This is where we un back all the commentary here in our regular podcast and you go to hear with John and I really think.
About our guests. I'm Maren dunset work this week.
John Stepic, Senior border at Bloomberg, author of the Daily Money Disolve newsletter that joins me to talk about my conversation with Douglas and Duncan for from Schroeders. John, Hello him, Now that was Did you you enjoy all of them? Tell me the truth, you enjoy all of them?
I do enjoy all of the but I like Duncan's sort of like statistical kind of uh presentations. He's very good at making the stuff accessible.
I like Duncan because there's valuation charts tell me what I want to hear that too, and that's what I like in a chart. I like to be constantly confirmed in my biases, and Duncan does that for me with that valuation chart that tells us that that the UK is cheap and Japan it's cheap. And I also really liked the work he did recently on equal weighted and market cap weighted indices.
And everybody knows.
Everybody knows that because the market has been led by a couple of big companies in the US recently that if you look at a market cap index, you're going to get a lot more expensive result than if you look at an equal weighted index. But he's one of the first people I see US lead looked at that difference and noted that when you look at an equal weighted index, even in the US, US equities aren't quite as expensive as we think.
So it does lots of interesting stuff.
And actually I think his work is accessible without without a paywall if you go to the Schroders website or without a block for clients, acceter So that's worth people people doing if they are in the mood for hearing one from Duncan.
And he rates very will we does right?
Well, sorry, look we hear a worship Duncan. This is fantastic. Say something mean about Duncan for God's sake, ah.
Dump shitty, supports the wrong football team.
Or something like that, and just be clear, like we like Doug as well, by the way, and we like Dug and Duncan, not just Duncan. Right, But one of the things that we were talking about at length and was about private equity, and we we're talking about the delisting of companies around the world and why that's important.
The deal listing situation is interesting because it's been happening everywhere around the world. So I did some work looking at the number of companies that were listed on the UK stock Market in twenty eleven and then what had happened over the following decade, like how many were still listed, what happened, what direction had gone in, And about a third of them had delisted over that period, and the overwhelming majority, almost all of them, it was because they'd
been bought. Not many companies just decide, hey, I've had enough, I'm going to throw in the towel in and leave the stock market. Most of it's because they're being bought in the UK. The majority of the people down the bun have been overseas buyers, mainly US and Canadian once. So what we have had is the UKPLC has been kind of seeping overseas into law, largely American and buyers
and private equity buyers. So UK investors no longer have the same access to those companies if they're invested in the UK stock market, and that is quite.
And Doug mentioned that it's particularly important because if private equity holds. Lots of the biggest growth companies around the world are indeed the smallest growth companies. That means that ordinary investors can't get access to those companies and therefore can't get access to the growth from those companies unless they, of course use a middleman going into a private equity
fund of some kind. And one of the things that a lot of people like is not to have a middleman and not to pay the expenses of having a middleman. So in a way it puts up a psale. Not in a way at all, it does put up a barrier to access to corporate growth to the retail investor, and that's a problem. And the other problem that we didn't talk about much in this podcast, but you and I have talked about it a lot before, is that
it's a big deal for shareholder democracy. You know, we love the idea I do anyway of listed companies being there that we can see what they're doing. There's a lot of transparency around being a listed company, and of course everyone who has to share gets to vote. And increasingly the platforms and even some of the big fund management companies are making it easier for people to make their feelings known to big companies, and I think that's incredibly important.
Yeah, it's important, and you can also see why companies try to you know, maybe avoid that scrutiny and that pressure, which is the other reason why it's important that we need to have some sort of appeal to actually lessen
as opposed to you know, stay in private. Although hopefully that's you know when you did sort of talk about this with Duncan Doug a bit they can arise an interest right backdrop will make the private equity model overall much less appealing from an investment point of view, and then maybe you do get more companies kind of listing
or an elementary re equitization. But the other thing I thought was interesting there was the it's because you know who you talked about, it's a bit, but the the whole angst about the UK being particularly awful at this and it's not actually true. It's just the probably relative to where we think we should be, you know, you know,
a lot lower down. But every kind of stock market has seen a load of companies vanishing, and it's very much about this private equity side of things and private funding side of things, and clearly that is does have a lot to do about the kind of you know, the secular trend lower and interest rates because borrowing was
so cheap. But then when you reverse that not as I said, you're probably going to find that equity becomes more appealing and perhap ups one of the only ways to can these money in the future.
Yeah, and one of the things that that we didn't really talk about with Duncan, but I've talked about with him before, and if they've been longer, we would have gone on to talk about this is the huge differences inside the private equity industry. You know, when we talk about private equity or when you read about it in the newspapers, you tend to think of it being just the very large cab buyouts, you know, the takeovers of household names or listed companies that you see that you
know already. But that's just one one part of the private equity market and possibly the biggest in value. So obviously it makes the headlines. But elsewhere there's a different part that is not so impacted by changing interest rates. So right down at the bottom you have early stage venture capital and that kind of thing which is really not impacted by borrowing costs. Because it's financed in a different way, financed by individuals and equity.
And then you have the.
Small and mid buyout area, which is impacted by higher interest costs but is much less leavered so not quite so much. So it's it's the big buyers that it hit the most buy interest rates, and down at the smaller end. Not so much in terms of the act self financing of the companies, but of course massively hit in terms of valuations because the evaluations depend on where rates are.
So over the long run, I can see that, you know, it's the industry has shaped itself to the expectation that rates will continue to fall and refinancing et sech is always going to be easy, and that discount rates will you know, always be where they are. On the other hand, you know, the good thing about companies is that you know they're They're not like you know, houses or bonds not.
At the end of the day. You know, if I if you could have bought Apple, you know thirty years ago, you'd have been as well buying it even if interest rates were going up, and you're still have money. So if you get a good company, then this stuff doesn't necessarily need to be a disaster.
Well, this is the Scottish mortgage argument, right, This is the one that James Anderson, who we've had on this podcast in the past, this is one of the things that he always says, stop worrying about interest rates, stop worrying about valuation, stop worrying about all this stuff.
If you get a good.
Company, a good growth company, none of the things that you and I like to quibble about, John, none of these things will matter in a decade. Get the right company and it will grow regardless, It will check out money regardless, and you will make your fortunes. Whatever happens to your interest rates, whatever happens to the wider economic environment.
Success is success.
You know, Scottish mortgage was an amazing investment until relatively recently, constantly traded at a premium tiers net out of value. And now, of course that is not the case anymore because whatever James Anderson and the who's now retired and the other partners that Bailly Gifford might say, Billy Gifford being the manager of Scottish mortgage, other people look at it and go wow, that stuff was really expensive and look was having the interest rates and you know, we
don't really, we don't want to pay that anymore. So it's got the mortgage just sitting there at a seventeen percent discount. And some people think they should be buying back most shares because they issued a lot of shares at a premium.
They're not doing that.
They're just well, they're buying back some, but not on the scale that some people would like. Sitting on a seventeen eighty percent discount and just waiting.
Yeah. Well, but one interesting that they've just done, and this sort of goes back to the thing we were just talking a bit with transparency is they've just put out, according to one of the broadcast numis, a bit more detail on the ten largest unlisted investments. And one of the things I think that's really interesting about this is it does go back to that point.
It's like.
Until interest rates started going up, everyone is happy to just see yeah, yeah, fine, you know, take my money, private equity, et cetera, et cetera. You know, fast growth. Now people are saying, well, how they annoy that this stuff that you own is worth what you say it? It's because it's not trade ad sales are kind of
like hard to come by. You don't know what it's worth until it's been flogged off, and so now companies are under pressure to actually start trying to give a bit more detail, more along the lines of what this stuff would look like if it was listed and you could easily access its accounts, so you could easily access you know, that kind of growth rates and all the
rest of it. So I think it's interesting there's this pressure on them, which I mean, to be fair, it is the you know, Baireley gifted I would say Scottish moorgage specifically have kind of been you know, as transparent as you get on this front. But it's interesting there's this pressure to kind of like take that a step further, just reassured investors basically.
Yeah, I mean, and the Scottish mortgage portfolio is of course, you know, it's very good for a lot of cash generative companies in it, and Shoo Company is.
So it's interesting. But one of the ways that.
Listed investment trusts and listed investment trusts in particular investing in private equity can make the rest of us feel confident that the valuations they're using are correct is to buy back their own shares, right, I mean, what you're doing when you buy back your own shares is you're you're reinvesting in your own portfolio at a discount or what you believe is a discount, right, And if you do that, then what you're doing is you're saying to
your shareholders, look, we trust our own valuations, so we're going to buy back in at what we believe is a discount.
And that seems to me to be a great way to do it.
So it is there is a lot of pressure at the moment on these trusts and as I say, particularly those holding private equity, to display to the shareholders that they trust their own valuations, and as you want.
One has done this.
Pantheon International has recently introduced to a much wider buyback program that does exactly that.
I mean, well, then that's interesting too, because then you've got, you know, if if you agree with them that this stuff is potentially kind of undervalued, then you know that's your catalyst as well. If people are interested, if the private if the whole private equity spheres that's to introduced discount control mechanisms, then you know, arguably that's a good buying opportunity for investment trusts in that kind of space and.
If evaluations are right, this is one of the only risk free returns available in the market.
Buy back current shares, yeah, I mean, if.
The valuations are right. But at the end of the day, you know, they do keep insistent that they didn't overvalue them during the boom times. And you know, if if they've got the kind of confidence to do it, then you know they could have implies that maybe you're going to get a turn around or the especially if you know interestreets are starting to fly as well, it's going
to look warm sense of positivity. But especially maybe if we start to see maybe if we see Scottish mortgage introducer control mechanism, Yeah.
That is totally not going to happen. That is absolutely not going to happen. Baily go for it. In general are very against buybacks. I think you know, there are lots of reasons not to do it.
It's for the size of the fund, have to sell the holdings that you like, all this kind of thing, take our debt to finance it. And then you know that Scottish movies in particular, they have very parameters around the extent which they're allowed to hold unlisted versus listed et cetera. So there are sorts of reasons not to do it, but the main reason to do it, particularly particularly if you've issued a lot of shares during the boom times, is to show show your investors that you
will and that you can. Anyway, that's probably enough on on on buybacks. We don't want to bor listens to death, but it is. I do think that if you're if you're looking at the listed private equity arena, and there are quite a few of trust doing this, and we talk about it in the podcast with Duncan and Doug,
there are a lot of listed trusts doing this. The ones that are showing confidence in their own valuations may be the ones that you want to look at against the ones who are just going, oh, well, you know, nothing we can do about discounts.
Just let that. Of course, this is what directors are for, right an investment trust.
They're there to step up for the shareholders, and that involves attempting to keep the nav relative close to the share price.
Yeah, and I suppose we private equity the diskans have traditionally been beggar, but not that's big.
Anyway.
The final bit of this podcast with Duncan and Doug. We ask them what looks cheap, so, you know, excitingly they agree with US, emerging markets, Japan, et cetera, every of the UK. And then we ask them for golden bitcoin in it. They're young, Duncan and Doug I was hot with holding out for a better bitcoin there really holding out for them.
What do we get gold? Final question, this is for both of you. Doug.
You ready, okay, okay, I'm going to lock you in a run for ten years, well not really metaphorically, and before you go, you can only invest in one thing gold Bitcoin.
Not strictly an investment, but you know what I mean, gold bitcoin.
You can stick your money in a UK deposit account.
What's it going to be?
Gold?
Good answer. We've had a couple of bitcoins recently. We're getting very confused. Duncan.
Yeah, gold too, golds kind of every one of you.
I'm disappointing.
I know. There you go. Now listen, we're going to I'll tell you what we're going to do. I was talking to our wonderful producers somewhere about this the other day.
We are going to count up bitcoin and gold replies and get ourselves a ratio that we can keep going.
We know where it is at the moment, but.
You may find that it's maybe some sort of indicator for the future. The Merrin talks money back coin Golden Dicks.
Ah, that would be so great. Do you think that's a book sentiment indicator? People refer to the MTM indicator.
Thanks for listening to this week's Marin Talks Money the after Show. The episode was hosted by me Mary at Sunset Web alongside John Staffick. It was produced by Sumasadi and additional editing by Blake Michael