 52:16
  Speaker 2: rethink the kind of was Greenham common sort of like
• 52:21
  Speaker 2: approach to the nuclear nuclear industry. So, I mean, you know,
• 52:28
  Speaker 2: I could say that the themes are appealing as well,
• 52:33
  Speaker 2: I'm not necessary I've got I mean, on the downsideide, well,
• 52:41
  Speaker 2: it's just as a part of me that generally finds
• 52:43
  Speaker 2: thematic ETFs a little bit unconvincing because I think that,
• 52:50
  Speaker 2: you know, it's always the temptation to sell the story
• 52:54
  Speaker 2: over the kind of content. But that's more just so
• 53:00
  Speaker 2: let me ask you.
• 53:01
  Speaker 1: John, Yeah, let me ask you if there was a
• 53:03
  Speaker 1: Strive in the UK, what would be a candidate for
• 53:06
  Speaker 1: your for a moment pension.
• 53:09
  Speaker 2: Uh, well, that's a good question. I mean probably I
• 53:14
  Speaker 2: would approve from Afar, but I probably wouldn't invest at
• 53:19
  Speaker 2: the moment because I think, well there's I think there's
• 53:23
  Speaker 2: just too many other I'd be more interested investing we
• 53:26
  Speaker 2: had decent UK VWUME manager at the moment than invest
• 53:30
  Speaker 2: in these themes specifically.
• 53:33
  Speaker 3: Almost by default value, isn't it.
• 53:35
  Speaker 2: Yeah, But in that case, that's where going with someone
• 53:37
  Speaker 2: that was explicitly if you see what I know, I
• 53:43
  Speaker 2: feel I feel kind of bad because I agree with
• 53:45
  Speaker 2: the the the points that they'll make that he's making.
• 53:49
  Speaker 2: It's just I've struggled to get excited about a pure
• 53:53
  Speaker 2: sort of you know, thematic ETF provider is. It's just
• 53:58
  Speaker 2: it's more it's more a a stale thing than anything else.
• 54:02
  Speaker 2: Although maybe I'm just taking against them because you've always
• 54:05
  Speaker 2: felt about instead and cool have you?
• 54:08
  Speaker 3: That was a fun that.
• 54:11
  Speaker 2: Was very much.
• 54:13
  Speaker 3: I know I should have kept him on longer to
• 54:15
  Speaker 3: explain to us for a bit more about why right.
• 54:19
  Speaker 1: So that's a know from you on the basis that
• 54:22
  Speaker 1: Matt Cole believes in bitcoin. Thanks John, thanks for listening
• 54:29
  Speaker 1: to this week's Marin Talks Money.
• 54:30
  Speaker 3: We'll be back next week in the meantime. If you
• 54:32
  Speaker 3: like our show, and I really hope you.
• 54:34
  Speaker 6: Do, rate, review, and subscribe wherever you listen to podcasts.
• 54:38
  Speaker 3: This episode was listed by me Marren Sunset Web. It
• 54:41
  Speaker 3: was produced by Summer Sadi. Additional editing by Blake Maples.
• 54:44
  Speaker 3: Special thanks to Matt Cole and John Stepp at the
• 54:46
  Speaker 3: bed time.
• 54:47
  Speaker 6: And finally, do be sure to sign up to John's
• 54:49
  Speaker 6: daily newsletter, Money Distilled.
• 54:51
  Speaker 3: It's very good and the link is in the show notes.