WEBVTT - Why This Controversial Investment Trust Deal Has Riled Key Shareholders 0:00:02.720 --> 0:00:19.319 Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Marin 0:00:19.360 --> 0:00:21.720 Dogs Money Market Wrap, when we talk about the biggest 0:00:21.800 --> 0:00:24.439 moves in the market this week and what is driving them. 0:00:24.600 --> 0:00:27.800 I'm Arin zum stepweb editor Allows with Bloomberg UK Wealth, and. 0:00:27.800 --> 0:00:30.760 I'm joined Stepbeg, Senior Report an author of the Money 0:00:30.760 --> 0:00:31.800 Distilled newsletter. 0:00:33.040 --> 0:00:36.200 Okay, now, John, for this week's chat. You suggested inviting 0:00:36.280 --> 0:00:38.680 a guest who has come into the London studio. We 0:00:38.680 --> 0:00:40.360 don't do this very often because of course John and 0:00:40.360 --> 0:00:42.480 I are so expert we can talk about it absolutely 0:00:42.600 --> 0:00:45.400 anything anytime, but we do know that a lot of 0:00:45.400 --> 0:00:48.600 our listeners are very interested in investing in investment trust. 0:00:48.600 --> 0:00:51.600 There's a big story there this week. So John, who 0:00:51.600 --> 0:00:52.520 have you asked on. 0:00:52.920 --> 0:00:57.800 Advised on the one focus Cloudier of capital getting asset 0:00:57.800 --> 0:01:02.600 management and I had sort of chatted to Curse the 0:01:02.640 --> 0:01:05.839 earlier this week about this particular deal, and I think 0:01:05.959 --> 0:01:08.520 it's probably the reason what we see the UKs are 0:01:08.560 --> 0:01:14.720 not overly enthusiastic about the prospect once we got to 0:01:14.959 --> 0:01:17.320 explain what the actual deal is fast. 0:01:17.720 --> 0:01:20.520 Yes, absolutely, and we will just as it started to 0:01:20.520 --> 0:01:22.440 this that there's a lot of activity in the Investment 0:01:22.440 --> 0:01:25.600 Trust SECTORHYTHM. I'm down and aul lot of discussion about activity. 0:01:25.760 --> 0:01:27.880 So this is about one specific deal, but there is 0:01:27.920 --> 0:01:30.840 a lot going on. So over to you, Chris, tell 0:01:30.920 --> 0:01:33.119 us about this deal and why you are so appalled 0:01:33.200 --> 0:01:34.840 by it to use your own language. 0:01:34.520 --> 0:01:36.680 Thanks very much, Marion, Thank you John for having me on. 0:01:37.280 --> 0:01:40.959 Really appreciate it. And yes, indeed, appalled was the word 0:01:41.000 --> 0:01:44.200 that we chose to use in our letter to the Chairman, 0:01:44.280 --> 0:01:47.160 which we also made public earlier in the week. So 0:01:47.200 --> 0:01:51.120 what's going on here is that there are two infrastructure 0:01:51.160 --> 0:01:54.640 investment trusts. The first is HICKEL, which has been on 0:01:54.680 --> 0:01:56.880 the market since two thousand and six. It's a well 0:01:56.960 --> 0:02:01.160 loved core infrastructure fund. And then there is a second, 0:02:01.240 --> 0:02:06.600 which is a trig or, the Renewables Infrastructure Group, which 0:02:07.360 --> 0:02:12.000 as the name suggests, invests in renewables infrastructure. And now 0:02:12.000 --> 0:02:17.200 they're both managed by the same fund manager, Infrared Partners, 0:02:18.120 --> 0:02:21.720 and they have proposed merging the two vehicles together. 0:02:22.880 --> 0:02:26.320 And just to double JC when you see core infrastructure, 0:02:26.480 --> 0:02:28.600 Chris for heckle, what do you mean by that? 0:02:29.160 --> 0:02:35.840 So HICKEL owns things like PFI contracts, so hospitals, schools, 0:02:35.880 --> 0:02:38.880 it owns toll roads, it has an investment in the 0:02:38.880 --> 0:02:41.440 water sector, which is perhaps not everybody's cup of tea. 0:02:42.240 --> 0:02:46.160 It owns HS one, which is the high speed rail concession. 0:02:46.720 --> 0:02:48.240 Those sorts of assets I saw. 0:02:48.280 --> 0:02:53.480 It's completely definite set of ices. So you're talking about 0:02:53.960 --> 0:02:56.560 lots of yes, core stuff. And then what they're doing 0:02:56.720 --> 0:03:00.200 is an emerging with this company that basically owns wind 0:03:00.280 --> 0:03:02.079 farms and sol panels. 0:03:01.960 --> 0:03:06.560 Are wind farms, solar and increasingly some exposure to battery 0:03:06.560 --> 0:03:10.639 storage and both in the UK and overseas. 0:03:10.720 --> 0:03:13.799 Yeah, that's correct, Cool, okay, And we should start by 0:03:14.320 --> 0:03:16.560 before we move on to the meursur itself and explaining, 0:03:16.600 --> 0:03:19.320 if you wouln't mind, Christ why these trusts have both 0:03:19.360 --> 0:03:22.560 been trading on fairly hefty discounts. Sure, but of course 0:03:22.600 --> 0:03:23.280 there's the problem. 0:03:23.520 --> 0:03:26.640 Indeed. Indeed, so the first thing to say is that 0:03:26.880 --> 0:03:31.160 these vehicles are all to some extent bond proxies, and 0:03:31.240 --> 0:03:34.880 so as interest rates have risen, so we've seen the 0:03:34.920 --> 0:03:37.600 net present value of the cash flows associated with these 0:03:37.640 --> 0:03:42.160 trusts fall and therefore the prices have fallen. Then, in 0:03:42.160 --> 0:03:44.440 addition to which is I'm sure you guys have talked 0:03:44.440 --> 0:03:46.960 about lots on the show you know, the investment trust 0:03:46.960 --> 0:03:50.280 sector has been somewhat out of favor, and fundamentally you've 0:03:50.320 --> 0:03:54.320 just got more sellers than buyers, and that pushes down prices. 0:03:54.680 --> 0:03:59.920 And of course, unlike an open ended fund, where you know, 0:04:00.160 --> 0:04:03.800 units are created and redeemed and therefore supply naturally meets demand, 0:04:03.880 --> 0:04:06.880 that the supply of shares in the investment trust sector 0:04:07.000 --> 0:04:10.360 is at least in the short term fixed. So that 0:04:10.480 --> 0:04:13.640 explains the kind of general malaise. But on top of that, 0:04:13.920 --> 0:04:18.400 renewable infrastructure funds have been really badly hit over the 0:04:18.520 --> 0:04:21.080 last couple of years, and then over the last few weeks. 0:04:22.000 --> 0:04:26.440 Why is that. Well, in the first instance, shortly after 0:04:26.480 --> 0:04:29.600 the invasion of Ukraine, the government put in place an 0:04:29.600 --> 0:04:35.800 extraordinary profit levy which hit renewable power generators particularly hard. Then, 0:04:36.240 --> 0:04:40.479 more generally, there have been concerns that these vehicles may 0:04:40.560 --> 0:04:43.919 have overstated their assets because a number of them have 0:04:44.000 --> 0:04:46.800 had assets for sale and have not been able to 0:04:46.880 --> 0:04:50.560 realize assets and anything approaching the book values of them. 0:04:50.960 --> 0:04:54.120 And then finally, in the last couple of weeks we've 0:04:54.160 --> 0:05:00.000 seen these proposals floated by the government to retrospectively change 0:05:00.520 --> 0:05:04.800 the subsidy regime. And relating to renewable infrastructure here in 0:05:04.839 --> 0:05:07.520 the UK, and obviously that's just made matters worse. And then, 0:05:07.560 --> 0:05:09.919 of course the final thing is just that there's a 0:05:10.920 --> 0:05:14.279 Investors have come to realize that the cash flows associated 0:05:14.279 --> 0:05:19.039 with core infrastructure are really pretty predictable and so you 0:05:19.080 --> 0:05:22.240 can have a much greater confidence in those. Conversely, with 0:05:22.720 --> 0:05:26.880 the renewables funds we've seen. Obviously, they are affected by 0:05:26.880 --> 0:05:30.600 the power price, and they're affected by variation in wind 0:05:30.600 --> 0:05:33.920 speed and all of these other things, and so investors 0:05:33.960 --> 0:05:36.919 I think have come to realize that they are a 0:05:37.000 --> 0:05:40.440 less certain proposition and therefore require a higher discount rate. 0:05:40.880 --> 0:05:43.800 Okay, so from what you say already, I think John 0:05:43.839 --> 0:05:45.919 and I are both thinking, well, why would you merge 0:05:45.920 --> 0:05:46.919 these two things? 0:05:47.279 --> 0:05:49.760 I would have to agree with you there, but I mean, 0:05:50.000 --> 0:05:52.680 I'd like to be clear. So we came public, and 0:05:52.760 --> 0:05:57.320 since we've come public, we have heard from I mean 0:05:57.360 --> 0:06:01.200 literally dozens of investors, both institutional investors and private investors 0:06:01.279 --> 0:06:04.880 who all share our concerns. And essentially, if I were 0:06:05.000 --> 0:06:07.560 going to summarize them, I guess i'd say the following. 0:06:07.960 --> 0:06:11.400 The first is that, look, some people may differ in 0:06:11.440 --> 0:06:15.719 their assessment of renewable infrastructure, and that's absolutely fine. And 0:06:15.760 --> 0:06:19.320 if they want to buy infrastructure, renewable infrastructure, there are 0:06:19.320 --> 0:06:22.120 plenty of vehicles that they can go and buy. Some people, 0:06:22.120 --> 0:06:25.400 by contrast, and we would include ourselves in this, prefer 0:06:25.480 --> 0:06:29.520 core infrastructure. And they own Hickel. And what the investors 0:06:29.520 --> 0:06:33.320 are absolutely spitting about is that all of a sudden 0:06:33.440 --> 0:06:36.760 they are being forced by the board through their ownership 0:06:36.800 --> 0:06:39.800 of Hickel, to buy renewable infrastructure. And they say, if 0:06:39.839 --> 0:06:42.160 I had wanted to own it, I would have bought it, 0:06:42.200 --> 0:06:46.240 and I bought something else instead. So that's the first 0:06:46.320 --> 0:06:50.320 big problem. The second big problem is that because of 0:06:50.360 --> 0:06:54.880 these issues in the renewable infrastructure space, it was trading 0:06:54.920 --> 0:06:58.200 on a much wider discount. Trigg was trading on a 0:06:58.240 --> 0:07:01.240 much wider discount than Hickel. So a close of business 0:07:01.240 --> 0:07:03.880 on Friday afternoon, Hickel was trading on about a twenty 0:07:03.920 --> 0:07:07.240 two percent discount to its then nav and Trigg was 0:07:07.279 --> 0:07:09.240 trading on about a thirty three So there's sort of 0:07:09.240 --> 0:07:12.480 an eleven percent difference. And I guess you could say 0:07:12.520 --> 0:07:17.360 that that's the market's best estimate of the difference in hardness, 0:07:17.400 --> 0:07:20.720 if you will, of their respective NAV, so investors were 0:07:20.720 --> 0:07:23.000 saying they had much more confidence in the NAV of Hickel, 0:07:23.360 --> 0:07:26.960 much lower confidence in the NAV of Trigg. But the 0:07:27.080 --> 0:07:30.960 deal has been structured on an NAV for NAV basis, 0:07:31.680 --> 0:07:35.320 and so what that means is that not only are 0:07:35.480 --> 0:07:39.800 investors being forced into buying a set of assets that 0:07:39.840 --> 0:07:43.080 they don't want because it's being struck on an NAV 0:07:43.160 --> 0:07:46.800 for NAV basis, they're effectively paying a higher price than 0:07:46.840 --> 0:07:50.520 the prevailing market price before this deal was announced. 0:07:50.960 --> 0:07:53.720 Yes, I mean, why not just buy it in the 0:07:53.760 --> 0:07:57.160 open market, you know, it's kind of it seems a 0:07:57.160 --> 0:07:57.800 bit o white. 0:07:57.960 --> 0:07:59.960 And I mean, I'm afraid it gets even worse than that, 0:08:00.480 --> 0:08:05.280 which is that the Trig shareholders are being offered a 0:08:05.320 --> 0:08:08.480 cash out at a ten percent discount for some of 0:08:08.520 --> 0:08:12.280 their stake. So actually that means that the effective price 0:08:12.520 --> 0:08:16.760 that Hickel shareholders is even higher. And you know, alternatively, 0:08:17.120 --> 0:08:20.080 Hickel shareholders aren't being offered any cash out at any 0:08:20.080 --> 0:08:21.240 price under the term. 0:08:21.560 --> 0:08:24.559 So there's no out for Hickel shareholders, but there isn't 0:08:24.560 --> 0:08:27.800 out for Trig shareholders. At a ten percent discount to NYAVY, 0:08:27.840 --> 0:08:30.280 that's a great deal for them, absolutely, if it was 0:08:30.320 --> 0:08:35.000 initially on a thirty four percent, so shareholders and TRIG 0:08:35.040 --> 0:08:38.199 will be pleased. They might not get out in their entirety, 0:08:38.240 --> 0:08:41.240 but they'll get out of some of their horrible holding 0:08:41.280 --> 0:08:43.679 at a ten percent discount, and the rest will be 0:08:43.880 --> 0:08:47.160 folded into a superior truck. Correct, This is pretty good 0:08:47.160 --> 0:08:50.920 for Trig shareholders, assuming they don't mind holding the assets 0:08:50.960 --> 0:08:51.600 inside hickelds. 0:08:51.640 --> 0:08:53.439 That's a fair comment, and so you know, obviously, if 0:08:53.480 --> 0:08:56.360 I were a Trig shareholder, I'd be reasonably delighted, although 0:08:56.360 --> 0:08:59.640 I would note that the difference in share price movements 0:09:00.200 --> 0:09:03.480 since the deal was announced is quite asymmetric. So the 0:09:03.480 --> 0:09:05.560 share price of Hickel when I last checked was down 0:09:05.720 --> 0:09:09.040 seven percent from the undisturbed price, but the TRIG share 0:09:09.040 --> 0:09:12.760 price was only up too, so in aggregate, this deal 0:09:12.800 --> 0:09:18.520 has destroyed value. But actually you're right. I had an 0:09:18.559 --> 0:09:21.640 email from a client a couple of days ago. I 0:09:21.679 --> 0:09:24.800 asked him if he was involved in the transaction, and 0:09:24.840 --> 0:09:28.920 he replied saying, for my sins, we only own Trig, 0:09:29.480 --> 0:09:32.600 and we're completely delighted because it seems like we're being 0:09:32.600 --> 0:09:35.680 bailed out at the expense of Hickel share and I'm 0:09:35.679 --> 0:09:39.480 afraid I have to agree with him, and I was 0:09:39.520 --> 0:09:40.640 impressed with his honesty. 0:09:41.640 --> 0:09:45.680 Yes, okay, So why do you think this is happening? 0:09:45.800 --> 0:09:48.040 I mean, the suspicion is that this is just good 0:09:48.120 --> 0:09:53.079 for the advisor because they have both trusts, so they 0:09:53.080 --> 0:09:54.920 got to hang onto the assets and neither of these 0:09:54.920 --> 0:09:57.040 trusts end up going anywhere else or being brought out 0:09:57.120 --> 0:10:01.480 or merged into another trust out with their organization, so 0:10:01.559 --> 0:10:03.440 it makes sense for them. 0:10:03.840 --> 0:10:07.680 Yeah, And I mean, and particularly in relation to that, so, 0:10:09.080 --> 0:10:12.600 Trigg made a promise that they would hold a continuation 0:10:12.800 --> 0:10:15.480 vote if the trust traded on a discount. You know, 0:10:15.559 --> 0:10:17.080 I forget what the number was. I think it was 0:10:17.080 --> 0:10:19.679 maybe if it averaged a wider than a ten discount 0:10:19.720 --> 0:10:22.360 over twelve month period or whatever it was. And that 0:10:22.520 --> 0:10:25.840 continuation vote is almost certain to be triggered next year. 0:10:26.360 --> 0:10:28.400 And so you know, if you were a cynic, you 0:10:28.440 --> 0:10:32.200 would say that this transaction means that they can avoid 0:10:32.720 --> 0:10:36.640 that continuation vote taking place, where given I guess the 0:10:36.720 --> 0:10:39.320 very large discount that it was trading on prior to 0:10:39.320 --> 0:10:41.640 this announcement, you would think there was a good chance 0:10:41.679 --> 0:10:43.360 that that continuation vote would fail. 0:10:44.240 --> 0:10:47.080 Yeah. So, and for Red Capital Partners, who have both 0:10:47.080 --> 0:10:50.480 of these trusts now will effectively keep the majority of 0:10:50.520 --> 0:10:52.720 the assets in both of them. Yes, well they may 0:10:53.520 --> 0:10:54.680 well not have otherwise. 0:10:55.640 --> 0:10:58.960 Indeed, and you know, admittedly they have made some concessions 0:10:58.960 --> 0:11:03.319 around management fees, but they're pretty modest and so in 0:11:03.360 --> 0:11:07.160 the grand scheme of things, Yeah, I think it's a 0:11:07.200 --> 0:11:08.280 good deal for Infrared. 0:11:08.920 --> 0:11:11.760 Of interesting to see someone's listening to this and the 0:11:12.160 --> 0:11:14.720 rain shields in Hickel. What or check for that mate? 0:11:15.640 --> 0:11:20.040 What can they do to stop the deal going through? 0:11:20.320 --> 0:11:22.440 Or presumably this is all going to a vote at 0:11:22.520 --> 0:11:25.360 some points that come up in December, and I think 0:11:25.400 --> 0:11:25.960 that correct. 0:11:26.320 --> 0:11:28.880 Yeah, so so you know, we've not the documents haven't 0:11:28.880 --> 0:11:32.120 been published yet, but certainly according to management, the vote 0:11:32.640 --> 0:11:36.560 we'll be coming up in December. Look, our advice would 0:11:36.600 --> 0:11:38.920 be first thing to do for any shareholder, and this 0:11:39.000 --> 0:11:41.440 is just as true for institutional shareholders as it is 0:11:41.480 --> 0:11:44.520 for retail shareholders, is to get in touch with the 0:11:44.520 --> 0:11:48.280 board of Hickel. You can find their email address on 0:11:48.280 --> 0:11:51.880 the Hickel website. And if you tell them that you 0:11:51.920 --> 0:11:53.719 don't like the deal. By the way, you know, it 0:11:53.880 --> 0:11:57.359 goes without saying that being shareholders is a democratic activity. 0:11:57.960 --> 0:11:59.600 If you like the deal. You should also get in 0:11:59.600 --> 0:12:01.480 touch with them as well and tell them about that. 0:12:01.640 --> 0:12:03.800 I would hate to, as it were, be told that 0:12:03.840 --> 0:12:06.600 there were some silent majority that wasn't being listened to 0:12:06.679 --> 0:12:09.679 in all of this. It's really easy at times like this, 0:12:09.840 --> 0:12:13.800 both as institutional and as retail shareholders, to feel that 0:12:13.920 --> 0:12:16.640 you're you know that you're very small, and that your 0:12:16.720 --> 0:12:20.120 voice doesn't count. And what we are trying to do 0:12:20.480 --> 0:12:24.320 is gather together a group of like minded shareholders who 0:12:24.320 --> 0:12:27.000 feel the same way about this and make sure that 0:12:27.080 --> 0:12:29.400 the board are really hearing our voices loud and clear. 0:12:30.000 --> 0:12:32.960 So we would love to hear from you. And again, 0:12:33.040 --> 0:12:34.520 even if you like the deal, we'd love to hear 0:12:34.559 --> 0:12:35.240 from you as well. 0:12:35.840 --> 0:12:37.320 That's it. There may be a lot of people who 0:12:37.400 --> 0:12:39.920 love this deal outside trick shareholders. There maybe others who 0:12:39.920 --> 0:12:42.200 are perfectly happy these trust to be fulled together. 0:12:42.520 --> 0:12:45.240 I mean, you're absolutely right, there may be Mariren. We 0:12:45.360 --> 0:12:49.240 have been actively speaking to retail and institutionals since Monday. 0:12:49.280 --> 0:12:52.240 We've not come across one yet, but that's not to 0:12:52.280 --> 0:12:53.520 say they don't exist. 0:12:53.800 --> 0:12:55.920 Not to say they don't exist. You never know which 0:12:55.920 --> 0:13:13.520 may people will go on this. Can I take the 0:13:13.520 --> 0:13:16.199 conversation a bit wider and ask you then the investment 0:13:16.240 --> 0:13:18.319 trust sector in the UK we're talking about it being 0:13:18.440 --> 0:13:23.080 genuinely in the doldrooms. There are likely to be more 0:13:23.120 --> 0:13:25.960 actions in the sector, right everyone. Everyone's trying to find 0:13:25.960 --> 0:13:27.920 a way to get these discounts down, and so there's 0:13:27.960 --> 0:13:31.560 bound to be more announcements of continuous and votes, more 0:13:31.600 --> 0:13:32.800 mergers from takeovers etc. 0:13:33.760 --> 0:13:35.559 Yeah, I think that would be a fair assumption. 0:13:37.120 --> 0:13:38.840 So one of the things that you might be trying 0:13:38.880 --> 0:13:41.720 to do here is to try and make sure that 0:13:41.840 --> 0:13:44.720 any that come after this pay more attention to what 0:13:45.559 --> 0:13:47.000 more shareholders might think. 0:13:47.679 --> 0:13:53.120 Yeah. Absolutely. So there's another core infrastructure fund I MPP 0:13:53.400 --> 0:13:58.160 that's also held in very high regard by US certainly 0:13:58.160 --> 0:14:00.800 and lots of other market participants. And had this been 0:14:00.840 --> 0:14:04.040 a proposal to merge IMPP and Hickel together on an 0:14:04.120 --> 0:14:07.320 NAV for an av basis to create a much larger, 0:14:07.400 --> 0:14:10.880 more liquid trust, I'm absolutely sure we throw our weight 0:14:10.920 --> 0:14:13.640 behind it, and that would be a good thing. When 0:14:13.720 --> 0:14:17.160 there is in the investment trust sector, as in any market, 0:14:17.600 --> 0:14:22.680 a greater supply than demand of shares, one thing takes 0:14:22.760 --> 0:14:25.200 up the slack, and that is price and the way 0:14:25.240 --> 0:14:29.560 to solve that imbalance is to reduce the supply of shares, 0:14:29.600 --> 0:14:32.680 and so ultimately that is about trust getting taken over, 0:14:32.800 --> 0:14:36.760 getting merged buybacks happening. And obviously in the case of 0:14:37.040 --> 0:14:40.320 trusts that hold a liquid private assets, that's a longer 0:14:40.360 --> 0:14:44.240 and slower process than for conventional investment trusts. But it 0:14:44.400 --> 0:14:46.320 just takes time and just needs to be worked through. 0:14:47.200 --> 0:14:50.800 Yeah, and I'm thinking these two two fifty and if 0:14:50.840 --> 0:14:52.760 they mail just to become fifty one hundred. 0:14:52.520 --> 0:14:54.240 I think that's a reasonable assumption. Yeah, they're both in 0:14:54.240 --> 0:14:55.080 the footsy two fifty. 0:14:55.160 --> 0:14:55.480 Yeah. 0:14:55.520 --> 0:14:59.160 So yeah, so the only other overall benefit is that 0:14:59.560 --> 0:15:02.600 I'll give it becomes a higher profil trust than it 0:15:02.640 --> 0:15:03.240 currently is. 0:15:03.440 --> 0:15:05.040 Yeah, and I think, I mean, you know, and I 0:15:05.080 --> 0:15:08.320 guess there is definitely some merit to that, But my 0:15:08.520 --> 0:15:11.280 argument would be is that there is far better If 0:15:11.520 --> 0:15:13.920 the aim is to create scale, there are far better 0:15:14.000 --> 0:15:17.520 mergers out there that could be done. It's also true 0:15:17.560 --> 0:15:20.840 that scale is not in and of itself a solutions. 0:15:20.880 --> 0:15:25.400 So I was speaking to an institutional investor in Australia 0:15:25.720 --> 0:15:29.120 who holds Hickel, and they were saying that they were 0:15:29.160 --> 0:15:32.240 concerned that they would be forced to dispose of their 0:15:32.280 --> 0:15:35.680 stake in Hickel because of the fact that it would 0:15:35.680 --> 0:15:36.960 no longer fit with their mandate. 0:15:37.280 --> 0:15:45.720 Yep. Interesting, Okay, Chris, Because we've got you and this 0:15:45.800 --> 0:15:48.560 is a market round up podcast, can I ask you 0:15:48.640 --> 0:15:50.240 what on earth do you think is going on in 0:15:50.320 --> 0:15:51.680 muggers in general at the moment? 0:15:51.840 --> 0:15:55.000 I mean, you absolutely can ask me. I'm afraid my answer, 0:15:55.440 --> 0:15:57.960 as is so often the case, is that I'm completely baffled. 0:16:00.720 --> 0:16:03.920 Which bit babbles. I mean, really, I'm talking about the 0:16:03.960 --> 0:16:06.240 last four or five days, we've seen constant sell offs 0:16:06.280 --> 0:16:08.360 across the board, and everyone thinks, well, maybe this is 0:16:08.400 --> 0:16:10.360 the beginning, the beginning of the end of the AI 0:16:10.440 --> 0:16:13.280 bubble or the eye boom, or maybe it's because everything 0:16:13.320 --> 0:16:15.160 is horribly expensive and so it makes sense for it 0:16:15.200 --> 0:16:16.680 to correct a little bit. I mean, if you look 0:16:16.680 --> 0:16:18.800 at the numbers for year to date, everything's still out 0:16:18.800 --> 0:16:21.720 of fifteen, sixteen, seventeen, eighteen percent. Not really a big deal. 0:16:22.560 --> 0:16:25.360 Bitcoin is pretty much the only thing that's lost all 0:16:25.360 --> 0:16:26.160 its games for the year. 0:16:26.280 --> 0:16:28.880 Well, I certainly think i'd be in the kind of 0:16:28.920 --> 0:16:31.840 the latter part of your explanation, which is that everything 0:16:32.000 --> 0:16:34.720 was horribly expensive to start with, and so we're just 0:16:34.760 --> 0:16:37.640 saying what might be the start of, as it were, 0:16:37.680 --> 0:16:41.000 a normal correction. I mean, you know, as I'm sure 0:16:41.000 --> 0:16:42.960 you know. You know, we set a lot of store 0:16:43.560 --> 0:16:47.800 by the cyclically adjusted PE ratio and the reason for 0:16:47.840 --> 0:16:50.520 that is that historically it's been a fantastic predictor of 0:16:50.560 --> 0:16:56.920 long term returns. If you bucket starting CAPE ratio by decile, 0:16:57.680 --> 0:17:02.000 you see that the prospective tenure return correlate perfectly to 0:17:02.120 --> 0:17:08.240 each of those buckets. The ninetieth percentile and upwards, historically speaking, 0:17:08.320 --> 0:17:13.200 would point to average perspective real returns of about half 0:17:13.240 --> 0:17:16.000 a percent per year for the next ten years. And 0:17:16.040 --> 0:17:18.879 that's for the top death style. And we're currently in 0:17:18.920 --> 0:17:21.640 the ninety ninth percentile, so we're in the top one 0:17:21.680 --> 0:17:24.600 percent of that top bucket. So yeah, you know, we 0:17:24.640 --> 0:17:27.360 think that markets are pretty pretty expensive here. 0:17:27.720 --> 0:17:31.320 So everything has to go absolutely right. Every earning forecast 0:17:31.359 --> 0:17:32.199 has to be beaten. 0:17:32.840 --> 0:17:34.960 We are being a bit hostage to fortune here because 0:17:35.000 --> 0:17:39.359 the video is coming out later as we speak, and 0:17:39.800 --> 0:17:41.680 I guess a lot of it hinjies on what happens, 0:17:42.040 --> 0:17:44.680 but that doesn't it a lot of the other things 0:17:44.680 --> 0:17:48.240 people are starting to freak out about. Then they're not 0:17:48.280 --> 0:17:51.720 sure what to planing more about is the ISYI taking 0:17:51.800 --> 0:17:56.320 over fast enough? And also our people now spending too 0:17:56.440 --> 0:18:00.679 much money or investing in AI. Think that's the one thing. 0:18:00.680 --> 0:18:03.399 I do think the mood has shifted. There's no longer 0:18:03.480 --> 0:18:06.800 this obviously want you to roll out stuff as fast 0:18:06.800 --> 0:18:10.080 as possible and really kind of take control of this space. 0:18:10.320 --> 0:18:12.720 They're now thinking, we are we going to pay for 0:18:12.760 --> 0:18:15.360 all of this stuff that you're building. And I think 0:18:15.400 --> 0:18:18.000 that's one kind of narrative tweak that I would say 0:18:18.040 --> 0:18:21.399 I've noticed maybe in the past two or three months, 0:18:21.400 --> 0:18:23.800 maybe even not even that long. 0:18:24.840 --> 0:18:28.720 Yeah, is it also fair that this idea that depreciation 0:18:28.920 --> 0:18:31.760 isn't quite being dealt with correctly is really beginning to 0:18:31.800 --> 0:18:33.840 take hold? And we talked about this last week, John 0:18:33.960 --> 0:18:35.840 and I think we both wrote about it, and that 0:18:36.000 --> 0:18:39.960 this idea that the big GP is the probably called 0:18:40.000 --> 0:18:43.439 graphics processing units and will lease their value faster than 0:18:43.480 --> 0:18:46.040 people thought. Therefore they're being depreciated over the wrong period, 0:18:46.080 --> 0:18:49.159 and that is artificially inflating earnings numbers. That's something that 0:18:49.480 --> 0:18:51.720 is you know, we're so niche even a week ago 0:18:52.119 --> 0:18:54.800 and now is part of the general conversation. 0:18:54.520 --> 0:18:56.880 Right interestingly, you give Chris's creator. I remember we had 0:18:56.880 --> 0:18:59.320 a chat about about two months ago, and the first 0:18:59.320 --> 0:19:01.040 thing have you seen me was a bit yeah, but 0:19:01.240 --> 0:19:03.560 look at all this they'll spend, and what's the depreciation 0:19:03.680 --> 0:19:06.000 going to be on that? I was like, oh, yeah, 0:19:06.040 --> 0:19:09.000 that's an interesting point. I just wish i'd kind of 0:19:09.000 --> 0:19:10.960 like listen more closely and written the. 0:19:10.920 --> 0:19:11.920 Boot tame. 0:19:14.160 --> 0:19:15.639 Christ Is. So I ahead of the game. Thank you? 0:19:15.680 --> 0:19:17.040 Tell us something else that would make the rest of 0:19:17.160 --> 0:19:17.800 us again. 0:19:18.640 --> 0:19:20.360 You know, I tend to only come up with one 0:19:20.359 --> 0:19:24.399 good idea about every about every ten, So I don't know, 0:19:24.520 --> 0:19:26.520 I don't I don't know what what I've got next. 0:19:27.680 --> 0:19:30.440 I mean, I suppose, you know, I think obviously the 0:19:31.080 --> 0:19:34.760 depreciation point is one thing. I guess. The other thing 0:19:35.119 --> 0:19:39.480 is that a huge amount of private credit is being 0:19:39.680 --> 0:19:46.040 sunk into this great AI Capex build out. And of course, 0:19:46.160 --> 0:19:49.359 you know, Missily, most of these private credit managers are 0:19:49.920 --> 0:19:52.440 pretty shrewd operators. I mean, I don't think anybody can 0:19:52.480 --> 0:19:57.119 say that Apollo Naive, for instance. But by the same token, 0:19:57.640 --> 0:20:01.280 there is such a wall of money in private credit 0:20:01.320 --> 0:20:03.879 that needs to be spent, and such excitement around AI. 0:20:04.680 --> 0:20:07.200 What I struggle to see is that the revenues will 0:20:07.240 --> 0:20:10.040 be there that will support this huge amount of capex, 0:20:10.680 --> 0:20:12.879 And so I guess the question is is who is 0:20:12.960 --> 0:20:17.920 left holding the baby? And when those revenues don't materialize. Now, 0:20:18.560 --> 0:20:22.679 the you know, the Magnificent Seven, generate such prodigious amounts 0:20:22.680 --> 0:20:26.000 of free cash flow that maybe you know that they 0:20:26.040 --> 0:20:29.159 can just write that off. Just to say, Meta wrote 0:20:29.160 --> 0:20:31.879 off the fifty plus billion dollars that they spent on 0:20:31.960 --> 0:20:34.080 the metaverse, and you know, essentially, I think we all 0:20:34.080 --> 0:20:37.159 agree that that's turned out to be worthless. But investors say, well, 0:20:37.200 --> 0:20:39.720 that doesn't really matter because the core business is fantastic. 0:20:39.720 --> 0:20:41.880 They'll get some things right, they'll get other things wrong, 0:20:42.480 --> 0:20:45.440 but it's all equally possible that, you know, a large 0:20:45.520 --> 0:20:47.800 chunk of this capex ends up in the hands of 0:20:47.800 --> 0:20:50.639 private debt funds and simply the revenues aren't available to 0:20:50.680 --> 0:20:53.000 support it, and then you see some really large write downs. 0:20:53.000 --> 0:20:53.800 But I have no idea. 0:20:54.119 --> 0:20:56.880 Yeah, okay, well that's that said. I mean, I think 0:20:56.920 --> 0:21:01.320 the core thing here is expensive. Stuff doesn't was so expensive, 0:21:01.359 --> 0:21:04.760 and that's roughly what's happening here before we move on, 0:21:04.880 --> 0:21:08.000 And sorry, Chris, this is not something you're interested in 0:21:08.080 --> 0:21:12.520 I should think that I'm very interested in a headline 0:21:12.520 --> 0:21:14.320 on Bloomberg at the moment that I know John is 0:21:14.320 --> 0:21:19.680 gonna love. House prices crash across London's wealthiest neighborhoods. House 0:21:19.720 --> 0:21:22.760 prices in Kensington and Chelsea felt by almost one hundred 0:21:22.800 --> 0:21:26.080 and sixty thousand pounds in the year to September, with 0:21:26.400 --> 0:21:29.600 the prices of saltoms in the borough dropping eleven point 0:21:29.800 --> 0:21:33.040 three percent, and across London as a whole, house values 0:21:33.280 --> 0:21:36.000 down more than ten thousand pounds each, down around two 0:21:36.040 --> 0:21:37.680 percent or so. And do you know what's going to 0:21:37.720 --> 0:21:40.320 make those houses house prices fall even faster? 0:21:40.720 --> 0:21:43.080 Double in consal tax on the top bynes. 0:21:44.119 --> 0:21:46.439 It's a mentioned tax. It is what they call it 0:21:46.480 --> 0:21:48.320 a mansion tax. And that's what it's going to work being. 0:21:48.359 --> 0:21:51.240 And as after laugh, that was only a few weeks ago. 0:21:51.440 --> 0:21:54.399