Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Marrin
Speaker 1: Talks Money Market Rap, where we talk about the biggest
Speaker 1: moves in the market this week and what's driving them.
Speaker 1: I'm marrying Something's that, web editor at large for Bloomberg
Speaker 1: UK Wealth.
Speaker 2: And I'm joined Stebic, senior reporter at Bloomberg and author
Speaker 2: of the Money Distilled newsletter.
Speaker 1: Do you know what, John? Today, we're not going to
Speaker 1: talk about the biggest moves in the market this week,
Speaker 1: although we could up a lot, right, up a lot.
Speaker 2: Up a lot, up a lot, and also also gold
Speaker 2: down a bit.
Speaker 1: Yeah, okay, Tech up a lot, gold down a bit.
Speaker 1: Top tap for now. But you know, all this will
Speaker 1: turn around in a heartbeat because it happens all the time.
Speaker 1: So keep an eye on gold, keep an eye on tech.
Speaker 1: There have been some interesting moves in the UK market.
Speaker 1: Everyone go back and listen to the podcasts where are
Speaker 1: I think for two sets, fund managers talk about how
Speaker 1: marvelous berbarreas and how you should invest in Berberatus today alone.
Speaker 1: But we're talking on Wednesday, by the way, up fifteen
Speaker 1: percent to nearly fifteen percent when I last looked. So
Speaker 1: if only people listen to all the podcasts. Everything will
Speaker 1: be fine, right except for the bit when we keep
Speaker 1: telling them not to invest in our US equities and
Speaker 1: diversified by.
Speaker 2: The depth dice hard as you meet the point in
Speaker 2: your newsletter the other day.
Speaker 1: I did, and you'd still have been way better off
Speaker 1: in Europe a year to date. Anyway, I don't want
Speaker 1: to dwell on that, because we talk about all this
Speaker 1: stuff a lot. I want to actually today talk about
Speaker 1: the UK and these two things that are floating around.
Speaker 1: The first thing floating around being this this new deal
Speaker 1: Mansion House that the seventeen of our biggest pench of
Speaker 1: funds have agreed by the end of the decade to
Speaker 1: have ten percent of their assets in private assets and
Speaker 1: half of that so five percent of their assets in
Speaker 1: UK private assets. So we're talking about unlisted companies, so
Speaker 1: private equity of various sourts and infrastructure. So that's the
Speaker 1: first thing that's going on. Second is this ongoing rumbling
Speaker 1: conversation about cash ices and how they should be limited
Speaker 1: and people shouldn't be allowed to keep very much catching
Speaker 1: them and that cash should be redirected into public markets,
Speaker 1: or that's the idea at the moment, not that this
Speaker 1: two should be forced into private markets, but public markets.
Speaker 1: So a shift to try and make pension funds get
Speaker 1: out of listed equities and into unlisted stuff, and a
Speaker 1: shift to try and make individual investors in their iss
Speaker 1: get out of cash and into listeds. So two separate
Speaker 1: things going on here, both actually really interesting. Do you
Speaker 1: John approve of the Reeves plan to have five percent
Speaker 1: of your pension money in UK private assets and ten
Speaker 1: percent of your pension money in private assets all around?
Speaker 1: I repeat your money because her ideas your money, yeah.
Speaker 2: Exactly, her ideas earn money.
Speaker 1: Yeah.
Speaker 2: No, I don't particularly like the idea of being forced,
Speaker 2: And if I'm honest, I'm not that keen on the
Speaker 2: default being that either. I just don't think it's the
Speaker 2: best time for pension funds to be mandated to go
Speaker 2: into private assets, given that the private area in general
Speaker 2: is generally regarded as not having quite caught up with
Speaker 2: reality in terms of the value of the assets that
Speaker 2: they hold firsts where interest rates currently are. So that
Speaker 2: is one reason. The other reason is I want a
Speaker 2: bit more detail on this mandation, like, so what.
Speaker 1: There isn't mandation yet? This is not mandation, This is
Speaker 1: just voluntary about Rachel Reason When asked if she would
Speaker 1: make it managaries one of our colleagues, a Bloomberg by
Speaker 1: the way, she said never say never, which is kind
Speaker 1: of irritated all the pension funds because they agreed to
Speaker 1: do this on the basis that it wouldn't be mandatory
Speaker 1: but a voluntary target. And now she's saying, oh, well,
Speaker 1: they don't do it like it will be mandatory, so
Speaker 1: you know, and she's managed to irritate everybody, not just
Speaker 1: you and me for change, but everybody.
Speaker 2: Yeah, I mean, to be fair, I can see that's
Speaker 2: just kind of average politicians caution, which she's sort of
Speaker 2: being caught not ruling something out.
Speaker 1: You having a be kind day? You aren't you.
Speaker 2: Having a wee kind.
Speaker 1: Thing. It's hard.
Speaker 2: They can't win from that point of view, But I mean,
Speaker 2: not that they necessarily should. Look, I think it's not
Speaker 2: necessarily a great time to be buying into this sector,
Speaker 2: this area, and also the idea that pension funds are
Speaker 2: all agreeing to this off the back of what exactly
Speaker 2: I mean. I think this is interesting because we often
Speaker 2: talk here about whether it would be reasonable to say
Speaker 2: that we're only going to give you a tax break
Speaker 2: on certain parts of your eyes at if you invest
Speaker 2: those in UK listed equities. And the reason that we
Speaker 2: talk about that is because we think that capital markets
Speaker 2: are important and that functioning capital markets are important. And also,
Speaker 2: at the end of the day, one of the reasons
Speaker 2: that UK equities have been so heavily sold out of
Speaker 2: is because of regulatory intervention in other areas. So the
Speaker 2: fact that define benefit pension schemes have become promises rather
Speaker 2: than hopes over the course of the last forty fifty years,
Speaker 2: which is forced that may sell out equities and buy
Speaker 2: more points. So we talk about it in terms of
Speaker 2: leaning against that, but this is more, this is something
Speaker 2: completely different. Actually, it's kind of ten percent of the money.
Speaker 2: Why should they go into private assis in the first place?
Speaker 1: The story you're going to be told is you go
Speaker 1: into private equity because private equity has outperformed listed equities
Speaker 1: over the long term. And so if pension funds do
Speaker 1: not have a significant amount of money in private equity,
Speaker 1: they will be, you know, not not doing their produciary
Speaker 1: duty properly because they won't be making the best possible returns.
Speaker 1: So therefore they have to go into private equity. Now
Speaker 1: they're probably with that so many problems, but the main
Speaker 1: problem is that that record of long term returns has
Speaker 1: been made. And of course it's very difficult, by the way,
Speaker 1: to know exactly what the returns from private equity are
Speaker 1: because not everyone's telling you, you know, you can't listed equities,
Speaker 1: you can see the performance is out there. Yeah, there's
Speaker 1: a lot of kind of shoveling together of all the
Speaker 1: different types of private equity, venture capital, etc. Not everyone
Speaker 1: is declaring not everyone knows what the results does You can't.
Speaker 1: You can't really be sure, but in general consensus that
Speaker 1: private equity may have outperformed over the last fifteen twenty years,
Speaker 1: but it's done that in a period when a debt
Speaker 1: has been remarkably cheap. And a lot of the private
Speaker 1: equity model is about leveraging up, getting companies, jamming them
Speaker 1: full of debt, et cetera. That's a big part of
Speaker 1: the model. And when debt is cheap, obviously that works really,
Speaker 1: really well. And it's also we have to go back
Speaker 1: to the beginning of the period when they weren't that
Speaker 1: many people working in private equity, so it's quite easy
Speaker 1: to come across cheap companies and you know, restructure them
Speaker 1: in such a way that you could make them worth more.
Speaker 1: But of course those is a long gun. Now the
Speaker 1: private equity market is absolutely huge, this huge competition for
Speaker 1: every single asset anymore by the way they used to be,
Speaker 1: and of course the low interest rate environment has gone completely.
Speaker 1: So you look at this environment and you say, well, okay,
Speaker 1: there's a massive amount of money sitting around in private
Speaker 1: equity investments, in the assets that it's very difficult to
Speaker 1: flog on. At the moment, there isn't that much appetite
Speaker 1: for IPOs. There's no way for no way for investors
Speaker 1: to exit. So what do you need if you have
Speaker 1: a business that is almost entirely institutional and those institutions
Speaker 1: are going, oh, do you know what kind of had
Speaker 1: enough of this? I'm not putting any more money in.
Speaker 1: I'd really like to get some more money out. What
Speaker 1: do you need? A big pile of new buyers. And
Speaker 1: if that was you, what would you do? You'd go?
Speaker 1: Do you know what? Seems to me that pension funds
Speaker 1: would not be doing their for duciary duty if they
Speaker 1: didn't hold a whole loado I don't know, maybe ten
Speaker 1: percent in private equity. Would you like some private equity
Speaker 1: rates because you're we've got some around the back. I
Speaker 1: can bring it right out, am I being to cecle? No?
Speaker 2: I mean I think the backholder of last resort is
Speaker 2: you know, one element of this for definitely, and I
Speaker 2: guess the UK angle, Well, the problem there is you
Speaker 2: think is this just all going to get piled into
Speaker 2: you know, things like wind farms or anything that Ed
Speaker 2: millerband kind of like puts his stamp on and that. Again,
Speaker 2: this is completely separate from other conversations about should we
Speaker 2: be supporting the UK public markets, where yes, you know,
Speaker 2: by saying you won't get tax relief unless you invest
Speaker 2: at least some of it in the public markets was
Speaker 2: a whole different conversation.
Speaker 1: It's the one thing, private markets are a totally different
Speaker 1: thing and infrastructure is a totally different thing.
Speaker 2: Well, the other thing I'm curious about in this havn't
Speaker 2: got the figures on this. Unfortunately, perhaps I should have
Speaker 2: done my homework before I came on.
Speaker 1: One job jump.
Speaker 2: Yeah exactly. But so we've got these seventeen pension points
Speaker 2: talking about this. I mean presumably they already hold a
Speaker 2: chunk and private assets.
Speaker 1: O I can't get I have looked it up actually,
Speaker 1: and it's well under two percent for most of them.
Speaker 2: Oh that's centrist as.
Speaker 1: Far as I can see. Happy to be corrected on
Speaker 1: that if anyone knows more precise numbers. But the middle
Speaker 1: of research I was doing early suggested we really are
Speaker 1: in the very very low single leship percentages. So so
Speaker 1: the answer kind of know that they haven't gone there.
Speaker 2: So basically we are the Johnny come latelies as well
Speaker 2: on top of the else. Oh yeah, that's good to know.
Speaker 2: So having sold everything to Australian Canadian pension finds them
Speaker 2: having wrong the best of tons out of them. Well,
Speaker 2: and it's what's coming down. We are now going to
Speaker 2: buy them back.
Speaker 1: Worse, we're gonna we're going to force our pensioners to
Speaker 1: invest in new projects government government decided government run at
Speaker 1: very high interest rates. So we see how that pans
Speaker 1: out because the pension funds will have to insist on some
Speaker 1: kind of guaranteed return or some sort with infratuxture projects.
Speaker 1: So this is gonna be very interesting. But we haven't
Speaker 1: got there yet. I will say, by the way, I
Speaker 1: don't know if you've noticed that there has been a
Speaker 1: lot of talk in US private equity as well about
Speaker 1: how this is a fabulous opportunity and it is time
Speaker 1: for everyone to take a pile of private equity into
Speaker 1: their four O one case. So you know, this is
Speaker 1: not just a UK private equity thing, it's a US
Speaker 1: private equity thing as well. How can we how can
Speaker 1: we get somebody else to back up the truck and
Speaker 1: take the stuff off our hands? And you know, the
Speaker 1: retail infestors are out there for their very purpose.
Speaker 2: If I was these guys, then I would be drumming
Speaker 2: up the APU R market again at least try and
Speaker 2: get some excitement about reequitization. You know, at the end
Speaker 2: of the daily what's better than a passive fund coming
Speaker 2: along with this kind of relentless bed and just buying
Speaker 2: up the stuff that you're offloording.
Speaker 1: But what John, what John will really? What will do
Speaker 1: that for us? There is something that will make the
Speaker 1: UK market go berserk, for example, and everyone want to
Speaker 1: ipo here And that's something that's something is everyone's eyes
Speaker 1: of money being channeled out of their cash ices and
Speaker 1: into the market. Yes, can we disapprove.
Speaker 2: Of that channeled? Yeah? Look, I mean I've said this
Speaker 2: before the sort of like the tying vestiges of my
Speaker 2: kind of like libertarian twenties, sort of like twitch against
Speaker 2: the idea of you know, oh no, the government shouldn't
Speaker 2: be interfered with this or interfered with that. But it's
Speaker 2: not as if the government isn't already interfering in every
Speaker 2: other kind of like layer of the kind of savings market.
Speaker 2: So I don't think there's anything wrong we suggest and
Speaker 2: that a they kind of cash allowance should be lower
Speaker 2: than it is, or be that some it would be
Speaker 2: fine to say some of your money has to go
Speaker 2: into UK markets if you point to get that actually
Speaker 2: for an aser for example.
Speaker 1: I agree. And we've talked about this before. Remember how
Speaker 1: much we approved of the Britte Icer. And let's be honest,
Speaker 1: this is really just a new iteration of the Brittan Icer,
Speaker 1: isn't it. Yeah?
Speaker 2: And I mean stupidly with the flag taken off it,
Speaker 2: because you know, just if you want, if you want
Speaker 2: to give it a bit of publicity, then you know,
Speaker 2: I realize there's a low, kind of high maintained people
Speaker 2: who object to anything that's got the flag going it.
Speaker 2: But most normal people don't bring out the bunting all
Speaker 2: around on this podcast. Yeah, exactly, exactly right.
Speaker 1: We have we actually have a report on that feeds
Speaker 1: into this which we both found very interesting in this
Speaker 1: by my old friend doun La Mondasrodis, and he has
Speaker 1: taken a look at what your returns would be if
Speaker 1: you simply stayed in cash for the twenty years running
Speaker 1: up to twenty twenty three, or if you had invested
Speaker 1: in global equities, and he really makes it extremely clear
Speaker 1: that if you keep your money in cash, you are
Speaker 1: missing out on an awful lot of money. You've been
Speaker 1: what they call recklessly cautious. You know, you've tried so
Speaker 1: hard to be cautious that you've actually ended up being
Speaker 1: rather reckless because you've made a significant negative difference to
Speaker 1: your future.
Speaker 2: Yeah, I mean it's the ten tax years up to
Speaker 2: April twenty twenty three.
Speaker 1: Sorry, not the twenty to ten apologies.
Speaker 2: Yeah, well even worse because so in the ten tax years,
Speaker 2: essentially if you stuck on the money in global stocks
Speaker 2: instead of a cash hezer, you'd now be more than
Speaker 2: also collective way, we would be more than five hundred
Speaker 2: billion better off, and as dunkin points, so that's about
Speaker 2: twenty percent the UK GDP, So that is a huge
Speaker 2: amount of wealth creation missed out on by individuals, which
Speaker 2: strikes me, as you know, that's a real issue. And
Speaker 2: all right, you can't say that all of that money
Speaker 2: should have been invested in stockstyle and cash, because, as
Speaker 2: Dunkin points out, everyone needs an emergency fund, and as
Speaker 2: we've discussed here before, if you're retiring, then you probably
Speaker 2: need but you do need significantly more cash than you
Speaker 2: normally would to smooth your time in case something bad
Speaker 2: hams in the stock market. But even putting those aside,
Speaker 2: there's clearly a lot of excess cash saving going on
Speaker 2: that could be in the stock market. And the point
Speaker 2: is that it would almost certainly then make more money,
Speaker 2: because that's the only reason. You know, we wouldn't be
Speaker 2: sitting here talking about this every week if it wasn't
Speaker 2: for the fact that over the long term, the stock
Speaker 2: market does beat inflation and it does beat cash. You know,
Speaker 2: if this was something that genuinely was up for debate,
Speaker 2: then we wouldn't we wouldn't be constantly repeating it. It's like,
Speaker 2: over the long term, it beats it. And yeah, you know,
Speaker 2: you can say that if you'd stuck out your money
Speaker 2: in Japan in nineteen ninety. Well then what would have happened,
Speaker 2: But you wouldn't have done that, you know, you you
Speaker 2: put it in diversified global markets blah blah blah, and
Speaker 2: you do it a month at a time. Nobody puts
Speaker 2: their lifetime earnings in the stock market on one day
Speaker 2: that happens to be the peak. So you know, this
Speaker 2: is the point. And it's just as Duncan's sort of
Speaker 2: really getting that we need a culture shift whereby we
Speaker 2: acknowledge that cash actually over the long run is risky
Speaker 2: because it's probably going to get eroaded away by inflation.
Speaker 2: And Duncan doesn't talk about property, but we should have
Speaker 2: a serious conversation about how it sees because people still
Speaker 2: see that as being you know, bricks and water. You
Speaker 2: can't go wrong with bricks and waters, when in fact,
Speaker 2: actually it's a leveraged asset. You and if you're only
Speaker 2: buying one of them, then anything could happen to that
Speaker 2: bricks and water, well.
Speaker 1: And leverage asset with quite a high carrying cost. Yes,
Speaker 1: And as I'm going to read read you this one
Speaker 1: sentence from Duncan, which is very compelling. The real risk
Speaker 1: for most people. Is not the risk of losing money
Speaker 1: in the show term, but the risk of not achieving
Speaker 1: your long run goal to be there a comfortable time
Speaker 1: and house purchase, providing financial suport to your children, or
Speaker 1: simply making sure your savings keep pace with inflation. This
Speaker 1: is the risk of not taking enough risk. So I
Speaker 1: think it's fair to say that Duncan in this arena
Speaker 1: at least is on Rachel Reeves side.
Speaker 2: Right, Yeah, I think that would be fair to say.
Speaker 1: And we are too, or you are too. I think
Speaker 1: I am too.
Speaker 2: Yeah, I mean, I'm sure they'll find a way mess
Speaker 2: it up and make it something that we don't like,
Speaker 2: but the principletensible. I think it's a it's a good idea.
Speaker 1: All right. Well, we'll come back to why we don't
Speaker 1: like it when when it actually happens. Thanks John, Thanks
Speaker 1: thanks for listening to this week's maryn Talks Money de Briefly.
Speaker 1: If you like USh are rate, review, and subscribe wherever
Speaker 1: you listen to podcasts. Also be sure to follow me
Speaker 1: and John on exor Twitter. I'm at marinas w and
Speaker 1: John is John Underscore Stepic. This episode was produced by
Speaker 1: Summersadia Moses and The Question Comments on this show and
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Speaker 1: at bloomberg dot net.