Speaker 1: This is where we un back all the commentary here
Speaker 1: in our regular podcast and you go to hear with
Speaker 1: John and I really think.
Speaker 2: About our guests. I'm Maren dunset work this week.
Speaker 1: John Stepic, Senior border at Bloomberg, author of the Daily
Speaker 1: Money Disolve newsletter that joins me to talk about my
Speaker 1: conversation with Douglas and Duncan for from Schroeders. John, Hello him,
Speaker 1: Now that was Did you you enjoy all of them?
Speaker 1: Tell me the truth, you enjoy all of them?
Speaker 3: I do enjoy all of the but I like Duncan's
Speaker 3: sort of like statistical kind of uh presentations. He's very
Speaker 3: good at making the stuff accessible.
Speaker 1: I like Duncan because there's valuation charts tell me what
Speaker 1: I want to hear that too, and that's what I
Speaker 1: like in a chart. I like to be constantly confirmed
Speaker 1: in my biases, and Duncan does that for me with
Speaker 1: that valuation chart that tells us that that the UK
Speaker 1: is cheap and Japan it's cheap. And I also really
Speaker 1: liked the work he did recently on equal weighted and
Speaker 1: market cap weighted indices.
Speaker 2: And everybody knows.
Speaker 1: Everybody knows that because the market has been led by
Speaker 1: a couple of big companies in the US recently that
Speaker 1: if you look at a market cap index, you're going
Speaker 1: to get a lot more expensive result than if you
Speaker 1: look at an equal weighted index. But he's one of
Speaker 1: the first people I see US lead looked at that
Speaker 1: difference and noted that when you look at an equal
Speaker 1: weighted index, even in the US, US equities aren't quite
Speaker 1: as expensive as we think.
Speaker 2: So it does lots of interesting stuff.
Speaker 1: And actually I think his work is accessible without without
Speaker 1: a paywall if you go to the Schroders website or
Speaker 1: without a block for clients, acceter So that's worth people
Speaker 1: people doing if they are in the mood for hearing
Speaker 1: one from Duncan.
Speaker 3: And he rates very will we does right?
Speaker 2: Well, sorry, look we hear a worship Duncan. This is fantastic.
Speaker 2: Say something mean about Duncan for God's sake, ah.
Speaker 3: Dump shitty, supports the wrong football team.
Speaker 1: Or something like that, and just be clear, like we
Speaker 1: like Doug as well, by the way, and we like
Speaker 1: Dug and Duncan, not just Duncan. Right, But one of
Speaker 1: the things that we were talking about at length and
Speaker 1: was about private equity, and we we're talking about the
Speaker 1: delisting of companies around the world and why that's important.
Speaker 4: The deal listing situation is interesting because it's been happening
Speaker 4: everywhere around the world. So I did some work looking
Speaker 4: at the number of companies that were listed on the
Speaker 4: UK stock Market in twenty eleven and then what had
Speaker 4: happened over the following decade, like how many were still listed,
Speaker 4: what happened, what direction had gone in, And about a
Speaker 4: third of them had delisted over that period, and the
Speaker 4: overwhelming majority, almost all of them, it was because they'd
Speaker 4: been bought. Not many companies just decide, hey, I've had enough,
Speaker 4: I'm going to throw in the towel in and leave
Speaker 4: the stock market. Most of it's because they're being bought
Speaker 4: in the UK. The majority of the people down the
Speaker 4: bun have been overseas buyers, mainly US and Canadian once.
Speaker 4: So what we have had is the UKPLC has been
Speaker 4: kind of seeping overseas into law, largely American and buyers
Speaker 4: and private equity buyers. So UK investors no longer have
Speaker 4: the same access to those companies if they're invested in
Speaker 4: the UK stock market, and that is quite.
Speaker 1: And Doug mentioned that it's particularly important because if private
Speaker 1: equity holds. Lots of the biggest growth companies around the
Speaker 1: world are indeed the smallest growth companies. That means that
Speaker 1: ordinary investors can't get access to those companies and therefore
Speaker 1: can't get access to the growth from those companies unless they,
Speaker 1: of course use a middleman going into a private equity
Speaker 1: fund of some kind. And one of the things that
Speaker 1: a lot of people like is not to have a
Speaker 1: middleman and not to pay the expenses of having a middleman.
Speaker 1: So in a way it puts up a psale. Not
Speaker 1: in a way at all, it does put up a
Speaker 1: barrier to access to corporate growth to the retail investor,
Speaker 1: and that's a problem. And the other problem that we
Speaker 1: didn't talk about much in this podcast, but you and
Speaker 1: I have talked about it a lot before, is that
Speaker 1: it's a big deal for shareholder democracy. You know, we
Speaker 1: love the idea I do anyway of listed companies being
Speaker 1: there that we can see what they're doing. There's a
Speaker 1: lot of transparency around being a listed company, and of
Speaker 1: course everyone who has to share gets to vote. And
Speaker 1: increasingly the platforms and even some of the big fund
Speaker 1: management companies are making it easier for people to make
Speaker 1: their feelings known to big companies, and I think that's
Speaker 1: incredibly important.
Speaker 3: Yeah, it's important, and you can also see why companies
Speaker 3: try to you know, maybe avoid that scrutiny and that pressure,
Speaker 3: which is the other reason why it's important that we
Speaker 3: need to have some sort of appeal to actually lessen
Speaker 3: as opposed to you know, stay in private. Although hopefully
Speaker 3: that's you know when you did sort of talk about
Speaker 3: this with Duncan Doug a bit they can arise an
Speaker 3: interest right backdrop will make the private equity model overall
Speaker 3: much less appealing from an investment point of view, and
Speaker 3: then maybe you do get more companies kind of listing
Speaker 3: or an elementary re equitization. But the other thing I
Speaker 3: thought was interesting there was the it's because you know
Speaker 3: who you talked about, it's a bit, but the the
Speaker 3: whole angst about the UK being particularly awful at this
Speaker 3: and it's not actually true. It's just the probably relative
Speaker 3: to where we think we should be, you know, you know,
Speaker 3: a lot lower down. But every kind of stock market
Speaker 3: has seen a load of companies vanishing, and it's very
Speaker 3: much about this private equity side of things and private
Speaker 3: funding side of things, and clearly that is does have
Speaker 3: a lot to do about the kind of you know,
Speaker 3: the secular trend lower and interest rates because borrowing was
Speaker 3: so cheap. But then when you reverse that not as
Speaker 3: I said, you're probably going to find that equity becomes
Speaker 3: more appealing and perhap ups one of the only ways
Speaker 3: to can these money in the future.
Speaker 1: Yeah, and one of the things that that we didn't
Speaker 1: really talk about with Duncan, but I've talked about with
Speaker 1: him before, and if they've been longer, we would have
Speaker 1: gone on to talk about this is the huge differences
Speaker 1: inside the private equity industry. You know, when we talk
Speaker 1: about private equity or when you read about it in
Speaker 1: the newspapers, you tend to think of it being just
Speaker 1: the very large cab buyouts, you know, the takeovers of
Speaker 1: household names or listed companies that you see that you
Speaker 1: know already. But that's just one one part of the
Speaker 1: private equity market and possibly the biggest in value. So
Speaker 1: obviously it makes the headlines. But elsewhere there's a different
Speaker 1: part that is not so impacted by changing interest rates.
Speaker 1: So right down at the bottom you have early stage
Speaker 1: venture capital and that kind of thing which is really
Speaker 1: not impacted by borrowing costs. Because it's financed in a
Speaker 1: different way, financed by individuals and equity.
Speaker 2: And then you have the.
Speaker 1: Small and mid buyout area, which is impacted by higher
Speaker 1: interest costs but is much less leavered so not quite
Speaker 1: so much. So it's it's the big buyers that it
Speaker 1: hit the most buy interest rates, and down at the
Speaker 1: smaller end. Not so much in terms of the act
Speaker 1: self financing of the companies, but of course massively hit
Speaker 1: in terms of valuations because the evaluations depend on where
Speaker 1: rates are.
Speaker 3: So over the long run, I can see that, you know,
Speaker 3: it's the industry has shaped itself to the expectation that
Speaker 3: rates will continue to fall and refinancing et sech is
Speaker 3: always going to be easy, and that discount rates will
Speaker 3: you know, always be where they are. On the other hand,
Speaker 3: you know, the good thing about companies is that you
Speaker 3: know they're They're not like you know, houses or bonds not.
Speaker 3: At the end of the day. You know, if I
Speaker 3: if you could have bought Apple, you know thirty years ago,
Speaker 3: you'd have been as well buying it even if interest
Speaker 3: rates were going up, and you're still have money. So
Speaker 3: if you get a good company, then this stuff doesn't
Speaker 3: necessarily need to be a disaster.
Speaker 1: Well, this is the Scottish mortgage argument, right, This is
Speaker 1: the one that James Anderson, who we've had on this
Speaker 1: podcast in the past, this is one of the things
Speaker 1: that he always says, stop worrying about interest rates, stop
Speaker 1: worrying about valuation, stop worrying about all this stuff.
Speaker 2: If you get a good.
Speaker 1: Company, a good growth company, none of the things that
Speaker 1: you and I like to quibble about, John, none of
Speaker 1: these things will matter in a decade. Get the right
Speaker 1: company and it will grow regardless, It will check out
Speaker 1: money regardless, and you will make your fortunes. Whatever happens
Speaker 1: to your interest rates, whatever happens to the wider economic environment.
Speaker 2: Success is success.
Speaker 1: You know, Scottish mortgage was an amazing investment until relatively recently,
Speaker 1: constantly traded at a premium tiers net out of value.
Speaker 1: And now, of course that is not the case anymore
Speaker 1: because whatever James Anderson and the who's now retired and
Speaker 1: the other partners that Bailly Gifford might say, Billy Gifford
Speaker 1: being the manager of Scottish mortgage, other people look at
Speaker 1: it and go wow, that stuff was really expensive and
Speaker 1: look was having the interest rates and you know, we
Speaker 1: don't really, we don't want to pay that anymore. So
Speaker 1: it's got the mortgage just sitting there at a seventeen
Speaker 1: percent discount. And some people think they should be buying
Speaker 1: back most shares because they issued a lot of shares
Speaker 1: at a premium.
Speaker 2: They're not doing that.
Speaker 1: They're just well, they're buying back some, but not on
Speaker 1: the scale that some people would like. Sitting on a
Speaker 1: seventeen eighty percent discount and just waiting.
Speaker 3: Yeah. Well, but one interesting that they've just done, and
Speaker 3: this sort of goes back to the thing we were
Speaker 3: just talking a bit with transparency is they've just put out,
Speaker 3: according to one of the broadcast numis, a bit more
Speaker 3: detail on the ten largest unlisted investments. And one of
Speaker 3: the things I think that's really interesting about this is
Speaker 3: it does go back to that point.
Speaker 4: It's like.
Speaker 3: Until interest rates started going up, everyone is happy to
Speaker 3: just see yeah, yeah, fine, you know, take my money,
Speaker 3: private equity, et cetera, et cetera. You know, fast growth.
Speaker 3: Now people are saying, well, how they annoy that this
Speaker 3: stuff that you own is worth what you say it?
Speaker 3: It's because it's not trade ad sales are kind of
Speaker 3: like hard to come by. You don't know what it's
Speaker 3: worth until it's been flogged off, and so now companies
Speaker 3: are under pressure to actually start trying to give a
Speaker 3: bit more detail, more along the lines of what this
Speaker 3: stuff would look like if it was listed and you
Speaker 3: could easily access its accounts, so you could easily access
Speaker 3: you know, that kind of growth rates and all the
Speaker 3: rest of it. So I think it's interesting there's this
Speaker 3: pressure on them, which I mean, to be fair, it
Speaker 3: is the you know, Baireley gifted I would say Scottish
Speaker 3: moorgage specifically have kind of been you know, as transparent
Speaker 3: as you get on this front. But it's interesting there's
Speaker 3: this pressure to kind of like take that a step further,
Speaker 3: just reassured investors basically.
Speaker 1: Yeah, I mean, and the Scottish mortgage portfolio is of course,
Speaker 1: you know, it's very good for a lot of cash
Speaker 1: generative companies in it, and Shoo Company is.
Speaker 2: So it's interesting. But one of the ways that.
Speaker 1: Listed investment trusts and listed investment trusts in particular investing
Speaker 1: in private equity can make the rest of us feel
Speaker 1: confident that the valuations they're using are correct is to
Speaker 1: buy back their own shares, right, I mean, what you're
Speaker 1: doing when you buy back your own shares is you're
Speaker 1: you're reinvesting in your own portfolio at a discount or
Speaker 1: what you believe is a discount, right, And if you
Speaker 1: do that, then what you're doing is you're saying to
Speaker 1: your shareholders, look, we trust our own valuations, so we're
Speaker 1: going to buy back in at what we believe is
Speaker 1: a discount.
Speaker 2: And that seems to me to be a great way
Speaker 2: to do it.
Speaker 1: So it is there is a lot of pressure at
Speaker 1: the moment on these trusts and as I say, particularly
Speaker 1: those holding private equity, to display to the shareholders that
Speaker 1: they trust their own valuations, and as you want.
Speaker 2: One has done this.
Speaker 1: Pantheon International has recently introduced to a much wider buyback
Speaker 1: program that does exactly that.
Speaker 3: I mean, well, then that's interesting too, because then you've got,
Speaker 3: you know, if if you agree with them that this
Speaker 3: stuff is potentially kind of undervalued, then you know that's
Speaker 3: your catalyst as well. If people are interested, if the
Speaker 3: private if the whole private equity spheres that's to introduced
Speaker 3: discount control mechanisms, then you know, arguably that's a good
Speaker 3: buying opportunity for investment trusts in that kind of space and.
Speaker 1: If evaluations are right, this is one of the only
Speaker 1: risk free returns available in the market.
Speaker 2: Buy back current shares, yeah, I mean, if.
Speaker 3: The valuations are right. But at the end of the day,
Speaker 3: you know, they do keep insistent that they didn't overvalue
Speaker 3: them during the boom times. And you know, if if
Speaker 3: they've got the kind of confidence to do it, then
Speaker 3: you know they could have implies that maybe you're going
Speaker 3: to get a turn around or the especially if you
Speaker 3: know interestreets are starting to fly as well, it's going
Speaker 3: to look warm sense of positivity. But especially maybe if
Speaker 3: we start to see maybe if we see Scottish mortgage
Speaker 3: introducer control mechanism, Yeah.
Speaker 2: That is totally not going to happen. That is absolutely
Speaker 2: not going to happen. Baily go for it. In general
Speaker 2: are very against buybacks. I think you know, there are
Speaker 2: lots of reasons not to do it.
Speaker 1: It's for the size of the fund, have to sell
Speaker 1: the holdings that you like, all this kind of thing,
Speaker 1: take our debt to finance it. And then you know
Speaker 1: that Scottish movies in particular, they have very parameters around
Speaker 1: the extent which they're allowed to hold unlisted versus listed
Speaker 1: et cetera. So there are sorts of reasons not to
Speaker 1: do it, but the main reason to do it, particularly
Speaker 1: particularly if you've issued a lot of shares during the
Speaker 1: boom times, is to show show your investors that you
Speaker 1: will and that you can. Anyway, that's probably enough on
Speaker 1: on on buybacks. We don't want to bor listens to death,
Speaker 1: but it is. I do think that if you're if
Speaker 1: you're looking at the listed private equity arena, and there
Speaker 1: are quite a few of trust doing this, and we
Speaker 1: talk about it in the podcast with Duncan and Doug,
Speaker 1: there are a lot of listed trusts doing this. The
Speaker 1: ones that are showing confidence in their own valuations may
Speaker 1: be the ones that you want to look at against
Speaker 1: the ones who are just going, oh, well, you know,
Speaker 1: nothing we can do about discounts.
Speaker 2: Just let that. Of course, this is what directors are for,
Speaker 2: right an investment trust.
Speaker 1: They're there to step up for the shareholders, and that
Speaker 1: involves attempting to keep the nav relative close to the
Speaker 1: share price.
Speaker 3: Yeah, and I suppose we private equity the diskans have
Speaker 3: traditionally been beggar, but not that's big.
Speaker 2: Anyway.
Speaker 1: The final bit of this podcast with Duncan and Doug.
Speaker 1: We ask them what looks cheap, so, you know, excitingly
Speaker 1: they agree with US, emerging markets, Japan, et cetera, every
Speaker 1: of the UK. And then we ask them for golden
Speaker 1: bitcoin in it. They're young, Duncan and Doug I was
Speaker 1: hot with holding out for a better bitcoin there really
Speaker 1: holding out for them.
Speaker 2: What do we get gold? Final question, this is for
Speaker 2: both of you. Doug.
Speaker 1: You ready, okay, okay, I'm going to lock you in
Speaker 1: a run for ten years, well not really metaphorically, and
Speaker 1: before you go, you can only invest in one thing
Speaker 1: gold Bitcoin.
Speaker 2: Not strictly an investment, but you know what I mean,
Speaker 2: gold bitcoin.
Speaker 1: You can stick your money in a UK deposit account.
Speaker 2: What's it going to be?
Speaker 4: Gold?
Speaker 2: Good answer. We've had a couple of bitcoins recently. We're
Speaker 2: getting very confused. Duncan.
Speaker 1: Yeah, gold too, golds kind of every one of you.
Speaker 3: I'm disappointing.
Speaker 2: I know. There you go. Now listen, we're going to
Speaker 2: I'll tell you what we're going to do. I was
Speaker 2: talking to our wonderful producers somewhere about this the other day.
Speaker 1: We are going to count up bitcoin and gold replies
Speaker 1: and get ourselves a ratio that we can keep going.
Speaker 2: We know where it is at the moment, but.
Speaker 3: You may find that it's maybe some sort of indicator
Speaker 3: for the future. The Merrin talks money back coin Golden Dicks.
Speaker 2: Ah, that would be so great. Do you think that's
Speaker 2: a book sentiment indicator? People refer to the MTM indicator.
Speaker 1: Thanks for listening to this week's Marin Talks Money the
Speaker 1: after Show. The episode was hosted by me Mary at
Speaker 1: Sunset Web alongside John Staffick. It was produced by Sumasadi
Speaker 1: and additional editing by Blake Michael