(total reading time: 5 mins)
Boris Johnson will be the new UK Prime Minister from tomorrow. Many will already be familiar with him – he’s a larger-than-life character who has dominated British headlines over the last few years. But what can we expect from him? This week, we feature an insightful American perspective on him in a New York Times podcast. Despite his claims, he may not hold fast to a hard Brexit. Sticking with politics, we also bring you a Financial Times podcast on the next President of the European Commission, Ursula von der Leyen. She hails from the German centre right and was backed by President Macron. Boris and Ursula will no doubt end up having many chats about Brexit.
Into the world of business, we listen to popular US economist Tyler Cowen. His latest thesis is that for America, bigger is better, and in this podcast, he sets out his defence of big businesses against the recent attacks on them. And he makes some good points. In another podcast, we feature the head of Blackrock’s new long-term capital fund, André Bourbonnais, who describes how permanent capital funds are an antidote to the highly levered approach of private equity funds.
Finally, we gingerly dip into the topic of gender and trading skill. NPR’s ‘The Indicator’ show highlights the latest research on male versus female fund managers. It confirms what you might have guessed – men and women perform equally well when given equal opportunity. The rub is that women are still being treated with hesitance by investors. As it happens, my latest personal podcast is also on gender – 4 Ways Men Hold Women Back At Work.
The Making of Boris Johnson (The Daily, 28 min listen)
An American, left wing take on Boris Johnson, the soon-to-be UK Prime Minister. This NY Times podcast paints him unflatteringly, highlighting in particular his lack of regard for facts. In his early career as a journalist, Johnson was notorious for making up anti-EU stories to generate attention. But his charming and bumbling personality has retained him public favour. As a politician, he re-invented himself as liberal, urbane, and multi-cultural figure to become mayor of London, revealing his ability to gain power whatever the circumstances. He campaigned for Brexit not expecting to win, but now has ended up becoming PM with the prospect of completing Brexit.
Why does this matter? Nothing in Johnson’s history suggests he can manage a complex trade negotiation. At the same time, his political convictions are loosely held, so he could ultimately support a soft Brexit if it was politically expedient for him. This could mean the market could be over-pricing the chances of hard Brexit.
Germany’s von der Leyen Takes Up Key Leadership Role (FT News in Focus, 12 min listen)
Ursula von der Leyen will replace Jean-Claude Juncker as European Commission (EC) President on the 1st of November. Her selection was a surprise and was helped by French President Macron. As a candidate from the centre right, Von der Leyen will need to get support from greens and centre left MEPs from across Europe, so she is expected to propose significant climate change policies. Her most pressing challenge will be dealing with Brexit, where she is expected to be pragmatic (and so maintain the status quo). We have yet to find out her stances on other issues like EU trade policy and industrial policy.
Why does this matter? Von der Leyen appears to be Macron’s choice, as was Christine Lagarde, for European Central Bank President, so this suggests a more dominant French role in the workings of the EU compared with the earlier Merkel dominated period. This could mean a more assertive EU on the global stage and more integration across the EU, perhaps even a closer fiscal union.
Tyler Cowen on the Culture of Big Business (Macro Musings, 58 min listen)
Against recent attacks from the political left and right, widely followed US economist Tyler Cowen comes to the defence of big business. His reasons are wide ranging: he argues that they have been a progressive force for social change such as women’s and LGBTQ+ rights; that most people prefer to deal with larger businesses than smaller businesses; and that monopolies are unproblematic because they still price products competitively. Further, he sees markets as being long-term focused, enabling loss making companies like Tesla and Uber to survive. These positive attributes he juxtaposes with regulated industries such as healthcare and education, which he considers problematic. As for income inequality, the biggest gap is between the pay at superstar firms versus the rest. So, he argues that actions should be taken to encourage superstar firms rather than to break them down.
Why does this matter? Cowen provides a useful counter-balancing argument and suggests that breaking up big businesses may impede long-term growth. However, his most powerful examples are in Big Tech – outside of that sector, it’s less clear that big businesses are the paragon of efficiency and innovation. Indeed, part of the success of Big Tech has been the poor produces offered by existing big businesses (think Amazon vs traditional retail).
Andre Bourbonnais – Blackrock Long-Term Private Capital (Capital allocators, 42 min listen)
Andre Bourbonnais is the global head of Blackrock’s new long-term capital fund. In this podcast, he discusses the advantages of a permanent capital (i.e. an open ended or no fixed redemption period) approach to managing companies privately. The approach is also used by Warren Buffet. He argues that it allows a longer-term view on acquisitions. It also focuses less on leverage and cost cutting for quick profit gains, tactics that tend to be favoured by traditional private equity funds. Bourbonnais usually targets founder or family run companies that may favour the long-term relationship over company valuations alone. He also has adopted a fixed fee investment model rather than a percentage of asset size fee structure more commonly used in private equity. This aligns with the interests of investors in the fund and the fund managers.
Why does this matter? The short term nature and use of leverage has always been a concern in private equity. Now with the rise permanent capital funds, we could be seeing an alternative model emerge. The question is whether it will scale or remain a niche product.
Women, Men, and Hedge Funds (The Indicator, 11 min listen)
A famous study by Hedge Fund Research Inc that covered hedge fund performance between 2015 and 2016 found that female led hedge funds outperformed counterparts led by men. But a more robust, recent study has found men and women have similar trading performances. This might seem obvious, though the study was still able to point to some differences between the genders. Female led hedge funds had a harder time getting investments to survive, but those that did had twice as good as performance as men’s. Investors, it appears, have a bias against women, perhaps because the majority of them remain men.
Why does this matter? Finding investment talent is hard, yet capital allocators make it even harder for themselves by over-focusing on male-led hedge funds.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)
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