WEBVTT - Why UK Bosses Need More Skin in The Game 0:00:03.120 --> 0:00:07.960 Bloomberg Audio Studios, Podcasts, radio news. 0:00:09.280 --> 0:00:12.920 Hello, it's Meren Somerset Web. Here a reminder. I will 0:00:12.920 --> 0:00:15.160 be at the Fringe Festival in Edinburgh once again this year, 0:00:15.160 --> 0:00:18.479 hosting four full days of riveting conversations in Adam Smith's 0:00:18.480 --> 0:00:21.079 Pannier House. I'll be there from August the seventeenth to 0:00:21.120 --> 0:00:24.000 August the twentieth. Tickets are now on sale. They are 0:00:24.040 --> 0:00:26.279 going fast. Of course they're going fast. They'll be sold 0:00:26.280 --> 0:00:28.280 out quickly. Links will be in the show notes, but 0:00:28.320 --> 0:00:31.000 you can also just head the main Fridge website and 0:00:31.000 --> 0:00:33.519 search for Mirren. They'll see the availability and you can 0:00:33.520 --> 0:00:37.040 buy tickets hurry. Plus more information about this amazing venue 0:00:37.040 --> 0:00:40.600 and what we will be discussing right onto this week's show. 0:00:40.800 --> 0:00:43.320 My guest has Lead maida founder and managing partner of 0:00:43.320 --> 0:00:46.159 Gatemore Capital Management. We talk about why he thinks the 0:00:46.240 --> 0:00:48.879 cost of capital is the key issue facing UK equities 0:00:49.120 --> 0:00:52.320 and why he thinks the Great British Buyout is going 0:00:52.360 --> 0:00:55.600 to save the equity market. But first, as always, senior 0:00:55.720 --> 0:00:58.840 border and author of the Money Distilled newsletter, John Steppik 0:00:58.960 --> 0:00:59.880 is here with me. John. 0:01:00.000 --> 0:01:01.080 Hello, Hello man. 0:01:01.800 --> 0:01:05.440 Okay, so I'm going to preface this conversation by saying 0:01:05.440 --> 0:01:08.840 to our listeners, this sounds boring, but there's something John 0:01:08.840 --> 0:01:11.520 and I are going to talk about and it's not boring. 0:01:11.840 --> 0:01:14.840 It's incredibly important. Willie Gazad is boring and important, boring 0:01:14.920 --> 0:01:17.119 but important. But I think it's not boring and also 0:01:17.240 --> 0:01:19.399 very important John, It's important, right. 0:01:19.319 --> 0:01:22.880 Yeah, and it's actually pretty interesting once you get the 0:01:22.959 --> 0:01:26.160 guts of it. Yeah, because it's all about pensions. 0:01:26.680 --> 0:01:29.400 Okay, now then now everyone's turned off, everyone's moved on 0:01:29.440 --> 0:01:33.480 to another podcast. Pensions are not boring. Pensions are very interesting. 0:01:33.680 --> 0:01:36.000 And this is a key issue that has been affecting 0:01:36.040 --> 0:01:38.520 the pensions market, being affecting the balance sheets of big 0:01:38.600 --> 0:01:42.400 UK companies and being affecting the UK equity market for 0:01:42.480 --> 0:01:45.600 decades now, right, and it's coming to an end. John 0:01:45.640 --> 0:01:46.360 tell us about it. 0:01:46.640 --> 0:01:51.080 Well, this is the new is that define benefit pension schemes. 0:01:51.360 --> 0:01:54.720 So the ones private sector ones, one's run by companies, 0:01:54.760 --> 0:01:57.640 ones that you can't be a member of anymore, unless 0:01:57.640 --> 0:01:59.480 I think you want for CRODA, which is one foot 0:01:59.440 --> 0:02:02.000 Sea two five, the company which still has a defined 0:02:02.040 --> 0:02:05.040 benefit pension scheme, could be wrong with that. I'll double check, 0:02:05.080 --> 0:02:07.360 but have your kids apply there exactly. 0:02:07.360 --> 0:02:09.480 See if they've got an apprenticeship schame or an intern's 0:02:09.520 --> 0:02:11.880 game or a graduate schame, do anything for deba. 0:02:12.400 --> 0:02:17.120 I've already checked. No, So these funds right up. People 0:02:17.200 --> 0:02:20.519 kept talking about how there's a pensions black ho massively 0:02:20.560 --> 0:02:23.760 in deficit for years and years and years. Now the 0:02:23.840 --> 0:02:26.760 interest rates have gone up, thanks obviously to Litz Trust, 0:02:27.480 --> 0:02:29.800 they're now in surplus because. 0:02:29.520 --> 0:02:30.520 You have to stop doing that. 0:02:30.880 --> 0:02:36.840 No, sorry, I can't help myself, not Lizzy's fault. So 0:02:36.960 --> 0:02:39.400 interest rates went up and that means that basically the 0:02:39.880 --> 0:02:42.920 future liabilities, so the money that they owe the pensils 0:02:42.919 --> 0:02:46.000 in the future. That number is big when interest rates 0:02:46.040 --> 0:02:48.640 at zero percent, and as interest rates go up, that 0:02:48.720 --> 0:02:51.399 number gets smaller. So it means you need less money 0:02:51.440 --> 0:02:54.320 in the pot today to pay off your pensioners tomorrow. 0:02:54.560 --> 0:02:57.200 It's probably the easiest way to think about it, and 0:02:57.240 --> 0:02:59.680 that's why those schemes are now in subtless. 0:03:00.000 --> 0:03:01.920 Okay, let's just go back to why. When they were 0:03:01.960 --> 0:03:04.840 in deficit, everyone's going, oh my god, all these these 0:03:04.880 --> 0:03:07.800 British companies, they've got these huge deficits. Poor old pensioners. 0:03:07.960 --> 0:03:10.359 Everyone has to put more money in so constant pressureund 0:03:10.360 --> 0:03:12.040 the company is to take big junks of what would 0:03:12.120 --> 0:03:14.680 be profits and slew them off into their pension funds 0:03:14.760 --> 0:03:17.640 to pay for pensions far into the future. It's a 0:03:17.680 --> 0:03:22.960 big drag on profitability. 0:03:20.760 --> 0:03:24.120 Money, real money because the future liabilities. I think that probably, 0:03:24.120 --> 0:03:26.000 I guess this is important to understand as well. Was 0:03:26.200 --> 0:03:29.240 obviously a number in the future is uncertain, so it's 0:03:29.240 --> 0:03:34.040 based on the theoretical value. But the theoretical value translates 0:03:34.040 --> 0:03:36.880 into something you need to take actual practical action on today. 0:03:37.000 --> 0:03:38.760 So you need you felt that deficit, and it has 0:03:38.800 --> 0:03:41.640 to come from real cash that's coming into the company 0:03:41.760 --> 0:03:45.000 at that point. So yeah, absolutely, as you're saying, it's 0:03:45.000 --> 0:03:47.280 been a massive drag going money that could have been 0:03:47.320 --> 0:03:51.080 invested elsewhere are or paid out to no employees and wages, 0:03:51.080 --> 0:03:52.200 et cetera, et cetera. 0:03:52.280 --> 0:03:54.480 I remember writing a colum a little while ago. Okay, 0:03:54.480 --> 0:03:59.640 it damn like distraction alert showing that wages at companies 0:03:59.640 --> 0:04:02.960 with big pension deficits rose at a slower rate than 0:04:03.000 --> 0:04:06.520 companies without them, So at a genuine real world effects 0:04:06.560 --> 0:04:09.440 not on profitability but on the earnings of people working 0:04:09.480 --> 0:04:11.520 for these companies. So big deal across the board. 0:04:11.720 --> 0:04:14.600 Yeah, absolutely huge. And what is interesting because the first 0:04:14.640 --> 0:04:16.760 time I wrote about this because this is they're now 0:04:16.800 --> 0:04:20.839 recorded the record suplus in May. But obviously that the 0:04:20.880 --> 0:04:23.160 supplus came about earlier in the year and it was 0:04:23.200 --> 0:04:26.800 one fifty company. I noticed that it was Coats that 0:04:26.880 --> 0:04:30.520 had actually been able to basically stop topping up is 0:04:30.560 --> 0:04:33.520 to find benefit pension scheme and it's sheer place went 0:04:33.600 --> 0:04:36.200 up on that news. So this is something that's a 0:04:36.240 --> 0:04:39.279 real world right now. Absolutely you know that this is 0:04:39.360 --> 0:04:41.360 really important and it has an effect. 0:04:42.080 --> 0:04:43.920 We did write, didn't we Quite a long time ago. 0:04:44.000 --> 0:04:47.039 We wrote a couple of columns saying when interest rates 0:04:47.080 --> 0:04:52.200 go up by companies that have theoretical pension deficits, because 0:04:52.200 --> 0:04:55.520 their share press will go up. And look, we were right. 0:04:55.520 --> 0:04:59.720 Basically right, we were We told you so, we told 0:04:59.760 --> 0:05:06.200 you anyway, So okay, So matters for individual companies, but 0:05:06.240 --> 0:05:08.680 there's also a bigger effect. So one of the reasons 0:05:08.680 --> 0:05:12.479 that UK capital markets or UK equity markets specifically have 0:05:13.080 --> 0:05:16.080 had this kind of drag on them for so long 0:05:16.720 --> 0:05:19.400 isn't just all of the you know, stuff that's happened 0:05:19.560 --> 0:05:23.120 kind of like recent years. It's also because the rules 0:05:23.160 --> 0:05:27.960 around pensions got tightened up so much. Well, it basically 0:05:28.000 --> 0:05:31.360 meant was that define benefit pension schemes run by companies 0:05:31.520 --> 0:05:34.719 shifted all of their money out of equities into bonds, 0:05:35.279 --> 0:05:39.080 and they also shifted their equity allocation out of UK equities. 0:05:39.080 --> 0:05:40.880 At one point it was something, I mean, they're probably 0:05:40.960 --> 0:05:43.120 too much in UK equities at one point like something 0:05:43.160 --> 0:05:46.679 like seventy percent. Now is down to three percent. So 0:05:47.440 --> 0:05:51.839 the amount of UK equities held by find benefit pension 0:05:51.920 --> 0:05:55.120 funds has collapsed and that has been a constant drag 0:05:55.160 --> 0:05:59.080 of outflows for years and years and years. Now. The 0:05:59.240 --> 0:06:01.640 point being about the fact they've got a subplus now 0:06:01.680 --> 0:06:06.040 is that A, you know this this is now fixed 0:06:06.160 --> 0:06:09.120 so they don't have to change the portfolio allocation anymore. 0:06:09.440 --> 0:06:12.640 And B when it's already down at three percent, there 0:06:12.720 --> 0:06:15.360 is no you know, there's no further drag. Yeah, it's 0:06:15.400 --> 0:06:20.360 kind of exhausted. So that big sort of selling structural set, 0:06:21.240 --> 0:06:25.120 that structural selling force is now gone. And even that 0:06:25.360 --> 0:06:27.400 just vanishing doesn't need to be replaced. 0:06:27.360 --> 0:06:32.440 Well, the removal of a negative is effectively a positively. 0:06:31.800 --> 0:06:33.920 But then on top of that, you've got a positive 0:06:33.960 --> 0:06:38.000 coming in for hey, because you're obviously wondering now, But 0:06:38.080 --> 0:06:40.760 what happened when all these define benefit pension schemes closed, 0:06:40.800 --> 0:06:43.599 and of course they get replaced with define contribution schemes. 0:06:44.560 --> 0:06:46.680 We define contribution schemes are the ones would you save 0:06:46.720 --> 0:06:49.080 the money? And the plot is what you get at 0:06:49.120 --> 0:06:51.640 the end, and what's in it is your problem basically, 0:06:51.920 --> 0:06:52.400 And if. 0:06:52.240 --> 0:06:54.200 You are in an order enrollment schame, which if you're 0:06:54.240 --> 0:06:56.640 in work in the UK, you almost suddenly oh that's 0:06:56.640 --> 0:06:57.960 what you have, yes. 0:06:57.760 --> 0:07:00.240 So you've got an auto enrollment pension. So what was 0:07:00.279 --> 0:07:02.680 happening now is companies aren't putting money and they they'd 0:07:02.720 --> 0:07:05.800 find benefits schames anymore or not as much, and they 0:07:05.800 --> 0:07:09.280 are putting increasing numbers amounts of money into the auto 0:07:09.360 --> 0:07:12.200 enrollment schemes. And the other interesting thing is that in 0:07:12.240 --> 0:07:14.520 the year to me, the amount of money going into 0:07:14.880 --> 0:07:17.600 the auto enrollment schemes overtook the amount of money going 0:07:17.600 --> 0:07:20.480 into dB schemes. And actually I was quite surprised. This 0:07:20.520 --> 0:07:23.280 is the first time that's happened. So again that sort 0:07:23.280 --> 0:07:25.560 of shows you just what a drag the dB schemes 0:07:25.560 --> 0:07:29.840 have been, because it's mostly because companies like the amount 0:07:29.880 --> 0:07:33.640 of money going into the auto enrollment schemes went up 0:07:33.680 --> 0:07:35.360 at roughly the same rate it has been going up 0:07:35.360 --> 0:07:38.600 for years. The dB money collapsed because they don't need 0:07:38.640 --> 0:07:40.760 to put it in anymore. And the fact that you've 0:07:40.760 --> 0:07:42.800 got this turn around now, so basically you don't have 0:07:42.880 --> 0:07:46.080 to mess around your dB scheme anymore, and ever increasing 0:07:46.080 --> 0:07:49.160 amounts of money are going into the auto enrollment and 0:07:49.200 --> 0:07:51.160 that means that some of that money will be an 0:07:51.160 --> 0:07:55.200 inflow for UK markets if you like. So, yeah, you've 0:07:55.200 --> 0:07:57.880 get one structural headwind has been removed and a structural 0:07:57.920 --> 0:08:01.040 tail wind is coming up to you child gidding. 0:08:01.040 --> 0:08:03.920 Here he go. It's all about the floors. Okay, So 0:08:04.000 --> 0:08:05.880 this is all very positive for the UK market. 0:08:05.960 --> 0:08:06.600 Yeah it should be. 0:08:06.720 --> 0:08:10.840 Yeah, and vere with a dB pension which looks like 0:08:10.880 --> 0:08:12.920 it is going to keep being paid out, John, thank you, 0:08:13.000 --> 0:08:15.000 And I think amazingly that was not boring at all. 0:08:15.000 --> 0:08:16.800 It was absolutely fascinating and by the way, everyone, it 0:08:16.880 --> 0:08:24.480 is very important. Pensions are important and interesting. Welcome to 0:08:24.520 --> 0:08:26.400 Maren Talks Money, the podcast in which people who know 0:08:26.400 --> 0:08:29.400 the markets explain the markets. I'm Maren zumzat web. Here's 0:08:29.400 --> 0:08:32.840 my conversation with lead maida founder and managing partner of 0:08:32.920 --> 0:08:36.360 Gatemore Capital Management lead. Thank you so much for joining 0:08:36.400 --> 0:08:37.760 us today. I really appreciate it. 0:08:38.320 --> 0:08:39.240 Thank you for having me. 0:08:40.160 --> 0:08:41.839 Now, listen, you and I are on the same page 0:08:41.840 --> 0:08:44.240 with a couple of things here, right. We both family 0:08:44.280 --> 0:08:47.400 believe that the UK market is grotesquely undervalued and has 0:08:47.480 --> 0:08:50.680 been for some time. But I think your thoughts around 0:08:50.720 --> 0:08:53.600 why that is and why it might change are slightly 0:08:53.640 --> 0:08:57.040 different to some other people in the market. So talk 0:08:57.240 --> 0:08:57.920 me through that. 0:08:59.480 --> 0:09:02.439 Sure. Well, Well, I think a lot of the commentary 0:09:03.520 --> 0:09:07.679 and and you know, regulators and people in the city 0:09:07.720 --> 0:09:09.800 are looking for answers in the wrong places and in 0:09:09.800 --> 0:09:14.840 many ways, you know, they're looking for new regulation in 0:09:14.960 --> 0:09:17.960 ways of in a sense, manipulating the market to try 0:09:17.960 --> 0:09:21.520 to get whether it's retail investors and institutional investors to 0:09:21.520 --> 0:09:24.800 buy more UK equities. I mean, I fundamentally believe that 0:09:25.120 --> 0:09:27.840 UK equities need to stand on their own right and 0:09:27.880 --> 0:09:32.040 compete on their own right globally for capital. And I 0:09:32.120 --> 0:09:35.320 think the answers to that really lie in deregulation in 0:09:35.360 --> 0:09:39.240 many ways, not adding new layers of regulation. I think 0:09:39.320 --> 0:09:43.160 the extent that people have been exploring opportunities to deregulate, 0:09:43.200 --> 0:09:46.360 it's around listing requirements and things that are really incremental 0:09:46.400 --> 0:09:49.480 around the edges. Good ideas, many of them, but I 0:09:49.520 --> 0:09:52.400 just don't think are going to really solve the fundamental problem. 0:09:52.800 --> 0:09:55.120 Okay, So what is the fundamental problem? What is the 0:09:55.160 --> 0:09:55.679 problem here? 0:09:55.720 --> 0:09:58.800 You know, we've got great fundamental the fundamental. 0:09:58.840 --> 0:10:01.199 Economy, isn't that all? Well, nothing is that bad here. 0:10:01.240 --> 0:10:03.439 I may have a little of political instability, but goodness me, 0:10:03.520 --> 0:10:05.400 look over to France, right, I mean, you know it's 0:10:05.440 --> 0:10:09.080 not not so bad, right, companies are good. Economy looks Okay, 0:10:09.640 --> 0:10:10.800 what is the problem. 0:10:11.600 --> 0:10:15.200 Well, there are some some long term challenges for the 0:10:15.240 --> 0:10:20.240 UK economy around productivity, but that is not the core 0:10:20.320 --> 0:10:25.080 driver of the gap and valuation. The bottom line is 0:10:25.080 --> 0:10:27.960 that the core issue is, at the end of the 0:10:28.000 --> 0:10:32.080 day twofold. One is to do with the takeover code 0:10:32.160 --> 0:10:35.080 and the second is to do with how board members 0:10:35.160 --> 0:10:39.120 are incentivized. You know, I think that if you look 0:10:39.200 --> 0:10:43.680 at the difference the fundamental difference between UK equity markets 0:10:43.679 --> 0:10:46.440 in the US, those I think are the two that 0:10:46.960 --> 0:10:48.840 you know that that really have the biggest way in 0:10:48.920 --> 0:10:52.920 terms of driving the valuation gap. Starting really with with 0:10:52.920 --> 0:10:55.480 with the second point around director and sative. This is 0:10:55.520 --> 0:10:57.480 something that we've been very vocal about. In fact, we 0:10:57.600 --> 0:11:02.160 published a public letter for company recently that really highlighted 0:11:02.200 --> 0:11:05.200 this point. You know, in the US, when you join 0:11:05.320 --> 0:11:08.200 the board of directors, you are expected to go into 0:11:08.200 --> 0:11:11.680 your pocket and buy somewhere between three to five times 0:11:11.679 --> 0:11:14.760 your annual fees in the stock. And whether you do 0:11:14.800 --> 0:11:16.960 that upfront or over the course of your tenure, that's 0:11:17.000 --> 0:11:22.800 the expectation, and people indeed do that. In the UK 0:11:23.440 --> 0:11:27.079 you have nothing like that. The expectation is minimal. You know, 0:11:27.160 --> 0:11:30.720 you see directors buying very little stock and the in fact, 0:11:30.800 --> 0:11:35.640 the UK Governance Code discourages companies from incentivizing directors with equity. 0:11:36.280 --> 0:11:38.480 And so what you have is a situation where there's 0:11:38.520 --> 0:11:42.160 this concept in the UK of you know, of independence, 0:11:43.040 --> 0:11:47.200 where the real term for it is disinterested. You know, 0:11:47.240 --> 0:11:51.800 these are not just independent directors, these are disinterested directors. 0:11:51.920 --> 0:11:55.800 And so when it's time to explore situations like uh, 0:11:56.320 --> 0:12:01.040 you know, acquisitions, selling the business, uh, you know, that's 0:12:01.240 --> 0:12:03.719 real work for directors. And at the end of that 0:12:03.840 --> 0:12:07.959 work they lose their roles, they lose their the fees 0:12:08.000 --> 0:12:11.400 associated with their directorship, and there's very little upside for them. 0:12:11.800 --> 0:12:15.439 And so really there's a fundamental lack of alignment between 0:12:15.600 --> 0:12:16.679 directors and shawolders. 0:12:17.040 --> 0:12:19.840 Okay, interesting, So you're talking about the general board of directors, 0:12:19.880 --> 0:12:23.120 but if we look at a CEO pay, now are 0:12:23.120 --> 0:12:27.640 you including that in this as well? That incentivized in 0:12:27.720 --> 0:12:30.520 the same way, Because we talk about this a lot, 0:12:30.600 --> 0:12:33.880 and you say, well, what difference should the pay as 0:12:33.880 --> 0:12:36.600 a CEO make valuations less? 0:12:36.600 --> 0:12:40.439 So I think CEOs more often will have equity incentives. 0:12:40.920 --> 0:12:43.920 But generally, what I would say is that the UK 0:12:44.040 --> 0:12:47.000 markets now got a reputation for underpaying CEOs and it 0:12:47.080 --> 0:12:49.240 makes it harder to attract the top talents. So I 0:12:49.240 --> 0:12:51.319 think as a result of that, you actually have a 0:12:51.360 --> 0:12:55.079 situation where we have, you know, a less talented pool 0:12:55.120 --> 0:12:59.840 of CEOs running UK listened companies. And yeah, that that 0:13:00.080 --> 0:13:01.960 drive some of the valuation gap itself as well. 0:13:02.960 --> 0:13:07.880 Interesting. So one of the fixes for the UK, which 0:13:07.920 --> 0:13:10.160 is not a quick fix obviously, but you think could 0:13:10.200 --> 0:13:15.200 be a longer term fixes to align not just executive management, 0:13:15.280 --> 0:13:18.840 but all directors executive and non executive, with shareholder and 0:13:18.880 --> 0:13:22.320 trust by effectively forcing them into some kind of equity 0:13:22.320 --> 0:13:23.679 holding or awarding. 0:13:23.840 --> 0:13:27.760 Yes, I think I think non executive directors should be 0:13:27.760 --> 0:13:30.600 owning a lot more stock in the UK than they do, 0:13:30.640 --> 0:13:33.240 and I think if you look at the numbers, you know, 0:13:34.440 --> 0:13:38.120 US directors tend to own many multiples of stock in 0:13:38.160 --> 0:13:41.560 the company compared to UK directors, And there is a 0:13:41.760 --> 0:13:45.800 fundamentally different notion of governance of what is good governance 0:13:46.000 --> 0:13:49.880 between the two markets. In the US, having that alignment 0:13:50.000 --> 0:13:53.840 is deemed good governance appropriate governance. In the UK, there's 0:13:53.960 --> 0:13:56.680 kind of this idea that like serving on a corporate 0:13:56.679 --> 0:13:59.200 board is like some kind of noble pursuit, like working 0:13:59.240 --> 0:14:01.920 for a nonprofit or something like that, and it's the 0:14:01.960 --> 0:14:03.720 farthest thing from the truth. I mean, you know, you 0:14:03.760 --> 0:14:07.720 are you know, shareholder primacy still exists. It needs to 0:14:07.800 --> 0:14:11.880 exist for an equity market to function well. And you know, 0:14:11.960 --> 0:14:14.040 the directors are there to make sure that they can 0:14:14.080 --> 0:14:17.000 maximize shareholder value, and I think that they need to 0:14:17.040 --> 0:14:19.160 be aligned with shareholders. I mean, I can't tell you 0:14:19.160 --> 0:14:24.080 how many situations we've seen where shareholders are extraordinarily frustrated 0:14:24.080 --> 0:14:28.280 at directors and it just seems like the board is 0:14:28.440 --> 0:14:31.000 ignoring the demands. And you know, when you think about 0:14:31.000 --> 0:14:34.240 the setup, it's very clear why. You know, because at 0:14:34.240 --> 0:14:36.240 the end of the day. The sale of the business 0:14:36.520 --> 0:14:40.200 or selling a division or moving a listing from the 0:14:40.280 --> 0:14:44.000 UK to the US means they're losing their roles and 0:14:45.040 --> 0:14:46.400 they're not interested in that, and. 0:14:46.320 --> 0:14:47.720 It's an awful lot of work as well. It's interesting. 0:14:47.720 --> 0:14:48.960 I mean, I do quite a lot of the investment 0:14:49.000 --> 0:14:52.680 trust industry, and this is one area where there's often 0:14:52.720 --> 0:14:55.560 a conversation about the extent to which directors should or 0:14:55.560 --> 0:14:59.000 shouldn't hold stakes in the investment trust and in the 0:14:59.040 --> 0:15:02.000 main directors, it's expected when you go on board that 0:15:02.040 --> 0:15:04.760 you buy some equity, and there's a report that comes 0:15:04.760 --> 0:15:06.800 out every year Skin in the Game, which lists the 0:15:06.880 --> 0:15:10.360 directors of every investment trust and lists how much they own. 0:15:10.960 --> 0:15:14.320 But more recently there's been a conversation about the extent 0:15:14.440 --> 0:15:19.520 that you can expect new directors to buy significant equity 0:15:20.120 --> 0:15:24.960 stakes if you're also looking for a diverse board of directors, 0:15:24.960 --> 0:15:27.120 if you're looking for younger people or people who haven't 0:15:27.120 --> 0:15:30.840 necessarily had many board roles before who aren't in a 0:15:30.920 --> 0:15:34.400 position to buy. So that's one of the conflicts around 0:15:34.560 --> 0:15:38.560 expecting directors to make a financial contribution on being employed. 0:15:39.200 --> 0:15:41.880 That's understood, it needs to be taken into consideration. But 0:15:42.360 --> 0:15:44.880 you know, it's not to say that only affluent people 0:15:44.920 --> 0:15:49.000 should be serving on boards, but there's a very easy 0:15:49.000 --> 0:15:52.680 accommodation which includes allowing them to buy the stock over time, 0:15:52.760 --> 0:15:55.440 over the course of their tenure. So it's really it's 0:15:55.480 --> 0:15:59.040 effectively rolling your fees into the stock. And if you 0:15:59.080 --> 0:16:01.360 are a part of the team and you're one of 0:16:01.440 --> 0:16:04.680 the key decision makers from a governance perspective, you should 0:16:04.680 --> 0:16:07.040 be very aligned with the shareholders and you should have 0:16:07.120 --> 0:16:07.760 skin in the game. 0:16:08.480 --> 0:16:10.800 Okay, interesting, So the fact that people don't have skin 0:16:10.840 --> 0:16:12.840 a game is one of the things that might put 0:16:12.840 --> 0:16:15.720 a spanner of the works of your idea that the 0:16:15.760 --> 0:16:19.240 Great British buyout is the answer to the valuation problem 0:16:19.240 --> 0:16:21.800 in the UK. So, as I understand it, your thought 0:16:21.920 --> 0:16:25.040 is that the M and A in the UK is 0:16:25.080 --> 0:16:27.000 not a bad thing. We shouldn't be saying, oh my god, 0:16:27.040 --> 0:16:29.480 well is me we're losing all our companies that disappearing. 0:16:29.560 --> 0:16:32.760 We should be saying this is absolutely brilliant. Other people 0:16:32.880 --> 0:16:35.960 want our companies and this is going to force that valuations, 0:16:36.160 --> 0:16:38.040 bring you listings into the equation and everything will be 0:16:38.040 --> 0:16:39.800 absolutely fine, thank you very much to the market. 0:16:40.080 --> 0:16:43.000 Absolutely. I mean it's a question of why are companies 0:16:43.040 --> 0:16:45.480 looking to move their listening to the US wire companies 0:16:45.560 --> 0:16:49.920 not looking to Why is London not a competitive venue 0:16:50.000 --> 0:16:53.120 for new listings. It's very simply because of the cost 0:16:53.200 --> 0:16:56.880 of capital, because you know, issuers are saying, look, it's 0:16:56.880 --> 0:16:59.320 too expensive for me to issue equity in London. I 0:16:59.440 --> 0:17:01.760 have very little liquidity. Why do I want to be there. 0:17:01.920 --> 0:17:05.560 The way that gets fixed is by putting the UK 0:17:05.680 --> 0:17:09.720 markets back on a virtuous path, and that virtuous path 0:17:10.800 --> 0:17:13.679 involves today kind of a shock therapy of sorts. And 0:17:13.720 --> 0:17:16.040 the shock therapy can't come in the form of new 0:17:16.119 --> 0:17:20.640 regulation to force, you know, retail investors and to really 0:17:20.720 --> 0:17:23.840 kind of try to manipulate institutional and retail investors to 0:17:23.840 --> 0:17:29.400 bi equities. That shock is allowing private equity capital into 0:17:29.440 --> 0:17:32.960 the markets, and effectively, when you're looking at deals that 0:17:33.000 --> 0:17:36.200 are getting done, they're being done today at thirty forty 0:17:36.280 --> 0:17:39.719 fifty percent premiums. And the path that we're on right 0:17:39.760 --> 0:17:42.760 now is a slow bleedout. Over the last two years, 0:17:42.760 --> 0:17:46.400 the biggest buyer on margin of UK equities were corporates 0:17:46.400 --> 0:17:50.399 ie share buybacks. We are effectively liquidating the UK market 0:17:50.480 --> 0:17:52.840 slowly over a long period of time. Our view is 0:17:52.960 --> 0:17:55.800 very simple, which is that what you do want to 0:17:55.840 --> 0:17:57.879 welcome them is kind of a shock to the system, 0:17:57.920 --> 0:18:01.360 which is a large, in a aggressive wave of take 0:18:01.440 --> 0:18:04.520 privates that you know will all be done inevitably at 0:18:04.520 --> 0:18:07.879 significant premiums. And what that's going to do is severalfold. 0:18:07.960 --> 0:18:11.080 One is it's going to retrain, It's going to bring 0:18:11.160 --> 0:18:13.119 back kind of the animal spirits in the market. So 0:18:13.119 --> 0:18:16.000 if you even look at domestic investors that have kind 0:18:16.040 --> 0:18:18.760 of lost faith and the ability to unlock value in 0:18:18.800 --> 0:18:22.040 the market, for them to see these waves of takeouts, 0:18:22.040 --> 0:18:24.040 all of a sudden, they start to think, okay, well, 0:18:24.119 --> 0:18:26.200 you know, if I buy a stock, somebody might take 0:18:26.200 --> 0:18:30.160 it out, the value might correct, and so it becomes 0:18:30.200 --> 0:18:33.600 an interesting game again. Two is you have foreign buyers 0:18:33.640 --> 0:18:37.040 doing something similar, saying, you know, UK's look very cheap, 0:18:37.320 --> 0:18:40.520 here's finally a mechanism to unlock the value. And so 0:18:40.640 --> 0:18:43.320 you have foreign buyers come into the game. And then finally, 0:18:43.520 --> 0:18:48.320 you know, and importantly is you very quickly realign the 0:18:48.320 --> 0:18:51.679 supply demand and balance. If you have sixteen seventeen hundred 0:18:51.680 --> 0:18:55.119 companies today in the UK and one hundred go away 0:18:55.480 --> 0:18:58.560 very quickly, you know, you still have a large number 0:18:58.560 --> 0:19:01.240 of companies on the market. But importantly, what you've done 0:19:01.359 --> 0:19:04.960 is you've shocked the system and you are realigning the 0:19:05.000 --> 0:19:08.840 supply and demand. And all the institutional investors, particularly the 0:19:08.880 --> 0:19:11.639 long only funds that we're sitting on these positions, they 0:19:11.680 --> 0:19:14.680 all of a sudden get a significant return of capital, 0:19:14.720 --> 0:19:16.280 and what do they do with that capital? They go 0:19:16.359 --> 0:19:19.159 back and buy other shares in that same market. The 0:19:19.280 --> 0:19:23.119 UK domestic investors are going to recycle the capital that 0:19:23.160 --> 0:19:25.840 they get from the sale into new names and what 0:19:25.920 --> 0:19:28.000 that you know, what that's going to do is all 0:19:28.040 --> 0:19:30.640 of a sudden put us on that virtues path where 0:19:30.640 --> 0:19:34.600 there is a rerating across the board. And with that rerating, 0:19:34.640 --> 0:19:37.439 it's going to come the demand for new listings, and 0:19:38.080 --> 0:19:40.560 it's going to also slow down the number of companies 0:19:40.600 --> 0:19:43.840 moving from the UK to the US, and it's going 0:19:43.880 --> 0:19:46.040 to slow down the number of private equity takeouts because 0:19:46.080 --> 0:19:49.320 private equity wants to buy cheap, and so we don't 0:19:49.359 --> 0:19:53.200 you know, ultimately, as public equity investors, we don't want 0:19:53.240 --> 0:19:55.960 the UK market to be cheap, and so we believe 0:19:56.000 --> 0:19:58.920 that that needs to be welcomed rather than viewed as 0:19:59.240 --> 0:20:00.399 a real negative. 0:20:00.680 --> 0:20:04.000 I suppose that the worry here is not to be 0:20:04.040 --> 0:20:06.760 negative about this, because I love the story. I want 0:20:06.760 --> 0:20:10.040 to go with the story. But our pension funds are 0:20:10.520 --> 0:20:14.920 big public investors of that type who have gradually shifted 0:20:15.080 --> 0:20:17.720 all their or very large part of their aum out 0:20:17.760 --> 0:20:20.200 of the UK. And remember well that long ago that 0:20:20.280 --> 0:20:22.760 most of the UK's big pension funds had forty percent 0:20:22.800 --> 0:20:25.720 plus in UK equities. Now they're down to three, four, 0:20:25.840 --> 0:20:28.520 five percent. The wealth managers have been moving out and 0:20:28.600 --> 0:20:31.199 still are. I've still with wealth managers who are in 0:20:31.240 --> 0:20:34.440 the process of cutting that down from forty percent thirty 0:20:34.480 --> 0:20:38.000 percent to five six percent. And you keep hearing about 0:20:38.040 --> 0:20:40.320 this flow of money that is still going. And every 0:20:40.320 --> 0:20:42.320 time we look at the flows and you think, surely 0:20:42.359 --> 0:20:45.119 it's got to be positive by now, it never is. 0:20:45.160 --> 0:20:47.840 That money is still leaving. That is a juggernaut to 0:20:47.880 --> 0:20:51.199 turn around. The idea that the big pension funds, I 0:20:51.200 --> 0:20:55.280 mean you use the words suddenly, quickly, sharp, et cetera, 0:20:55.640 --> 0:20:59.280 to turn that juggernaut of flows around would seem to 0:20:59.280 --> 0:21:02.119