WEBVTT - Why Emerging Markets Can Still Be a Good Bet 0:00:00.440 --> 0:00:03.880 John Melton, how do you enjoy that king speech? There 0:00:03.880 --> 0:00:05.600 were no tax cuts in it, so I figured it 0:00:05.640 --> 0:00:06.320 might not have been for you. 0:00:06.640 --> 0:00:09.280 It's true I had my popcorn ready, but all I 0:00:09.400 --> 0:00:10.640 was doing was throwing it at the screen. 0:00:11.320 --> 0:00:14.360 Oh all the disappointing, wasn't it. I'll tell you it's 0:00:14.360 --> 0:00:19.079 really disappointed the leasehold lobbyists. You know, there's been this 0:00:19.120 --> 0:00:19.880 big pilara, and. 0:00:19.960 --> 0:00:22.680 Quite rightly about the way that the UK still has 0:00:22.720 --> 0:00:27.319 this absurdly feudal type of property ownership, whereby instead of 0:00:27.560 --> 0:00:30.760 instead of buying your house and then actually owning your house, 0:00:31.040 --> 0:00:32.680 you think you buy your house, but instead of. 0:00:32.680 --> 0:00:35.320 Actually owning it, all you have is a very very 0:00:35.360 --> 0:00:38.440 long tenancies at lease hold, and then you have the 0:00:38.520 --> 0:00:41.519 right to live, to occupy the house, live in, occupy 0:00:41.520 --> 0:00:44.080 the house for maybe ninety nine years, maybe twenty five years. 0:00:44.120 --> 0:00:46.519 You're really really lucky nine hundred and ninety nine years, 0:00:46.560 --> 0:00:49.080 but you don't actually own it. The building and the 0:00:49.159 --> 0:00:51.440 land belongs to somebody else. Nuts. 0:00:51.800 --> 0:00:56.240 This always baffled me because obviously, coming from Scotland, that's 0:00:56.280 --> 0:00:58.280 not the system up. 0:00:58.200 --> 0:01:00.200 There, and things better in Scotland. 0:01:00.240 --> 0:01:04.480 Modelly superior, yes, but no, but's it was weird kind 0:01:04.480 --> 0:01:07.800 of coming down and then I mean, thankfully, by the 0:01:07.840 --> 0:01:10.600 time I ended up buying a property down here, there 0:01:10.680 --> 0:01:13.560 was the share of freehold saying in their first flat 0:01:13.640 --> 0:01:16.960 in Kent was a share of freehold one in a 0:01:17.080 --> 0:01:19.080 thwld block and that was absolutely fine because it was 0:01:19.120 --> 0:01:22.919 basically the same as when we had the tenement in Glasgow. 0:01:23.000 --> 0:01:25.680 It was a similar kind of arrangement. You all own 0:01:26.360 --> 0:01:29.320 your bet and your chap in for the running course. 0:01:29.840 --> 0:01:35.240 So the police hold things always seemed so just ridiculous, 0:01:35.280 --> 0:01:37.120 and also nobhere else in the world has it. I 0:01:37.120 --> 0:01:38.360 don't think no. 0:01:38.520 --> 0:01:40.399 I mean, it's just it's a sort of hangover of 0:01:40.440 --> 0:01:44.120 a feudal system, right, but it's really unpleasant for people 0:01:44.160 --> 0:01:47.480 who think that they actually own their house or the flat, 0:01:47.560 --> 0:01:50.160 and as many flats are lease hold the houses although 0:01:50.280 --> 0:01:52.720 actually you know there are there are five million plus 0:01:52.760 --> 0:01:55.080 houses homes should I say in the UK the release 0:01:55.080 --> 0:01:58.400 old twenty percent of the housing stock and thirty percent 0:01:58.440 --> 0:02:01.160 of those houses. So people think they own a house, 0:02:01.160 --> 0:02:03.200 but they don't own a house. And then you get 0:02:03.280 --> 0:02:05.200 stuck with all these things. You're at the mercy of 0:02:05.240 --> 0:02:07.600 someone else when it comes to service charges and you know, 0:02:07.960 --> 0:02:10.639 one of the things I noticed. One of the things 0:02:10.800 --> 0:02:13.480 in the king speech about making things less horrible for 0:02:13.600 --> 0:02:16.920 leaseholders is that the freeholder or managing agent, assuming this 0:02:16.960 --> 0:02:19.760 all goes through, when they manage the building insurance, they're 0:02:19.800 --> 0:02:21.240 not allowed to take a commission. 0:02:22.000 --> 0:02:23.840 Can you they can take a commission. 0:02:23.360 --> 0:02:24.200 In the first place. 0:02:24.520 --> 0:02:26.560 Just incredible, I know. 0:02:26.919 --> 0:02:28.720 And then there's ground rent. And obviously people have been 0:02:28.840 --> 0:02:30.760 talking about ground rent for a while now because during 0:02:30.760 --> 0:02:33.760 the very low interest rate period, the housing developers found 0:02:33.760 --> 0:02:37.600 there's an absolutely amazing way to create a stream of income. 0:02:37.840 --> 0:02:40.720 So you make new houses, build new houses, horrible new 0:02:40.720 --> 0:02:43.080 houses in the main, or horrible new flats, whatever, and 0:02:43.120 --> 0:02:45.200 then you make the leasehold. Then you attach a ground 0:02:45.280 --> 0:02:47.320 rent to them, and you say that that ground rent 0:02:47.360 --> 0:02:49.520 is going to escalator, is going to double every ten 0:02:49.600 --> 0:02:51.120 years or whatever it is, or it's going to go 0:02:51.240 --> 0:02:54.080 up with with TPI or RPI, etc. And then a 0:02:54.160 --> 0:02:57.720 very low interest rate environment, that stream of cash is 0:02:57.720 --> 0:03:01.160 incredibly valuable, so you flog it onto an investor somewhere, 0:03:01.320 --> 0:03:03.480 and then when the lease holder suddenly wakes up and goes, 0:03:03.520 --> 0:03:05.720 oh my god, this cost is outrageous and what do 0:03:05.760 --> 0:03:08.040 you mean, I don't own the land, et cetera, et cetera. 0:03:08.480 --> 0:03:10.680 They have to go and negotiate with some random investor 0:03:10.760 --> 0:03:12.919 rather than with the housebuilder who sold them house. So 0:03:12.919 --> 0:03:16.080 a lot of things that absolutely scandal has been for years. 0:03:16.200 --> 0:03:19.200 So there is provision in the King speech to try 0:03:19.240 --> 0:03:23.240 and improve it, but extraordinarily not to get rid of it, 0:03:23.320 --> 0:03:24.280 just to improve it. 0:03:25.400 --> 0:03:29.600 Yeah, I mean, I'm assuming that the it's because obviously 0:03:29.639 --> 0:03:31.000 this has been going on for a while, and they 0:03:31.040 --> 0:03:35.120 have stopped houses from being built with leasehold, haven't they, 0:03:35.120 --> 0:03:37.280 Because it was a big that was a massive scandal 0:03:37.320 --> 0:03:38.080 a few years ago. 0:03:38.240 --> 0:03:40.880 Not Yet's that's in there, that's in the King speech 0:03:41.800 --> 0:03:46.640 that they will prevent houses from being sold le sold. 0:03:47.040 --> 0:03:48.800 And last year I think about one percent of new 0:03:48.800 --> 0:03:50.280 built houses were sold lease sold. 0:03:50.480 --> 0:03:51.400 At the peak. 0:03:51.280 --> 0:03:55.160 In twenty sixteen, twenty seventeen something like that. It was 0:03:55.160 --> 0:03:58.360 well over ten percent now. 0:03:58.480 --> 0:03:59.320 But it's not possible. 0:03:59.720 --> 0:04:00.400 Yeah, the. 0:04:02.680 --> 0:04:07.360 It's speechless again. It doesn't happen very often. 0:04:07.760 --> 0:04:10.720 It's just ragion. I mean, especially the house thing. The 0:04:10.760 --> 0:04:14.560 house I mean people people generally have been aware that 0:04:14.720 --> 0:04:17.440 flats can be lease hold, and there's an element there 0:04:17.520 --> 0:04:19.960 where I guess you know a lot of people they 0:04:19.960 --> 0:04:21.760 think that a flat isn't going to be there, you know, 0:04:21.880 --> 0:04:24.320 place for life and all that sort of stuff. But 0:04:24.360 --> 0:04:28.760 I do seem to remember the houses generally we're not 0:04:29.160 --> 0:04:31.880 sold lease hold, and obviously there's something about the house. 0:04:31.880 --> 0:04:34.800 It's different because basically houses are self contained unit. So 0:04:34.880 --> 0:04:36.599 you're kind of like, how on earth can it be 0:04:36.680 --> 0:04:40.720 the case that I only own the house for you know, 0:04:41.040 --> 0:04:42.800 and in these cases it was one hundred and twenty 0:04:42.839 --> 0:04:45.280 five years rather than the nine hundred ninety nine year least. 0:04:46.200 --> 0:04:49.480 I mean, some British should have, you know. I mean 0:04:50.040 --> 0:04:51.600 it comes back to this thing where you've got more 0:04:51.600 --> 0:04:54.040 consumer rights if you buy a Telly than you do 0:04:54.200 --> 0:04:58.960 when you buy a house. It's absolutely unbelievably wrong. 0:04:59.240 --> 0:05:02.520 But you know, we're not long now and we're going 0:05:02.600 --> 0:05:07.200 to be in a situation where an ordinary tenant has 0:05:07.320 --> 0:05:09.240 more rights than a lease holder. 0:05:09.440 --> 0:05:12.160 Yeah, that's good if you look. 0:05:12.080 --> 0:05:14.279 At the other stuff that was in the king speech. 0:05:14.320 --> 0:05:16.760 But the Rental Reform Bill et cetera says that do 0:05:16.760 --> 0:05:19.280 you know, we get to that landlords aren't going to 0:05:19.320 --> 0:05:21.040 be able to refuse, families aren't going to be able 0:05:21.080 --> 0:05:21.920 to refuse. 0:05:21.640 --> 0:05:22.560 Pets, et cetera. 0:05:22.600 --> 0:05:25.839 Et cetera. But I was reading a Witch magazine report 0:05:25.880 --> 0:05:28.640 on leasehold from a few years ago, which said that 0:05:28.720 --> 0:05:31.520 sometimes there's a clause in the lease your long least 0:05:31.520 --> 0:05:33.839 that you think in the house that you think you own, 0:05:34.240 --> 0:05:36.880 that says that you can't have a pet. And what 0:05:37.080 --> 0:05:39.839 they found a case where someone was charged two hundred 0:05:39.839 --> 0:05:42.520 and fifty four pounds to be allowed to keep their 0:05:42.560 --> 0:05:44.920 dog in what they believed to be their own house. 0:05:45.279 --> 0:05:48.680 Yeah, no, I've seen that. I was recently helping Someboday 0:05:48.680 --> 0:05:52.520 host and that is that exact thing came up. The 0:05:53.200 --> 0:05:57.560 person had pets, and this was the buyer properly. Again, 0:05:57.640 --> 0:06:00.960 it was a kin, a sort of a houts rather 0:06:00.960 --> 0:06:03.479 than a fly, and you'd be allowed to and in 0:06:03.480 --> 0:06:05.520 the terms of the lease. But then there's also things 0:06:05.560 --> 0:06:07.560 like not being able to hang out washing it when 0:06:07.600 --> 0:06:12.800 the in certain parts, you know, especially with fly. I mean, 0:06:12.839 --> 0:06:15.000 I get that there's a sort of old fashion thing 0:06:15.040 --> 0:06:17.440 about having you know, jumples hanging on your balcony and 0:06:17.480 --> 0:06:22.760 this looks a bit you know, scruffy or whatever, but yeah, exactly, 0:06:23.160 --> 0:06:26.360 it's it's just unbelievable. 0:06:27.080 --> 0:06:29.599 Well, the one that I'm interested in and at the moment, 0:06:29.680 --> 0:06:31.920 in terms of you know, is that does a tenant 0:06:32.000 --> 0:06:33.720 have more power than a leaseholder? Is it? One of 0:06:33.760 --> 0:06:36.280 the things that Labor has been talking about is saying 0:06:36.400 --> 0:06:42.240 that under rental reform, landlords won't be able to prevent 0:06:42.640 --> 0:06:46.400 tenants making alterations to the interiors of houses. And I 0:06:46.440 --> 0:06:48.480 don't know about the exteriors, but you know, of course 0:06:48.600 --> 0:06:53.360 leaseholders can't probably walls around the place, can't build conservatory, 0:06:53.400 --> 0:06:55.560 cutbul is, shed, cant or anything like that without going 0:06:55.600 --> 0:06:58.919 to the freeholder and adultsking. So you know, here's that 0:06:59.120 --> 0:07:04.640 really interesting and shift in balance anyway, scandalous, remain scandalous, 0:07:04.839 --> 0:07:07.200 that things are getting better, will get better, but surely 0:07:07.240 --> 0:07:10.280 a much better thing to do, listen to me, governments, 0:07:10.320 --> 0:07:11.960 A much better thing to do would be simply to 0:07:11.960 --> 0:07:13.720 get rid of the whole thing and replace it with 0:07:13.800 --> 0:07:17.480 common hold or as John says, share freeholder of share freehold, 0:07:17.480 --> 0:07:19.640 which works perfectly well, and why wouldn't it. 0:07:20.360 --> 0:07:22.560 And obviously, if you're a buyer, just don't buy one 0:07:22.600 --> 0:07:23.240 any these things. 0:07:23.920 --> 0:07:27.240 Just don't buy one, literally, don't buy one. And whatever 0:07:27.360 --> 0:07:30.120 you do, don't buy one without or don't buy anything 0:07:30.320 --> 0:07:33.200 without really asking all these questions, because of course people 0:07:33.200 --> 0:07:35.440 don't know the questions to ask, do they? I mean, 0:07:35.480 --> 0:07:37.520 why would you think when you went by a new 0:07:37.520 --> 0:07:40.200 help that would not really belong to you? And why 0:07:40.200 --> 0:07:41.840 would you think that your ground that would be this 0:07:41.880 --> 0:07:43.800 thing called ground rent that would go up and up 0:07:43.800 --> 0:07:46.040 onever every year? And why would it ever occur to 0:07:46.080 --> 0:07:49.680 you that the person who old the land underneath you 0:07:50.480 --> 0:07:53.400 was also the person taking commission on your insurance premians. 0:07:53.440 --> 0:07:55.440 I mean, for heaven's sake, you know you have to 0:07:55.440 --> 0:07:57.320 know the questions to ask, right, why would you know 0:07:57.360 --> 0:08:00.080 to ask those? So you know, ask a lot of questions. 0:08:00.120 --> 0:08:02.600 But in the end, don't buy the stuff. Don't buy 0:08:02.600 --> 0:08:05.000 the stuff. And as ever, the way to change things 0:08:05.080 --> 0:08:10.680 is to put pressure on the providers to produce something different, Right, John, 0:08:11.120 --> 0:08:14.400 give me a personal finance tip for the week gone. Well, 0:08:14.480 --> 0:08:16.360 it's a good one, a really good one. 0:08:16.400 --> 0:08:19.720 This is one of your classic ones. It's uh. People 0:08:19.720 --> 0:08:24.160 are the house builders are offloading those sticky last few 0:08:24.160 --> 0:08:26.440 houses on the plot, then they need to get read 0:08:26.480 --> 0:08:29.920 off and they offer massive incentives. In fact, call the 0:08:29.960 --> 0:08:32.400 one for a bloomberg, colleagues. I think one in five 0:08:32.800 --> 0:08:35.960 houses now up from one in ten about a year ago, 0:08:36.360 --> 0:08:38.760 is coming with a free bet and among those freebies 0:08:38.800 --> 0:08:42.800 occasionally as much as a Tesla get a free car 0:08:43.160 --> 0:08:47.439 when you buy a house, John, Yes. 0:08:47.320 --> 0:08:49.320 Do you want to rethink the word freebies? 0:08:50.600 --> 0:08:52.840 No, it's a free car. I mean what I'm just 0:08:52.880 --> 0:08:55.120 I'm buying a house and you know I'm getting like 0:08:55.160 --> 0:08:58.720 forty grand worth of Tesla throwing in surely because the 0:08:58.720 --> 0:08:59.960 house builders are nice people. 0:09:00.679 --> 0:09:02.720 Yeah, I don't like the house builders, so I don't 0:09:02.760 --> 0:09:04.880 believe that. Do you know what I think? 0:09:06.040 --> 0:09:07.240 What do you think, ma'am? 0:09:07.520 --> 0:09:09.840 I think you should say no, thank you very much. 0:09:10.240 --> 0:09:12.320 I don't want a Tesla. I have a perfectly good 0:09:12.320 --> 0:09:14.320 car of my own already, but I would like it's 0:09:14.360 --> 0:09:16.040 for you to take forty grand off the price of 0:09:16.120 --> 0:09:18.079 La Grabbians. Thank you very much. 0:09:19.360 --> 0:09:20.760 That's genius. 0:09:21.880 --> 0:09:25.959 Yeah, yeah, keep your Tesla. 0:09:26.320 --> 0:09:27.559 I'll take you the discount. 0:09:28.280 --> 0:09:28.800 It's true. 0:09:29.120 --> 0:09:31.760 Why would you ever buy a Tesla with our mortgage? 0:09:31.880 --> 0:09:32.360 Exactly? 0:09:32.440 --> 0:09:35.200 That's exactly it. What you're doing is buying a Tesla 0:09:35.200 --> 0:09:37.280 with a market I suppose some people do do that. Now, look, 0:09:37.320 --> 0:09:39.520 this is not the first time this has happened. Right, 0:09:39.720 --> 0:09:42.120 we predicted this. We said you and I in that 0:09:42.200 --> 0:09:44.400 podcast a while back were possibly in the column or something. 0:09:44.720 --> 0:09:47.760 We said, you'll know that things are getting nasty for 0:09:47.800 --> 0:09:50.439 the housebuilders when they start to offer you a free 0:09:50.440 --> 0:09:53.480 car because it happened. It happened. I was just checking 0:09:54.480 --> 0:09:56.720 to see when it last happened, to make sure that 0:09:56.760 --> 0:09:58.480 you and I don't weren't making stuff up because we 0:09:58.480 --> 0:10:01.960 don't like to do that. That's absolutely true that in 0:10:02.000 --> 0:10:05.880 two thousand and eight, the obvious year, several developers were 0:10:05.880 --> 0:10:10.840 giving giving away, giving away free coas with houses, and 0:10:10.880 --> 0:10:12.880 it was also the case in the US. For a 0:10:12.880 --> 0:10:16.439 found a particular case in the Midwest where if you 0:10:16.559 --> 0:10:18.840 bought one of their horrible houses or maybe nice houses, 0:10:18.880 --> 0:10:20.720 I don't know. American houses often look much nicer than 0:10:20.720 --> 0:10:32.120 our houses, you got a free Toyota Prius. Welcome to 0:10:32.160 --> 0:10:34.160 Maren Talk to Money, the podcast in which people who 0:10:34.200 --> 0:10:36.920 know the markets explain the markets, and marin Sunset Web. 0:10:37.080 --> 0:10:39.880 This week my conversation with Jonathan and Sante, fund manager 0:10:39.920 --> 0:10:43.880 at Chakara Investments. Jonathan started with Jacara Investments this year 0:10:43.920 --> 0:10:46.240 after taking a break from the industry in twenty nineteen. 0:10:46.280 --> 0:10:49.080 Before that, if you worked at Stewart Investors for fifteen 0:10:49.200 --> 0:10:51.480 years now Jakara, if you've not heard of. It used 0:10:51.480 --> 0:10:54.480 to be called Coopland Cardiff until August of this year. 0:10:55.080 --> 0:10:57.040 I spoke to Jonathan few days before the launch for 0:10:57.080 --> 0:11:01.080 his new fund, the Jakara Global Emerging Markets Opportunity Fund, 0:11:01.240 --> 0:11:03.560 which he is going to have hold twenty to thirties 0:11:03.600 --> 0:11:07.600 dogs and long term growth opportunities, hy quality growth opportunities. 0:11:07.760 --> 0:11:09.560 He's going to manage that along with the team of 0:11:09.679 --> 0:11:12.320 Paul that he brought over with him from Stuart Investor. 0:11:12.679 --> 0:11:14.359 So here is our conversation. 0:11:15.880 --> 0:11:17.960 Jonathan, thank you so much for joining us today. 0:11:18.160 --> 0:11:19.360 Oh thanks for asking me. 0:11:19.800 --> 0:11:20.000 Now. 0:11:20.040 --> 0:11:22.360 You and I haven't talked for a long time because 0:11:22.400 --> 0:11:25.200 you've been out of the industry for a while. So 0:11:25.240 --> 0:11:27.800 I wonder if we can just start by talking about 0:11:27.840 --> 0:11:30.560 why you've come back. Yeah, we'll put you back into 0:11:30.600 --> 0:11:32.280 this rather grubby industry. 0:11:32.400 --> 0:11:34.920 It's interesting for me personally because I love the job 0:11:35.000 --> 0:11:37.320 of analyzing and looking at companies, and I love that 0:11:37.440 --> 0:11:40.400 aspect and I always enjoyed it. I think when you've worked, 0:11:40.480 --> 0:11:42.400 or i'd worked before, you have to be quite careful 0:11:42.400 --> 0:11:46.520 about where you end up looking after clients' money. So 0:11:46.640 --> 0:11:49.599 I was looking, certainly for a couple of years for 0:11:50.200 --> 0:11:53.199 a place where I thought that I could fit. And secondly, 0:11:53.200 --> 0:11:56.600 my old team became available, and I know I've known 0:11:56.640 --> 0:11:59.040 these people for a long time, and that was really 0:11:59.400 --> 0:12:01.480 what entice because I thought we could do something really 0:12:01.559 --> 0:12:02.520 very good for our closky. 0:12:02.679 --> 0:12:05.480 It was finding somewhere where you felt that you could fit. 0:12:05.640 --> 0:12:07.480 And also you could bring your old team with you, 0:12:07.600 --> 0:12:09.440 so no need to get to know what train any 0:12:09.440 --> 0:12:11.080 new people anything dull like that. 0:12:11.440 --> 0:12:15.319 Yeah, we've been together for fifteen years, some of us, 0:12:14.679 --> 0:12:17.880 and we know each other, we know our strengths and 0:12:17.880 --> 0:12:20.559 our weaknesses, and we just hit the ground running, which 0:12:21.000 --> 0:12:23.520 was very important. But also I think the place was 0:12:23.600 --> 0:12:25.640 very important. I think I prefer small groups of people 0:12:25.720 --> 0:12:29.120 to large institutional setups, and that's what we had my 0:12:29.200 --> 0:12:32.199 last job, although we were inside a very large institutional setup, 0:12:33.080 --> 0:12:34.360 and so it had to be a place where you 0:12:34.360 --> 0:12:36.040 felt that you could preserve that or where we felt 0:12:36.080 --> 0:12:38.520 or I felt we could preserve that and just you know, 0:12:38.800 --> 0:12:40.880 be given autonomy to invest. 0:12:41.160 --> 0:12:44.920 Okay, so a team will work autonomously and inside the 0:12:44.960 --> 0:12:46.079 structure of Chakara. 0:12:46.200 --> 0:12:49.160 Yes, and Chika is a very small company, and so 0:12:49.240 --> 0:12:51.360 that is what was very attractive to me. You know, 0:12:51.440 --> 0:12:54.160 the owners, there's you know, three or four main owners. 0:12:54.200 --> 0:12:56.720 I sit a meter away from them. You know, if 0:12:56.720 --> 0:12:59.880 we've got any issues, I can ask and we will 0:12:59.920 --> 0:13:01.959 be come owners too. And I contrast that with a 0:13:02.040 --> 0:13:04.959 very large organization, which you know is fine for other people, 0:13:05.000 --> 0:13:07.679 but for me, I find that sort of personal interaction 0:13:07.960 --> 0:13:09.160 a lot more meaningful. 0:13:09.480 --> 0:13:12.600 Okay, well, let's talk down about what type of investing 0:13:12.640 --> 0:13:15.000 you and your team are going to bring to Chikara. 0:13:15.400 --> 0:13:17.320 I know a little bit about your history as an investor. 0:13:17.600 --> 0:13:19.200 What is it that makes what you and your team 0:13:19.240 --> 0:13:20.959 do slightly different to what other people do? 0:13:21.480 --> 0:13:24.000 Yeah, well, I think the background has We've been fortunate 0:13:24.080 --> 0:13:25.760 enough to learn from people that are very. 0:13:25.679 --> 0:13:28.239 Good at it, yeah, from the grades, and we were able. 0:13:28.040 --> 0:13:32.119 To absorb that and evolve it in some small measure ourselves. 0:13:32.240 --> 0:13:34.360 And we have very strong beliefs about what we're doing. 0:13:35.040 --> 0:13:38.840 We're very long term. We're very focused on the evolution 0:13:39.040 --> 0:13:42.199 of hundreds of millions of people in the developing world 0:13:42.720 --> 0:13:44.720 and then getting richer. It's something you don't hear about 0:13:45.520 --> 0:13:48.560 then getting access to more opportunities, and that's still happening 0:13:48.840 --> 0:13:51.520 and probably will happen in the next ten or twenty years. 0:13:51.960 --> 0:13:54.960 And then we're very focused on the sorts of companies 0:13:54.960 --> 0:13:56.840 that we will give our clients money to in our 0:13:56.880 --> 0:13:58.720 own money to in the long term, and they are 0:13:58.720 --> 0:14:01.480 a very small number of companies that we feel comfortable 0:14:01.720 --> 0:14:04.240 in that area giving our clients money to. So I 0:14:04.240 --> 0:14:07.480 think the difference is this very small number of companies 0:14:07.480 --> 0:14:09.800 and the fact and the beliefs that we have about investing. 0:14:10.360 --> 0:14:12.559 Yeah, I want to talk a lot about those companies, 0:14:12.600 --> 0:14:16.120 but let's talk briefly first about the emerging markets background. 0:14:16.240 --> 0:14:19.120 Today we don't talk enough about how much richer people 0:14:19.160 --> 0:14:22.440 are getting in this huge variety of countries. Actually, people 0:14:22.440 --> 0:14:24.520 talk about emerging markets are kind of a morphous blob, 0:14:24.560 --> 0:14:26.920 and of course there's absolutely nothing of the sort. So 0:14:27.000 --> 0:14:28.800 let's talk about a little bit about the background of 0:14:28.800 --> 0:14:30.640 that and why is it emerging markets as so much 0:14:30.680 --> 0:14:33.280 more attractive to you than developed markets. 0:14:34.160 --> 0:14:36.880 I think the distinction has broken down to some degree 0:14:36.920 --> 0:14:39.080 and between developed and emerging. So that may not be 0:14:39.160 --> 0:14:42.480 very helpful, but the last twelve years I've spent telling 0:14:42.560 --> 0:14:45.120 clients that the distinction was breaking down because at the 0:14:45.120 --> 0:14:48.000 company level, some of the best emerging market companies are 0:14:48.000 --> 0:14:49.920 in the developed world, and some of the best developed 0:14:49.920 --> 0:14:52.760 book but guess what they realize is growth over there, 0:14:52.800 --> 0:14:56.200 so they've gone in. So I think that distinction emerging 0:14:56.240 --> 0:14:59.960 markets was a marketing idea penned by the investment industry. 0:15:00.440 --> 0:15:03.040 Often you find that those are not very good investment ideas, 0:15:03.320 --> 0:15:05.120 and what we tried to do was make them a 0:15:05.160 --> 0:15:07.480 good of it, impose the sort of investment discipline that 0:15:07.520 --> 0:15:10.280 would kind of ensure that ensure that they would be 0:15:10.440 --> 0:15:13.120 that it could make acceptable returns for our clients. So 0:15:13.160 --> 0:15:15.960 I think that the distinction is breaking down. Firstly. Secondly, though, 0:15:15.960 --> 0:15:19.800 emerginy markets had a pretty bad, pretty mediocre decade, and 0:15:20.080 --> 0:15:22.120 we think, we have written a paper and why we 0:15:22.160 --> 0:15:24.120 think that is we think it was a governance failure 0:15:24.560 --> 0:15:27.160 and we think that the index emerginy Market INDETS was 0:15:27.240 --> 0:15:30.240 never built for investors. It's built as a unit of measurement. 0:15:30.920 --> 0:15:32.560 When you say governance failure, what do you mean. 0:15:32.920 --> 0:15:36.200 Well, you noticed back in really twenty ten eleven that 0:15:36.480 --> 0:15:38.680 at the top level the leaderships were changing. So the 0:15:38.720 --> 0:15:41.960 emerging market pitch, if you like, was in the eighties, 0:15:41.960 --> 0:15:45.720 has said pen by the funds management industry, was that 0:15:45.880 --> 0:15:48.360 essentially governance improves in some of these countries after the 0:15:48.360 --> 0:15:49.440 Second World War, and. 0:15:49.400 --> 0:15:51.840 When you say governance you referring to political governance or 0:15:51.920 --> 0:15:52.640 corporate governance. 0:15:52.640 --> 0:15:55.640 A good question. I think the first leads to the second. 0:15:55.840 --> 0:15:58.560 So there's an improvement in governance after the Second World War, 0:15:58.600 --> 0:16:03.000 the end of communism are eyed and the Dangiopling Report 0:16:03.040 --> 0:16:06.920 reforms in China, and you get better growth, and so 0:16:06.960 --> 0:16:10.080 there's an opportunity all of a sudden, you get better governance. 0:16:10.080 --> 0:16:13.000 So there's more companies that might actually be able through 0:16:13.000 --> 0:16:16.200 which you might be able to access that or opportunity. 0:16:16.760 --> 0:16:18.960 And that improvement means that you should buy equities, because 0:16:19.000 --> 0:16:22.240 equities are a growth. That was the idea behind it. 0:16:22.480 --> 0:16:25.280 That was the marketing pitch, if you like. There's a 0:16:25.360 --> 0:16:28.120 number of problems with that. First, the history doesn't go 0:16:28.200 --> 0:16:30.800 in five year fu management bonus cycles. It seems to 0:16:30.880 --> 0:16:34.120 operate in centuries and millennia. And so you've got you've 0:16:34.160 --> 0:16:36.360 got countries that with very interested in history, that are 0:16:36.360 --> 0:16:38.880 re emerging actually in many cases from being having been 0:16:39.000 --> 0:16:42.160 very dominant countries a thousand years ago. And those processes 0:16:42.160 --> 0:16:44.320 are a lot slower than the average from manager would like, 0:16:44.560 --> 0:16:46.520 and they're cyclical, they don't go in the straight line. 0:16:46.840 --> 0:16:48.680 And the second, as the seven twenty ten was that 0:16:48.720 --> 0:16:50.840 we noticed that governance was going backwards at the top level, 0:16:50.840 --> 0:16:53.800 so he had changes of leadership in places like Turkey 0:16:54.880 --> 0:16:58.280 and South Africa for a few and then ultimately in 0:16:58.360 --> 0:17:02.800 China where you had to question whether the rights of 0:17:02.840 --> 0:17:06.160 shareholders were going to be more or less undermined going 0:17:06.160 --> 0:17:07.960 forward in the next ten years. So we had a 0:17:08.000 --> 0:17:11.000 problem that far back with it, and what that meant 0:17:11.000 --> 0:17:13.320 at the company level is that the companies that we 0:17:13.359 --> 0:17:16.680 would find to be acceptable, they're refewering them. The other 0:17:16.680 --> 0:17:18.879 beauty of emerging markets was that if you had this 0:17:18.920 --> 0:17:21.760 governance improvement, there would be more and more companies to 0:17:21.800 --> 0:17:23.399 invest in that would be listing. You'd have a very 0:17:23.440 --> 0:17:25.919 dynamic sort of positive But because if the governance at 0:17:25.920 --> 0:17:29.119 the top level is deteriorating, then the companies available become 0:17:29.160 --> 0:17:30.800 fewer and fewer for us. So we had to do 0:17:30.840 --> 0:17:33.480 a number of things about that told everybody we started 0:17:33.480 --> 0:17:35.800 looking more globally for businesses because of the world is 0:17:35.840 --> 0:17:37.800 merging anyway, so you might have the governance and the 0:17:37.840 --> 0:17:41.160 brands in a global company that has been in emerging 0:17:41.600 --> 0:17:45.160 in developing economies for decades, and we found them all 0:17:45.160 --> 0:17:48.720 over the place. Actually and we close their funds as well. 0:17:48.880 --> 0:17:52.400 So in twenty thirteen we put a front end load 0:17:52.440 --> 0:17:55.440 on our pool funds, which were very popular, and we 0:17:55.480 --> 0:17:58.520 started to give the money back. And part of that 0:17:58.720 --> 0:18:02.120 was that the opportunities are gett less. The obviousies are more. 0:18:02.320 --> 0:18:04.600 I'd love to run more money for you, but we're 0:18:04.640 --> 0:18:06.880 not going to go down the quality scale in terms 0:18:06.880 --> 0:18:08.720 of companies are going to buy and the opportunity. We 0:18:08.760 --> 0:18:11.320 think that the government's getting worse. So I think that's 0:18:11.359 --> 0:18:12.639 been the problem for ten years. 0:18:12.880 --> 0:18:14.760 And it's an interesting when, isn't it, Because the industry 0:18:14.800 --> 0:18:18.840 had to learn again that GDP growth doesn't automatically transfer 0:18:18.880 --> 0:18:21.960 into an equity bill market. And I'm still reading even 0:18:22.080 --> 0:18:24.320 now after I don't know how many cycles of this, 0:18:24.400 --> 0:18:26.600 I'm still reading papers that tell us tell me but 0:18:26.880 --> 0:18:29.000 because there's economic growth in the country, there will be 0:18:29.000 --> 0:18:31.080 a top market boom and said country and it's simply 0:18:31.119 --> 0:18:33.960 not true, because of governance issues, because of evaluation issues, 0:18:34.000 --> 0:18:35.720 with all these things that we've been discussing. 0:18:36.000 --> 0:18:38.439 Yeah, the pie gets bigger, but who benefits? Yeah, so 0:18:38.520 --> 0:18:39.720