WEBVTT - Looking to Protect Your Wealth In Crazy Markets? Here's How. 0:00:02.720 --> 0:00:16.759 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:17.880 --> 0:00:20.119 Welcome to Maren Talks Money, the podcast in which people 0:00:20.120 --> 0:00:22.840 who know the markets explain the markets. I'm Marin seven 0:00:22.880 --> 0:00:25.959 Stweb this week as weeakless Aboutian Lion, founder and Chief 0:00:26.000 --> 0:00:30.360 investment Officer of Troy Asset Management. Troy managed the Personal 0:00:30.520 --> 0:00:34.600 Assets Trust, one of the UK's most popular capital preservation trusts. 0:00:34.600 --> 0:00:37.400 They take it over in two thousand and nine. Since then, 0:00:37.440 --> 0:00:39.720 the trust is up two hundred and four percent. The 0:00:39.760 --> 0:00:42.159 UK retail price Index over the same period is up 0:00:42.320 --> 0:00:46.000 eighty five percent, so you have very comfortably beaten inflation 0:00:46.159 --> 0:00:49.320 since then. You've also beaten inflation comfortably over ten years now. 0:00:49.360 --> 0:00:51.479 The last year has been much better for personal assets. 0:00:51.479 --> 0:00:53.440 If you've been holding shares in the trust, you're up 0:00:53.520 --> 0:00:56.080 nine point three percent when the UK retail price index 0:00:56.320 --> 0:00:59.480 is up only three point seven percent. So we talked 0:00:59.480 --> 0:01:02.600 to about you. Now find out what next. We discussed 0:01:02.640 --> 0:01:05.959 the investment trust industry as well. We discussed American exceptionalism 0:01:06.040 --> 0:01:08.160 and why there are good reasons to be cautious, and 0:01:08.200 --> 0:01:12.640 also of course crushly his outlook for gold. Sebastian, thank 0:01:12.640 --> 0:01:14.960 you so much for joining us today. It is a huge. 0:01:14.680 --> 0:01:16.559 Pleasure to have you on pleasure, Maren. 0:01:16.800 --> 0:01:18.520 Right now, we've got an awful lot to talk about, 0:01:18.600 --> 0:01:20.720 so let's start rattling through this. It's the first thing 0:01:20.720 --> 0:01:22.920 I want to talk about with you because you are 0:01:23.040 --> 0:01:25.920 such an expert on the investment trust industry and our 0:01:26.000 --> 0:01:29.119 audience is very interested in this. The investment trust sector 0:01:29.120 --> 0:01:30.600 as a whole has found ourself in a bit of 0:01:30.640 --> 0:01:35.040 a pickle, as exemplified by the Whole saga. Anyone, by 0:01:35.040 --> 0:01:37.480 the way, who doesn't know about the SABA saga, the 0:01:37.560 --> 0:01:40.679 activist attack on the sector, please go back and listen 0:01:40.720 --> 0:01:43.120 to some of the many, many podcasts we've done on this, 0:01:43.319 --> 0:01:47.600 and in particular John's interview with Boas Weinstein, the CIO 0:01:47.680 --> 0:01:49.920 of SABA, who talks a lot about what he's trying 0:01:49.960 --> 0:01:52.840 to do and why approve or don't approve. I suspect 0:01:52.880 --> 0:01:55.520 Sabastian doesn't approve, but we'll get to that. So a 0:01:55.520 --> 0:01:57.840 little history of Sebastian. How did we find ourselves in 0:01:57.840 --> 0:01:58.720 the pickle that we're in? 0:01:59.600 --> 0:02:02.880 Yes, has disrupted the sector, Marin and some good trusts, 0:02:03.120 --> 0:02:06.560 and some trusts have been punished for effectively poor liquidity 0:02:06.720 --> 0:02:10.440 and not defending discounts, and effectively this started. We have 0:02:10.560 --> 0:02:13.360 to go back to your favorite time in history, the 0:02:13.360 --> 0:02:16.800 financial crisis. We love that because in two thousand and nine, 0:02:17.600 --> 0:02:21.280 interest rates were cut to zero and stayed there. Effectively 0:02:21.320 --> 0:02:24.399 what people realized it took a few years, the Penninty troll, 0:02:24.440 --> 0:02:28.160 probably until about twenty twelve or twenty thirteen, when central 0:02:28.200 --> 0:02:31.040 banks started introducing forward guidance. Takes you right the way 0:02:31.080 --> 0:02:34.720 back to that. Effectively, forward guidance was when central banks 0:02:34.720 --> 0:02:36.639 said we're not going to raise rates for a long 0:02:36.720 --> 0:02:39.720 period of time two years, three years, four years, and 0:02:39.760 --> 0:02:42.400 so suddenly everybody realized that interest rates weren't going to 0:02:42.480 --> 0:02:46.919 go back to where they'd come and the effectively bond 0:02:47.000 --> 0:02:51.359 yels fell very sharply, went down to you know, low 0:02:51.400 --> 0:02:54.200 single digit percentages, and everybody was definitely looking around who 0:02:54.240 --> 0:02:58.079 needed income for income and so there was a huge 0:02:58.160 --> 0:03:03.480 amount of issuance from investment trusts, alternatives and equities between 0:03:03.560 --> 0:03:07.240 from twenty thirteen for a decade, so from the decade 0:03:07.639 --> 0:03:11.080 up until twenty twenty two, there was twenty five billion 0:03:11.160 --> 0:03:16.200 pounds of issuance. Mainly that's primary issuance, that's either investment 0:03:16.240 --> 0:03:19.760 trust issuing new shares to the existing investment trusts issuing 0:03:19.800 --> 0:03:23.080 new shares to their shareholders to new shareholders, or it 0:03:23.160 --> 0:03:26.000 was actually IPOs so new investment trust launching. 0:03:26.200 --> 0:03:28.040 It's the Bastian time. I'm going to interrupt you briefly 0:03:28.680 --> 0:03:31.240 just to ask you to explain to listeners. You aren't 0:03:31.280 --> 0:03:34.400 completely affair with this sector. Why if you need income 0:03:34.840 --> 0:03:37.160 do you see new investment trust issuance? 0:03:37.520 --> 0:03:41.320 Because effectively, these investment trusts were offering a higher yield. 0:03:41.480 --> 0:03:43.840 So they were offering that four to five percent yield 0:03:43.920 --> 0:03:46.800 which everybody was looking around for in a zero interest 0:03:46.880 --> 0:03:49.760 rate environment. In many ways they were investing in high 0:03:49.840 --> 0:03:55.680 yield equities. They were investing in alternatives like infrastructure, those 0:03:55.720 --> 0:03:58.560 sort of areas where there is on balance highild, also 0:03:58.600 --> 0:04:01.960 private credit ways. And the other thing is is that 0:04:02.000 --> 0:04:03.760 they were just looking for alternatives. They were looking for 0:04:03.760 --> 0:04:07.200 alternative assets which were going to generate a return because 0:04:07.240 --> 0:04:10.000 they weren't having a return from cash. That was the 0:04:10.080 --> 0:04:13.760 key difference. And the problem is is that the primary 0:04:13.760 --> 0:04:16.359 issuances are very easy to get in. It's not quite 0:04:16.360 --> 0:04:18.560 so easy to get out, as we've discovered. So the 0:04:18.600 --> 0:04:21.960 secondary market, ie, this is the buying and selling of 0:04:22.000 --> 0:04:25.120 the investment trust shares is a lot more tight and 0:04:25.480 --> 0:04:28.160 it's a lot less easy than the primary market, ie, 0:04:28.160 --> 0:04:31.360 if you want to buy new shares, And effectively we 0:04:31.480 --> 0:04:35.120 had record issuance for a decade, and then what happened. 0:04:35.200 --> 0:04:39.279 What happened in twenty twenty two, Inflation went up, interest 0:04:39.400 --> 0:04:43.920 rates went up to five percent, and suddenly shareholders didn't 0:04:44.000 --> 0:04:46.120 need that yield any longer because they could get it 0:04:46.120 --> 0:04:47.880 from guilts or they could get it from cash in 0:04:47.880 --> 0:04:52.919 the bank, and there wasn't any liquidity within the investment 0:04:52.960 --> 0:04:57.480 trust sector to effectively allow investors to move their money 0:04:57.640 --> 0:05:01.040 and effectively liquidate those shareholdings that they'd they'd made during 0:05:01.080 --> 0:05:04.000 that zero interest rates environment. So suddenly we've gone from 0:05:04.040 --> 0:05:07.120 a period of lack of liquidity. And really the reason 0:05:07.160 --> 0:05:09.840 why Saba was able to buy the shares that he 0:05:09.920 --> 0:05:12.479 bought in twenty twenty three and twenty twenty four was 0:05:12.520 --> 0:05:14.800 because there were no buyers. There were no buyers and 0:05:14.839 --> 0:05:18.880 plenty of sellers, and the problem was that the boards 0:05:18.920 --> 0:05:22.240 and the managers didn't buy back enough stock, so the 0:05:22.279 --> 0:05:25.520 discounts just widened and that allowed Saba to come in 0:05:26.160 --> 0:05:29.800 and buy the stakes that he did. And I think 0:05:29.839 --> 0:05:33.000 that coming to SABA. I think that obviously, as you 0:05:33.320 --> 0:05:37.120 within your podcast with John have reported on the votes 0:05:37.200 --> 0:05:41.920 of the seven trusts which he was attacking effectively were 0:05:41.960 --> 0:05:44.560 one and were one convincingly. That's the first sort of 0:05:44.560 --> 0:05:47.960 battle won by the trust sector. But he's not going away. 0:05:48.600 --> 0:05:51.040 He's got these huge stakes of twenty five thirty percent, 0:05:51.480 --> 0:05:53.640 and he will probably find others to invest in and 0:05:54.040 --> 0:05:56.800 perhaps vote along with him. But I'm actually optimistic about 0:05:56.839 --> 0:05:59.160 the trust sector. And this might sound a bit strange 0:05:59.480 --> 0:06:02.000 talking as we are today with the trust sector having 0:06:02.040 --> 0:06:05.360 been under threats, but investment trust's got one hundred and 0:06:05.400 --> 0:06:07.359 fifty year history. The one thing they have managed to 0:06:07.360 --> 0:06:09.919 do is adapt. I think we will see over the 0:06:09.920 --> 0:06:13.000 next five years a very material change. We will see 0:06:13.120 --> 0:06:16.159 huge mergers, will need to see improve liquidity. That is 0:06:16.160 --> 0:06:18.240 the key. That is the thing that's been missing, and 0:06:18.279 --> 0:06:21.080 that is the thing that the trust sector needs to rediscover. 0:06:21.600 --> 0:06:24.159 And there needs to be a concerted effort on the 0:06:24.200 --> 0:06:26.600 part of boards and on the part of the managers 0:06:26.640 --> 0:06:31.240 as well to put shareholders first to reduce those discounts. 0:06:31.240 --> 0:06:32.240 So how do we do that. 0:06:32.440 --> 0:06:34.640 I'm going to interrupt against Sorry, it's about you. Yeah, 0:06:34.680 --> 0:06:36.880 I take all that you're saying. But the answer from 0:06:36.960 --> 0:06:39.000 much of the industry to that is, well, hang on 0:06:39.040 --> 0:06:42.760 a tick. One of these spectacular things about the investment 0:06:42.800 --> 0:06:45.320 trust industry, and one of the things that many think 0:06:45.320 --> 0:06:48.080 has driven the very long term out performance of the industry, 0:06:48.440 --> 0:06:52.120 is the idea that the capital inside each trust is permanent. 0:06:52.480 --> 0:06:55.640 So you don't have to constantly, as a manager buy 0:06:55.720 --> 0:06:59.760 and sell the assets in your botfolio to meet changing 0:06:59.760 --> 0:07:02.719 the command for the shares. You just get to focus 0:07:02.760 --> 0:07:05.359 on running the money and that's it. Now, if you 0:07:05.400 --> 0:07:09.080 move into an environment where you constantly have to issue 0:07:09.080 --> 0:07:12.080 by back, issue by back, issued by back, you take 0:07:12.120 --> 0:07:15.280 away that advantage, and perhaps the whole thing becomes pointless. 0:07:15.320 --> 0:07:16.560 You might as well just getting over an. 0:07:16.560 --> 0:07:19.080 End of that. I'm not sure about that. I think 0:07:19.080 --> 0:07:21.960 the world has changed. I think that's a frankly a 0:07:21.960 --> 0:07:24.560 bit of a naive view. I'm not sure that permanent 0:07:24.600 --> 0:07:28.120 capital really exists anymore. The evidence is beginning to stack 0:07:28.240 --> 0:07:31.960 up that that's not necessarily the modus operandi. Now, there 0:07:31.960 --> 0:07:36.720 are some parts of the liquid market, particularly in alternatives renewables, 0:07:36.760 --> 0:07:40.280 that sort of thing where there is a liquidity private equity, 0:07:40.880 --> 0:07:43.320 and that has to be permanent capital because that's the 0:07:43.400 --> 0:07:45.960 nature of the beast, and they will probably have to 0:07:46.480 --> 0:07:49.800 offer liquidity on an annual basis or on a three 0:07:49.880 --> 0:07:52.520 year basis, or whatever it might be. But I think 0:07:52.560 --> 0:07:57.120 the whole idea of absolutely permanent capital forever. I think 0:07:57.200 --> 0:07:59.440 that that the sector is going to struggle with that argument. 0:08:00.040 --> 0:08:03.160 But if you don't have permanent capital, you just have 0:08:03.320 --> 0:08:08.400 a listed vehicle which you know the manages to buy 0:08:08.400 --> 0:08:10.480 and sell them, really are just an active ETF. 0:08:10.760 --> 0:08:13.400 Ah Well, I think that the stock market doesn't need 0:08:13.440 --> 0:08:15.800 active ETFs because they've got investment trusts. 0:08:15.960 --> 0:08:18.000 Well, wouldn't act active ets be cheaper? 0:08:18.240 --> 0:08:22.360 They might be marginally cheaper, not necessarily, not necessarily, I 0:08:22.360 --> 0:08:24.560 don't think so. Not necessarily. I mean an active manager 0:08:24.600 --> 0:08:26.960 has an active fee, so I mean it wouldn't necessarily 0:08:27.200 --> 0:08:29.480 it might be marginal cheaper. I think the future of trust, 0:08:29.520 --> 0:08:34.360 certainly equity investment trust could be could be an active ETF. 0:08:34.400 --> 0:08:36.439 And I don't think necessarily you need an active ETF 0:08:36.480 --> 0:08:38.840 if you've got investment trusts that are liquid and large 0:08:39.240 --> 0:08:42.400 and that are easily traded. Active ETFs in the US 0:08:42.880 --> 0:08:46.520 have boomed, but they've boomed for a particular reason, which 0:08:46.520 --> 0:08:49.200 has actually got a niche reason, which is tax mutual 0:08:49.200 --> 0:08:51.240 funds are less attractive from a tax point of view 0:08:51.320 --> 0:08:55.760 than than active ETFs. That's why the active ETF market 0:08:55.840 --> 0:08:59.040 has grown. I don't think necessarily we need a big 0:08:59.080 --> 0:09:02.720 active BTF mark in the UK because the tax benefits 0:09:02.760 --> 0:09:04.920 are different in the UK. You get all the tax 0:09:05.000 --> 0:09:07.760 benefits by investing in an investment trust that you would 0:09:07.760 --> 0:09:10.120 in an active ETF. There's no difference. There is a 0:09:10.320 --> 0:09:13.560 view out there that we need, you know, activetfs, the 0:09:13.640 --> 0:09:16.360 new new products. We need. This. Actually, the way that 0:09:16.400 --> 0:09:20.640 investment trust can adapt and ultimately grow in the long 0:09:20.720 --> 0:09:24.080 run is perhaps to challenge the active ETF idea and 0:09:24.120 --> 0:09:26.640 actually be an active ETF themselves. 0:09:26.960 --> 0:09:29.880 Okay, well, let's go back to how you think discounts 0:09:30.040 --> 0:09:32.520 should be controlled so that we get to this point 0:09:32.600 --> 0:09:35.480 where we're effectively an active ETF without being an activitia. 0:09:36.320 --> 0:09:39.360 So, Marin, as you well know, for the last fifteen years, 0:09:39.360 --> 0:09:43.040 since I became investment advisor and latterly investment manager at 0:09:43.080 --> 0:09:47.000 Personal Assets Trust, I've been howling into the void telling 0:09:47.440 --> 0:09:51.679 investment the investment trust sector and investment trust boards and 0:09:52.160 --> 0:09:58.840 managers that liquid portfolios, equity portfolios multi asset portfolios, et 0:09:58.920 --> 0:10:03.040 cetera should put in place a discount control mechanism. Personal 0:10:03.080 --> 0:10:05.960 Assets have had a discount control mechanism in place for 0:10:06.040 --> 0:10:10.040 twenty five years. It is never traded at a discount 0:10:10.080 --> 0:10:13.200 of more than two percent, so it can be done. 0:10:13.200 --> 0:10:14.800 And by the way, if you're not trading at a 0:10:14.840 --> 0:10:18.240 white discount, saber is interested. Arbitrageurs do not come on 0:10:18.280 --> 0:10:21.360 your shelder register if you haven't got a discount. So 0:10:21.480 --> 0:10:24.000 it is a way of keeping the arbitrages at bay. 0:10:24.200 --> 0:10:27.160 And how you do this is you issue if you 0:10:27.240 --> 0:10:29.760 move to a premium of more than two percent, and 0:10:29.800 --> 0:10:31.920 you buy back if you go to a discount of 0:10:31.960 --> 0:10:34.520 more than two percent. And that is how you do 0:10:34.600 --> 0:10:36.679 it on a day to day or weekly basis. And 0:10:36.720 --> 0:10:38.679 there are days where you buy back your stock if 0:10:38.720 --> 0:10:41.760 the discount goes beyond one and a half two percent, 0:10:42.240 --> 0:10:44.640 and if the share traded a premium, you can actually 0:10:44.679 --> 0:10:47.280 issue and grow the trust. And we succeeded in growing 0:10:47.280 --> 0:10:50.560 Personal afthlets for many years. Actually in this more recent 0:10:50.600 --> 0:10:55.040 period we have been shrinking. That's fine, and the board 0:10:55.200 --> 0:10:57.680 and the manager myself are very happy with the idea 0:10:57.720 --> 0:11:00.959 of the trust shrinking. Over a period. We've brought back 0:11:00.960 --> 0:11:03.720 about two hundred million pounds worth of stock in the 0:11:03.840 --> 0:11:07.760 last two two and a half years since it was 0:11:07.880 --> 0:11:12.120 probably since March twenty twenty three. Yeah, and we actually 0:11:12.200 --> 0:11:15.640 issued chairs a week ago, so we're not just buying back, 0:11:15.679 --> 0:11:17.240 we are also issuing as well. 0:11:18.000 --> 0:11:20.839 Now, I suppose the answer to that again would be, 0:11:21.160 --> 0:11:24.200 it's all right for you, Sebastian personal assts. There's a 0:11:24.240 --> 0:11:27.520 massive trust couple of billion. It doesn't matter if you 0:11:27.600 --> 0:11:29.800 shrink a little. But there are a lot of trusts 0:11:29.800 --> 0:11:31.959 out there in the market that are knocking around two 0:11:32.000 --> 0:11:36.040 hundred million, three hundred million, some even less if demand 0:11:36.120 --> 0:11:38.520 for their shares isn't out there either in the wrong 0:11:38.559 --> 0:11:41.880 asset at the wrong time. Even though you know, maybe 0:11:41.920 --> 0:11:44.600 let's let's talk about perhaps you know japan trusts before 0:11:44.600 --> 0:11:47.760 you Pan started performing again, these weren't things that anyone 0:11:47.800 --> 0:11:49.600 was going to go to for a while. But when 0:11:49.640 --> 0:11:52.480 the market starts moving again, they're incredibly valuable vehicles to 0:11:52.559 --> 0:11:55.360 have out there, right, But if they were to buy 0:11:55.400 --> 0:11:57.360 back and buy back and buy back and by back, 0:11:57.720 --> 0:12:00.360 they're going to disappear, And certainly the wealth man isn't 0:12:00.360 --> 0:12:02.120 going to buy them because they're just too small. So 0:12:02.200 --> 0:12:05.000 if you start down that road, you're going to lose 0:12:05.000 --> 0:12:06.600 an awful lot of the investment trust market. 0:12:07.320 --> 0:12:09.079 I think there are too many trusts and I think 0:12:09.080 --> 0:12:11.000 there does need to be consolidation. And there has been 0:12:11.000 --> 0:12:13.240 consolidation merin you know you've seen I think there were 0:12:13.720 --> 0:12:16.440 nine mergers last year, and I think that is what 0:12:16.480 --> 0:12:18.840 we need. We need to see some larger trust I 0:12:18.960 --> 0:12:22.360 go out and I see wealth managers very regularly. The 0:12:22.400 --> 0:12:24.280 one thing they say to us is, you know, we 0:12:24.320 --> 0:12:27.839 need more liquidity within the investment trust sector. Yeah, so 0:12:28.000 --> 0:12:30.280 that is the future that you know, we've probably got. 0:12:30.280 --> 0:12:32.520 I don't know how many Japanese trusts there are out there, 0:12:32.559 --> 0:12:34.480 but there probably needs to be two or three, not 0:12:34.600 --> 0:12:37.120 ten or whatever the number is, and they need to 0:12:37.120 --> 0:12:39.040 be of greater scale. They need to be five hundred 0:12:39.080 --> 0:12:42.240 million pound plus. We have another trust at Troy, the 0:12:42.559 --> 0:12:45.760 STS Global Income Trust, which we do have a DCM. 0:12:46.160 --> 0:12:48.480 We issued stock a few years ago. We have been 0:12:48.520 --> 0:12:50.800 buying back, but we have a hard DCM there, so 0:12:50.840 --> 0:12:52.960 it can be done even on a three hundred million 0:12:53.000 --> 0:12:55.559 pound trust. I think that is the way to do it. 0:12:55.600 --> 0:12:59.000 If we didn't have the DCM on STS Global income, 0:12:59.559 --> 0:13:02.240 then probably the chairs would have gone out to a 0:13:02.280 --> 0:13:05.240 discount and an arbitrager would have come on the board. 0:13:05.400 --> 0:13:07.440 The problem is the board would be focusing on the 0:13:07.520 --> 0:13:11.160 arbitrageur and the arbitrager's needs and not the wider Shareholderbate. 0:13:11.280 --> 0:13:14.760 This is the problem with sabars. It's actually becomes a distraction, 0:13:15.040 --> 0:13:17.520 becomes a huge distraction to the board and the manager, 0:13:18.040 --> 0:13:18.880 and it's avoidable. 0:13:19.760 --> 0:13:22.920 Okay, DCM. By the way, anyone listening discount control mechanism, 0:13:22.920 --> 0:13:25.240 I'm not sure if we said that earlier, just so 0:13:25.440 --> 0:13:27.360 you know, right, So the message there Sevestia, and the 0:13:27.360 --> 0:13:28.960 message you have for the rest of the sector is 0:13:29.000 --> 0:13:29.600 be more like you. 0:13:30.360 --> 0:13:33.199 Well, be more like us. I mean, there are others 0:13:33.240 --> 0:13:35.680 who have done this. There are four or five trusts 0:13:35.720 --> 0:13:37.960 out there who've put in hard dcms over the last 0:13:38.320 --> 0:13:40.560 five or ten years. We're not the only ones at all. 0:13:41.120 --> 0:13:43.480 But I think if you want to solve this problem, 0:13:43.679 --> 0:13:47.079 I think that is the future. And certainly for I 0:13:47.120 --> 0:13:50.360 think there is this demand for larger trusts, more liquid trusts. 0:13:50.679 --> 0:13:53.640 Investors want certainty. The one thing that they don't want 0:13:53.760 --> 0:13:55.400 is to be able to think, am I goingness if 0:13:55.440 --> 0:13:56.760 I buy this trust. Is it going to go out 0:13:56.800 --> 0:13:59.560 to a twenty percent discount over the next year. They 0:13:59.600 --> 0:14:02.600 want so, and they want liquidity, and the trust sector 0:14:02.600 --> 0:14:03.360 needs to offer that. 0:14:04.040 --> 0:14:07.160 Okay, last question on this, what happens to the very 0:14:07.240 --> 0:14:12.240 liquid renewables, trusts, the alternative renewable and equity, all these 0:14:12.240 --> 0:14:14.960 things that are training at whopping great discounts. That liquidity 0:14:15.040 --> 0:14:18.439 is not coming back because the underlying assets are not liquid. 0:14:18.600 --> 0:14:20.720 You can't just say, oh, well, no one really fancies 0:14:20.720 --> 0:14:23.120 distrust anymore, and then not much demand arounds orders I'll 0:14:23.160 --> 0:14:25.640 pass on some of those private equity assets that I've 0:14:25.640 --> 0:14:27.480 grotesquely overvalued and nobody wants. 0:14:27.640 --> 0:14:31.080 Look, there is a huge oversupply in alternatives. I mean, 0:14:31.120 --> 0:14:34.480 seventy five percent of that issuance from twenty twenty two, 0:14:34.720 --> 0:14:37.480 that twenty five billion was in alts. There are liquid 0:14:37.520 --> 0:14:42.600 as you say, and their question is is how realizable 0:14:42.640 --> 0:14:46.680 are those assets and particularly are those discounts real discounts 0:14:46.800 --> 0:14:50.200 or how strong is the NAV And that's that's debatable. 0:14:50.240 --> 0:14:52.520 I don't need the answer that question, but I think 0:14:52.560 --> 0:14:54.680 the answer to your question in terms of what happens 0:14:54.680 --> 0:14:57.120 to those is that and we've seen this with KKR 0:14:57.160 --> 0:15:00.440 bidding for one that will be the solution effectively will 0:15:00.480 --> 0:15:04.040 need to be consolidation in that area, and they will ultimately, 0:15:04.160 --> 0:15:06.200 over a period of time, and it will take time 0:15:06.240 --> 0:15:08.520 because of the nature of the assets, have to return 0:15:08.880 --> 0:15:11.960 the cash to shareholders. But that's a much longer game. 0:15:12.080 --> 0:15:15.200 Okay, Well, let's put all that to this side. Let's 0:15:15.280 --> 0:15:18.720 go on to the environment as a whole. Now you're 0:15:19.160 --> 0:15:21.320 set up or the idea of personal assets trust and 0:15:21.480 --> 0:15:25.400 try in generalist is to protect capital in every environment. Right, 0:15:26.080 --> 0:15:27.600 Just give me an overview of where you see the 0:15:27.640 --> 0:15:28.960 macro environment right now? 0:15:28.960 --> 0:15:29.640 What's changed? 0:15:29.720 --> 0:15:31.560 Where are we and we're seeing at the moment, John 0:15:31.560 --> 0:15:34.040 and I've been talking about this, this momentum shift in 0:15:34.080 --> 0:15:38.000 markets away from the US towards Europe exactly. Obviously, there's 0:15:38.360 --> 0:15:42.720 lots of confusion around where inflation is, where economies are going, etc. 0:15:43.120 --> 0:15:44.840 What does it look like to you in the round. 0:15:45.520 --> 0:15:48.040 There's one thing that's been consistent, and there's one particular 0:15:48.080 --> 0:15:50.040 thing I think that's changed, and it's actually changed in 0:15:50.040 --> 0:15:52.640 the last really month or two. So the thing that's 0:15:52.640 --> 0:15:54.360 been consistent and we've been consistent on and when I 0:15:54.400 --> 0:15:56.480 last spoke to you two years ago, I don't think 0:15:56.560 --> 0:16:00.720 has changed is that we are in a rising environments. 0:16:00.720 --> 0:16:05.360 I think everything changed during COVID. During COVID, we ended 0:16:05.440 --> 0:16:10.200 a forty year bull market in bonds. Bond yields bottomed, 0:16:10.440 --> 0:16:13.800 US treasuries and guilts yielded about zero point five percent 0:16:13.880 --> 0:16:17.960 tenure guilts back in the summer of twenty twenty. Ever 0:16:18.040 --> 0:16:21.920 since then, yields have been rising. And the reason for 0:16:21.960 --> 0:16:25.800 that is that we move from an environment of purely 0:16:25.840 --> 0:16:30.400 monetary stimulus ie zero interest rates and QE, to a 0:16:30.480 --> 0:16:36.000 world of fiscal where governments began spending money on furloughs 0:16:36.040 --> 0:16:39.760 and on defense as well. What we've seen within that environment, 0:16:39.920 --> 0:16:43.000 and to some extent, Ukraine and the invasion of Ukraine 0:16:43.440 --> 0:16:46.800 assisted with this, but nevertheless it was probably going to 0:16:46.840 --> 0:16:51.720 happen anyway, is that inflation rose and then has become stickier, 0:16:52.480 --> 0:16:54.800 and as a results, rates have remained higher than people 0:16:54.800 --> 0:16:57.320 have expected. So there was an expectation that with inflation 0:16:57.560 --> 0:17:00.560 spiking as it did in twenty twenty two in twenty 0:17:00.680 --> 0:17:03.440 twenty three, that it would come flattering back down and 0:17:03.480 --> 0:17:05.800 then everything we've refound to normal and interest rates would 0:17:05.800 --> 0:17:10.200 go back down transient, transient exactly, and that hasn't transient, 0:17:10.240 --> 0:17:13.879 hasn't happened, and inflation has remained stickier. You know, we 0:17:13.920 --> 0:17:17.560 saw they're in the January RPI numbers three percent, which 0:17:17.560 --> 0:17:20.000 were above expectations. We saw them in the US again 0:17:20.080 --> 0:17:24.760 three percent above expectations. And they're actually talking about inflation 0:17:24.880 --> 0:17:29.760 being above well above target for this year so effectively, 0:17:30.160 --> 0:17:33.040 whereas in the last decade, in the twenty tens, inflation 0:17:33.640 --> 0:17:36.800 was below target and central banks found it hard to 0:17:36.800 --> 0:17:39.640 get it up to that two percent target. This decade, 0:17:40.040 --> 0:17:43.359 actually the opposite is the case inflation. We've struggled to 0:17:43.359 --> 0:17:46.600 get it down to target, and it's remained stickier than expected. 0:17:46.680 --> 0:17:49.199 And that means that probably interest rates are likely to 0:17:49.240 --> 0:17:53.439 remain higher as well, or rise rather than fall. Now, 0:17:53.480 --> 0:17:57.000 what that means for markets is that whereas in the 0:17:57.080 --> 0:18:01.520 past bonds and equities cheap by jow been a wonderful investment, 0:18:01.960 --> 0:18:04.480 they've sort of been a self hedge for one another. 0:18:05.000 --> 0:18:09.359 When growth accelerated, equities did well, when growth decelerated, bonds 0:18:09.400 --> 0:18:12.920 did well. That hasn't worked and clearly didn't work at all. 0:18:12.960 --> 0:18:15.639 In twenty twenty two, it was very very painful for 0:18:16.080 --> 0:18:19.320 balanced funds that had both bonds and equities, and so 0:18:19.400 --> 0:18:22.920 we have been more cautious about that concept, and we've 0:18:22.960 --> 0:18:26.680 owned a mixture of assets. Particularly we've owned index linked 0:18:26.680 --> 0:18:31.480 and shorter dated tips their Treasury inflation protected security, so 0:18:31.640 --> 0:18:34.240 US index linked if you like. They have done much 0:18:34.280 --> 0:18:37.719 better over the last five years than conventional bonds because 0:18:37.720 --> 0:18:40.560 you've got that inflation coming through, and there are real 0:18:40.640 --> 0:18:43.000 yields of around two percent, so you get two percent 0:18:43.080 --> 0:18:46.560 plus whatever inflation is. So they're up about twenty five 0:18:46.600 --> 0:18:50.000 percent in the last five years, whereas fixed in comes 0:18:50.080 --> 0:18:53.600 up only about five percent. In the knowledge that inflation's 0:18:53.800 --> 0:18:56.919 likely to be stickier and likely to hang around for longer, 0:18:57.400 --> 0:19:02.720 we have been think considering inflation as the issue, and 0:19:02.960 --> 0:19:06.080 clearly that's not great for fixed income, it's not great 0:19:06.119 --> 0:19:09.439 for bonds. So we've been cautious about bonds and particularly 0:19:09.480 --> 0:19:13.760 taking duration risk I investing in longer bonds. But the 0:19:13.800 --> 0:19:16.680 thing coming back to, the thing that's changed in the 0:19:16.760 --> 0:19:20.359 last couple of months is that I think that Marin, 0:19:20.359 --> 0:19:23.920 we're in the reverse of what happened since nineteen eighty nine. 0:19:24.320 --> 0:19:27.320 I started my career in October nineteen eighty nine. I 0:19:27.400 --> 0:19:28.960 know you were still at school back then. 0:19:29.280 --> 0:19:30.040 Was definitely. 0:19:30.080 --> 0:19:33.159 But in November nineteen eighty nine, a month after I 0:19:33.160 --> 0:19:36.160 started my career, the Berlin Wall came down, and ever 0:19:36.240 --> 0:19:40.119 since then we've been in a sort of guns into 0:19:40.200 --> 0:19:46.359 plowshares disinflationary environment, and that is now very clearly reversing 0:19:46.400 --> 0:19:51.040 with a labor prime minister standing up and talking about 0:19:51.080 --> 0:19:54.000 big additions to defend spending. So I think in that 0:19:54.119 --> 0:19:58.040 respect the world has also changed, and that means that 0:19:58.200 --> 0:20:03.639 is also incrementally inflationary. That will be defense bending means, 0:20:03.800 --> 0:20:06.480 I'm afraid, means higher inflation. You look back in history, 0:20:06.800 --> 0:20:10.919 wars are inflationary and defense bending is inflationary. So again 0:20:10.960 --> 0:20:16.280 that adds to that uncertainty and also adds to that 0:20:16.320 --> 0:20:20.720 those inflationary pressures. Now, finally, you talked about markets and 0:20:20.840 --> 0:20:25.320 about the change in US leadership, and one of the 0:20:25.320 --> 0:20:28.200 things that we've discussed a lot last year and the 0:20:28.280 --> 0:20:31.400 year before really, but particularly last year, was this concept 0:20:31.440 --> 0:20:37.080 of American exceptionalism. Yeah. I everybody was pouring money into 0:20:37.080 --> 0:20:40.680 the US and no one was investing anywhere else. We've 0:20:40.720 --> 0:20:43.480 been investing just a little bit less in the US 0:20:43.560 --> 0:20:45.880 and a little bit more in the UK and Europe. 0:20:45.960 --> 0:20:49.720 More recently, I think that the problem with American exceptionism, 0:20:50.000 --> 0:20:52.359 there's no doubt that you know, one only has to 0:20:52.400 --> 0:20:54.040 look at the numbers, one only has to look at 0:20:54.080 --> 0:20:57.040 the companies. And I see this. I hear fund managers 0:20:57.080 --> 0:21:01.120 talk about this, and there's a very cogent and coherent argument. 0:21:01.920 --> 0:21:05.119 But it's now well known. It's now it's in the price. 0:21:05.760 --> 0:21:07.919 Then I think that when you when you hear the 0:21:07.920 --> 0:21:11.919 words exceptionalism about a market, alarm bells should ring. I 0:21:11.920 --> 0:21:14.800 think there are a good good reasons to be cautious 0:21:14.880 --> 0:21:19.040 and good reasons to perhaps diversify. Where whereas where we've 0:21:19.080 --> 0:21:23.439