WEBVTT - Where Have All the Companies Gone? 0:00:00.200 --> 0:00:04.120 John Man. We've been talking a lot over the last 0:00:04.120 --> 0:00:07.400 couple of years about the changing geopolitical situation. We've been 0:00:07.400 --> 0:00:10.399 talking about how the whole world and the financial world 0:00:10.440 --> 0:00:13.080 in particular, is at an inflection point and everything's going 0:00:13.119 --> 0:00:15.520 to change. And when we've been talking about it, one 0:00:15.520 --> 0:00:17.160 of the things that I'm afraid was not on our 0:00:17.200 --> 0:00:20.960 list was a new Israel Hama's conflict. But this does 0:00:21.079 --> 0:00:25.960 have massive impacts on the area that we talk about 0:00:26.120 --> 0:00:29.479 on economics and on finance, and in particular possibly on 0:00:30.040 --> 0:00:32.360 the way that inflation will move over the next couple 0:00:32.400 --> 0:00:32.840 of years. 0:00:32.920 --> 0:00:39.600 Right, Yeah, I mean it's all just more evidence of 0:00:40.120 --> 0:00:45.839 deteriory and overall kind of like geopolitical kind of sphere 0:00:47.680 --> 0:00:53.400 and more disruption to what the world that we kind 0:00:53.400 --> 0:00:55.400 of grew up and if you looked like, and what 0:00:55.440 --> 0:00:57.800 it no longer looks like, and what everyone's something to 0:00:57.800 --> 0:01:01.480 get used to it being. You invite them in, you know, 0:01:01.520 --> 0:01:06.360 a team, make it. You know, got a very long story. 0:01:06.400 --> 0:01:08.039 Short is just that you know it's going to be 0:01:08.040 --> 0:01:13.520 more inflationary and more volatile and more disrupted and more 0:01:13.880 --> 0:01:19.280 kind of nasty surprises, which is not very cheerful, but 0:01:20.120 --> 0:01:21.800 that is the way it is. 0:01:22.840 --> 0:01:23.160 It is. 0:01:23.280 --> 0:01:25.240 And one of the things that I've been thinking about, 0:01:25.360 --> 0:01:28.000 you know, I think about this a lot is ESG 0:01:28.160 --> 0:01:31.759 investing and the way that environmental, social, and government factors 0:01:31.800 --> 0:01:33.480 taken into account when you invest. 0:01:34.000 --> 0:01:37.479 And we talked after the war and the Ukraine began. 0:01:37.560 --> 0:01:40.280 We talked about had defense, which had long been considered 0:01:40.560 --> 0:01:43.360 something that you absolutely could not invest in because it 0:01:43.400 --> 0:01:47.400 was obviously bad, because owning shares in a company that 0:01:47.480 --> 0:01:50.200 creates things that kill people is clearly horrible. 0:01:50.600 --> 0:01:52.920 And then after that war started, everyone started to look 0:01:52.920 --> 0:01:55.080 at it again and say, well, actually, you know, defense 0:01:55.160 --> 0:01:58.320 is really a social good. Having an adequate, adequate defense 0:01:58.320 --> 0:02:01.200 in place for your population is surely a very definition 0:02:01.520 --> 0:02:04.640 of a social good, assuming you believe in democracy, freedom, etc. 0:02:05.120 --> 0:02:07.280 Of course, which clearly not everybody does. And so we 0:02:07.280 --> 0:02:09.480 got to the point where we're like, well, in wartime, 0:02:09.560 --> 0:02:12.880 maybe defense is about as ESG as you can get. 0:02:13.760 --> 0:02:17.600 And now everything is shifting as well in terms of 0:02:17.880 --> 0:02:20.320 energy and fuels, et cetera. And I got a note 0:02:20.360 --> 0:02:24.400 the other day from a fund manager explaining how investing 0:02:24.600 --> 0:02:28.200 in mining is now a good thing. And for years, 0:02:28.200 --> 0:02:29.600 of course, you and I have been told that you 0:02:29.600 --> 0:02:31.600 can't touch a mine with a barge pole because it's 0:02:31.639 --> 0:02:35.080 really dirty. And all the diesel big machines and the 0:02:35.560 --> 0:02:39.320 ecosystem destruction that's basically built in to mining, and of 0:02:39.320 --> 0:02:42.280 course the use of water. All these things make a 0:02:42.320 --> 0:02:46.440 mining non ESG. And now of course there's energy security 0:02:46.480 --> 0:02:50.320 flies to the top of everyone's to do list. Mining 0:02:50.440 --> 0:02:53.800 is very EESG. What can be more of social good 0:02:54.280 --> 0:02:59.119 than mining for the messols that allow the energy transition 0:02:59.480 --> 0:03:01.920 to happen to the extent that it can happen. So 0:03:02.919 --> 0:03:07.320 ESG is kind of it's disappearing. It's disappearing into reality. 0:03:07.800 --> 0:03:12.080 Yeah, yes, events have kind of overtaking it. It's I mean, 0:03:12.120 --> 0:03:14.839 the frustrating thing is this has been blindingly obvious from 0:03:14.840 --> 0:03:17.360 the start, you know, when all of these idiots were 0:03:17.360 --> 0:03:20.040 talking about stranded assets and all that sort of stuff. 0:03:20.040 --> 0:03:22.320 When you were like, well, okay, maybe they'll be stranded 0:03:22.320 --> 0:03:24.280 one day, But first of all, when you get to 0:03:24.320 --> 0:03:27.720 the point where we don't need this stuff anymore, you know, 0:03:27.919 --> 0:03:32.280 And it's somewhat frustrating that we can end up being 0:03:33.400 --> 0:03:38.960 at the point where it's only once you know, like 0:03:39.040 --> 0:03:42.080 push comes to shove, the kind of logic starts to 0:03:42.480 --> 0:03:47.840 kick in again. You know, we wasted an awful lot 0:03:47.880 --> 0:03:52.680 of time and an awful lot of paperwork because ESG 0:03:52.880 --> 0:03:57.680 was a useful way basically for you know, one group 0:03:57.720 --> 0:03:59.960 of people who virtue sign going for another another kind 0:03:59.960 --> 0:04:01.840 of like group of people in the financial industry, you 0:04:01.880 --> 0:04:04.120 find the sales pitch for John. 0:04:04.160 --> 0:04:08.840 It's been the most exciting, if you're a marketing man 0:04:08.880 --> 0:04:12.680 in fund management, most exciting marketing campaign since the beginning 0:04:12.720 --> 0:04:15.600 of fund management. You know, the amount of money that 0:04:15.800 --> 0:04:19.480 is poured into this nonsense because a lot of it 0:04:19.520 --> 0:04:21.400 is nonsense. Let's be clear at this point, a lot 0:04:21.440 --> 0:04:24.159 of it's completely nonsense that it's poured into this nonsense 0:04:24.200 --> 0:04:27.159 since what twenty fourteen, twenty fifteen when it kicked off. 0:04:27.160 --> 0:04:30.320 This has been a marketing man's dreams, but it's also 0:04:30.400 --> 0:04:31.560 been deeply misguided. 0:04:32.240 --> 0:04:35.320 Yeah, it's like a huge piste of time and I'm 0:04:35.520 --> 0:04:40.840 investment capital in the water cases. So it's it's good 0:04:41.000 --> 0:04:48.680 that we're coming out of this, but it's uh, you know, 0:04:49.000 --> 0:04:50.760 it all kind of pop up in other ways, you know, 0:04:50.839 --> 0:04:52.960 So it's like, so it's rebranded so that it's no, 0:04:53.200 --> 0:04:56.360 it's ESG. It's okay, it's good. It's good to Maine. 0:04:56.360 --> 0:04:58.839 As long as you're main in for lithium, you know 0:04:59.000 --> 0:05:01.320 that is that is you know, it's kind of you know, 0:05:01.440 --> 0:05:03.760 nobody's it's going to see in the Oh, yeah, it's 0:05:03.760 --> 0:05:04.799 good to mean for pool. 0:05:04.880 --> 0:05:08.560 Yeah, you know, I think when we're very nearly there, 0:05:08.600 --> 0:05:11.120 because let's not forget that you need coal to make steel, 0:05:11.160 --> 0:05:13.040 and you need steel to put up a wind turbine. 0:05:13.440 --> 0:05:16.360 Not all coalers, not all steelers is from coal. But 0:05:16.640 --> 0:05:18.560 you need coal to make the majority of steel around 0:05:18.560 --> 0:05:21.480 the world. So I don't think it's very long before 0:05:21.720 --> 0:05:24.320 I get a note from a fun manager saying mining 0:05:24.440 --> 0:05:26.559 coal for good, feel good with coal. 0:05:29.880 --> 0:05:32.800 Yes, yes, you can't be too cynical a bit there. 0:05:32.880 --> 0:05:36.599 Stuff that absolutely right, you can't be too cynical. And 0:05:36.640 --> 0:05:38.040 in fact, I was talking to someone about it the 0:05:38.080 --> 0:05:40.000 other day and I was thinking, once, once you take 0:05:40.040 --> 0:05:42.960 this pragmatic approach to es gee, there's no limit, no 0:05:43.080 --> 0:05:44.799 limit of where it can end. You know. Take tobacco 0:05:44.839 --> 0:05:48.640 companies right, amazingly well run, survived, longer, chucked out more 0:05:48.640 --> 0:05:51.679 cash than anyone could could possibly have begun to imagine 0:05:51.720 --> 0:05:53.960 when when the consequences of smoking became clear. So there's 0:05:54.080 --> 0:05:55.880 a lot of punches that's done really well out of that? 0:05:56.000 --> 0:05:58.000 Is that a social good? And we were told weren't 0:05:58.040 --> 0:06:01.240 we buy by Paul John the other day that the 0:06:01.320 --> 0:06:04.080 cash that they pour into our treasuries far was the 0:06:04.120 --> 0:06:07.000 medical cost of dealing with smokers and finances so many 0:06:07.000 --> 0:06:09.080 other things that the state do. Wow, what a social 0:06:09.120 --> 0:06:12.320 good you see? Once you get going, Once you get going, 0:06:12.360 --> 0:06:14.360 that there's no end. It all means nothing. 0:06:14.760 --> 0:06:20.000 I mean you're basically saying the bicigarettes to save our NHS. 0:06:21.960 --> 0:06:25.400 Yes, yes, that is what I said. 0:06:25.440 --> 0:06:31.600 But tobacco companies stop, just. 0:06:31.600 --> 0:06:34.960 Stop, just stop right, Okay, Moving on personal finance tip 0:06:34.960 --> 0:06:36.440 of the week, give me one John. 0:06:37.960 --> 0:06:42.760 O Well inter streets, interest streets Allo. The long term 0:06:42.760 --> 0:06:46.480 out look for infleetion is obviously volataile earned up and down. 0:06:47.640 --> 0:06:49.520 At the moment, it looks as if the Bank of 0:06:49.560 --> 0:06:53.560 England is probably I think that the Bank England's done 0:06:53.680 --> 0:06:56.760 at five and a quarter percent. Obviously it may go 0:06:56.880 --> 0:06:59.040 up a little bit further. But looking at the least 0:06:59.720 --> 0:07:03.520 we data and obviously we're we're recording this early, so 0:07:03.520 --> 0:07:08.680 we haven't had the inflation data for September yet, but 0:07:08.839 --> 0:07:11.120 chances are that it's going to that you can see 0:07:11.120 --> 0:07:12.200 that the bank is itching. 0:07:12.320 --> 0:07:13.000 They kind of like. 0:07:13.000 --> 0:07:17.000 Call an end to rate hikes now. And so we've 0:07:17.040 --> 0:07:20.720 seen NS and I the government bond kind of like 0:07:20.840 --> 0:07:26.000 retail facing bit remove its six point two percent interest straight. 0:07:28.240 --> 0:07:30.120 Not get round to it. I did not get round 0:07:30.160 --> 0:07:30.320 to that. 0:07:31.440 --> 0:07:35.040 I didn't. And this is what I'm thinking today is 0:07:35.040 --> 0:07:37.360 when we should be telling people, Look, okay, so maybe 0:07:37.400 --> 0:07:40.160 if you've not been getting around this stuff, you should 0:07:40.160 --> 0:07:43.400 start looking for your your one year fixed straight accounts. Now, 0:07:43.560 --> 0:07:47.120 if you've got a bit of cash, then you know 0:07:47.240 --> 0:07:49.000 it's probably time you have a look because you can 0:07:49.040 --> 0:07:51.920 still get if it's for a that for a tax 0:07:51.920 --> 0:07:54.600 paying account, you can still get one year at six 0:07:54.640 --> 0:07:58.040 point one percent, which is half decent. I think that's 0:07:58.080 --> 0:08:02.679 going through raising, you know, they kind of that's the 0:08:02.680 --> 0:08:06.120 the place that does the it. It puts your money 0:08:06.120 --> 0:08:10.720 into the best savings account that you can find, or 0:08:10.800 --> 0:08:14.600 you can go for a fixed cash Isa Paragan does 0:08:14.640 --> 0:08:17.800 one for five point five five percent. I'm just looking 0:08:17.800 --> 0:08:20.880 at money facts five point five percent with all the 0:08:20.920 --> 0:08:25.240 more Mansfield Building Society five point four we leeds in Yorkshire, 0:08:25.480 --> 0:08:27.840 so there's still you know, you can get a half 0:08:27.880 --> 0:08:31.400 decent rate and giving the inflation is probably gonna come 0:08:31.400 --> 0:08:33.640 down to blow five percent in the final quarter of 0:08:33.760 --> 0:08:35.959 this year, it's at least going to be getting a 0:08:36.040 --> 0:08:36.960 kind of real return. 0:08:37.160 --> 0:08:40.560 So it's looking it's amazing Tasday's John that the best 0:08:40.600 --> 0:08:42.320 we think we can help for is to get a 0:08:42.360 --> 0:08:44.480 rid of interest. It is only slightly below the right 0:08:44.520 --> 0:08:45.400 of inflation. 0:08:46.200 --> 0:08:47.640 Although this is slightly higher. 0:08:48.400 --> 0:08:48.920 It will be. 0:08:49.400 --> 0:08:51.520 It will it will be, it will be. So there's 0:08:51.559 --> 0:08:53.800 this John predicting inflation for you as well. 0:08:56.160 --> 0:08:59.479 Dangerous come December. 0:09:00.679 --> 0:09:03.800 All right, now, listen, I do want to make clear 0:09:03.880 --> 0:09:06.000 before we before we go on to our interview today, 0:09:06.000 --> 0:09:09.120 that we did record this interview a little while ago, 0:09:09.200 --> 0:09:12.120 so it was recorded before the Israel Helmuth conflict began. 0:09:12.160 --> 0:09:14.480 And that is why it doesn't mention it. Not because 0:09:15.040 --> 0:09:17.880 not because we didn't mention it. It just hadn't begun by dance. 0:09:17.960 --> 0:09:21.160 It was recorded a little early. And this conversation that 0:09:21.240 --> 0:09:23.000 John and I are having it's also been recorded a 0:09:23.040 --> 0:09:25.760 few days before the podcast comes out, so obviously things 0:09:26.080 --> 0:09:27.880 of us moving and may have changed by the time 0:09:28.000 --> 0:09:37.360 it does come out. Welcome to Maren Talk to Money, 0:09:37.360 --> 0:09:39.440 the podcast in which people who know the markets, Explain 0:09:39.520 --> 0:09:42.079 the markets. I'm Maren Zumsetweb. This week we bring you 0:09:42.120 --> 0:09:44.840 a conversation with Douglas abbotead of UK Welfish Rooders and 0:09:44.920 --> 0:09:50.840 Duncan Lamont, Global head of Pensions and Investments, also at Schroders. Duncan, Doug, 0:09:50.880 --> 0:09:52.559 thank you so much for joining us today. We really 0:09:52.600 --> 0:09:54.319 appreciate it. Great to be here. 0:09:54.320 --> 0:09:55.080 Thank you for having me. 0:09:55.640 --> 0:09:56.600 Yeah, thanks very much. 0:09:56.840 --> 0:09:59.040 Yeah. We've been waiting, Duncan to have you on for ages. 0:09:59.080 --> 0:10:01.120 John and I mentioned you all the time like it's 0:10:01.160 --> 0:10:03.640 a mini data celebrity, and we talk about you off 0:10:03.760 --> 0:10:05.120 was when will we get them to come on? When 0:10:05.120 --> 0:10:07.720 will we come on? And finally you're here. So I 0:10:07.760 --> 0:10:10.760 hope you're really really good, because you're really disappointing. If 0:10:10.760 --> 0:10:12.800 you're not, I will do my best. 0:10:13.200 --> 0:10:15.840 There's a lot to live up to there, I know, right. 0:10:16.040 --> 0:10:17.520 What I want to want to start by talking about, 0:10:17.559 --> 0:10:19.560 Duncan is you've done quite a lot of work into 0:10:19.600 --> 0:10:22.600 the shrinking pool of equities in the UK where we 0:10:22.640 --> 0:10:25.680 are gradually de equitizing in the extent to which that matters. 0:10:25.720 --> 0:10:27.920 So I wonder if we can start by talking about 0:10:27.920 --> 0:10:30.839 what's actually happening. Where is the UK a qreed market going. 0:10:32.320 --> 0:10:35.240 Yeah, so I think that there is an increased awareness 0:10:35.280 --> 0:10:37.480 about this, but I don't think people have quite got 0:10:37.520 --> 0:10:40.240 their head around the scale of what has been happening, 0:10:40.800 --> 0:10:43.079 both in the UK but also internationally. And maybe you 0:10:43.160 --> 0:10:46.040 can come on to the international element too. Just to 0:10:46.040 --> 0:10:49.439 give you some numbers, back in nineteen ninety six there 0:10:49.559 --> 0:10:52.599 was twenty seven hundred companies on the main market of 0:10:52.640 --> 0:10:55.840 the London Stock Exchange. Now there is one thousand and 0:10:55.880 --> 0:10:59.760 seventy seven, a sixty percent reduction if you look even 0:10:59.840 --> 0:11:02.520 low longer time horizon. So since the nineteen sixties there's 0:11:02.520 --> 0:11:05.240 actually been a seventy five percent reduction in the number 0:11:05.280 --> 0:11:09.040 of UK companies. Add an Aim Hey for Aim for 0:11:09.080 --> 0:11:12.040 a few years actually was attracting loads of companies and 0:11:12.080 --> 0:11:14.200 actually that kind of makes it look a bit better. 0:11:14.360 --> 0:11:16.320 But the number of AIM companies has also follow by 0:11:16.360 --> 0:11:21.160 half now, so there really is a situation where companies 0:11:21.360 --> 0:11:27.200 have been rejecting a UK stock market listing both from 0:11:27.240 --> 0:11:30.240 the and there's two sides here. One is less appetite 0:11:30.240 --> 0:11:32.560 for an IPO, but the other side is also a 0:11:33.320 --> 0:11:37.240 kind of sustained drip drip drip of de listings which 0:11:37.280 --> 0:11:39.240 is mainly from mergers and acquisitions. 0:11:39.520 --> 0:11:41.240 Yeah, and we've seen quite a lot of that this 0:11:41.320 --> 0:11:43.880 year already, haven't We seen quite a lot of transactions 0:11:43.880 --> 0:11:46.199 that have taken companies off the market, and pretty much 0:11:46.200 --> 0:11:50.040 in no IPOs but one one ips. Yeah, they give you. 0:11:50.440 --> 0:11:53.440 The de listing situation is interesting because it's been happening 0:11:53.480 --> 0:11:55.920 everywhere around the world. So I did some work looking 0:11:55.920 --> 0:11:59.480 at the number of companies that were listed on the 0:11:59.559 --> 0:12:02.120 UK stop market in twenty eleven and then what had 0:12:02.120 --> 0:12:05.000 happened over the following decade, like how many were still listed, 0:12:05.120 --> 0:12:08.080 what happened, what direction had gone in, And about a 0:12:08.080 --> 0:12:11.880 third of them had delisted over that period, and the 0:12:12.040 --> 0:12:14.680 overwhelming majority, almost all of them, it was because they'd 0:12:14.679 --> 0:12:18.000 been bought. Not many companies just decide, hey, I've had enough, 0:12:18.160 --> 0:12:20.600 I'm throw in the towel in and leave the stock market. 0:12:21.000 --> 0:12:24.040 Most of it's because they're being bought. And this kind 0:12:24.040 --> 0:12:26.280 is so far so global. It's the same in the US, 0:12:26.320 --> 0:12:28.520 it's the same in Europe. Lots of delistings, lots of 0:12:28.640 --> 0:12:31.320 m and A. But the big difference in the UK 0:12:31.640 --> 0:12:34.760 actually is that who have been the buyers of those companies. 0:12:35.679 --> 0:12:40.880 In the US, the biggest buyers of US public companies 0:12:40.880 --> 0:12:44.320 in the delisting trend have been other US public companies, 0:12:44.880 --> 0:12:47.280 So if you keep investing in the US stock market, 0:12:47.520 --> 0:12:50.760 you still kind of have exposure to those businesses that 0:12:50.760 --> 0:12:53.120 have gone just not on a standalone business. They're kind 0:12:53.120 --> 0:12:57.800 of subsumed in another company. In the UK, the majority 0:12:57.880 --> 0:12:59.959 of the people down the buyn have been overseas buyers, 0:13:01.080 --> 0:13:04.520 mainly US and Canadian ones. So what we have had 0:13:04.760 --> 0:13:11.160 is the UKPLC has been kind of seeping overseas into 0:13:11.600 --> 0:13:15.400 largely American and buyers and private equity buyers. So UK 0:13:15.600 --> 0:13:19.400 investors no longer have the same access to those companies 0:13:19.520 --> 0:13:21.800 if they're investing in the UK stock market, and that 0:13:21.960 --> 0:13:24.440 is quite a different compared to what we see in 0:13:24.480 --> 0:13:25.160 other markets. 0:13:25.520 --> 0:13:26.880 And can do you have a sense of why that 0:13:27.200 --> 0:13:29.280 is and why are our companies going abroad? Is it 0:13:29.280 --> 0:13:31.840 because that's so cheap? Because the UK market has been 0:13:31.880 --> 0:13:34.360 cheap for quite a long time, and so it's an 0:13:34.360 --> 0:13:37.920 easy thing to do to create growth of foreign companies 0:13:37.960 --> 0:13:40.040 just to snap up the cheap UK company and subsume 0:13:40.080 --> 0:13:41.120 intoin deal business. 0:13:42.080 --> 0:13:46.520 Very much. Yeah, we've spoken about this. I know you've 0:13:46.559 --> 0:13:49.000 spoken about this on many occasions that UK companies are 0:13:49.000 --> 0:13:53.240 trading at evaluation discount to those around the world. If 0:13:53.240 --> 0:13:56.240 you look at kind of forward price earnings multiples, the 0:13:56.360 --> 0:13:59.320 UK stock market is trading at about almost a fifty 0:13:59.360 --> 0:14:03.640 percent discount to the US, twenty percent discount to Europe. 0:14:04.840 --> 0:14:06.800 It's not just about sectors. It's not just because we 0:14:06.840 --> 0:14:09.680 don't have the tech companies the US has. Every single 0:14:09.840 --> 0:14:12.400 pretty much every single sector of the UK stock market 0:14:12.440 --> 0:14:18.040 trades at a pretty chunky discount to the US. Energy 0:14:18.080 --> 0:14:22.760 sector forty percent discount, Pharma biotech sector twenty nine a 0:14:22.880 --> 0:14:26.200 M is about a forty percent discount as well. Across 0:14:26.280 --> 0:14:29.040 all of the sectors it's about thirty percent discounts. So 0:14:29.920 --> 0:14:35.120 wherever you are looking, we have very kind of obviously 0:14:35.240 --> 0:14:40.040 very successful, world leading businesses that are very performing, very 0:14:40.040 --> 0:14:45.200 well operationally, but are not necessarily being valued to the 0:14:45.320 --> 0:14:46.760 in the same way they would be if they were 0:14:46.800 --> 0:14:48.520 listed in other country. 0:14:48.640 --> 0:14:50.880 And what do you put that down to, Well, I mean, 0:14:51.080 --> 0:14:53.600 I know what most people say that, oh, the UKs 0:14:53.800 --> 0:14:56.400 is a wreck. You know, we don't grow horrible inflation, 0:14:56.520 --> 0:14:59.040 we destroyed ourselves with Brexit, et cetera. But looking at 0:14:59.040 --> 0:15:01.680 the numbers coming through more recently, none of that is 0:15:01.720 --> 0:15:04.880 really really true. Our GDP our growth is no different 0:15:04.880 --> 0:15:08.040 to most other European countries, are inflation levels are converging 0:15:08.360 --> 0:15:11.640 with other European countries. There's really nothing worse going on 0:15:11.680 --> 0:15:13.600 in the UK than anywhere else that you can really 0:15:13.640 --> 0:15:16.400 put your finger on, Nothing you can back up with data. 0:15:16.520 --> 0:15:18.080 So what is the problem here? 0:15:18.960 --> 0:15:23.280 So the valuation discount we've always it did start emerging 0:15:23.320 --> 0:15:25.400 kind of post twenty sixteen, so there has been I 0:15:25.400 --> 0:15:28.320 think there has been an element of international investors in 0:15:28.400 --> 0:15:34.600 particular being less keen on the UK, and I kind 0:15:34.600 --> 0:15:36.360 of feel like there's maybe a bit of a situation 0:15:36.440 --> 0:15:38.920 that we've had with value investing in the same way 0:15:38.920 --> 0:15:40.760 that people have been saying it's cheap for a while, 0:15:41.160 --> 0:15:44.680 and then there were perhaps some investors who backed that 0:15:44.760 --> 0:15:48.000 view for a while. But the longer that valuation discount persists, 0:15:48.520 --> 0:15:52.760 the people's patience runs out. So I think there's a 0:15:52.800 --> 0:15:54.760 bit of that been going on. But to give a 0:15:54.800 --> 0:15:56.920 little bit more of a positive side, So the M 0:15:56.960 --> 0:16:01.120 and A side means that other buyers, both private equity 0:16:01.200 --> 0:16:03.600 and over these companies are saying these companies are worth 0:16:03.640 --> 0:16:06.200 more than they are. The other people who recently have 0:16:06.240 --> 0:16:10.560 actually started getting very interested in buying UK shares is 0:16:10.640 --> 0:16:16.440 companies themselves. So share buybacks in the UK about forty 0:16:16.480 --> 0:16:19.000 five percent of companies listed on the UK market last 0:16:19.080 --> 0:16:22.120 year bought back more than one percent of their shares 0:16:22.520 --> 0:16:26.120 in the previous year. In earlier years that figure was 0:16:26.160 --> 0:16:29.560 something like I'm just looking at a chart right now, 0:16:29.840 --> 0:16:33.760 we might be talking about twenty percent. So it's absolutely rocketed. 0:16:34.120 --> 0:16:38.000 So Directors of UKPLC has said, we think our shares 0:16:38.040 --> 0:16:40.280 are undervalued and we're going to start buying them back. 0:16:40.720 --> 0:16:43.040 And that's not just the investment trust sector. Just we 0:16:43.120 --> 0:16:45.120 came because there's a lot of buybacks in the investment 0:16:45.120 --> 0:16:47.120 trust sector which could be skewing the numbers. 0:16:47.720 --> 0:16:49.640 No, that's not just the investment trust sector at all. 0:16:49.680 --> 0:16:52.520 We're seeing there's been very large increases in buybacks across 0:16:52.560 --> 0:16:56.920 the UK corporate sector in general. So, and this is 0:16:57.320 --> 0:16:59.240 in previous years it was mainly the US where lots 0:16:59.280 --> 0:17:01.400 of the buybacks have but what we've seen more recently 0:17:01.480 --> 0:17:03.320 is that it's been picking up in a lot of 0:17:03.400 --> 0:17:06.040 non US markets, Japan as well as a market where 0:17:06.040 --> 0:17:08.760 we're seen buybacks. But I think there is an element 0:17:08.800 --> 0:17:14.760 here of directors saying well, actually we think our shares 0:17:14.760 --> 0:17:17.840 are not necessarily fully valued. And people criticized buybacks for 0:17:17.920 --> 0:17:19.920 the timing of them sometimes, but hey, if your shares 0:17:19.920 --> 0:17:22.280 are undervalued, then that's actually the ideal time to be 0:17:22.280 --> 0:17:26.719 doing some buybacks. That can be quite a value generator 0:17:26.920 --> 0:17:27.480 in time. 0:17:28.000 --> 0:17:30.119 Yeah. One of the long term criticisms of buybacks is 0:17:30.160 --> 0:17:32.479 that you quite often see them at levels that are 0:17:32.520 --> 0:17:37.800 definitely not cheap, and there's a relationship between top management 0:17:37.880 --> 0:17:40.960 long term bonuses and the buyback. So that's been a 0:17:40.960 --> 0:17:42.840 long term criticism. But you couldn't say that that was 0:17:42.880 --> 0:17:45.000 the case in the UK given the valuations. 0:17:45.600 --> 0:17:49.360 But actually to put a bit of an international perspective 0:17:49.400 --> 0:17:50.920 on this as well, so some of this has been 0:17:50.920 --> 0:17:53.159 maybe a bit downbeat on the UK and saying and 0:17:53.200 --> 0:17:55.560 I think we self flagellation. I do feel like as 0:17:55.560 --> 0:17:59.000 a British pastime, like war is us Look how awful 0:17:59.040 --> 0:18:01.399 we are compared with every in the world stage. And 0:18:01.520 --> 0:18:06.159 actually this trend of de equitization, of companies not wanting 0:18:06.200 --> 0:18:08.600 to join the stock market, of companies leaving the stock market, 0:18:08.720 --> 0:18:13.440 it's global. There's nothing, there's nothing that's making us special. 0:18:13.480 --> 0:18:15.800 And saying that we're having an awful situation and everybody 0:18:15.880 --> 0:18:19.159 else's is perfectly happy. The number of German companies is 0:18:19.200 --> 0:18:22.880 down forty percent since two thousand and seven. Like everyone said, 0:18:22.920 --> 0:18:26.240 puts the US on a pedestal and says how great 0:18:26.240 --> 0:18:28.840 it is, and it is having an increased share of 0:18:29.200 --> 0:18:31.920 kind of IPOs and of companies wanting to list there. 0:18:32.160 --> 0:18:34.679 But the number of US companies is down forty percent 0:18:34.840 --> 0:18:37.760 since the mid nineties. This isn't just a UK feature. 0:18:38.160 --> 0:18:41.840 This is something that's happening globally, I think. And when 0:18:41.880 --> 0:18:43.280 we come onto this, a big part of this is 0:18:43.280 --> 0:18:44.840 the growth of the private equity industry. 0:18:45.640 --> 0:18:47.760 Yeah, before we come on to that, I want to 0:18:47.800 --> 0:18:50.879 ask you possibly the most important question, which is this, 0:18:51.200 --> 0:18:54.680 why does it matter? Right? I mean, these are huge numbers. 0:18:54.760 --> 0:18:57.880 It's obviously a big shift, but people will be saying 0:18:57.920 --> 0:19:00.800 the companies continue to exist just in different ownly, ship abroad, 0:19:00.840 --> 0:19:03.760 at homes, it merged into other companies whatever. Why does 0:19:03.800 --> 0:19:07.000 it matter if there are a few elisted companies fall in. 0:19:07.480 --> 0:19:11.240 If you are a company, it is very easy for 0:19:11.320 --> 0:19:13.960 you to raise capital wherever you want in the world. Now, 0:19:14.080 --> 0:19:16.520 like we've seen obviously lots of UK companies raising money 0:19:16.560 --> 0:19:18.440 in the US. But if the UK stock market ceased 0:19:18.480 --> 0:19:21.680 to exist, it wouldn't necessarily stop some of these large 0:19:21.680 --> 0:19:25.080 companies from being able to raise capital. If you're an investor, 0:19:25.320 --> 0:19:29.720 you can allocate money to funds, to ats, to individual 0:19:29.720 --> 0:19:32.600 companies anywhere in the world for relatively low cost these days. 0:19:32.680 --> 0:19:34.840 That wasn't the case in the past. So actually, I 0:19:34.880 --> 0:19:38.320 don't think that it matters that much for individuals. I 0:19:38.320 --> 0:19:42.840 don't think it matters that much to companies. Where it 0:19:42.880 --> 0:19:46.680 matters much more is probably actually for the UK economy, 0:19:47.760 --> 0:19:53.120 the amount of conservices the industries that actually the financial 0:19:53.119 --> 0:19:57.240 services sector supports here. If we were to lose were 0:19:57.240 --> 0:19:59.360 standing on the world stage as a stock market, that's 0:19:59.400 --> 0:20:02.680 what would lose. And probably, actually I've been a bit 0:20:03.040 --> 0:20:06.119 simplifying as saying it doesn't matter to companies. It doesn't matter. 0:20:06.160 --> 0:20:08.920 If you are a big international company with the household brand, 0:20:09.200 --> 0:20:11.840 you can raise money anywhere. It matters a hell of 0:20:11.920 --> 0:20:15.840 a lot more for your small and medcap companies. You're 0:20:15.880 --> 0:20:18.320 going less than America. They've never heard of you. That's 0:20:18.359 --> 0:20:21.360 going to be a much harder situation. So I think 0:20:21.440 --> 0:20:24.439 it matters for the ecosystem of small and mid sized 0:20:24.480 --> 0:20:27.560 companies that we want to grow in the UK. I 0:20:27.560 --> 0:20:30.240 think it matters to the economy. I actually think it 0:20:30.280 --> 0:20:33.240 probably doesn't matter as much to investors as perhaps we 0:20:33.320 --> 0:20:34.960 sometimes claim it does. 0:20:35.440 --> 0:20:38.240 Possibly, even though we work together, it might disagree on 0:20:38.240 --> 0:20:41.800 one aspect. I think the decline of the listed market 0:20:42.359 --> 0:20:46.520 probably is a problem for the average punter who has 0:20:46.600 --> 0:20:49.880 their savings over time and focused on the listed markets 0:20:49.960 --> 0:20:54.159 or public securities. So if companies are coming to the 0:20:54.200 --> 0:20:56.720 market much later in their development, and I guess that 0:20:56.800 --> 0:20:59.280 kind of hyper gross stage that you see in companies 0:20:59.359 --> 0:21:03.280 just making funded by private capital, that means that kind 0:21:03.280 --> 0:21:06.080 of the bulk of the population you have are relying 0:21:06.119 --> 0:21:09.000 on the public markets to kind of help them generate 0:21:09.040 --> 0:21:11.879