Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Marrin Talks Money Market Rap, where we talk about the biggest moves in the market this week and what's driving them. I'm marrying Something's that, web editor at large for Bloomberg UK Wealth.
And I'm joined Stebic, senior reporter at Bloomberg and author of the Money Distilled newsletter.
Do you know what, John? Today, we're not going to talk about the biggest moves in the market this week, although we could up a lot, right, up a lot.
Up a lot, up a lot, and also also gold down a bit.
Yeah, okay, Tech up a lot, gold down a bit. Top tap for now. But you know, all this will turn around in a heartbeat because it happens all the time. So keep an eye on gold, keep an eye on tech. There have been some interesting moves in the UK market. Everyone go back and listen to the podcasts where are I think for two sets, fund managers talk about how marvelous berbarreas and how you should invest in Berberatus today alone. But we're talking on Wednesday, by the way, up fifteen
percent to nearly fifteen percent when I last looked. So if only people listen to all the podcasts. Everything will be fine, right except for the bit when we keep telling them not to invest in our US equities and diversified by.
The depth dice hard as you meet the point in your newsletter the other day.
I did, and you'd still have been way better off in Europe a year to date. Anyway, I don't want to dwell on that, because we talk about all this stuff a lot. I want to actually today talk about the UK and these two things that are floating around.
The first thing floating around being this this new deal Mansion House that the seventeen of our biggest pench of funds have agreed by the end of the decade to have ten percent of their assets in private assets and half of that so five percent of their assets in UK private assets. So we're talking about unlisted companies, so private equity of various sourts and infrastructure. So that's the
first thing that's going on. Second is this ongoing rumbling conversation about cash ices and how they should be limited and people shouldn't be allowed to keep very much catching them and that cash should be redirected into public markets, or that's the idea at the moment, not that this two should be forced into private markets, but public markets.
So a shift to try and make pension funds get out of listed equities and into unlisted stuff, and a shift to try and make individual investors in their iss get out of cash and into listeds. So two separate things going on here, both actually really interesting. Do you John approve of the Reeves plan to have five percent of your pension money in UK private assets and ten percent of your pension money in private assets all around? I repeat your money because her ideas your money, yeah.
Exactly, her ideas earn money.
Yeah.
No, I don't particularly like the idea of being forced, And if I'm honest, I'm not that keen on the default being that either. I just don't think it's the best time for pension funds to be mandated to go into private assets, given that the private area in general is generally regarded as not having quite caught up with reality in terms of the value of the assets that they hold firsts where interest rates currently are. So that
is one reason. The other reason is I want a bit more detail on this mandation, like, so what.
There isn't mandation yet? This is not mandation, This is just voluntary about Rachel Reason When asked if she would make it managaries one of our colleagues, a Bloomberg by the way, she said never say never, which is kind of irritated all the pension funds because they agreed to do this on the basis that it wouldn't be mandatory
but a voluntary target. And now she's saying, oh, well, they don't do it like it will be mandatory, so you know, and she's managed to irritate everybody, not just you and me for change, but everybody.
Yeah, I mean, to be fair, I can see that's just kind of average politicians caution, which she's sort of being caught not ruling something out.
You having a be kind day? You aren't you.
Having a wee kind.
Thing. It's hard.
They can't win from that point of view, But I mean, not that they necessarily should. Look, I think it's not necessarily a great time to be buying into this sector, this area, and also the idea that pension funds are all agreeing to this off the back of what exactly I mean. I think this is interesting because we often talk here about whether it would be reasonable to say that we're only going to give you a tax break on certain parts of your eyes at if you invest
those in UK listed equities. And the reason that we talk about that is because we think that capital markets are important and that functioning capital markets are important. And also, at the end of the day, one of the reasons that UK equities have been so heavily sold out of
is because of regulatory intervention in other areas. So the fact that define benefit pension schemes have become promises rather than hopes over the course of the last forty fifty years, which is forced that may sell out equities and buy more points. So we talk about it in terms of leaning against that, but this is more, this is something completely different. Actually, it's kind of ten percent of the money. Why should they go into private assis in the first place?
The story you're going to be told is you go into private equity because private equity has outperformed listed equities over the long term. And so if pension funds do not have a significant amount of money in private equity, they will be, you know, not not doing their produciary duty properly because they won't be making the best possible returns.
So therefore they have to go into private equity. Now they're probably with that so many problems, but the main problem is that that record of long term returns has been made. And of course it's very difficult, by the way, to know exactly what the returns from private equity are because not everyone's telling you, you know, you can't listed equities,
you can see the performance is out there. Yeah, there's a lot of kind of shoveling together of all the different types of private equity, venture capital, etc. Not everyone is declaring not everyone knows what the results does You can't. You can't really be sure, but in general consensus that private equity may have outperformed over the last fifteen twenty years, but it's done that in a period when a debt
has been remarkably cheap. And a lot of the private equity model is about leveraging up, getting companies, jamming them full of debt, et cetera. That's a big part of the model. And when debt is cheap, obviously that works really,
really well. And it's also we have to go back to the beginning of the period when they weren't that many people working in private equity, so it's quite easy to come across cheap companies and you know, restructure them in such a way that you could make them worth more.
But of course those is a long gun. Now the private equity market is absolutely huge, this huge competition for every single asset anymore by the way they used to be, and of course the low interest rate environment has gone completely. So you look at this environment and you say, well, okay, there's a massive amount of money sitting around in private equity investments, in the assets that it's very difficult to flog on. At the moment, there isn't that much appetite
for IPOs. There's no way for no way for investors to exit. So what do you need if you have a business that is almost entirely institutional and those institutions are going, oh, do you know what kind of had enough of this? I'm not putting any more money in. I'd really like to get some more money out. What do you need? A big pile of new buyers. And if that was you, what would you do? You'd go?
Do you know what? Seems to me that pension funds would not be doing their for duciary duty if they didn't hold a whole loado I don't know, maybe ten percent in private equity. Would you like some private equity rates because you're we've got some around the back. I can bring it right out, am I being to cecle? No?
I mean I think the backholder of last resort is you know, one element of this for definitely, and I guess the UK angle, Well, the problem there is you think is this just all going to get piled into you know, things like wind farms or anything that Ed
millerband kind of like puts his stamp on and that. Again, this is completely separate from other conversations about should we be supporting the UK public markets, where yes, you know, by saying you won't get tax relief unless you invest at least some of it in the public markets was a whole different conversation.
It's the one thing, private markets are a totally different thing and infrastructure is a totally different thing.
Well, the other thing I'm curious about in this havn't got the figures on this. Unfortunately, perhaps I should have done my homework before I came on.
One job jump.
Yeah exactly. But so we've got these seventeen pension points talking about this. I mean presumably they already hold a chunk and private assets.
O I can't get I have looked it up actually, and it's well under two percent for most of them.
Oh that's centrist as.
Far as I can see. Happy to be corrected on that if anyone knows more precise numbers. But the middle of research I was doing early suggested we really are in the very very low single leship percentages. So so the answer kind of know that they haven't gone there.
So basically we are the Johnny come latelies as well on top of the else. Oh yeah, that's good to know. So having sold everything to Australian Canadian pension finds them having wrong the best of tons out of them. Well, and it's what's coming down. We are now going to buy them back.
Worse, we're gonna we're going to force our pensioners to invest in new projects government government decided government run at very high interest rates. So we see how that pans out because the pension funds will have to insist on some kind of guaranteed return or some sort with infratuxture projects. So this is gonna be very interesting. But we haven't
got there yet. I will say, by the way, I don't know if you've noticed that there has been a lot of talk in US private equity as well about how this is a fabulous opportunity and it is time for everyone to take a pile of private equity into their four O one case. So you know, this is not just a UK private equity thing, it's a US private equity thing as well. How can we how can we get somebody else to back up the truck and
take the stuff off our hands? And you know, the retail infestors are out there for their very purpose.
If I was these guys, then I would be drumming up the APU R market again at least try and get some excitement about reequitization. You know, at the end of the daily what's better than a passive fund coming along with this kind of relentless bed and just buying up the stuff that you're offloording.
But what John, what John will really? What will do that for us? There is something that will make the UK market go berserk, for example, and everyone want to ipo here And that's something that's something is everyone's eyes of money being channeled out of their cash ices and into the market. Yes, can we disapprove.
Of that channeled? Yeah? Look, I mean I've said this before the sort of like the tying vestiges of my kind of like libertarian twenties, sort of like twitch against the idea of you know, oh no, the government shouldn't be interfered with this or interfered with that. But it's not as if the government isn't already interfering in every other kind of like layer of the kind of savings market.
So I don't think there's anything wrong we suggest and that a they kind of cash allowance should be lower than it is, or be that some it would be fine to say some of your money has to go into UK markets if you point to get that actually for an aser for example.
I agree. And we've talked about this before. Remember how much we approved of the Britte Icer. And let's be honest, this is really just a new iteration of the Brittan Icer, isn't it. Yeah?
And I mean stupidly with the flag taken off it, because you know, just if you want, if you want to give it a bit of publicity, then you know, I realize there's a low, kind of high maintained people who object to anything that's got the flag going it. But most normal people don't bring out the bunting all around on this podcast. Yeah, exactly, exactly right.
We have we actually have a report on that feeds into this which we both found very interesting in this by my old friend doun La Mondasrodis, and he has taken a look at what your returns would be if you simply stayed in cash for the twenty years running up to twenty twenty three, or if you had invested in global equities, and he really makes it extremely clear that if you keep your money in cash, you are missing out on an awful lot of money. You've been
what they call recklessly cautious. You know, you've tried so hard to be cautious that you've actually ended up being rather reckless because you've made a significant negative difference to your future.
Yeah, I mean it's the ten tax years up to April twenty twenty three.
Sorry, not the twenty to ten apologies.
Yeah, well even worse because so in the ten tax years, essentially if you stuck on the money in global stocks instead of a cash hezer, you'd now be more than also collective way, we would be more than five hundred billion better off, and as dunkin points, so that's about twenty percent the UK GDP, So that is a huge amount of wealth creation missed out on by individuals, which
strikes me, as you know, that's a real issue. And all right, you can't say that all of that money should have been invested in stockstyle and cash, because, as Dunkin points out, everyone needs an emergency fund, and as we've discussed here before, if you're retiring, then you probably need but you do need significantly more cash than you normally would to smooth your time in case something bad
hams in the stock market. But even putting those aside, there's clearly a lot of excess cash saving going on that could be in the stock market. And the point is that it would almost certainly then make more money, because that's the only reason. You know, we wouldn't be sitting here talking about this every week if it wasn't for the fact that over the long term, the stock market does beat inflation and it does beat cash. You know, if this was something that genuinely was up for debate,
then we wouldn't we wouldn't be constantly repeating it. It's like, over the long term, it beats it. And yeah, you know, you can say that if you'd stuck out your money in Japan in nineteen ninety. Well then what would have happened, But you wouldn't have done that, you know, you you put it in diversified global markets blah blah blah, and you do it a month at a time. Nobody puts their lifetime earnings in the stock market on one day that happens to be the peak. So you know, this
is the point. And it's just as Duncan's sort of really getting that we need a culture shift whereby we acknowledge that cash actually over the long run is risky because it's probably going to get eroaded away by inflation. And Duncan doesn't talk about property, but we should have a serious conversation about how it sees because people still see that as being you know, bricks and water. You can't go wrong with bricks and waters, when in fact,
actually it's a leveraged asset. You and if you're only buying one of them, then anything could happen to that bricks and water, well.
And leverage asset with quite a high carrying cost. Yes, And as I'm going to read read you this one sentence from Duncan, which is very compelling. The real risk for most people. Is not the risk of losing money in the show term, but the risk of not achieving your long run goal to be there a comfortable time and house purchase, providing financial suport to your children, or simply making sure your savings keep pace with inflation. This
is the risk of not taking enough risk. So I think it's fair to say that Duncan in this arena at least is on Rachel Reeves side.
Right, Yeah, I think that would be fair to say.
And we are too, or you are too. I think I am too.
Yeah, I mean, I'm sure they'll find a way mess it up and make it something that we don't like, but the principletensible. I think it's a it's a good idea.
All right. Well, we'll come back to why we don't like it when when it actually happens. Thanks John, Thanks thanks for listening to this week's maryn Talks Money de Briefly. If you like USh are rate, review, and subscribe wherever you listen to podcasts. Also be sure to follow me and John on exor Twitter. I'm at marinas w and John is John Underscore Stepic. This episode was produced by Summersadia Moses and The Question Comments on this show and
all our shows are always welcome. Our show email Ismerimany at bloomberg dot net.