WEBVTT - The Duncan Lamont + Douglas Abbott Aftershow

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<v Speaker 1>This is where we un back all the commentary here

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<v Speaker 1>in our regular podcast and you go to hear with

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<v Speaker 1>John and I really think.

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<v Speaker 2>About our guests. I'm Maren dunset work this week.

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<v Speaker 1>John Stepic, Senior border at Bloomberg, author of the Daily

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<v Speaker 1>Money Disolve newsletter that joins me to talk about my

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<v Speaker 1>conversation with Douglas and Duncan for from Schroeders. John, Hello him,

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<v Speaker 1>Now that was Did you you enjoy all of them?

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<v Speaker 1>Tell me the truth, you enjoy all of them?

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<v Speaker 3>I do enjoy all of the but I like Duncan's

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<v Speaker 3>sort of like statistical kind of uh presentations. He's very

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<v Speaker 3>good at making the stuff accessible.

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<v Speaker 1>I like Duncan because there's valuation charts tell me what

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<v Speaker 1>I want to hear that too, and that's what I

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<v Speaker 1>like in a chart. I like to be constantly confirmed

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<v Speaker 1>in my biases, and Duncan does that for me with

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<v Speaker 1>that valuation chart that tells us that that the UK

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<v Speaker 1>is cheap and Japan it's cheap. And I also really

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<v Speaker 1>liked the work he did recently on equal weighted and

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<v Speaker 1>market cap weighted indices.

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<v Speaker 2>And everybody knows.

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<v Speaker 1>Everybody knows that because the market has been led by

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<v Speaker 1>a couple of big companies in the US recently that

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<v Speaker 1>if you look at a market cap index, you're going

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<v Speaker 1>to get a lot more expensive result than if you

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<v Speaker 1>look at an equal weighted index. But he's one of

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<v Speaker 1>the first people I see US lead looked at that

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<v Speaker 1>difference and noted that when you look at an equal

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<v Speaker 1>weighted index, even in the US, US equities aren't quite

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<v Speaker 1>as expensive as we think.

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<v Speaker 2>So it does lots of interesting stuff.

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<v Speaker 1>And actually I think his work is accessible without without

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<v Speaker 1>a paywall if you go to the Schroders website or

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<v Speaker 1>without a block for clients, acceter So that's worth people

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<v Speaker 1>people doing if they are in the mood for hearing

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<v Speaker 1>one from Duncan.

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<v Speaker 3>And he rates very will we does right?

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<v Speaker 2>Well, sorry, look we hear a worship Duncan. This is fantastic.

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<v Speaker 2>Say something mean about Duncan for God's sake, ah.

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<v Speaker 3>Dump shitty, supports the wrong football team.

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<v Speaker 1>Or something like that, and just be clear, like we

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<v Speaker 1>like Doug as well, by the way, and we like

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<v Speaker 1>Dug and Duncan, not just Duncan. Right, But one of

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<v Speaker 1>the things that we were talking about at length and

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<v Speaker 1>was about private equity, and we we're talking about the

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<v Speaker 1>delisting of companies around the world and why that's important.

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<v Speaker 4>The deal listing situation is interesting because it's been happening

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<v Speaker 4>everywhere around the world. So I did some work looking

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<v Speaker 4>at the number of companies that were listed on the

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<v Speaker 4>UK stock Market in twenty eleven and then what had

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<v Speaker 4>happened over the following decade, like how many were still listed,

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<v Speaker 4>what happened, what direction had gone in, And about a

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<v Speaker 4>third of them had delisted over that period, and the

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<v Speaker 4>overwhelming majority, almost all of them, it was because they'd

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<v Speaker 4>been bought. Not many companies just decide, hey, I've had enough,

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<v Speaker 4>I'm going to throw in the towel in and leave

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<v Speaker 4>the stock market. Most of it's because they're being bought

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<v Speaker 4>in the UK. The majority of the people down the

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<v Speaker 4>bun have been overseas buyers, mainly US and Canadian once.

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<v Speaker 4>So what we have had is the UKPLC has been

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<v Speaker 4>kind of seeping overseas into law, largely American and buyers

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<v Speaker 4>and private equity buyers. So UK investors no longer have

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<v Speaker 4>the same access to those companies if they're invested in

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<v Speaker 4>the UK stock market, and that is quite.

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<v Speaker 1>And Doug mentioned that it's particularly important because if private

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<v Speaker 1>equity holds. Lots of the biggest growth companies around the

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<v Speaker 1>world are indeed the smallest growth companies. That means that

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<v Speaker 1>ordinary investors can't get access to those companies and therefore

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<v Speaker 1>can't get access to the growth from those companies unless they,

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<v Speaker 1>of course use a middleman going into a private equity

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<v Speaker 1>fund of some kind. And one of the things that

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<v Speaker 1>a lot of people like is not to have a

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<v Speaker 1>middleman and not to pay the expenses of having a middleman.

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<v Speaker 1>So in a way it puts up a psale. Not

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<v Speaker 1>in a way at all, it does put up a

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<v Speaker 1>barrier to access to corporate growth to the retail investor,

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<v Speaker 1>and that's a problem. And the other problem that we

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<v Speaker 1>didn't talk about much in this podcast, but you and

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<v Speaker 1>I have talked about it a lot before, is that

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<v Speaker 1>it's a big deal for shareholder democracy. You know, we

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<v Speaker 1>love the idea I do anyway of listed companies being

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<v Speaker 1>there that we can see what they're doing. There's a

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<v Speaker 1>lot of transparency around being a listed company, and of

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<v Speaker 1>course everyone who has to share gets to vote. And

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<v Speaker 1>increasingly the platforms and even some of the big fund

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<v Speaker 1>management companies are making it easier for people to make

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<v Speaker 1>their feelings known to big companies, and I think that's

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<v Speaker 1>incredibly important.

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<v Speaker 3>Yeah, it's important, and you can also see why companies

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<v Speaker 3>try to you know, maybe avoid that scrutiny and that pressure,

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<v Speaker 3>which is the other reason why it's important that we

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<v Speaker 3>need to have some sort of appeal to actually lessen

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<v Speaker 3>as opposed to you know, stay in private. Although hopefully

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<v Speaker 3>that's you know when you did sort of talk about

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<v Speaker 3>this with Duncan Doug a bit they can arise an

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<v Speaker 3>interest right backdrop will make the private equity model overall

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<v Speaker 3>much less appealing from an investment point of view, and

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<v Speaker 3>then maybe you do get more companies kind of listing

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<v Speaker 3>or an elementary re equitization. But the other thing I

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<v Speaker 3>thought was interesting there was the it's because you know

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<v Speaker 3>who you talked about, it's a bit, but the the

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<v Speaker 3>whole angst about the UK being particularly awful at this

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<v Speaker 3>and it's not actually true. It's just the probably relative

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<v Speaker 3>to where we think we should be, you know, you know,

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<v Speaker 3>a lot lower down. But every kind of stock market

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<v Speaker 3>has seen a load of companies vanishing, and it's very

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<v Speaker 3>much about this private equity side of things and private

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<v Speaker 3>funding side of things, and clearly that is does have

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<v Speaker 3>a lot to do about the kind of you know,

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<v Speaker 3>the secular trend lower and interest rates because borrowing was

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<v Speaker 3>so cheap. But then when you reverse that not as

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<v Speaker 3>I said, you're probably going to find that equity becomes

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<v Speaker 3>more appealing and perhap ups one of the only ways

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<v Speaker 3>to can these money in the future.

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<v Speaker 1>Yeah, and one of the things that that we didn't

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<v Speaker 1>really talk about with Duncan, but I've talked about with

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<v Speaker 1>him before, and if they've been longer, we would have

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<v Speaker 1>gone on to talk about this is the huge differences

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<v Speaker 1>inside the private equity industry. You know, when we talk

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<v Speaker 1>about private equity or when you read about it in

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<v Speaker 1>the newspapers, you tend to think of it being just

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<v Speaker 1>the very large cab buyouts, you know, the takeovers of

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<v Speaker 1>household names or listed companies that you see that you

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<v Speaker 1>know already. But that's just one one part of the

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<v Speaker 1>private equity market and possibly the biggest in value. So

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<v Speaker 1>obviously it makes the headlines. But elsewhere there's a different

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<v Speaker 1>part that is not so impacted by changing interest rates.

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<v Speaker 1>So right down at the bottom you have early stage

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<v Speaker 1>venture capital and that kind of thing which is really

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<v Speaker 1>not impacted by borrowing costs. Because it's financed in a

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<v Speaker 1>different way, financed by individuals and equity.

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<v Speaker 2>And then you have the.

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<v Speaker 1>Small and mid buyout area, which is impacted by higher

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<v Speaker 1>interest costs but is much less leavered so not quite

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<v Speaker 1>so much. So it's it's the big buyers that it

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<v Speaker 1>hit the most buy interest rates, and down at the

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<v Speaker 1>smaller end. Not so much in terms of the act

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<v Speaker 1>self financing of the companies, but of course massively hit

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<v Speaker 1>in terms of valuations because the evaluations depend on where

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<v Speaker 1>rates are.

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<v Speaker 3>So over the long run, I can see that, you know,

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<v Speaker 3>it's the industry has shaped itself to the expectation that

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<v Speaker 3>rates will continue to fall and refinancing et sech is

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<v Speaker 3>always going to be easy, and that discount rates will

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<v Speaker 3>you know, always be where they are. On the other hand,

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<v Speaker 3>you know, the good thing about companies is that you

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<v Speaker 3>know they're They're not like you know, houses or bonds not.

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<v Speaker 3>At the end of the day. You know, if I

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<v Speaker 3>if you could have bought Apple, you know thirty years ago,

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<v Speaker 3>you'd have been as well buying it even if interest

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<v Speaker 3>rates were going up, and you're still have money. So

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<v Speaker 3>if you get a good company, then this stuff doesn't

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<v Speaker 3>necessarily need to be a disaster.

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<v Speaker 1>Well, this is the Scottish mortgage argument, right, This is

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<v Speaker 1>the one that James Anderson, who we've had on this

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<v Speaker 1>podcast in the past, this is one of the things

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<v Speaker 1>that he always says, stop worrying about interest rates, stop

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<v Speaker 1>worrying about valuation, stop worrying about all this stuff.

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<v Speaker 2>If you get a good.

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<v Speaker 1>Company, a good growth company, none of the things that

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<v Speaker 1>you and I like to quibble about, John, none of

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<v Speaker 1>these things will matter in a decade. Get the right

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<v Speaker 1>company and it will grow regardless, It will check out

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<v Speaker 1>money regardless, and you will make your fortunes. Whatever happens

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<v Speaker 1>to your interest rates, whatever happens to the wider economic environment.

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<v Speaker 2>Success is success.

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<v Speaker 1>You know, Scottish mortgage was an amazing investment until relatively recently,

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<v Speaker 1>constantly traded at a premium tiers net out of value.

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<v Speaker 1>And now, of course that is not the case anymore

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<v Speaker 1>because whatever James Anderson and the who's now retired and

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<v Speaker 1>the other partners that Bailly Gifford might say, Billy Gifford

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<v Speaker 1>being the manager of Scottish mortgage, other people look at

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<v Speaker 1>it and go wow, that stuff was really expensive and

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<v Speaker 1>look was having the interest rates and you know, we

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<v Speaker 1>don't really, we don't want to pay that anymore. So

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<v Speaker 1>it's got the mortgage just sitting there at a seventeen

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<v Speaker 1>percent discount. And some people think they should be buying

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<v Speaker 1>back most shares because they issued a lot of shares

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<v Speaker 1>at a premium.

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<v Speaker 2>They're not doing that.

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<v Speaker 1>They're just well, they're buying back some, but not on

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<v Speaker 1>the scale that some people would like. Sitting on a

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<v Speaker 1>seventeen eighty percent discount and just waiting.

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<v Speaker 3>Yeah. Well, but one interesting that they've just done, and

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<v Speaker 3>this sort of goes back to the thing we were

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<v Speaker 3>just talking a bit with transparency is they've just put out,

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<v Speaker 3>according to one of the broadcast numis, a bit more

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<v Speaker 3>detail on the ten largest unlisted investments. And one of

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<v Speaker 3>the things I think that's really interesting about this is

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<v Speaker 3>it does go back to that point.

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<v Speaker 4>It's like.

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<v Speaker 3>Until interest rates started going up, everyone is happy to

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<v Speaker 3>just see yeah, yeah, fine, you know, take my money,

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<v Speaker 3>private equity, et cetera, et cetera. You know, fast growth.

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<v Speaker 3>Now people are saying, well, how they annoy that this

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<v Speaker 3>stuff that you own is worth what you say it?

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<v Speaker 3>It's because it's not trade ad sales are kind of

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<v Speaker 3>like hard to come by. You don't know what it's

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<v Speaker 3>worth until it's been flogged off, and so now companies

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<v Speaker 3>are under pressure to actually start trying to give a

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<v Speaker 3>bit more detail, more along the lines of what this

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<v Speaker 3>stuff would look like if it was listed and you

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<v Speaker 3>could easily access its accounts, so you could easily access

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<v Speaker 3>you know, that kind of growth rates and all the

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<v Speaker 3>rest of it. So I think it's interesting there's this

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<v Speaker 3>pressure on them, which I mean, to be fair, it

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<v Speaker 3>is the you know, Baireley gifted I would say Scottish

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<v Speaker 3>moorgage specifically have kind of been you know, as transparent

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<v Speaker 3>as you get on this front. But it's interesting there's

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<v Speaker 3>this pressure to kind of like take that a step further,

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<v Speaker 3>just reassured investors basically.

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<v Speaker 1>Yeah, I mean, and the Scottish mortgage portfolio is of course,

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<v Speaker 1>you know, it's very good for a lot of cash

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<v Speaker 1>generative companies in it, and Shoo Company is.

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<v Speaker 2>So it's interesting. But one of the ways that.

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<v Speaker 1>Listed investment trusts and listed investment trusts in particular investing

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<v Speaker 1>in private equity can make the rest of us feel

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<v Speaker 1>confident that the valuations they're using are correct is to

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<v Speaker 1>buy back their own shares, right, I mean, what you're

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<v Speaker 1>doing when you buy back your own shares is you're

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<v Speaker 1>you're reinvesting in your own portfolio at a discount or

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<v Speaker 1>what you believe is a discount, right, And if you

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<v Speaker 1>do that, then what you're doing is you're saying to

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<v Speaker 1>your shareholders, look, we trust our own valuations, so we're

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<v Speaker 1>going to buy back in at what we believe is

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<v Speaker 1>a discount.

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<v Speaker 2>And that seems to me to be a great way

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<v Speaker 2>to do it.

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<v Speaker 1>So it is there is a lot of pressure at

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<v Speaker 1>the moment on these trusts and as I say, particularly

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<v Speaker 1>those holding private equity, to display to the shareholders that

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<v Speaker 1>they trust their own valuations, and as you want.

0:11:56.800 --> 0:11:57.400
<v Speaker 2>One has done this.

0:11:57.480 --> 0:12:01.640
<v Speaker 1>Pantheon International has recently introduced to a much wider buyback

0:12:01.679 --> 0:12:02.880
<v Speaker 1>program that does exactly that.

0:12:03.920 --> 0:12:06.920
<v Speaker 3>I mean, well, then that's interesting too, because then you've got,

0:12:07.320 --> 0:12:10.719
<v Speaker 3>you know, if if you agree with them that this

0:12:10.840 --> 0:12:15.480
<v Speaker 3>stuff is potentially kind of undervalued, then you know that's

0:12:15.520 --> 0:12:18.240
<v Speaker 3>your catalyst as well. If people are interested, if the

0:12:18.320 --> 0:12:20.800
<v Speaker 3>private if the whole private equity spheres that's to introduced

0:12:20.840 --> 0:12:24.920
<v Speaker 3>discount control mechanisms, then you know, arguably that's a good

0:12:24.960 --> 0:12:30.200
<v Speaker 3>buying opportunity for investment trusts in that kind of space and.

0:12:30.280 --> 0:12:32.560
<v Speaker 1>If evaluations are right, this is one of the only

0:12:32.800 --> 0:12:34.839
<v Speaker 1>risk free returns available in the market.

0:12:35.840 --> 0:12:40.000
<v Speaker 2>Buy back current shares, yeah, I mean, if.

0:12:39.960 --> 0:12:41.800
<v Speaker 3>The valuations are right. But at the end of the day,

0:12:42.000 --> 0:12:44.959
<v Speaker 3>you know, they do keep insistent that they didn't overvalue

0:12:45.000 --> 0:12:48.720
<v Speaker 3>them during the boom times. And you know, if if

0:12:48.720 --> 0:12:51.440
<v Speaker 3>they've got the kind of confidence to do it, then

0:12:53.559 --> 0:12:57.120
<v Speaker 3>you know they could have implies that maybe you're going

0:12:57.160 --> 0:13:00.599
<v Speaker 3>to get a turn around or the especially if you

0:13:00.640 --> 0:13:04.800
<v Speaker 3>know interestreets are starting to fly as well, it's going

0:13:04.840 --> 0:13:12.080
<v Speaker 3>to look warm sense of positivity. But especially maybe if

0:13:12.120 --> 0:13:14.200
<v Speaker 3>we start to see maybe if we see Scottish mortgage

0:13:14.360 --> 0:13:17.640
<v Speaker 3>introducer control mechanism, Yeah.

0:13:17.520 --> 0:13:20.400
<v Speaker 2>That is totally not going to happen. That is absolutely

0:13:20.800 --> 0:13:22.960
<v Speaker 2>not going to happen. Baily go for it. In general

0:13:23.040 --> 0:13:26.480
<v Speaker 2>are very against buybacks. I think you know, there are

0:13:26.559 --> 0:13:27.760
<v Speaker 2>lots of reasons not to do it.

0:13:27.800 --> 0:13:30.720
<v Speaker 1>It's for the size of the fund, have to sell

0:13:31.200 --> 0:13:33.040
<v Speaker 1>the holdings that you like, all this kind of thing,

0:13:33.120 --> 0:13:35.920
<v Speaker 1>take our debt to finance it. And then you know

0:13:36.040 --> 0:13:39.440
<v Speaker 1>that Scottish movies in particular, they have very parameters around

0:13:39.960 --> 0:13:42.679
<v Speaker 1>the extent which they're allowed to hold unlisted versus listed

0:13:42.720 --> 0:13:44.839
<v Speaker 1>et cetera. So there are sorts of reasons not to

0:13:44.920 --> 0:13:47.319
<v Speaker 1>do it, but the main reason to do it, particularly

0:13:47.480 --> 0:13:51.280
<v Speaker 1>particularly if you've issued a lot of shares during the

0:13:51.360 --> 0:13:54.719
<v Speaker 1>boom times, is to show show your investors that you

0:13:54.840 --> 0:13:57.559
<v Speaker 1>will and that you can. Anyway, that's probably enough on

0:13:57.640 --> 0:14:00.760
<v Speaker 1>on on buybacks. We don't want to bor listens to death,

0:14:01.760 --> 0:14:03.320
<v Speaker 1>but it is. I do think that if you're if

0:14:03.360 --> 0:14:06.640
<v Speaker 1>you're looking at the listed private equity arena, and there

0:14:06.679 --> 0:14:08.760
<v Speaker 1>are quite a few of trust doing this, and we

0:14:08.840 --> 0:14:10.720
<v Speaker 1>talk about it in the podcast with Duncan and Doug,

0:14:11.160 --> 0:14:13.439
<v Speaker 1>there are a lot of listed trusts doing this. The

0:14:13.640 --> 0:14:16.920
<v Speaker 1>ones that are showing confidence in their own valuations may

0:14:16.960 --> 0:14:18.800
<v Speaker 1>be the ones that you want to look at against

0:14:18.840 --> 0:14:20.520
<v Speaker 1>the ones who are just going, oh, well, you know,

0:14:20.640 --> 0:14:22.320
<v Speaker 1>nothing we can do about discounts.

0:14:21.920 --> 0:14:24.960
<v Speaker 2>Just let that. Of course, this is what directors are for,

0:14:25.160 --> 0:14:26.200
<v Speaker 2>right an investment trust.

0:14:26.240 --> 0:14:29.520
<v Speaker 1>They're there to step up for the shareholders, and that

0:14:29.640 --> 0:14:32.120
<v Speaker 1>involves attempting to keep the nav relative close to the

0:14:32.160 --> 0:14:32.600
<v Speaker 1>share price.

0:14:34.360 --> 0:14:38.400
<v Speaker 3>Yeah, and I suppose we private equity the diskans have

0:14:38.520 --> 0:14:42.720
<v Speaker 3>traditionally been beggar, but not that's big.

0:14:44.080 --> 0:14:44.400
<v Speaker 2>Anyway.

0:14:44.440 --> 0:14:47.720
<v Speaker 1>The final bit of this podcast with Duncan and Doug.

0:14:47.800 --> 0:14:51.360
<v Speaker 1>We ask them what looks cheap, so, you know, excitingly

0:14:51.440 --> 0:14:54.080
<v Speaker 1>they agree with US, emerging markets, Japan, et cetera, every

0:14:54.160 --> 0:14:56.960
<v Speaker 1>of the UK. And then we ask them for golden

0:14:57.000 --> 0:14:59.520
<v Speaker 1>bitcoin in it. They're young, Duncan and Doug I was

0:14:59.600 --> 0:15:02.720
<v Speaker 1>hot with holding out for a better bitcoin there really

0:15:02.800 --> 0:15:03.520
<v Speaker 1>holding out for them.

0:15:03.560 --> 0:15:06.560
<v Speaker 2>What do we get gold? Final question, this is for

0:15:06.640 --> 0:15:07.400
<v Speaker 2>both of you. Doug.

0:15:08.000 --> 0:15:11.080
<v Speaker 1>You ready, okay, okay, I'm going to lock you in

0:15:11.120 --> 0:15:14.000
<v Speaker 1>a run for ten years, well not really metaphorically, and

0:15:14.240 --> 0:15:17.280
<v Speaker 1>before you go, you can only invest in one thing

0:15:17.760 --> 0:15:18.960
<v Speaker 1>gold Bitcoin.

0:15:19.040 --> 0:15:20.640
<v Speaker 2>Not strictly an investment, but you know what I mean,

0:15:20.880 --> 0:15:21.720
<v Speaker 2>gold bitcoin.

0:15:21.920 --> 0:15:25.880
<v Speaker 1>You can stick your money in a UK deposit account.

0:15:26.320 --> 0:15:26.960
<v Speaker 2>What's it going to be?

0:15:29.840 --> 0:15:30.120
<v Speaker 4>Gold?

0:15:31.000 --> 0:15:33.360
<v Speaker 2>Good answer. We've had a couple of bitcoins recently. We're

0:15:33.360 --> 0:15:35.200
<v Speaker 2>getting very confused. Duncan.

0:15:37.040 --> 0:15:40.320
<v Speaker 1>Yeah, gold too, golds kind of every one of you.

0:15:41.320 --> 0:15:42.479
<v Speaker 3>I'm disappointing.

0:15:42.960 --> 0:15:46.280
<v Speaker 2>I know. There you go. Now listen, we're going to

0:15:46.320 --> 0:15:47.720
<v Speaker 2>I'll tell you what we're going to do. I was

0:15:47.960 --> 0:15:50.160
<v Speaker 2>talking to our wonderful producers somewhere about this the other day.

0:15:50.240 --> 0:15:55.400
<v Speaker 1>We are going to count up bitcoin and gold replies

0:15:55.400 --> 0:15:57.280
<v Speaker 1>and get ourselves a ratio that we can keep going.

0:16:00.280 --> 0:16:01.880
<v Speaker 2>We know where it is at the moment, but.

0:16:03.760 --> 0:16:06.440
<v Speaker 3>You may find that it's maybe some sort of indicator

0:16:06.520 --> 0:16:11.000
<v Speaker 3>for the future. The Merrin talks money back coin Golden Dicks.

0:16:11.960 --> 0:16:14.040
<v Speaker 2>Ah, that would be so great. Do you think that's

0:16:14.080 --> 0:16:19.200
<v Speaker 2>a book sentiment indicator? People refer to the MTM indicator.

0:16:21.200 --> 0:16:23.240
<v Speaker 1>Thanks for listening to this week's Marin Talks Money the

0:16:23.360 --> 0:16:25.760
<v Speaker 1>after Show. The episode was hosted by me Mary at

0:16:25.760 --> 0:16:28.680
<v Speaker 1>Sunset Web alongside John Staffick. It was produced by Sumasadi

0:16:28.800 --> 0:16:30.960
<v Speaker 1>and additional editing by Blake Michael