Latest / Merryn Talks Money / Why This Controversial Investment Trust Deal Has Riled Key Shareholders

Transcript

Why This Controversial Investment Trust Deal Has Riled Key Shareholders · Merryn Talks Money

• 0:02
  Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Marin
• 0:19
  Speaker 1: Dogs Money Market Wrap, when we talk about the biggest
• 0:21
  Speaker 1: moves in the market this week and what is driving them.
• 0:24
  Speaker 1: I'm Arin zum stepweb editor Allows with Bloomberg UK Wealth, and.
• 0:27
  Speaker 2: I'm joined Stepbeg, Senior Report an author of the Money
• 0:30
  Speaker 2: Distilled newsletter.
• 0:33
  Speaker 1: Okay, now, John, for this week's chat. You suggested inviting
• 0:36
  Speaker 1: a guest who has come into the London studio. We
• 0:38
  Speaker 1: don't do this very often because of course John and
• 0:40
  Speaker 1: I are so expert we can talk about it absolutely
• 0:42
  Speaker 1: anything anytime, but we do know that a lot of
• 0:45
  Speaker 1: our listeners are very interested in investing in investment trust.
• 0:48
  Speaker 1: There's a big story there this week. So John, who
• 0:51
  Speaker 1: have you asked on.
• 0:52
  Speaker 2: Advised on the one focus Cloudier of capital getting asset
• 0:57
  Speaker 2: management and I had sort of chatted to Curse the
• 1:02
  Speaker 2: earlier this week about this particular deal, and I think
• 1:05
  Speaker 2: it's probably the reason what we see the UKs are
• 1:08
  Speaker 2: not overly enthusiastic about the prospect once we got to
• 1:14
  Speaker 2: explain what the actual deal is fast.
• 1:17
  Speaker 1: Yes, absolutely, and we will just as it started to
• 1:20
  Speaker 1: this that there's a lot of activity in the Investment
• 1:22
  Speaker 1: Trust SECTORHYTHM. I'm down and aul lot of discussion about activity.
• 1:25
  Speaker 1: So this is about one specific deal, but there is
• 1:27
  Speaker 1: a lot going on. So over to you, Chris, tell
• 1:30
  Speaker 1: us about this deal and why you are so appalled
• 1:33
  Speaker 1: by it to use your own language.
• 1:34
  Speaker 3: Thanks very much, Marion, Thank you John for having me on.
• 1:37
  Speaker 3: Really appreciate it. And yes, indeed, appalled was the word
• 1:41
  Speaker 3: that we chose to use in our letter to the Chairman,
• 1:44
  Speaker 3: which we also made public earlier in the week. So
• 1:47
  Speaker 3: what's going on here is that there are two infrastructure
• 1:51
  Speaker 3: investment trusts. The first is HICKEL, which has been on
• 1:54
  Speaker 3: the market since two thousand and six. It's a well
• 1:56
  Speaker 3: loved core infrastructure fund. And then there is a second,
• 2:01
  Speaker 3: which is a trig or, the Renewables Infrastructure Group, which
• 2:07
  Speaker 3: as the name suggests, invests in renewables infrastructure. And now
• 2:12
  Speaker 3: they're both managed by the same fund manager, Infrared Partners,
• 2:18
  Speaker 3: and they have proposed merging the two vehicles together.
• 2:22
  Speaker 2: And just to double JC when you see core infrastructure,
• 2:26
  Speaker 2: Chris for heckle, what do you mean by that?
• 2:29
  Speaker 3: So HICKEL owns things like PFI contracts, so hospitals, schools,
• 2:35
  Speaker 3: it owns toll roads, it has an investment in the
• 2:38
  Speaker 3: water sector, which is perhaps not everybody's cup of tea.
• 2:42
  Speaker 3: It owns HS one, which is the high speed rail concession.
• 2:46
  Speaker 3: Those sorts of assets I saw.
• 2:48
  Speaker 2: It's completely definite set of ices. So you're talking about
• 2:53
  Speaker 2: lots of yes, core stuff. And then what they're doing
• 2:56
  Speaker 2: is an emerging with this company that basically owns wind
• 3:00
  Speaker 2: farms and sol panels.
• 3:01
  Speaker 3: Are wind farms, solar and increasingly some exposure to battery
• 3:06
  Speaker 3: storage and both in the UK and overseas.
• 3:10
  Speaker 1: Yeah, that's correct, Cool, okay, And we should start by
• 3:14
  Speaker 1: before we move on to the meursur itself and explaining,
• 3:16
  Speaker 1: if you wouln't mind, Christ why these trusts have both
• 3:19
  Speaker 1: been trading on fairly hefty discounts. Sure, but of course
• 3:22
  Speaker 1: there's the problem.
• 3:23
  Speaker 3: Indeed. Indeed, so the first thing to say is that
• 3:26
  Speaker 3: these vehicles are all to some extent bond proxies, and
• 3:31
  Speaker 3: so as interest rates have risen, so we've seen the
• 3:34
  Speaker 3: net present value of the cash flows associated with these
• 3:37
  Speaker 3: trusts fall and therefore the prices have fallen. Then, in
• 3:42
  Speaker 3: addition to which is I'm sure you guys have talked
• 3:44
  Speaker 3: about lots on the show you know, the investment trust
• 3:46
  Speaker 3: sector has been somewhat out of favor, and fundamentally you've
• 3:50
  Speaker 3: just got more sellers than buyers, and that pushes down prices.
• 3:54
  Speaker 3: And of course, unlike an open ended fund, where you know,
• 4:00
  Speaker 3: units are created and redeemed and therefore supply naturally meets demand,
• 4:03
  Speaker 3: that the supply of shares in the investment trust sector
• 4:07
  Speaker 3: is at least in the short term fixed. So that
• 4:10
  Speaker 3: explains the kind of general malaise. But on top of that,
• 4:13
  Speaker 3: renewable infrastructure funds have been really badly hit over the
• 4:18
  Speaker 3: last couple of years, and then over the last few weeks.
• 4:22
  Speaker 3: Why is that. Well, in the first instance, shortly after
• 4:26
  Speaker 3: the invasion of Ukraine, the government put in place an
• 4:29
  Speaker 3: extraordinary profit levy which hit renewable power generators particularly hard. Then,
• 4:36
  Speaker 3: more generally, there have been concerns that these vehicles may
• 4:40
  Speaker 3: have overstated their assets because a number of them have
• 4:44
  Speaker 3: had assets for sale and have not been able to
• 4:46
  Speaker 3: realize assets and anything approaching the book values of them.
• 4:50
  Speaker 3: And then finally, in the last couple of weeks we've
• 4:54
  Speaker 3: seen these proposals floated by the government to retrospectively change
• 5:00
  Speaker 3: the subsidy regime. And relating to renewable infrastructure here in
• 5:04
  Speaker 3: the UK, and obviously that's just made matters worse. And then,
• 5:07
  Speaker 3: of course the final thing is just that there's a
• 5:10
  Speaker 3: Investors have come to realize that the cash flows associated
• 5:14
  Speaker 3: with core infrastructure are really pretty predictable and so you
• 5:19
  Speaker 3: can have a much greater confidence in those. Conversely, with
• 5:22
  Speaker 3: the renewables funds we've seen. Obviously, they are affected by
• 5:26
  Speaker 3: the power price, and they're affected by variation in wind
• 5:30
  Speaker 3: speed and all of these other things, and so investors
• 5:33
  Speaker 3: I think have come to realize that they are a
• 5:37
  Speaker 3: less certain proposition and therefore require a higher discount rate.
• 5:40
  Speaker 1: Okay, so from what you say already, I think John
• 5:43
  Speaker 1: and I are both thinking, well, why would you merge
• 5:45
  Speaker 1: these two things?
• 5:47
  Speaker 3: I would have to agree with you there, but I mean,
• 5:50
  Speaker 3: I'd like to be clear. So we came public, and
• 5:52
  Speaker 3: since we've come public, we have heard from I mean
• 5:57
  Speaker 3: literally dozens of investors, both institutional investors and private investors
• 6:01
  Speaker 3: who all share our concerns. And essentially, if I were
• 6:05
  Speaker 3: going to summarize them, I guess i'd say the following.
• 6:07
  Speaker 3: The first is that, look, some people may differ in
• 6:11
  Speaker 3: their assessment of renewable infrastructure, and that's absolutely fine. And
• 6:15
  Speaker 3: if they want to buy infrastructure, renewable infrastructure, there are
• 6:19
  Speaker 3: plenty of vehicles that they can go and buy. Some people,
• 6:22
  Speaker 3: by contrast, and we would include ourselves in this, prefer
• 6:25
  Speaker 3: core infrastructure. And they own Hickel. And what the investors
• 6:29
  Speaker 3: are absolutely spitting about is that all of a sudden
• 6:33
  Speaker 3: they are being forced by the board through their ownership
• 6:36
  Speaker 3: of Hickel, to buy renewable infrastructure. And they say, if
• 6:39
  Speaker 3: I had wanted to own it, I would have bought it,
• 6:42
  Speaker 3: and I bought something else instead. So that's the first
• 6:46
  Speaker 3: big problem. The second big problem is that because of
• 6:50
  Speaker 3: these issues in the renewable infrastructure space, it was trading
• 6:54
  Speaker 3: on a much wider discount. Trigg was trading on a
• 6:58
  Speaker 3: much wider discount than Hickel. So a close of business
• 7:01
  Speaker 3: on Friday afternoon, Hickel was trading on about a twenty
• 7:03
  Speaker 3: two percent discount to its then nav and Trigg was
• 7:07
  Speaker 3: trading on about a thirty three So there's sort of
• 7:09
  Speaker 3: an eleven percent difference. And I guess you could say
• 7:12
  Speaker 3: that that's the market's best estimate of the difference in hardness,
• 7:17
  Speaker 3: if you will, of their respective NAV, so investors were
• 7:20
  Speaker 3: saying they had much more confidence in the NAV of Hickel,
• 7:23
  Speaker 3: much lower confidence in the NAV of Trigg. But the
• 7:27
  Speaker 3: deal has been structured on an NAV for NAV basis,
• 7:31
  Speaker 3: and so what that means is that not only are
• 7:35
  Speaker 3: investors being forced into buying a set of assets that
• 7:39
  Speaker 3: they don't want because it's being struck on an NAV
• 7:43
  Speaker 3: for NAV basis, they're effectively paying a higher price than
• 7:46
  Speaker 3: the prevailing market price before this deal was announced.
• 7:50
  Speaker 2: Yes, I mean, why not just buy it in the
• 7:53
  Speaker 2: open market, you know, it's kind of it seems a
• 7:57
  Speaker 2: bit o white.
• 7:57
  Speaker 3: And I mean, I'm afraid it gets even worse than that,
• 8:00
  Speaker 3: which is that the Trig shareholders are being offered a
• 8:05
  Speaker 3: cash out at a ten percent discount for some of
• 8:08
  Speaker 3: their stake. So actually that means that the effective price
• 8:12
  Speaker 3: that Hickel shareholders is even higher. And you know, alternatively,
• 8:17
  Speaker 3: Hickel shareholders aren't being offered any cash out at any
• 8:20
  Speaker 3: price under the term.
• 8:21
  Speaker 1: So there's no out for Hickel shareholders, but there isn't
• 8:24
  Speaker 1: out for Trig shareholders. At a ten percent discount to NYAVY,
• 8:27
  Speaker 1: that's a great deal for them, absolutely, if it was
• 8:30
  Speaker 1: initially on a thirty four percent, so shareholders and TRIG
• 8:35
  Speaker 1: will be pleased. They might not get out in their entirety,
• 8:38
  Speaker 1: but they'll get out of some of their horrible holding
• 8:41
  Speaker 1: at a ten percent discount, and the rest will be
• 8:43
  Speaker 1: folded into a superior truck. Correct, This is pretty good
• 8:47
  Speaker 1: for Trig shareholders, assuming they don't mind holding the assets
• 8:50
  Speaker 1: inside hickelds.
• 8:51
  Speaker 3: That's a fair comment, and so you know, obviously, if
• 8:53
  Speaker 3: I were a Trig shareholder, I'd be reasonably delighted, although
• 8:56
  Speaker 3: I would note that the difference in share price movements
• 9:00
  Speaker 3: since the deal was announced is quite asymmetric. So the
• 9:03
  Speaker 3: share price of Hickel when I last checked was down
• 9:05
  Speaker 3: seven percent from the undisturbed price, but the TRIG share
• 9:09
  Speaker 3: price was only up too, so in aggregate, this deal
• 9:12
  Speaker 3: has destroyed value. But actually you're right. I had an
• 9:18
  Speaker 3: email from a client a couple of days ago. I
• 9:21
  Speaker 3: asked him if he was involved in the transaction, and
• 9:24
  Speaker 3: he replied saying, for my sins, we only own Trig,
• 9:29
  Speaker 3: and we're completely delighted because it seems like we're being
• 9:32
  Speaker 3: bailed out at the expense of Hickel share and I'm
• 9:35
  Speaker 3: afraid I have to agree with him, and I was
• 9:39
  Speaker 3: impressed with his honesty.
• 9:41
  Speaker 1: Yes, okay, So why do you think this is happening?
• 9:45
  Speaker 1: I mean, the suspicion is that this is just good
• 9:48
  Speaker 1: for the advisor because they have both trusts, so they
• 9:53
  Speaker 1: got to hang onto the assets and neither of these
• 9:54
  Speaker 1: trusts end up going anywhere else or being brought out
• 9:57
  Speaker 1: or merged into another trust out with their organization, so
• 10:01
  Speaker 1: it makes sense for them.
• 10:03
  Speaker 3: Yeah, And I mean, and particularly in relation to that, so,
• 10:09
  Speaker 3: Trigg made a promise that they would hold a continuation
• 10:12
  Speaker 3: vote if the trust traded on a discount. You know,
• 10:15
  Speaker 3: I forget what the number was. I think it was
• 10:17
  Speaker 3: maybe if it averaged a wider than a ten discount
• 10:19
  Speaker 3: over twelve month period or whatever it was. And that
• 10:22
  Speaker 3: continuation vote is almost certain to be triggered next year.
• 10:26
  Speaker 3: And so you know, if you were a cynic, you
• 10:28
  Speaker 3: would say that this transaction means that they can avoid
• 10:32
  Speaker 3: that continuation vote taking place, where given I guess the
• 10:36
  Speaker 3: very large discount that it was trading on prior to
• 10:39
  Speaker 3: this announcement, you would think there was a good chance
• 10:41
  Speaker 3: that that continuation vote would fail.
• 10:44
  Speaker 1: Yeah. So, and for Red Capital Partners, who have both
• 10:47
  Speaker 1: of these trusts now will effectively keep the majority of
• 10:50
  Speaker 1: the assets in both of them. Yes, well they may
• 10:53
  Speaker 1: well not have otherwise.
• 10:55
  Speaker 3: Indeed, and you know, admittedly they have made some concessions
• 10:58
  Speaker 3: around management fees, but they're pretty modest and so in
• 11:03
  Speaker 3: the grand scheme of things, Yeah, I think it's a
• 11:07
  Speaker 3: good deal for Infrared.
• 11:08
  Speaker 2: Of interesting to see someone's listening to this and the
• 11:12
  Speaker 2: rain shields in Hickel. What or check for that mate?
• 11:15
  Speaker 2: What can they do to stop the deal going through?
• 11:20
  Speaker 2: Or presumably this is all going to a vote at
• 11:22
  Speaker 2: some points that come up in December, and I think
• 11:25
  Speaker 2: that correct.
• 11:26
  Speaker 3: Yeah, so so you know, we've not the documents haven't
• 11:28
  Speaker 3: been published yet, but certainly according to management, the vote
• 11:32
  Speaker 3: we'll be coming up in December. Look, our advice would
• 11:36
  Speaker 3: be first thing to do for any shareholder, and this
• 11:39
  Speaker 3: is just as true for institutional shareholders as it is
• 11:41
  Speaker 3: for retail shareholders, is to get in touch with the
• 11:44
  Speaker 3: board of Hickel. You can find their email address on
• 11:48
  Speaker 3: the Hickel website. And if you tell them that you
• 11:51
  Speaker 3: don't like the deal. By the way, you know, it
• 11:53
  Speaker 3: goes without saying that being shareholders is a democratic activity.
• 11:57
  Speaker 3: If you like the deal. You should also get in
• 11:59
  Speaker 3: touch with them as well and tell them about that.
• 12:01
  Speaker 3: I would hate to, as it were, be told that
• 12:03
  Speaker 3: there were some silent majority that wasn't being listened to
• 12:06
  Speaker 3: in all of this. It's really easy at times like this,
• 12:09
  Speaker 3: both as institutional and as retail shareholders, to feel that
• 12:13
  Speaker 3: you're you know that you're very small, and that your
• 12:16
  Speaker 3: voice doesn't count. And what we are trying to do
• 12:20
  Speaker 3: is gather together a group of like minded shareholders who
• 12:24
  Speaker 3: feel the same way about this and make sure that
• 12:27
  Speaker 3: the board are really hearing our voices loud and clear.
• 12:30
  Speaker 3: So we would love to hear from you. And again,
• 12:33
  Speaker 3: even if you like the deal, we'd love to hear
• 12:34
  Speaker 3: from you as well.
• 12:35
  Speaker 1: That's it. There may be a lot of people who
• 12:37
  Speaker 1: love this deal outside trick shareholders. There maybe others who
• 12:39
  Speaker 1: are perfectly happy these trust to be fulled together.
• 12:42
  Speaker 3: I mean, you're absolutely right, there may be Mariren. We
• 12:45
  Speaker 3: have been actively speaking to retail and institutionals since Monday.
• 12:49
  Speaker 3: We've not come across one yet, but that's not to
• 12:52
  Speaker 3: say they don't exist.
• 12:53
  Speaker 1: Not to say they don't exist. You never know which
• 12:55
  Speaker 1: may people will go on this. Can I take the
• 13:13
  Speaker 1: conversation a bit wider and ask you then the investment
• 13:16
  Speaker 1: trust sector in the UK we're talking about it being
• 13:18
  Speaker 1: genuinely in the doldrooms. There are likely to be more
• 13:23
  Speaker 1: actions in the sector, right everyone. Everyone's trying to find
• 13:25
  Speaker 1: a way to get these discounts down, and so there's
• 13:27
  Speaker 1: bound to be more announcements of continuous and votes, more
• 13:31
  Speaker 1: mergers from takeovers etc.
• 13:33
  Speaker 3: Yeah, I think that would be a fair assumption.
• 13:37
  Speaker 1: So one of the things that you might be trying
• 13:38
  Speaker 1: to do here is to try and make sure that
• 13:41
  Speaker 1: any that come after this pay more attention to what
• 13:45
  Speaker 1: more shareholders might think.
• 13:47
  Speaker 3: Yeah. Absolutely. So there's another core infrastructure fund I MPP
• 13:53
  Speaker 3: that's also held in very high regard by US certainly
• 13:58
  Speaker 3: and lots of other market participants. And had this been
• 14:00
  Speaker 3: a proposal to merge IMPP and Hickel together on an
• 14:04
  Speaker 3: NAV for an av basis to create a much larger,
• 14:07
  Speaker 3: more liquid trust, I'm absolutely sure we throw our weight
• 14:10
  Speaker 3: behind it, and that would be a good thing. When
• 14:13
  Speaker 3: there is in the investment trust sector, as in any market,
• 14:17
  Speaker 3: a greater supply than demand of shares, one thing takes
• 14:22
  Speaker 3: up the slack, and that is price and the way
• 14:25
  Speaker 3: to solve that imbalance is to reduce the supply of shares,
• 14:29
  Speaker 3: and so ultimately that is about trust getting taken over,
• 14:32
  Speaker 3: getting merged buybacks happening. And obviously in the case of
• 14:37
  Speaker 3: trusts that hold a liquid private assets, that's a longer
• 14:40
  Speaker 3: and slower process than for conventional investment trusts. But it
• 14:44
  Speaker 3: just takes time and just needs to be worked through.
• 14:47
  Speaker 2: Yeah, and I'm thinking these two two fifty and if
• 14:50
  Speaker 2: they mail just to become fifty one hundred.
• 14:52
  Speaker 3: I think that's a reasonable assumption. Yeah, they're both in
• 14:54
  Speaker 3: the footsy two fifty.
• 14:55
  Speaker 1: Yeah.
• 14:55
  Speaker 2: So yeah, so the only other overall benefit is that
• 14:59
  Speaker 2: I'll give it becomes a higher profil trust than it
• 15:02
  Speaker 2: currently is.
• 15:03
  Speaker 3: Yeah, and I think, I mean, you know, and I
• 15:05
  Speaker 3: guess there is definitely some merit to that, But my
• 15:08
  Speaker 3: argument would be is that there is far better If
• 15:11
  Speaker 3: the aim is to create scale, there are far better
• 15:14
  Speaker 3: mergers out there that could be done. It's also true
• 15:17
  Speaker 3: that scale is not in and of itself a solutions.
• 15:20
  Speaker 3: So I was speaking to an institutional investor in Australia
• 15:25
  Speaker 3: who holds Hickel, and they were saying that they were
• 15:29
  Speaker 3: concerned that they would be forced to dispose of their
• 15:32
  Speaker 3: stake in Hickel because of the fact that it would
• 15:35
  Speaker 3: no longer fit with their mandate.
• 15:37
  Speaker 1: Yep. Interesting, Okay, Chris, Because we've got you and this
• 15:45
  Speaker 1: is a market round up podcast, can I ask you
• 15:48
  Speaker 1: what on earth do you think is going on in
• 15:50
  Speaker 1: muggers in general at the moment?
• 15:51
  Speaker 3: I mean, you absolutely can ask me. I'm afraid my answer,
• 15:55
  Speaker 3: as is so often the case, is that I'm completely baffled.
• 16:00
  Speaker 1: Which bit babbles. I mean, really, I'm talking about the
• 16:03
  Speaker 1: last four or five days, we've seen constant sell offs
• 16:06
  Speaker 1: across the board, and everyone thinks, well, maybe this is
• 16:08
  Speaker 1: the beginning, the beginning of the end of the AI
• 16:10
  Speaker 1: bubble or the eye boom, or maybe it's because everything
• 16:13
  Speaker 1: is horribly expensive and so it makes sense for it
• 16:15
  Speaker 1: to correct a little bit. I mean, if you look
• 16:16
  Speaker 1: at the numbers for year to date, everything's still out
• 16:18
  Speaker 1: of fifteen, sixteen, seventeen, eighteen percent. Not really a big deal.
• 16:22
  Speaker 1: Bitcoin is pretty much the only thing that's lost all
• 16:25
  Speaker 1: its games for the year.
• 16:26
  Speaker 3: Well, I certainly think i'd be in the kind of
• 16:28
  Speaker 3: the latter part of your explanation, which is that everything
• 16:32
  Speaker 3: was horribly expensive to start with, and so we're just
• 16:34
  Speaker 3: saying what might be the start of, as it were,
• 16:37
  Speaker 3: a normal correction. I mean, you know, as I'm sure
• 16:41
  Speaker 3: you know. You know, we set a lot of store
• 16:43
  Speaker 3: by the cyclically adjusted PE ratio and the reason for
• 16:47
  Speaker 3: that is that historically it's been a fantastic predictor of
• 16:50
  Speaker 3: long term returns. If you bucket starting CAPE ratio by decile,
• 16:57
  Speaker 3: you see that the prospective tenure return correlate perfectly to
• 17:02
  Speaker 3: each of those buckets. The ninetieth percentile and upwards, historically speaking,
• 17:08
  Speaker 3: would point to average perspective real returns of about half
• 17:13
  Speaker 3: a percent per year for the next ten years. And
• 17:16
  Speaker 3: that's for the top death style. And we're currently in
• 17:18
  Speaker 3: the ninety ninth percentile, so we're in the top one
• 17:21
  Speaker 3: percent of that top bucket. So yeah, you know, we
• 17:24
  Speaker 3: think that markets are pretty pretty expensive here.
• 17:27
  Speaker 1: So everything has to go absolutely right. Every earning forecast
• 17:31
  Speaker 1: has to be beaten.
• 17:32
  Speaker 2: We are being a bit hostage to fortune here because
• 17:35
  Speaker 2: the video is coming out later as we speak, and
• 17:39
  Speaker 2: I guess a lot of it hinjies on what happens,
• 17:42
  Speaker 2: but that doesn't it a lot of the other things
• 17:44
  Speaker 2: people are starting to freak out about. Then they're not
• 17:48
  Speaker 2: sure what to planing more about is the ISYI taking
• 17:51
  Speaker 2: over fast enough? And also our people now spending too
• 17:56
  Speaker 2: much money or investing in AI. Think that's the one thing.
• 18:00
  Speaker 2: I do think the mood has shifted. There's no longer
• 18:03
  Speaker 2: this obviously want you to roll out stuff as fast
• 18:06
  Speaker 2: as possible and really kind of take control of this space.
• 18:10
  Speaker 2: They're now thinking, we are we going to pay for
• 18:12
  Speaker 2: all of this stuff that you're building. And I think
• 18:15
  Speaker 2: that's one kind of narrative tweak that I would say
• 18:18
  Speaker 2: I've noticed maybe in the past two or three months,
• 18:21
  Speaker 2: maybe even not even that long.
• 18:24
  Speaker 1: Yeah, is it also fair that this idea that depreciation
• 18:28
  Speaker 1: isn't quite being dealt with correctly is really beginning to
• 18:31
  Speaker 1: take hold? And we talked about this last week, John
• 18:33
  Speaker 1: and I think we both wrote about it, and that
• 18:36
  Speaker 1: this idea that the big GP is the probably called
• 18:40
  Speaker 1: graphics processing units and will lease their value faster than
• 18:43
  Speaker 1: people thought. Therefore they're being depreciated over the wrong period,
• 18:46
  Speaker 1: and that is artificially inflating earnings numbers. That's something that
• 18:49
  Speaker 1: is you know, we're so niche even a week ago
• 18:52
  Speaker 1: and now is part of the general conversation.
• 18:54
  Speaker 2: Right interestingly, you give Chris's creator. I remember we had
• 18:56
  Speaker 2: a chat about about two months ago, and the first
• 18:59
  Speaker 2: thing have you seen me was a bit yeah, but
• 19:01
  Speaker 2: look at all this they'll spend, and what's the depreciation
• 19:03
  Speaker 2: going to be on that? I was like, oh, yeah,
• 19:06
  Speaker 2: that's an interesting point. I just wish i'd kind of
• 19:09
  Speaker 2: like listen more closely and written the.
• 19:10
  Speaker 3: Boot tame.
• 19:14
  Speaker 1: Christ Is. So I ahead of the game. Thank you?
• 19:15
  Speaker 1: Tell us something else that would make the rest of
• 19:17
  Speaker 1: us again.
• 19:18
  Speaker 3: You know, I tend to only come up with one
• 19:20
  Speaker 3: good idea about every about every ten, So I don't know,
• 19:24
  Speaker 3: I don't I don't know what what I've got next.
• 19:27
  Speaker 3: I mean, I suppose, you know, I think obviously the
• 19:31
  Speaker 3: depreciation point is one thing. I guess. The other thing
• 19:35
  Speaker 3: is that a huge amount of private credit is being
• 19:39
  Speaker 3: sunk into this great AI Capex build out. And of course,
• 19:46
  Speaker 3: you know, Missily, most of these private credit managers are
• 19:49
  Speaker 3: pretty shrewd operators. I mean, I don't think anybody can
• 19:52
  Speaker 3: say that Apollo Naive, for instance. But by the same token,
• 19:57
  Speaker 3: there is such a wall of money in private credit
• 20:01
  Speaker 3: that needs to be spent, and such excitement around AI.
• 20:04
  Speaker 3: What I struggle to see is that the revenues will
• 20:07
  Speaker 3: be there that will support this huge amount of capex,
• 20:10
  Speaker 3: And so I guess the question is is who is
• 20:12
  Speaker 3: left holding the baby? And when those revenues don't materialize. Now,
• 20:18
  Speaker 3: the you know, the Magnificent Seven, generate such prodigious amounts
• 20:22
  Speaker 3: of free cash flow that maybe you know that they
• 20:26
  Speaker 3: can just write that off. Just to say, Meta wrote
• 20:29
  Speaker 3: off the fifty plus billion dollars that they spent on
• 20:31
  Speaker 3: the metaverse, and you know, essentially, I think we all
• 20:34
  Speaker 3: agree that that's turned out to be worthless. But investors say, well,
• 20:37
  Speaker 3: that doesn't really matter because the core business is fantastic.
• 20:39
  Speaker 3: They'll get some things right, they'll get other things wrong,
• 20:42
  Speaker 3: but it's all equally possible that, you know, a large
• 20:45
  Speaker 3: chunk of this capex ends up in the hands of
• 20:47
  Speaker 3: private debt funds and simply the revenues aren't available to
• 20:50
  Speaker 3: support it, and then you see some really large write downs.
• 20:53
  Speaker 3: But I have no idea.
• 20:54
  Speaker 1: Yeah, okay, well that's that said. I mean, I think
• 20:56
  Speaker 1: the core thing here is expensive. Stuff doesn't was so expensive,
• 21:01
  Speaker 1: and that's roughly what's happening here before we move on,
• 21:04
  Speaker 1: And sorry, Chris, this is not something you're interested in
• 21:08
  Speaker 1: I should think that I'm very interested in a headline
• 21:12
  Speaker 1: on Bloomberg at the moment that I know John is
• 21:14
  Speaker 1: gonna love. House prices crash across London's wealthiest neighborhoods. House
• 21:19
  Speaker 1: prices in Kensington and Chelsea felt by almost one hundred
• 21:22
  Speaker 1: and sixty thousand pounds in the year to September, with
• 21:26
  Speaker 1: the prices of saltoms in the borough dropping eleven point
• 21:29
  Speaker 1: three percent, and across London as a whole, house values
• 21:33
  Speaker 1: down more than ten thousand pounds each, down around two
• 21:36
  Speaker 1: percent or so. And do you know what's going to
• 21:37
  Speaker 1: make those houses house prices fall even faster?
• 21:40
  Speaker 2: Double in consal tax on the top bynes.
• 21:44
  Speaker 1: It's a mentioned tax. It is what they call it
• 21:46
  Speaker 1: a mansion tax. And that's what it's going to work being.
• 21:48
  Speaker 1: And as after laugh, that was only a few weeks ago.
• 21:51
  Speaker 1: The worst of all taxes are these taxes on assets,
• 21:54
  Speaker 1: because they reduce the price of the assets or the
• 21:56
  Speaker 1: value of the assets, and then they go give you
• 21:58
  Speaker 1: a bit of a reverse wealth of fact, everyone feels poorer,
• 22:01
  Speaker 1: no one, no one built a new extension, etcetera. Eccent.
• 22:04
  Speaker 1: They're terrible, terrible taxes.
• 22:05
  Speaker 2: Well, It's a big problem, isn't it, Because people already
• 22:08
  Speaker 2: like builders no longer feel its poss building in London
• 22:11
  Speaker 2: because they simply can't make a profit on what they build.
• 22:17
  Speaker 1: So, although you know all this said, everyone keeps telling
• 22:21
  Speaker 1: me that, you know, the river's wealth of factor is
• 22:22
  Speaker 1: in place, and no one's building extensions or having worked
• 22:25
  Speaker 1: done in the houses anymore. But you know, I've been
• 22:27
  Speaker 1: looking for someone to put a new shower into my basement, breed.
• 22:30
  Speaker 2: Have you not living in London the rest of the countries?
• 22:33
  Speaker 1: Okay, not living in LODs is fine, Okay, brilliant. And
• 22:38
  Speaker 1: I suppose the only other big story this week that
• 22:40
  Speaker 1: we should look at briefly is the endless discussion about
• 22:42
  Speaker 1: what is going to be in the budget. And RSM
• 22:45
  Speaker 1: are very kindly sent us a list of what might
• 22:48
  Speaker 1: be in a smagas Board budget. I've been working all
• 22:51
  Speaker 1: day and trying to learn to say smorgat board is
• 22:52
  Speaker 1: a very difficult word for me. Their list includes a
• 22:55
  Speaker 1: few things that I hadn't even thought of. Anything the
• 22:57
  Speaker 1: removal of the I know, remove all of the residents.
• 23:03
  Speaker 2: Maybe the routes, Maybe the routes, Yeah.
• 23:05
  Speaker 1: Maybe they would that around you would raise two point
• 23:07
  Speaker 1: two billion, the removal of business asset disposal relief, which
• 23:11
  Speaker 1: would raise a mayor zero point nine billion uplift of
• 23:14
  Speaker 1: removal of the capital gains uplift on death, that's quite
• 23:18
  Speaker 1: a likely so that you now have do you will
• 23:21
  Speaker 1: then have to pay capital gains and then inheritance facts.
• 23:24
  Speaker 2: So that's a sneaky one.
• 23:27
  Speaker 1: That's really sneaky. Yeah, And I say cap introduction introduced
• 23:32
  Speaker 1: one hundred thousand pounds lifetime cap on I for introductions.
• 23:35
  Speaker 1: I mean that is the that would be horrible, horrible
• 23:39
  Speaker 1: because it runs into all the same things that the
• 23:42
  Speaker 1: lifetime allowance on penance used to run into, which is,
• 23:45
  Speaker 1: you know, how do you manage that? How do you
• 23:47
  Speaker 1: put inflation into that? Would you change the limit all
• 23:49
  Speaker 1: the time? If you hit the limit earlier and then
• 23:50
  Speaker 1: they changed the limits, you get to put more on earth?
• 23:52
  Speaker 1: Does it ever work? So I can't really see that
• 23:55
  Speaker 1: one happening. But interesting lest.
• 23:56
  Speaker 2: I was one of the tossed and by all staff
• 23:58
  Speaker 2: ideas that the resolution thing. They've probably just thrown that
• 24:02
  Speaker 2: in on the off channel. But at that point does
• 24:04
  Speaker 2: seem like it would cause way too much for a pushback.
• 24:08
  Speaker 1: I think it's not that it's just all too all
• 24:12
  Speaker 1: these things. I mean, they should I don't know when
• 24:14
  Speaker 1: they when they think of these things, they don't put
• 24:16
  Speaker 1: an ADMIN score next to it. I easy, really really hard,
• 24:21
  Speaker 1: and that would come under really really hard anyway. So
• 24:23
  Speaker 1: that's just a similar things for everyone to worry about.
• 24:26
  Speaker 1: I didn't have enough. Yeah, Chris, have you got any
• 24:29
  Speaker 1: thoughts about what what would be the worst thing that
• 24:31
  Speaker 1: could possibly happen in the budget?
• 24:34
  Speaker 3: Long if you go? I mean, I mean the troublers
• 24:36
  Speaker 3: that I've got no idea what's going to happen in
• 24:38
  Speaker 3: the budget because they seem to have floated every single
• 24:41
  Speaker 3: trial balloon on the on the planet and then gone
• 24:44
  Speaker 3: back on half of them. So I mean, I'm frankly
• 24:47
  Speaker 3: as baffled as anybody, but I completely agree. The simple
• 24:50
  Speaker 3: fact is is that you know, the only taxes that
• 24:54
  Speaker 3: really do anything income tax, national insurance VAT, corporation tax
• 24:59
  Speaker 3: to a lesser extent, and taxes need to go up,
• 25:03
  Speaker 3: and frankly, they need to just grasp a nettle and
• 25:05
  Speaker 3: get on with raising some of the big taxes. And
• 25:07
  Speaker 3: you know, inevitably I would prefer some to others, but
• 25:11
  Speaker 3: but just get on with one of them or more
• 25:13
  Speaker 3: than one of them.
• 25:14
  Speaker 1: Yeah, all put and pays a plan. I mean, you know,
• 25:17
  Speaker 1: outrageous suggestion put in plays a pan for spending over
• 25:20
  Speaker 1: the long term. That would do over the markets too.
• 25:23
  Speaker 3: As unfortunately we have discovered there is clearly no majority
• 25:27
  Speaker 3: in the Parliamentary Labor Party to put any kind of
• 25:31
  Speaker 3: constraint on on spending. So sadly, I don't believe that
• 25:34
  Speaker 3: is going to happen, but yes, that would obviously be
• 25:36
  Speaker 3: a preferred option.
• 25:39
  Speaker 1: Well, I think we have a consensus on this podcast
• 25:42
  Speaker 1: on that, right, anything else John that we should say,
• 25:45
  Speaker 1: do you think no?
• 25:46
  Speaker 2: I think that's that's all been That's all been good,
• 25:49
  Speaker 2: And we went to nicety and bitcoins, so that's that's helpful.
• 25:55
  Speaker 1: We all have our private thoughts on that one. Chris,
• 25:58
  Speaker 1: thank you so much for joining us today.
• 26:00
  Speaker 3: Thanks John, Thanks Maren, Thanks John. Love to say to
• 26:03
  Speaker 3: see both you too.
• 26:05
  Speaker 1: Thank you for listening to this week's Maren Dog's Money Debrief.
• 26:08
  Speaker 1: If you'd like us, share, rate, review, and subscribe wherever
• 26:10
  Speaker 1: you listen to podcasts, be sure to followed me in
• 26:12
  Speaker 1: John on ex or Twitter at marinis wn John Underscore
• 26:15
  Speaker 1: Step Back. This episode was produced by Samasadi and Moses
• 26:18
  Speaker 1: and Betel. Thanks to Chris Clovia. Questions and comments on
• 26:22
  Speaker 1: this show and all our shows always welcome. Our show
• 26:24
  Speaker 1: email is merin Money at Bloomberg dot net