“Hi, I’m Al Gore. Sorry, I’m all out of business cards.”
A hand is extended. I shake it.
“Liz from CIO magazine,” I say. “You can have one of mine instead…”
Not many journalists are invited to an audience with a might-have-been US president and Nobel Peace Prize winner—but sometimes you get lucky. Then a former Goldman Sachs Asset Management CEO fixes you a drink.
OK, OK, it’s not just me; there are around 15 of us meeting the wonderfully named duo of (David) Blood and Gore at the London offices of their Generation Investment Management.
We are here to discuss environmental, social, and governance investment (ESG)—specifically, their new white paper on long-term investing.
Whether there is something about springtime’s optimism, or there really is a sea change happening, it has been impossible to move more than 20 feet without someone wanting to talk about “a better way of investing” since the snows of winter melted.
Art by JooHee YoonFor the record,
Blood and Gore don’t think it’s an “if” question regarding asset owners coming
around to the idea of long-term/ESG investing. It’s a “when”.
Others need more convincing. Two weeks earlier, I attended the launch of asset management firm First State’s 2015 responsible investment report. The keynote was economist Professor John Kay, who was tasked by the UK government with creating the perfect capital market model. He told the audience what he thought the problem was—and much of it was in the room.
“What do people in this industry actually do?” he asked. No one dared look at anyone else; we all fiddled with our programmes.
“They trade with each other.” (Relief all round.) “But what it is all for? Most of this is secondary-market trading—with asset managers trying to outwit each other on a fruitless search for alpha.” (Cue more programme fiddling.)
Kay cited the huge volumes traded each day in a system of global equity markets that he believes ceased to be relevant after the 1950s. Throw in the trillions of FX dollars traded daily alongside swirling fixed-income markets, and the mechanism looks even more out of touch, in Kay’s view.
“In Lloyd Blankfein’s remarkably foolish interview in 2009,” (cue titters from the crowd), “he said the bank was helping companies to raise finance to grow.”
Kay searches the crowd to see if we are with him—of course we are. No one wants to claim to be doing God’s work, not even ESG investors. They’ve seen what happens next.
“IPOs are no longer used to raise money to grow a company,” he said, “but rather to provide liquidity for early investors. Securities issuance accounts for less than 10% of banking revenues in today’s markets, and more money disappears in share buybacks than is ever raised for growth.”
We nodded sagely. It’s not really news to anyone—but it’s peculiar hearing it said out loud.
“The system is out of date,” Kay said. “But asset management can be at the centre of a new financial industry”—now he had us where he wanted us, that the banks have had it their way for too long—“and fulfil the need to create a system that does a better job for savers in the long term.”
The asset management sector should be providing a search and stewardship role, he said. Search for opportunities and where capital is important, stewardship for working with existing assets and making sure they are managed well (“rather than using the term as an add-on that means ‘looking for alpha’,” Kay added, with an air of reprimand).
“The new era needs a new way of constructing an investment portfolio,” he concluded as we all applauded and thought about the possibilities.
Back with Blood and Gore, as we sip ice-cool, filtered water (not bottled—that’s too eco-unfriendly), the conversation turns to Apple. Gore, a board member, is sporting an Apple Watch. As the meeting closes, several journalists crowd around to play with it.
“Did you know the New York Times is now writing whole stories in 140 characters, just so they can be fed on to the Watch?” says Gore. (Cue gasps from features writers.)
“Even the most forward-thinking 1950s banker would have no idea what that sentence means,” I think picking up my smart phone to hail an Uber.
Maybe it is time we updated our financial system, for it mustn’t understand us at all.