Neil Dwane Discusses Global Investment (Podcast)

of Alien's Proper. They own a number of different properties, Alien's Global Investors and Pimco being two of the largest uh This is really quite a fascinating conversation if you are at all interested in what makes the global economy tick, what the impact of central banks has been and will likely be in the future, what's going to take place with Brexit, and why the rise of Asia in general and China in particular is going to be so important to the world over the next three to five decades.

You will absolutely find this to be a fascined inning conversation. So, with no further ado, my conversation with Alians is Neil Dwayne. My special guest this week is Neil Dwayne. He is the global strategist with Alians Global Investors. He's also a portfolio manager. And you've been with Alliance since two thousand and one. But your background is that of a portfolio manager. How did you make that journey from actually running money

to being more of a global market analyst. Well, I suppose the way I looked at it, I've always been an investor since uh since the late eighties, UM and I got a tremendous career opportunity to run the European equity business for Alliance in Frankfurt. So I commune was two thousand and one and two thousand two. Yes, so I'd work for the phone for a year. This is when Alliance merged with Dresna, and so we started to put together all the asset management businesses. This is a

lot of giant components that Dresner Pimco. So you know we have been a you know, a set of for a fund s, A company has been created out of a set of boutiques around the around the world, A serial acquirer. Well, yes, I think we haven't. We We started like a lot of firms buying teams rather than buying businesses, because you often don't need everything else that comes with the business if you already have the infrastructure. But so for me, it was a career opportunity to

become a CEO lead a hundred and thirty investors. But having done it, for thirteen years. I needed a new challenge, bared to be honest, and so I chat to my boss. I mean some people say, if you're Board of London, your board of life. Well after after thirty years, I can tell you I was bored of Frankfurt. I know that might sound slightly disloyal, but I needed a new challenge and we decided to try and help Alliance get

its message out. We needed an investor to start talking to clients, talking to people like yourself, so that we could cross the divide and help our clients understand how to look at the risks in the portfolios and how to think about the returns they were looking. So that's my job now is I travel the world trying to help clients navigate the markets. So you're located in the London,

now is that correct? How does the entire UK asset management industry compared to the United States, Because there are two very distinct styles of doing business that there are,

although funny enough, I would say they're very similar. You know that there's a there's a big retail business which is very domestically biased, so you know, when you're in the US or they want to know about is the NASDAC and the SMP five hundred and what's happening with the mini bonds the UK is the same about UK equities and UK property And what you're referring to is universal.

The home country bias, yes, exists everywhere, does even in even in countries like Australia where there's such a tiny percentage of the global equity market, and yet when you look at Australian's portfolios, it's disproportionately Australian. The same with US, the same with UK. Do you try and dissuade people

from that home bias? Um? I suppose I try. I think on the equity side that the home biases is hard to deflect simply because if you own fires, you're by you own a global company anywhere in facts listed in the US. Is that is maybe the challenging dynamic.

But I think as we think about the world in the next twenty or thirty years, I mean, one of the themes I'm talking to clients about is the rise of Asia, because whatever we think about President Trump and his trade policy, the next four and a half billion emerging people are going to be out of Asia. They're not in the US or in Europe, We've we've emerged, we've over leveraged, we've over consumed. The growth is not

going to come from the West. And if and if you look at from a valuation perspective, we're recording this late in the US. Is let's be generous and call it fully valued. Yes, emerging markets tend to be less expensive. In China seems fairly cheap. Yes, and I would definitely agree with that. What coming back to your earlier question, though, I think the challenge I have when I talked to UK or US institutions is I tend to feel that many of them as now quite I would say risk averse.

They're managing their liabilities, they're not optimizing their returns, Whereas I think when you talk a retail clients, you know that they're in the game to make money. You know, they don't want to be in the markets when they're going down. They want to be in the stocks when they're going up, and so they're looking for something completely completely different. So so it's the audiences I think are

now much the same. I think you you with your four oh one K, you're probably as as as institutional as as cowpers would be. You know, you're looking at how do I get from A to B in the next ten years before I retire? How much money do I need? What risk can I tolerate? What draw downs? It's exactly how I think the big pension funds are thinking about it now. Now. The only question I have is who trades more frequently cowpers or the average for

all one key participant. I honestly can't answer that question. What do you know? I'm not sure I can answer it either. What I What I would say, though, is I think, um, the trading has really started to hurt the markets. Even some of our longest and largest sovereign wealth funds now have a rolling twelve month performance horizons. So when you say trading, do you mean the high frequency traders or do you mean just the tendency to trade more than they're used to. People just have this tremendous,

tremendous tendency to trade, And I think investment. You know, when we think about the decision you and I would have made when we were younger to buy a house, you weren't sitting there thinking, well, I might flip it in three months time. You're going I'm going to live here, you know, I hope it's a good investment. I hope it goes up in price and and that all goes up in value. But even if it doesn't, you have someplace to exactly can you say the same thing about

an equity portfolio. Well, I think actually in the end you can. But I I sense, you know, one of the big journeys that's changed, and it's accelerated post of financial crisis has been I think we I talked to more and more traders now and fewer and fewer investors, And I think that's the same with corporate management. Corporate management is not investing for the next ten years, so investing for the next three three years whilst their incentive

plans are at work. So when you say you speak to more traders than investors, is that because there are more traders out there or are people who are formally investors now have a tendency for shorter holder periods, more turnover, just more activity. Despite everything we hear about indexing. Yes, I think people's investment time horizons have really shortened. Um, they don't want to sort of win by just holding something that goes up and down like a rising tide

and eventually travels. They want to get out if it's going to fall, and then get back in. And I think that makes this really really tricky for us as investors, because I would say the view of the world that I'm talking to clients about is obvious for the next five or ten years, but for the next five or ten weeks. You know, I have as little clue as anybody else you'll interview about what will drive the markets,

and yet clients that's what clients are looking for. And I called I suppose I see that of spurious accuracy quite quite fascinating. There was a quote, Neil in one of your recent research pieces that I found intriguing, and you wrote, quote, the American dream is still alive, just not in America. Tell us what you meant by that? What I think when when we were sort of tapping into the momentum behind President Trump's or Canada Trump's campaign,

you know, it was about making America great again. And I think one of the one of the appeals that he had to many parts of the American electorate was that it felt like the world was passing them by. They were able to watch, you know, what the Kardashians are doing on Twitter and and other things, but they couldn't live the same lifestyle because the opportunities were not operating offering themselves inside the US economy. But that's an opportunity set of two or three. You know, for the

average American. Are they really thinking if only I could endorse products? Is is that really the appeal or is it something more fundamental? Well, well, I think it's actually elemental. Um. I think that That's why I think politics is under a lot of pressure across the West at this moment in time, because people feel they take for granted that fridges are cheap and TVs are cheap, and you know, the lifestyle has since since the Night in seven has

has become more affordable. But now they're not getting a pay rise. Some of them are not even getting a job. And so the ability now for I think young Americans to earn more than their parents is the lowest percentage

in first generation. That's not going to the Whereas I think when you go to somewhere and I can only what I normally do is tell clients to travel around Asia and particularly to go to China, but don't go to Shanghai or Beijing, go and see the panda bears in cheng Do or or the Terragotta warriors in Cheanne. The people who take you there, the people who drive you there, um, they work hard, they want to educate their kids, they want to get rich. That's what I mean.

Very entrepreneurs. They're very, very entrepreneurial. And so I think that's probably what America felt like around the turn of the century. People had a can do act a century and not to be not to be a wise guy, but turn of the nineteenth century, turn of the twentieth century, I think to turn of the twentie you know, I just think, you know, when America suddenly really got go.

You think about um, World War One, you know, America barely had a navy, and you know, within two years you've built the biggest navy in um, you know, the world had ever seen. And that's despite the British being the naval power of of that time. And I just think there was that can do attitude, that can do spirit, that teamwork. I sense that that's moved to Asia now. That's quite fascinating. When when we look at you mentioned a lot of people, a lot of the US electorate

might have been left behind. It's very very specific when when we talked about the economic recovery, but it's not evenly distributed. Depending on where you live, your education level, and what industry sector you're in, you're either enjoying a robust recovery or no recovery at all. It is the United States the only country that suffers from that sort of bipolar There are some very very lucky halves, and there are a whole bunch of half not or an participant.

I think the West suffers across the board with that. I think they The country that doesn't is Japan, where society has been much more even so, it's interesting, very one of the themes I'm talking to our clients about at the moment is inequality. And you might say, well, what's I got to do with investment and and and

asset management? Well, it's got a time. Well, but the thing is, I think we may have been making the world less equal because if I incentivize you against your share price and that's the only thing that makes you rich as a manager, then that's all you care about. That's the goal you manage, and that makes the world more and more unequal. Are you a believer in the theory of short termism that a lot of corporate management is so focused on their stock price they're not making

longer term investments. Definitely, because I think, not only I think, and it's clear in the US that I think this. This addiction now to share buy backs, borrowing money from the credit markets. History has always shown management by their stock at the worst prices. They never buy them when nobody wants it, I really cheat, they buy it right at the top of the market. And I think that's what we've been seeing throughout two thousand, sixteen, seventeen and eighteen,

and it's a uniquely US phenomenon. And the other thing, just wrapping in the inequality theme, just so you can see where I'm trying to go with it, is Yes, the short share buy backs are incentivizing the CFO to borrow money and leverage the balance sheets and are potentially under invest limiting the longer term growth prospects of the of the company going forwards. But who's the biggest seller

of US equities. It's the management management. So we're to blame for this because we have over incentivised them in one way. And when we do, when we've done quite a lot of work on sustainability and this inequality theme. What is interesting and it's funny. I'm here at Bloomberg. Family owned companies do it better. They know they're passing on the franchise to their children or to their grandchildren. So what do they do. They make sure it's invested.

They make sure the roofs working, They make sure the central heating is there so that when they pass it onto their children, their children then are running for their children. They never sit there hat thinking how do I maximize returns for my share option scheme? The fascinating thing about to share buy backs, and I can talk about that forever.

A It's the result of a nine nineties Clinton era attempt to limit C suite executives compensation, and they put, you know, a hard dollar limit and do as much stock options as you want. Didn't work out the way they expected. I agree with you about stock options, but and buy backs. But every time I bring it up, all my quant friends say the same thing. Hey, when we look at the world of companies that do buy backs versus companies that don't, buy backs outperform the companies

that don't. How do we how do we justify being negative on buy backs when they actually help performance well? I think, I think maybe what we're going to find is that it helps performance in the short term, but at the consequence of significant underinvestment, the loss of productivity.

You know, when you and I think maybe outside siliconly about all the industries where America has kind of stopped being a world leader, and I'm thinking traditional manufacturing, some of these, some of these type of areas, it's because actually there was no R and D. There's no capital, equipment investment, and and the pushback I get is Apple spends billions of dollars on R and D, as does all these other companies. I couldn't possibly agree with you more.

I think you're absolutely right. I would much rather than see a company d I p O on I p O I don't know if there's even a word like that. I would rather see the money. If you're going to return capitalist shareholders, give people dividends and let them spend the money on what they want after you've exhausted all

your R and D options. Look at General Motors. They bought ten billion dollars worth of stock while all their competitors were creating new electronic cars, building infrastructures, filing a whole bunch of patents. To me, it's unconscionable that a company in as competitive a market as gm is would waste a penny buying backstock when their technical argically behind

all everybody else out there. Let's talk a little bit about what's been going on around the world with you mentioned popularism and the political changes that income inequality has wrought. What do you see happening in Brexit, because from across the ponds, it looks like, Wow, I thought we had some issues that seems to be just completely mayhem from our perspective. Um Barry, You're absolutely right. I mean, there's

no doubt. I think for the last two years everyone has been very confused about how Brexit would work out. Hard Brexit, soft Brexit, no Brexit. It's like a Dr Seuss book. It is a part of the fact we have always said there can be no soft Brexit. Brexit is a hard you know, whether we crash out or whether we leave with a deal, that both of them are hard outcomes. There isn't any sort of cuddly toy way of getting from from A to B. And we're

already seeing all sorts of negative ramifications for Brexit. ESPEC actually in London. I don't know how the rest of the country is feeling it. But when we look at where companies are relocating, when we look at people, especially executives and professionals relocating to to Paris, relocating to Frankfort, you're right there in the thick of it. What what

do you see going on pre Brexit? Well, I think what I would say is, because there's this drop dead date of March the twenty ninth, two thousand and nineteen, the dynamic is we're getting closer to a point where companies, including Alliance Global investors have to decide do we need to change anything inside of our operating business model to stay legal in France or see, if you had a headquarters it would be a problem, but since you don't

absolutely um and actually, because we're smaller in the UK that we are in Europe, it's less of a problem for us than some of our larger competitors who are based in London. But what I what what I would get over And I think this comes to the populist side. You know that's in the US is as as you've seen, you know with your recent elections, including the mid terms, America is divided. The way the UK is divide I

did over Brexit of the population. All I can tell you is two years on, it's still Is that a fact? Because I keep hearing there's two interesting things I keep hearing. One is if we have a second referendum. People have learned that they were lied to in the first referendum, that a lot of the scare tactics about how much money was being sucked out of national health system, and

people realize there was a lot of nonsense. They were fed that all you need is one or two or three other populations change your vote, and they're talking like five or might swing. But then I hear the court the data you give and you're not the first. We're convinced that the vote would still be identical. We're all virtually the same, So so the country is still divided.

What I would say is the dynamic that is that is at work, is that it was a dreadful election that might might ring a few bells with you here in the US. That tone, the tone on both sides was awful. Um and I think with the Bank of England coming out with a very very you know, doomsday scenario of the world post Brexit, we're back in Project Fear territory, which simply annoys the half of the country

who don't buy the Project Fear story. Now, the other interesting thing I read recently was um, and I know how our court system works. On that fully cargnizant of how your system works. But an advisor to somebody in the High Court said, hey, if the House of Lords decides to vote against Brexit, they're allowed. They're now bound by a nine non binding resolution, which was what effectively the reverendum was. UM, yes and no. I mean basically, the Houses of Commons that the MPs that we vote

for get a second chance. So if if they approve it, the House of Lord says no, it comes back to the Commons that the Commons then have the final vote. So how do they need a super majority on just just a majority? So I think the scenario that we're facing at the moment is Theresa May's deal looks great from a European perspective, and that's why it's probably not going to pass in the House of Parliament. Now let me jump in and ask you, are the Europeans going

to give anybody anything better than a terrible deal? Otherwise they'll encourage other members. So you've answered your own questions, Barry. They're not going to offer us a better deal. So it's this terrible deal or a hard no deal Brexit. Yes, but the key for me is is a hard no deal are you going to w t O rules? And then the ability to pick up the phone to President Trump and say hey, can we catch the next BA plane to the US and do a deal is of much greater upside to the UK than this deal with

Theresa May. But you need a change of leadership. So I think for international investors like yourselves, the calibration is can the Conservative Party change leader if Theresa May's deal is thrown out and not face a general election. But because the way the way I try to, if I'm honest, answer the Brexit question is Brexit is nothing compared to the election of a Jeremy Corbyn led labor government. Let's talk a little bit about some things going on in technology.

I was intrigued again. This comes from something you published recently. You said that a new tech cold war could disrupt the global economy. Explain well, I I believe that whilst trade has all the headlines and the President's policy on tariffs is clearly disrupting many of the large traded goods areas of the of the global economy. I think there's a Washington Washington consensus building that China has been cheating

on tech. Bloomberg itself launched a huge piece that showed that there were chips on some of the motherboards that are being used this week. Yes, absolutely, and that was you know, but I think that goes to the hardest Apple and Amazon there was. They all pushed back and

said it wasn't correct. But I think Bloomber stood by the business, and I think you have You're absolutely right to do so, because when you look outside the headlines that everyone's focused on on trade, you're actually seeing Washington a virtue across the entire government um process is now identifying that you don't want to have suppliers or Chinese supply parts of the Chinese supply chain in your products, especially telecom chips, things, and so I I think what

is happening is that America has decided in the same way as Russia is still the old political war horse, China is now the new strategic threat in technology. So why does that matter to investors? Well, the American business model of you know many of the famous American technology companies is you design it in Silicon Valley and you make it in Asia. And that's one of the things

that annoys the President of course. UM. Now, if you suddenly can't trust your supply chain because they may be cheating on your I P or they may be putting stuff in your products that allows them to listen and watch and spy. Um, then you have to start readjusting your supply chain. So I think when you think about the fact that say t s MC is the largest supply of anything to a yes, then can you trust I'm not saying you can't at the moment trust that

the Taiwanese. But Taiwan is part of China. The Chinese say so the Taiwanese. Well, I I mean, for me, I think it's fairly certain China will fight for Taiwan. I'm not too sure whether America will fight for Taiwan, but hopefully we don't have to get there. But my point is that this that the supply chain of the tech industry is now so complex, and it's so Asian focused, and a lot of it relies on cheap assembly in Vietnam or China or elsewhere, and that assembly is where

your confidence in the network could fail. So I think under President Trump, the Americans are going to force disruption into the supply chains. You're either in the American ecosystem or you're going to be in the Chinese ecosystem. And just to balance this out, this isn't just a Washington thing. In the summer, you will a member where that Washington shut down, said t E, the second largest tech company in China. Yes, about a big tech company as well.

What did they What did Beijing learn about that? Well, they learned they can't trust American tech because if you pull the American tech out, the company collapses. So from a Chinese strategic perspective, the next twenty or thirty years, our own tech are they Are they going to rely

on American tech if it can get taken away? Well, the answer clearly is no. And if you then look at where President g wants to go in the next twenty or thirty years, he wants to become a world leader in many of the industries that the Germans, the Japanese and the Americans still dominate. And the reason he wants to is because he doesn't want to buy it from America or Germany. He wants to make it in China.

So let me ask you this about z t E. It wasn't that America wasn't going to sell technology to zt They said, this is on a restricted list. You can't build z t E tech into American tech because we don't trust its ability to safeguard secrets. We think that this is part of the and these intelligent agencies. That's right. So I think in the end President g wants his own Chinese ecosystem, and you're gonna where you and I are going to have to choose because you

can't do one and cheap. What do you want a good those are you going to be your choices? Well, I I what I'm a bit more bolish of China than that, you know, I think you know, creating four million mass grads a year means a lot of what they're doing in AI and everything is going to work because they can throw a lot of resources at it.

I don't doubt that for a second. And and so so the way I look at it is there's going to be a Chinese ecosystem for China and it's friends, which I would when I closed my eyes think most of Asia will inevitably pivot to to China, and then

you have an American ecosystem. Now, it's probably obvious in the short term that Europe would be part of that system, and probably Japan until until it becomes cheap enough, or until the growth in Asia reaches a point where the world sits there And says, who cares about three seventy million rich Americans who are now over leverage. Let's go with the five billion people who are still coming up the value chain and still off growth opportunities. That's quite fascinating.

Let me push a little bit back on the whole Chinese intellectual property argument, and and there are two questions that come up, and really these are two very distinct issues. One is it seems that hackers in China managed to access lots of corporate America's deepest stark at secrets. We've seen how fast after I don't remember which company was hacked, but very quickly, the Chinese military had a stealth plane

that should have taken them decades to develop. It's clear that they got access to a lot of military technology from the US. But second, and perhaps more important, from the corporate sector. If you want to build a plant in China. If you want to make semi conductors, well you sign it. You don't, you have no obligation to do that. But if you do, well, we want you to sign this agreement, says China, where you're gonna assign us the usage of some of your patents and we're

gonna share this. We're gonna share that. And the American companies willingly ended that over. So when people say Chinese are stealing or intellectual property, I understand this is an arm length corporate relationship. The American corporate executives willingly signing No one was under duress. They said, sure, so, so how are they stealing this intellectual property? Are you absolutely right?

I think that's one of the Chinese responses is that we've offered them the prospect of one point three billion people to sell to. So bring your staff and let's, you know, let's let's make money together. I think the interesting thing you mentioned at US corporates. I think the interesting thing if you think about the current commercialization of technology,

and I don't just mean tech in this. You think about Boeing, it goes out, it does amazing things with the D O D and all this other staff, you know, spacecraft around the moon and all the and and some of that new equipment ends up in a seven eight seven. So what are the Chinese do? They simply to buy one, They take it into a warehouse, they drop it. These are the clues they're using. These are the new ceramics there,

you know. So so eventually the commercialization of of of you know, innovation, innovation, it's a five year head start before someone else reverse engineers. And that comes back to the earlier comments that you and I are having about share buy backs, because if you're going to have to stay ahead of the game, you've got to keep investing ahead of the game. You have to be way ahead of it, yes, and you have to keep pushing back

on the certainly know that leading edge. And I'm not too sure that we have CEOs now who are sitting there going how do I stay where I am for the next twenty years? And my mentality, having worked in Germany for thirteen years, is if you meet a Volkswagen or BMW, they know they have the best car in

the world of let's call it the Gulf. They know that the Koreans and the Japanese are coming, and the Chinese are coming, so they know the next golf seven years down the line has to be like more efficient, half half as heavy and twice as fast. And you know, whatever the improvement is, and they simply design it to be there in seven years time. Then when they launch it, they are still better than the competition. And what are they doing the next For the next seven years, They're

getting doing the exact same thing again. They're always engineering the excellence into the next one. I would argue with you that the Gulf is the best part of the world, but but the concept is fascinating. So I want to ask you about what you had written recently about central banks. You had said quantitative tightening might mean less growth for the West, for the whole world. Who are you referring to. Clearly, we have the US, Japan, and Europe that has been

going through different phases of quantitative easing. The US has moved off that, Japan is behind US, Europe behind that. What do you see happening with central banks around the world. Well, what the first thing, I say, Barrians, we don't see the Bank of Japan or the ECB doing anything to rates in two thousand and nineteen, really, so we're still change,

no change. And obviously in the US as you as you know, recently Chairman Powell started to suggest that maybe we're closer to neutral than he'd implied in October and therefore um and therefore the markets took that as a sign that maybe we were reaching peak interest rates in the US. So maybe maybe in two thousand nineteen, you and I'll be chatting about the fact that we're at the peak now whatever that means for the underlying economy. If interest rates are already peaking um and you know,

and and we we fear for the economy. But the concertated tightening point that I that you Alston, I think is potentially the biggest story of two thousand and nineteen. We have been speaking with Neil Dwayne of Alian's Global Investors. If you enjoy this conversation, we'll be sure and come back for the podcast extras, where we keep the tape rolling and continue discussing all things global macro. We love your comments, feedback and suggestions right to us at m

IB podcast at Bloomberg dot net. Be sure and check out my daily column. It's at Bloomberg dot com slash Opinion. Follow me on Twitter at Ritolts. I'm Barry Ritolts. You're listening to Masters in Business on Bloomberg Radio. Welcome to the podcast, Neil, thank you so much for doing this. I've been looking forward um to having this conversation. We were previously scheduled and then got snowed out. I don't remember it for was I got stuck at home or

your flight got canceled. I don't remember which it was, but something crazy happened with the weather. I think it was just the weather here. I think I was in New York, but I only have to walk here, I think right, I think I got it's called global warming, though, Barry, you've got to get with the program. See. I think the big branding mistake that was made many years ago if they would have called the global weather volatility, nobody can deny that none of us could have spelled it.

That's true. That's that's the pro global weather volatility doesn't sort of ring off the tongue. Really it does not. So I the one thing I didn't get to talk to you during the broadcast portion that I really wanted to discuss was um something you've written about white extensively, which is E. S. G. Investing. So let's uh, let's discuss that a little bit environmental, social, and governance investing. You've written that you think this is in the process

of being mainstreamed. Is that a fair word. Yeah, definitely. I suppose the way I would look at it, particularly from an American audiences lens, is I think all investment managers have been very conscious of their fight Ucrey duty, and I think many of us have had a very for the last thirty years, very narrow definition of what that means. We turn up and vote, and we check how management get paid, we check the audited ordered accounts

work that. But it's a very minor, superficial group of topics. Well, I think it has, it has in the past, whereas I think now many main investors around the world, and many governments and therefore regulators around that are sitting there saying is it possible to it to help allocate capital in a nicer way, a greener way, a more friendly way.

So if you think about the environment, you would remember in the mid nineties, Shell announced they were going to ding sink one of the new north sea platforms in the middle of the Atlantic Ocean, you know, somewhere where it was deep, and everyone was horrified that that's what the oil industry were up to. And so you and I were sitting there going, no, we don't want, you know, huge bits of iron just rusting at the bottom of

the Atlantic Ocean. That's not environmentally how we want to behave So well, it might have been cheaper at that time. That's a different, different point that pursuit of profit doesn't necessarily always I think, get us where we want to go. If you think about the use of child labor, I think if you were investing in a company that was, you know, by design abusing you know, the children around the world, you and I would sit there and say, that's not how I want to invest I it used

to be. Half of what I was wearing was was you. Wasn't it shocking the first time you learned that your sneakers were made by ten year olds in Vietnam? It was horrifying. So so I think that So I think therefore, and I suppose what we're also seeing is the rival of the millennial. The children born after they are much more anxious of where their food comes from, where their

clothes come from. They obviously rely on the bank of mom and dad, as you and I know, but they are more conscious of the impact they have on on the environment and and therefore we can see the confluence of the government and regulation against the rising fiducy duties is creating this e s G. This is where my theme of inequalities come from, because I think more and more people now want to be seen to be doing what they can to not just make a profit, They

want to make a good profit. If I can use good in that phrase, And you know, you could look at this from a different perspective. I've heard a number of people posit variations of the theme that e s G is becoming mainstreams because E s G is a

good form of risk management. So, for example, if you have good corporate governance, and you have a diverse board of directors, and you have a lot of women and senior positions, and that there is not a big pay gap between the genders, you basically end up of the company that's not going to be like Uber with this sort of frat boy mentality. It's not going to be

um like the me. Two companies that are being sued left in right because the behavior of executives are so egregious you basically end up with responsible adult companies and

that's good risk risk management. What are your thoughts not? No, I definitely think that is that that is the case, and I think the risk management can come through in many other different areas because I think in a world where we're all having to take some risk to earn a return, I think we have to then understand how we manage some of those risks, and I think the E s G lens allows an investor to work out what some of those parameters are and whether they want

to change their stock picking. I think where I sit for the American audience, though, is is that you're yet to be convinced that E s G doesn't affect your returns. So you know, the megawe general pushback is, well, you know, if they're free and oil rallies, you're gonna you're gonna miss some gains. Yes, but I think there's increasing evidence now that you can have a good portfolio of outperforming stocks that doesn't underperform a good portfolio of let's say,

weaker E s G stock. So we think that the onus is is moving in that direction. But I think the key thing from an institutional perspective. I know there's some leading institutions in the US as well as in Europe who now believe they have to take the lead in this, and I think therefore, to some extent, there's an element of the herding mentality, you know, where some some of the leaders like a cowper's head, inevitably a lot of the state, state pension funds or whatever. We'll

head in a similar direction. And what we've seen from the corporate side, you have the CEO of Black Rock writing letters to the executives of the SMP five lamenting short termism. You have the chairman of Vanguard talking about becoming more active in their proxy voting. Those two companies own ten percent of every publicly traded company in the world.

And what I like about the way we're trying to solve it for clients in e s G is we're trying we now have fifteen analysts around the world who complement our eight five equity and forty five credit analysts. So we're trying to build s G into all the

research we do. And that the key is you, as an American may have a slightly different set of values from say the client I was with three weeks ago and quait now they are they are long oil, so they are thinking about sustainability, climate change and E s G from a lens that's built on an oil economy. Let let's say if we were thinking we were in Texas rather than in New York. So the values for

each client can be different. And the beauty of what we're trying to do is have the debate with the client about what they mean by E s G because obviously some clients are not quite sure what it all means. And then when they understand what it means for their portfolio, we can then implement it as you know, so that

they get what they want. And the last fun fact I just share with you is if you look at say a classic index like the S and P, and despite President Trump not agreeing with it, you know, the Paris of Core two years ago agreed we needed to control the climate change to only two degrees. Well, the S and P is currently constituted to deliver you a three point eight percent climate change increase. Because we're allocating

capital to a lot of the bad industries. So the first thing we're or one of the easy things we're trying to do with our clients is to talk to them about if you believe this influence how you allocate your capital. Start thinking about being a little more green is my favorite sort of phrase to shorthand for this. And don't just look at an index, because you can then you can allocate your capital, allocate your capital differently,

And I think that's the key. We can start to shape the world by making making the capital move to where we want it to as as investors. And let me push back against you on on behalf of Texas for a moment. Texas, to their credit, has shifted their economy. They're a big technology location. They're a big real estate location. Also, you look at Dallas, Houston, Austin, go down the list of of San Antonio. They have become a very tech friendly area. And the rise and fall of oil doesn't

slaughter Texas the way it did in the eighties. The eighties they lived and died on that. But it's quite fascinating, all right. I know I only have you for a finite amount of time, and I have a million other questions, but I want to get to my favorite questions I asked all of my guests. So let's let's jump right into this and feel free to uh make references to things in the UK that American audiences may not be understand or be familiar with. UM, So tell us what's

the most important thing people don't know about your background? UM? I would probably say, I'm as of last month November, thirty years married with four fantastic kids, and I am you know, I work to live, I don't live to work. That's that's great. Who are some of your early mentors? Well, it's very interesting. I would actually saying my father in law and my father. My father was a self employed businessman who went bust, and he taught me everything you

don't want to do in the real world. So as I've managed my career, I have thought about not making the mistakes that he did. I know sometimes we want to be as fathers, be remembered positively. I remember my father's mistakes rather than his successes. They're still good lessons, for sure. But my father in law actually inspired me to become an investor, because otherwise I'm afraid you would

have been interviewing the world's most boring chartered accountant. So I he was one of my mentors because as I moved into investment management, he was already an investor. We chatted over the Sunday you know, dinner table about life, the universe, and markets. So he really helped kick off my my career. Quite interesting. You mentioned investors one investors

influenced your approach to looking at the world of of capital. Well, I I think although I've read a lot of books are from you know, many of the famous investors m after my early UM, I would say quite UK specific expertise or experiences at Flemings and at and at Climb Benson. I joined JPMorgan in the mid nineties and I really learned about fundamental research, about teamwork, about the global network that you you could access. So I feel a lot of my colleagues in in the in what I call

the great JPMorgan before it was bought by Chase. I think JP Morgan, by the way, is still probably great, UM, but that was really you know a lot of a lot of my colleagues at the time really helped me to step up my game in terms of how I think about investing. You mentioned books. Tell us about some of your favorite books, finance, non finance, fishing, no fishing, whatever you like. Well, let me tell you a funny anecdote. My my favorite books of all time are still The

Lord of the Rings. I used to read that every summer, and the reason for me was back in nineteen seventy three we had the blackouts because of the minor strike and at the school I was at every evening under candlelight. Our teacher used to read us The Lord of the Rings. And so for me, the first, you know, two and a half books until you know that the strike was over.

If you can imagine sitting in your classroom, it's dark outside, it's windy, and and you've got a candle and someone's reading you about you know, The Lord of the Ring. That was just the most memorable. I nearly didn't go and see the movies because I didn't want it to destroy what I thought of the world that we created in that period. And and to give Peter Jackson credit, the movies were really, yes, they were so. So what

I would say is I read a lot of books. Um, I am actually funny enough celebrating my thirties where they're going with my wife by going to the Antarctic next year, and so I'm reading books about Shackleton and Scott. So have you read Endurance? I have. That's an unbelievable book. Has it not been made into a film? That's what I think it. I think it has to be. It may have recently been. By the way, the story of

the book is quite fascinating. The book was originally published way early and did nothing, and then twenty years later someone buys the rights of the book, reissues it and it becomes is a big Yes, I agree with you. I can't believe that has him in a moment because I'm because I'm not a millennial. The book I always go to. I think it can be a bit of a hard read. And I'm sure you've probably interviewed him

and read the book as well. But the book, when I think about where technology may lead us is the Singularity is nearby. Ray Kutzwile, who works at alphabet I have not interviewed him, but feel free to make an introduction. I would. I would love to that. That isn't an easy read, is it? It isn't. But the thing is, it tells me where the people who understand technology think

we can go. Now what is scary. At the end of the book, he actually thinks that we could be immortal if you place yourself into a you know, place some version of your, for lack of a better word, soul into a computer. But really it's your your personhood into a piece of technology. Whether or not that's actually you, whether or not that is really immortality is debatable, But I guess it's just a function of how advanced that And the reason I find that is my prior life.

I was a classicist. So when I when I think about the books I like rereading there all the great myths and legends of Roman. Give us an example, well, just even going back to see you know, Homer's Iliad. I mean I can read it in Greek, still I can read it in English. Um, I just love it because it's a it's a time of myth, it's a time of legend, and it just inspires inspired me as a youngster. But even now I love the stories because you just think, you know, this is how mankind was

thinking three or four thousand years ago. It's not all that different from you know, the Odyssey, the Iliad and um trying to remember who recently recommended Joseph Campbell's Men of a Thousand Faces, all those original Greek stories, they're no different than Marvel comics, or any of the superheroes

superhero movies from today. It's the same narrative art. Great Dahia was the one who recommended Okay, okay, that's kind of a fascinating So that's a nice list of books from them, from from Lord of the Ring this to something little challenging. That's the classics. I like it. So what has changed since you've joined the industry? What do you think is the single biggest shift we've been seeing personally? As I alluded to earlier, I think it's the pressure

for performance. I think clients tolerance for loss in the short term has become very, very acute, and I feel that The other thing that concerns me is can you imagine you've been in the game as long as I have. Can you imagine what bond investor is going to feel like at the end of this thirty seven bomble market when they end up with a thirty seven year bear market? And and here we are in a year that looks like market's going to be flat to marginally up or down,

with Barnes also down. Yes, nothing, nothing really has worked is working out well. Although the day before we recorded this, with dividends, the SMP was up about six percent by the time this broadcast. That number is not likely to be spot on whether it's high or lower, as anybody's guess. Um, so what are you excited most about? You mentioned China earlier. What do you think is the most exciting thing that that you get to see? Well, I think on a twenty or thirty of you, it's about Asia, the rise

of Asia. I'm very excited the companies you meet there. They're just getting started in terms of how the markets are going to develop. Um, I would say right at this moment in time, because I feel like I want to be slightly edgy fewer people. I love the UK. I look at the valuations of the UK. I look at the valuation of Sterling. I think everyone has given up on Brexit, including the British, and therefore it's priced for a disaster, which I don't think is going to happen.

I think it's sold too too long. Quite quite interesting. Um, tell us about a time you failed and what you learned from the experience. Well, you know I I actually UM was gonna when you when I saw the question thinking about this two ways. When I failed in Germany, it was because I thought as a brit and I didn't think as a German. So although I was there as an agent of change, I didn't sit on the the side of the table and think, how do I sound? How do I get them to think in a slightly

different way. So so for me, I have learned I think in my management style, and I'm funny if I'm now trying to do this with my wife and my children, to put myself in their shoes so that I see how they see me. And so that's the key that I think is I've got older, I've got better at thinking or anticipating what the person on the other side of the table is. You know where they're coming from,

what their issues are. So whether it's a Frenchman or a Japanese or an American, I sit there trying to work out some empathy with that person, so I can I can learn to be more impactful. I think when it comes to investing, I've always looked at and by the way, you know, one of your other questions is you know what advice would you give people. My advice is, you're always going to make mistakes. You're always going to have to learn from your mistakes because you, and I

know you never learned from your winning. You just sit there say hey, I'm great, and you move on to the next win. In fact, when you win, you don't even starting as yourself. Am I good? Or did I just get? And so when I look at where I've when as a portfolio manager, when I've when I've failed, it's because actually I have completely over appreciated the edge I thought I had. I've therefore underappreciated maybe things that are not inside the company's control or inside the market's control.

But more importantly, I've then built the wrong portfolio because I've had too much of it. I had then haven't right sized the position. So another book I'd recommend, fun enough is a poker players book called by Annie Duke called Thinking in Bets, because what she says about poker players is you get dealt your hand. You know it's a If it's a losing hand, you just fold. If it's a potentially a winning hand or a winning hand, you then play. But as you play, you're watching the

dynamic of the cards in front of you. In the moment the dynamics change, you stop playing, unless, of course, the dynamics don't change, and you know you've got the winning hand. And I think that's what you and I are doing every day in the markets. You have to sit there and what is the market telling you? Because the markets every day always telling you something about your portfolio, and you've got to filter out all the noise and you've then got to sit there and say, have I

got a winning hand? And if you haven't got a winning hand, you and I know the first cuts always the cheapest. Interesting point. By the way, today as we're we're recording this, the market is telling us we don't really believe that there's much of a trade deal. That's that's what's going on. That's what's happening today. Um with with a lot of red on the screen. Um, what do you do for fun? What do you do outside

of the office for giggles? Um? Being a family guy, I love to spend time with my with my wife and family. But I'm a golfer and a skier. That's what I've You know that, that's what I've been. I've resorted to. Okay, And I'll ask two questions. If a millennial came to you and said, we're thinking about going into finance as a career, what sort of advice would

you give them. Well, I'm I'm fairly clear about this because having got four millennials as a father, I've had to think about how to get them into the real world as quickly as possible and off the bank of mom and dad. Um. But I suppose I I look back on it, and I enjoy what I do, and so I when I meet a lot of friends children and they come from you know, spend a day with me or a week with me, I have a sense of whether they love the markets. Now. I think it's

a phenomenal privilege to manage other people's money. And the thing I love about the markets is as it's as close to being a professional golfer as I will ever be, because every day the golf course is different. Every day, the competition is different, every day, the weather is different, and there's always something fascinating going on in the markets. And I think to have a job that is just

so refreshing is a remarkable privilege. Um. So I would want to know that, you know, my millennial was interested in the markets rather than thinking this is how I get paid because you won't be any good at it. And our final question, what is it that you know about the world of investing today, you wish you knew thirty years ago, do you know? I I think, um, although there's not a lot I would want to change about because I do think you have to learn but

by your mistakes. UM. I do sometimes feel that I have been quite stubborn in the type of industries or name that I want to own. That has often left me maybe being a classic European not understanding the opportunities of an Amazon or you know, or you know, some of the new technologies because I don't I'm not interested in some of that. And I recognize that that's probably forced me to not anticipate how the world can change.

And so it's ironic that I now talk to our clients about how the world is being disrupted by you know, the mobile phone, the millennial and the Internet. And yet I was sitting there for the last twenty years going, you know that, how does that change the stocks I own?

And yet it's changing them every day. And that's maybe where where i've I've I've when I look back and think the power of disruption, if I had nailed that thirty years ago, would have helped me think about the type of companies I want to own, very differently, quite fascinating. We have been speaking to Neil Dwayne of Alian's Global Investors. If you enjoy this conversation, we'll be sure to look up an inch or down an inch on Apple iTunes and you can see any of the other two forty

or so such conversations we've had previously. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. You could find any of these podcasts at Overcast, Stitcher, Apple iTunes, Bloomberg dot com, wherever finer podcasts are sold. I would be remiss if I did not think our crack staff that helps put together these conversations each week. Medina Parwana is our producer and

Karlin O'Brien is our recording engineer. Taylor Riggs is our booker, slash producer, uh Atka val Broun is our project manager, and Michael Batnick is our head of research. I'm Barry Ridholtz. You've been listening to Masters in Business on Bloomberg Radio.