Conversations with Institutional Investors – Détails, épisodes et analyse

In this special edition of the [i3] Podcast, in collaboration with the UTS Finance Department, we explore how the neoliberal model of economics, which largely ignored politics and focused on financial metrics, has eroded over time and made way for the rise of populism, which has exerted its influence on economies around the world. Why did the guardrails that neoliberalism provided slowly disappear and what are the consequences of this? Is there any model that will replace it? Political Economist Elizabeth Humphrys, Geopolitical Specialist Philipp Ivanov and UTS Industry Lecturer Rob Prugue delve deep into this fascinating topic as part of the Circle the Square roundtable series.

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Overview of Podcast

00:00 – Introduction
Wouter introduces the special i3 Podcast edition, produced with UTS Finance. He outlines the episode's theme: how the post-war neoliberal guardrails that long supported economic certainty have eroded, creating persistent uncertainty in markets. He introduces guests Elizabeth Humphrys, Philipp Ivanov and Rob Prugue.

03:04 – Origins of Neoliberal Guardrails (Rob)
Rob explains the emergence of post-WWII guardrails: Bretton Woods institutions, NATO, the World Bank, IMF and other frameworks enabling stability and collective economic growth. They created a predictable environment but gradually weakened.

06:05 – Australian Context & Rise of Neoliberalism (Elizabeth)
Elizabeth describes the long boom after WWII, its collapse in the 1970s, and neoliberalism's emergence. She explains how the Hawke Government in 1983 implemented major reforms—floating the dollar, tariff cuts, privatisation—enabled by strong political capital and union involvement.

10:09 – Global Perspective (Philipp)
Philipp explains the Cold War dynamic: US-led order versus the Soviet bloc, with non-aligned states largely weak. Post-1970s Soviet stagnation and 1990s globalisation cemented US dominance, setting the stage for the "golden age" of the neoliberal order.

14:21 – Pax Americana and the Peace Dividend
Rob discusses how guardrails encouraged discipline: countries deviating too far politically were penalised by markets. But global shifts, manufacturing loss and deindustrialisation gradually hollowed out these systems.

16:02 – Contestation of Neoliberalism & Social Impacts (Elizabeth)
Elizabeth stresses that neoliberalism was contested from the start. She highlights social movements in the Global South, rising inequality, and sharp pain in Eastern Europe during rapid liberalisation. Domestic consequences—job losses, wage stagnation—fuelled political distrust.

22:03 – Globalisation, Inequality & a Multipolar World
Wouter links globalisation to economic displacement. Philipp outlines four major geopolitical mistakes after the Cold War:

1. Assuming China would remain benign

2. Dismissing Russia

3. Taking the developing world for granted

4. Ignoring the power of nationalism and inequality

27:26 – Where Are We Now? Have the Guardrails Fully Collapsed?
Rob argues that the guardrails can't simply be rebuilt—political divisiveness and grievance-driven politics are now embedded. Trust in US institutions and commitments (e.g., AUKUS) is eroding.

30:45 – Are We Heading Toward Chaos? (Elizabeth)
Elizabeth argues capitalism is resilient but political legitimacy is collapsing. The promise of neoliberalism—trickle-down prosperity, stable institutions—failed large groups of people, fuelling anti-politics, housing unaffordability and climate-related tensions.

37:17 – Beyond Traditional Politics
Elizabeth notes the breakdown of mass-membership parties and unions. Declining voter turnout and low trust create fertile ground for populism and fragmented political identities.

40:13 – Global Fractures & Major Trends (Philipp)
Philipp highlights five converging forces shaping today's uncertainty:

1. Economic fragmentation

2. Great-power competition

3. Societal divisions

4. Climate change

5. Technological revolution (especially AI)

45:28 – Technology as an Amplifier
Rob and Philipp discuss how technology intensifies divisions but is ultimately a human-driven tool. AI raises the stakes of geopolitical competition, especially between the US and China.

53:14 – What Could Future Guardrails Look Like?
Rob foresees three emerging forces:

• Rise of nationalistic policymaking

• Oligarchic influence filling the institutional vacuum

• A tri-polar world (US, Europe, BRICS)

55:24 – Can Australia Rebuild Guardrails? (Elizabeth)
Elizabeth doubts that politicians currently have the vision for a new national project. She emphasises conflicts between economic growth, climate needs and powerful resource sectors.

59:24 – The Populist Base
Rob asks whether a new base of disillusioned voters is forming. Elizabeth agrees: anti-politics creates a vacuum easily filled by opportunistic populists, on either left or right.

1:02:03 – Role of Media
Rob highlights how politically aligned media ecosystems widen the vacuum and intensify division.

1:03:10 – Conclusion
Wouter closes by noting the episode doesn't provide solutions, but maps the journey from stable post-war neoliberalism to today's entrenched uncertainty.

Full Transcription of Episode 125

Wouter Klijn  00:00

Welcome to a special edition of the [i3] Podcast, produced in partnership with the University of Technology of Sydney's Finance Department, which includes the Anchor Fund, an educational investment fund managing real money, which is run by students and overseen by Associate Professor of Finance, Lorenzo Casavecchia of UTS. So this episode aligns with the second instalment of the UTS Circle The Square sessions, which are a thought-provoking series of roundtables on economic, financial and political ideas. You can find them on YouTube, and of course, [i3] is very happy to support them. So today we will delve into the neoliberal model, which, post-war, has provided guardrails for economics to operate in and allow investors to focus on the usual numbers, earnings, inflation and growth. But these guardrails have been eroding under the influence of various forces, including the rise of populism, and this has led to an almost permanent state of uncertainty. And of course, we all know markets don't like uncertainty. So how did we get here? What has changed, and why did a neoliberal model held together for such a long time in the first place? So this episode sits a little bit outside of our usual investment talk. It's more about the system underneath the data, applied political economics, and we're asking why the guardrails that once held in place neoliberalism have been thinned out and what is left behind. So I'm joined here today with three panellists. So first off, we have Elizabeth Humphrys, who is the Head of Discipline for Social and Political Sciences at the University of Technology Sydney. Elizabeth is a political economist who focuses on the impact of financial crisis and climate change on labour relations. She is the author of the 2019 book 'How Labour Built Neoliberalism'. We're also joined by geopolitical strategist Philipp Ivanov. Philipp has been globally recognised as an expert on international relations, particularly China and China-Russia relations, and he has worked in Russia, in China and the United States. So he will provide us with a global view on this issue. He's also an Industry Fellow at UTS. And finally, we've got Rob Prugue, who is an Honorary Industry Lecturer at UTS, but who most of you probably know as the former CEO of Lazard Asset Management for the Asia-Pacific region. He's one of the driving forces behind the Circle The Square roundtable series. So welcome everyone. Okay, so we're looking at uncertainty in markets, which, to a large extent, has been caused by the dismantling of the guardrails in which the political debate have moved. Now let's start at the beginning. What were those guardrails and what kept politics out of the market for such a long time?

 

Rob Prugue  03:04

I think the best way to explain this is it's it's nascent, and where I least I see it began, and it probably began post-WW2, when the West in particular, needed to rebuild itself after near a decade long World War and the destruction that obviously it needed to be addressed, and having learned the lessons of previous mistakes such as League of Nations or working in a bilateral World, the West appreciated early on. In order to counter the Soviet force, it needed to unify, and as part of that, it needed to build a system that would rebuild an economy by lifting the ship rather than individually handing out life preservers and life jackets to sectors, or worse, certain people. As a result, guardrails were built to make sure that this was a system that benefited the totality, rather than specific groups, and over time, that worked well. This is not to suggest that neoliberalism didn't have its challenges. Of course, we had wars. Of course, we had economic cycles. Of course, we had large unemployment. But when you compare it to pre-1946, and the fact that you know now, the world had access to nuclear destruction, all things considered, neoliberalism certainly post-WW2 had its benefits, and that peace brought a national prosperity. The guardrails were there, not necessarily as instruments of curtailing growth, but think of it as. Golf rules. I'm not a golfer, but when you go out in the golf there are certain etiquette and rules that are applied. The guardrails have that. But then they built systems and infrastructure to again, manage that. It's as simple as the World Bank, Bretton Woods, World Bank and IMF, the United Nations, the international scope, the World Health Organisation, to name but a few. But then progressively, even domestically, you had these guardrails, and that despite its shortcomings relative to pre-1946, level allowed the West to unite as a group, allowed the west the formation of NATO, the formation, again, of these other organisations. And that benefited many, until it didn't.

 

Wouter Klijn  05:53

Yeah, Elizabeth, if we go to you, do you want to provide a little bit of a local flavour to that and put it in the context of the local labour policies.

 

Elizabeth Humphrys  06:05

Sure, I think for Australia and other what I'll call, like highly industrialised countries, not so much like just the what we would call the West. After the World War, there's this long period of growth, largely fueled by the rebuilding efforts in some ways, after World War Two, but that protracted period, like the, you know, in my work and in political economy we call the long boom, it sort of came to an end in the early 1970s with the oil shocks, issues around inflation and other sort of not just issues external to the economy, but perhaps contradictions within the economy that sort of came to the fore. And I would characterise that period as more taking, taking its its lead, perhaps from Keynesianism, like these are these bodies of policies are never implemented, as in a textbook, right? They're contested, they're partial. They vary between countries. But the end of that period, in the early 1970s really, for me, that's when neoliberalism starts to cohere, not just as an ideology, but as a political project that begins to be implemented in different countries, and it looks different in Thatcher's Britain, for example, or Ronald Reagan's us, to how it looks in Australia. And it's really only in 1983 with the election of the Bob Hawke government under the slogan bringing Australia together, that we start to see some of the kind of like Big Bang economic reforms that we associate with neoliberalism, like floating the floating the dollar, foreign bank, banks being allowed into the country, reductions in tariffs, privatisation, these sort of all flow from then. But what's really important to understand is these things are not just about what the ideology of an individual political party is, but often who has the political capital to implement those policies at that time. So even though, of course, Fraser was much more conservative than Bob Hawke on a range of issues, he didn't really have the political capital he was in a war with the unions to introduce the big reforms that were being called for via government, government inquiries, when Bob Hawkes comes to the table and that bringing to Australia together, slogan, it's really to the way I would term it, restore profitability of the system that the rate of profit from investment needs to be restored, or accumulation needs to be restored. And Hawk says we have the answer that, in collaboration with the unions who have been on the front foot in the 1970s demanding a bigger share of the pie, a bigger share of GDP going to workers wages vis a vis to profit. He says, we can help deal with this unrest. And really that's the political context for me that sees this weird situation where we both get the advance of neoliberal, what we would call neoliberal policies that I mentioned a moment ago, but also at the same time, a return to centralised planning, centralised wage setting and bargaining with the support of some of industry, the metal Trades Union, for example. Sorry, the metal trades industry body was really central, as was the metal Trades Union, into bringing in this new kind of arrangements under the hawk heating government, which, of course, longest labour or social democratic government, 13 years from 83 up until 1996.

 

Wouter Klijn  09:51

Yeah. So if we then draw back to a global picture, and you know, Philipp, I introduced you as an expert on China and Russia relations, do. Can we even talk about neoliberal guardrails in those countries, but also broader? How do you see the global perspective from that?

 

Philipp Ivanov  10:09

Yeah, well, I think from the from the End of the World War Two, just drawing on what drop told us, you know, you have this dynamic of competition. So you have the two geopolitical blocks. You have the US-led system, and you have the Soviet Union and its allies, and then you have a whole group of non-aligned states. Now we call them kind of geopolitical swing states, using the Goldman Sachs sort of terminology, but back then, they were called non-aligned. So the India and China can be in that category as well. Then us creates the international institutions that Bretton Woods institutions, but it's institutions that are mainly built by the West, but, but right at the beginning, in the 1940s and 50s, there was a genuine desire for this institution to include everyone, including the Soviet Union. So there's dynamics of competition on cooperation. Was still was still there the non-aligned states, and particularly big ones like China and India are quite weak and underdeveloped, so their role in international system is really not that important. So it's really the world is dominated by this, these two rivals, and then as Soviet economy and political system starts entering stagnation. In the 1970s you know, us, led bloc continued to prosper, and with that, the Bretton Woods institutions and the systems that you know that we today discussing as neoliberal systems, largely, you know, by the 1980s you know, the Soviet Union enters into this period of deep and as we now know, the final decline and and the US led system strived and prospered, and it enters its golden age, which is essentially 1980s and 1990s you know, the age of globalisation. And you know, of course, it's uneven. It's an unequal as the rest of for the rest of the world. But we see, you know, by the 1980s we see the sort of this golden age of US led order, including the political order as well that which has elements of neoliberalism. So you have the globalisation, both economic but also political and cultural. You have US Strategic Hege money, essentially, is only one prime one superpower. We have absolute primacy of the US dollar, you know, of US culture, to some extent, of the US, economic systems and rules and structures, you know. And then we start seeing the rise of China. But it's the rise that was back then, seen as benign, you know, the consensus was that the China will become the United States, just like the United States or any other democratic nation, as its economy became a market economy, you know, you we had, you know, from 1990s to about 2007 we have a stable and predictable Russia that relatively benign, with a few exceptions. And then you have convergence of most states, including what used to be called non-aligned states in the 70s, you know, around the US led system, largely with exception of maybe some countries like Afghanistan or Nicaragua and so. And then the rise of the technologies as well, which, you know, played a big role in that convergence, the internet and then social media. So then that's kind of where we ended up by 2005 or so, you know, when I think that order started to unravel. But I think that will be your next question, yes.

 

Wouter Klijn  14:21

So to what degree is this, this framework synonymous with like, you know, what people refer to as the peace dividend, you know, Pax Americana and the great American Peace. Is that all overlapping? Or do you see this as a separate system?

 

Rob Prugue  14:36

Any government that swayed too far away left or right from the guardrails, got penalised in the borrowing cost. So whether you're left or right, you had policies that you needed funded. Some of these policies couldn't be self funded through taxation. They needed to borrow money, and so there was a shared vested interest for since basically much. Of the post-war period, until the guardrails began to be dismantled. And within that dismantling of the guard rails, we now began to see certain sectors benefiting at the expense of the rest. And as that continued, we saw more and more disenfranchised so the rust belt of the US, they felt the pain as the factories were being closed and moved to China. Australia used to have some manufacturing. Now we're, you know, now we're mining and service, very little manufacturing. So you can see how this sort of morphed itself very slowly, one drop at a time, until that glass got full. Yeah.

 

Wouter Klijn  15:47

So Elizabeth, if we take a domestic view at this, how did those guard rails sort of got eroded here? Because I think you tie it back in with some of the weakening of domestic institutions,

 

Elizabeth Humphrys  16:02

Yeah, I guess, like, I come at neoliberalism in a more critical fashion. So when we're talking about the guardrails, the setting up of those guardrails, or the setting up of frameworks, was always contested in the first place. It's not like we can presume there's a shared interest, even between unions and business or the or even within the corporate sector, between finance and manufacturing, right? These things are always contested politically. So for me, I think we need to think globally that the implementation of neoliberalism had its antinomies. It had the negative things or the negative consequences. And some of this included from what I would call from below, right. So around 2000 we actually see the outbreak of mass social movements moving from the Global South, Latin America, from, you know, the the so called IMF riots, the water wars in Bolivia, into the streets of Seattle and eventually into the streets of Melbourne, contesting the roles of things like the World Economic Forum, the World Bank. We've got to understand this is nearly revisit as contested in both its implementation and it's sort of thinning, as we've been talking about. And the timeframe this happens on in different countries varies. So, you know, we bring up Russia and the Eastern European countries. Neoliberalism comes later in those contexts because of authoritarian rule before that, it comes later to the Mediterranean, because we have Mussolini in Italy, we have Franco actually, neoliberalism is is sort of not delayed, but it's on a different time frame. But the very fast implementation of neoliberalism in Eastern Europe means that the pain that people experience as ordinary workers is really, really sharp. It's on a protracted timeframe that the gap between the rich and the poor. So, you know, we measure these in the Gini Coefficient. This, this becomes drastic, and we get situations like, you know, New Zealand, before neoliberalism, it had a Labour government like Australia implemented in the 1980s it's more equal than Australia. Australia is less less an equal country, but actually neoliberalism there leads to New Zealand having a greater gap between the rich and the poor compared to Australia today. All of these things play out because they have social and political consequences. And I do agree it's not like anybody came along with a plan about how to dismantle the sorts of structures that were built up in the 80s. But I think there's one important thing I always try and remember neoliberalism as a sort of policy platform argued that that a greater amount of decision making should be in the hands of markets as compared to in the hands of government. We understand this as the small state, lower taxes, deregulation, privatisation, but this, this is a shifting of responsibility for a range of decisions, even, you know, floating the dollar into the hands of markets. This has a political consulate consequence that when people in the Rust Belt start to experience the world as they're working harder than ever and getting far less. And you know, my dad at retirement, he was an oil refinery worker. So like, you know, I experienced neoliberalism firsthand growing up in a working class family. They they see their lot as undermined in in that period. And so it's not just a like we can't take a sort of pathologized approach to Why do these people look to politic populism, or why do people look to be dissatisfied with the political system or the financial structures? Is we've got to see it as their experience in the 80s and 90s led to dissatisfactions which play out now politically and so for me, the it's not just about how corporate interests or particular interests in the more elite sections of society or in in global supranational bodies like the IMF, World Bank, UN even the ILO right, which is a tripartite body between unions, government and industry, these things aren't just contested there and understood politically and discussed there. They are discussed every day by people who used to work in manufacturing jobs, or like my dad and all his friends who worked at the mobile refinery in Melbourne, which is now now closed, after decades and and generations of families working there, this leads to to a really sort of, for me, a confused way of understanding the consequences of neoliberalism. We can't just build back what you used to be there. Decisions are made on both what policies are fit for purpose in the moment, which is why you can get people to look the ALP in the 80s, to look to both Keynesianism and neoclassical economics at the same time, they're looking for policies that are fit for purpose. So it's no use having a kind of more paranoid who are the Who's this group of people who are bringing us this new world order? For me, it's a bit conspiratorial. I actually think mostly people, governments, policy makers, business, are looking in a self interested way, sometimes in a national interest, way for what policies are fit for purpose. And to me, that's led to a thinning of policies in relation to what we understood as those classical, more hegemonic neoliberal ideas and policies, but also to the more hegemonic social democratic ideas that have existed through the long 20th century.

 

Wouter Klijn  22:03

Yeah, and to what degree can we tie this back as well to globalisation? Obviously, when globalisation kicked off, there's a lot more challenges for people to keep manufacturing in their own economies. It goes to cheaper labour, countries that sow seeds for also dissatisfaction and ultimately rise of popular populism. To what degree can we tie that in in this debate, and maybe Philipp for you as well, the other part of his the post sort of war guard rails America was a dominating force at that time. Now we're living in a very different world where, as you indicated, you know, China back then wasn't as big as it is. Now we're living much more in a world where there's a multi polar world, where different forces have different influences that are all eating away at the previous system.

 

Philipp Ivanov  23:07

Well, we talked about the sort of economic guardrails. We talked about socio economic or social political guardrails. But there's also geopolitical guardrails that were ignored, I think. And there are four, in my view, that are quite fundamental, particularly from the collapse of the Soviet Union. It was sort of four fundamental mistakes were made, I think, by the triumphant West. Number one is the idea of China is the factory of the world. That is, that it's always going to be benign, convergent power that will largely look at the West and will largely follow that path. I think it's been a fundamental mistake, as we're learning now. Number two is ignoring Russia as a decline in power that no longer important, no longer influential. That sort of can be ignored. You know that old thesis by some of the American policymakers, that is, you know, it's essentially a petrol station masquerading as a country. Bad mistake, in my view. Number three, taken for granted the rest of the world, including countries like India or countries of collective Middle East or Africa, thinking that they essentially are converging around globalisation, which they have been, until they start converging, or until they looked elsewhere for alternative governance models or sources of growth or source of sources of equality. Right? And then I think the fourth one is really ignoring the kind of fundamental historical forces of power of nationalism and of inequality. And I think inequality plays a big, big role in that unravelling, you know, but also that sort of that nationalism, that idea that nationalism is no longer relevant and only appears occasionally, you know, around particular issues which we know is not true. And you know, you look at the world now, it's very nationalist world. And the kind of the raw power dynamics are on display. You know, it's the largest number of wars and conflicts at the moment than any time since the World War Two. And you know, the inequality, apart from, obviously economic inequality that we see around the world now. But it's that strategic and power inequality is that there's a sort of this politics of strategic grievance. You know, who is, who is kind of, who is reaping the benefits of the power and influence. Now we see it in China. They call it the age of humiliation that they're trying to repair. And, you know, rejuvenation of the great Chinese nation. That's how President Xi Jinping describes it. It's the sort of the the top of the mountain, if you, if you, if you look at the world, you know, we see it obviously in Russia. You know that the collapse of the Soviet Union, according to the Russian president, was the greatest geopolitical catastrophe of our time. So that politics of grievance caused by that perceived inequality of power, of economic wealth, of sort of influence and respect. I mean, that plays a big role. So I think there's some these are the, I guess, both the guardrails that were we as a collective West forgot to, you know, construct and to follow. But it's also, I think some fundamental mistakes in collective policy making.

 

Wouter Klijn  27:26

Yeah. So do we have a sense of where we are in this erosion of the guardrails? I mean, are we getting towards the end of an era? I mean, is the rise of populism and perhaps the second administration of Trump the culmination of this development, or are we somewhere in the middle?

 

Rob Prugue  27:45

I, as I've said before, I can't see how one can unscrambled eggs. I think the divisive politics of today is well ingrained, so much so that even traditional parties right now more so visible on the right than on the left are being it's almost like a hostile takeover by not necessarily an ideologically driven group, but to paraphrase Philipp, the politics of grievance. So Philipp correctly mentioned the politics of grievance as it relates from an international playing field, but domestically, we have it here. Elizabeth touched on that as well, where certain groups felt left behind, and that even continued much further in the 90s and 2000 with more of the regulatory guardrails which were meant to be a levelling playing field, because, after all, even the IRS the SEC in the US are being pulled back the Department of Education. It's almost, as I said earlier, government guardrails are equivalent or synonymous to bureaucracy now, and so how do we rebuild that? I don't think, personally, I don't think we can, because now at least we've gone to, at least with regards to the states that it moves so drastically away from the systems that they themselves built and marketed globally has been dismantled. So if you're outside the US, you now have to ask yourself, all right, we do a treaty. Will that treaty or that deal, still be viable? And we see remnants of that here in Australia, with regards to AUKUS and the submarines, as I think, I can't remember who it was, they correctly pointed out that there's a law in the. West that they must fill their needs before they can sell it to others. That law and the US submarine fleet needs major rebuild probably means we're not going to get those submarines anywhere near the timeframe that has been sold. So I'm not saying that the submarine is it. I would hate for anyone to cherry pick what I said, but rather look the totality, and that is, can we go back, given how massively the US has dismantled it, even within its own borders?

 

Wouter Klijn  30:34

So what are the implications? Then, for today? Are we, you know, slowly heading towards total chaos? How do we deal with a post certainty world

 

Elizabeth Humphrys  30:45

capitalism is more resilient than, I think, total chaos, but I know, like progressives are very fond of that, Gramsci quote about that when systems decay, these morbid symptoms appear when there's no kind of hegemonic order. And I do think it's kind of applicable to now in that we, we had a sort of well understood and accepted form of social democratic government of different varieties. Not the US is not exactly social democratic, but it was, it was sort of accepted, and there were consent from the masses. Right? To put it in those terms, for those systems, we're not in that period anymore, right? The government legitimacy is at an all time low in across the Anglosphere, where, where, where we are. And then the point about global grievances is very well made, right? We live in a with the consequences of colonialism that led to an unequal share of wealth and the extraction of wealth from certain geographies and its removal to others, and the build up of wealth in in what we will call the poor the core and and it's not grievances about payback, it is grievances about wanting equality, justice and a bigger share of the pie, is how I look at it. And we should see that they're not just legitimate, but completely understandable. So that promise of neoliberalism that you know that remember Thomas Freeman saying in 1996 that no two countries that have had a McDonald's have ever gone to war. Now we know that this is clearly not the case, right? But that was a promise, right? A promise of a peaceful future from the neoliberal order that trickle down our economics is a promise of something that is desired by the majority, and when they cannot be delivered because of the constraints of the system. I would argue this has this plays out politically. So for me, you know, there's this fascinating study done in the US around what I would call anti politics, and others might call populism, where they looked at these these, they had interviewed people over multiple generations about all sorts of issues. There's massive database of these interviews with ordinary UK people, and what they found in terms of politicians, is that politicians have always sort of been on the nose, right? They've never been particularly loved, but the difference now and Peter Marr, Peter Mayer and and other leading figures in in the UK have said, is the difference is that the political system itself is on the nose. Now. This is the difference in the present period. And so actually, the question of restoring faith in politics and in the Australian political system as well, is is a difficult question to solve. When people feel that politicians are self interested, that they are not from the ordinary people, that they don't represent them, that they're not trusted. This is a massive ball of difficulty in terms of policy making, right? So we get a situation, I think, where people generally want the playing field levelled in all sorts of ways. But can the system actually do this and maintain growth we have in the wings. We in the wings are massive issue around climate change, environmental damage and growth itself, with with vested interests from certain sections which are key in mining in Australia, who make massive profits with very few people employed in those industries. So we, we, there are choices to be made in Australia, and I think potentially because of geopolitical needs, because of domestic profitability and growth needs. Often those discussions about what the future could. Look like in terms of being equal, dealing with climate change, come into conflict with those other things. Like, I don't want to go out and limb, but I don't think we'll ever see those submarines. The timeframe might be never, but it for me, me, the heart of the problem is that promise of in the domestic sense, that promise of the neoliberal future of trickle down, of bringing Australia together, as Hawke said, and the failure for that to eventuate still lives in the minds of people of my generation who grew up in the 70s, but my parents and then, of course, young people now who see that they'll never make it into the housing market, right? And not, I don't mean the the ones we teach at our uni, in our in our courses, right, who come from much more middle class backgrounds, but the chances that your average person owns a house who's 20 today are actually really delayed, if ever. But I do think it's not just about selling bureaucracy. Governments still make choices. So like the the housing discussion about how we will use the future funds to fund to fund housing through investing and earning interest, this is a very different kettle of fish to a policy of just going and building public housing right now, that is an ideological choice about who should do the building and who should own those properties. So there is still a live discussion, I think, and it's not about going backwards, but whether we actually want to say, yes, social housing, public housing can be built by governments with their expertise and owned by them in the future, rather than the private sector trying to solve this problem. So that issue of who, who's responsible for social policy the market or governments? For me, this still persists. It doesn't often get a hearing and election time in those terms. But, yeah, we can't go back. We can't unscramble the eggs in that way, but we actually can go forward in building a different set of policies through, I think, considered debate from all sections of society, you'd hope.

 

Wouter Klijn  37:17

It almost sounds like you're describing an era where we're moving beyond politics, where people no longer feel affinity with political parties, but more of an era where people are interested in particular interest groups or particular issues, is that maybe where we see the rise of populism as sort of a disguise of the rise of special interest groups, rather than politics as we knew it,

 

Elizabeth Humphrys  37:44

I think we have seen one fundamental change that the political system that Gramsci was talking about when he was in jail under Mussolini in Italy, of mass membership political parties and mass membership trade unions is over right membership of the ALP, membership of the Liberal Party, these are at all time lows. Membership of civil society organisations have been declining. And this has been well documented across the US so and the UK, most of actually Europe, not just the English speaking parts and so, I wouldn't say necessarily it's a rise of special interest, but the old political order is seriously frayed, if not seriously damaged. Now I think we don't see it as clearly in Australia, because we have compulsory voting, but people voting has been going down. It may pick up at some point, but it is on a downward trend across Western Europe, across the Anglosphere. This is a this, this disengagement from politics and seeing that your views might be represented in a parliament, because that's what not voting is, not thinking you have relevance or that you can can impact this is this is a, this is a really profound issue. And so when we put all that together, this kind of fraying of the political system, disenchantment and outward hatred of the political class in some sections, right? You know, Trumpism is one example. Brexit is another. Palmer and his party here, there are lots of examples of the old ways of doing things, of a two party system in this country being, you know, seriously undermined. Primary votes for the major parties are at the lowest point historically in Australia today, that tells us something about where people see their interests as being represented, and if they don't find an avenue to feel represented, yes, then populism and what kind of anti politics is, I think, one way that. See that play out?

 

Wouter Klijn  40:02

Yeah, Philipp, maybe you can add to that, because obviously, you know, I think Trump is sort of the biggest symptom of the rise of this populism. Where do you see the fractures internationally?

 

Philipp Ivanov  40:13

Yeah, well, I think that with what we just discussed is also has, sort of, it can be described maybe a little bit simplistically, and this sort of across the five big trends. So number one, you have the economic fragmentation. And within each of this trend, I have to add, there's contradictions, there's tensions. So you have the economic fragmentation is sort of de globalisation, which is, you know, again, debated and debatable, because within each of these movements of economic fragmentation, we see some contradictions. For example, there is a push for sovereign capabilities or de industrialization, but at the same time this economic independency, or core dependency, still exists, still very strong. Then the second big trend is the major power competition, particularly US, China, but also Russia against the West. But even within this, you know, rivalry still coexist with dependency, and I think the US China relationship is a perfect example of that. Then you have the societal divisions that Elizabeth talked about. You know, despite the growing wealth, and say, across most of the western world, there are these grievances, there are cultural, sort of cultural divisions, the political divisions, religious etc. And then you have the two sort of underlying trends. One is climate change again, which is a really divisive trend, because, on the one hand, it's a global, shared problem, but there are politics of grievances and inequality that play a big role. Who has to pay for for fixing the climate change impacts and issues that are associated with climate change. And then, of course, the technological revolution, again, you have this incredible connectivity. You know, the whole world is converged, even the poorest countries. Everybody is on the internet. Everybody is now going to be a part of that? Well, not everybody, but most countries will be a part of that, AI ecosystem. But there's, of course, there are divisions, there's inequalities. So if there's five big trends converging at the same time in this very compressed period of time, but each of them, we don't even have an agreement on their direction, on the trajectory, you know? So each has this contradictory forces within them, and then, and so it creates this sort of really uncertain environment, and, and I think this is probably the best way to describe it with period that we are now, is this some kind of transition. And the question is, well, not so much a question, but I think we do have agency. What comes after? You know, it's we shouldn't be so sort of pessimistic and and passive that, you know, these trends would necessarily result in, let's say, a major war or climate catastrophe or some kind of societal collapse. We as countries, and each country, it's each government, you know, we have agency and how the next the next decade, will be shaped, you know, and I think that kind of, I think that that message often gets lost, you know, because we are so focused on uncertainty, so focused on reacting to this wave of shocks and issues. But, you know, we have the we have the opportunity to shape it, what the next, what the next decades will will look like, but it doesn't. It's not the message that I think people hear from the political leaders. You know what to going back to what Elizabeth said, and so it creates certainty. Degree of pessimism and passivity. I guess maybe that that is one of the explanations of why people don't vote or don't participate in civil society institutions. You know, or you know that might explain tribalism. On either on the internet or in real, real life, because they people feel that they don't have agency to shape what the next period should look like, including their own life, because they think that these big trends, these big shocks, are just so overwhelming, and they see their government don't have a coherent vision to shape it,

 

Rob Prugue  45:28

To me, the greatest threat as an investor, I would pose it in a term that I like to use, political convexity, that In the ear of Pax Americana, even through disruptions, there was a path, and the markets knew what that path was. As we started breaking away from the path, we brought in uncertainty. Initially, the market accepted that, but now the market is jumping much more quickly at any any shock than was visible in the past. Some of that may be, as Philipp mentioned, International. Some of it may be domestic, as Elizabeth mentioned, as someone who grew up in Washington, DC in the 1970s I could see much of these transitions. And I was there at the end of the Vietnam War. I was there when the US went off the gold standard. I was there doing Watergate. I was there doing the US embassy in Iran. So I could, as a young adult or a child, I could see that. But now, as touched by Elizabeth, you this, this grievances. There was, there was at least a safety net of some sort, a perceived or otherwise, but there was a safety net. Now I don't think people think there is a safety net, and so is when the, what I call the resource belt, hear about the move towards cop 30, or the push towards solar panels, or even the push towards EV it's kind of laughable that, you know, it's not a debate between Holden versus Ford. It's a debate between combustion and greenies that that's just incoherent. I don't understand that kind of debate. It's we've, we've turned politics almost into religion, where if you challenge my thoughts, you are challenging my beliefs, and therefore you're an enemy. And you're seeing that playing out brilliantly in the divided conservative movement here in Australia, between what I would briefly call the city conservatives and the resource conservatives. And within certainly the resource conservatives, this disenfranchised, these people who no longer feel to have agency. They will listen to whoever promises them, and you'll note that they don't necessarily challenge them anymore. We used to in Elizabeth's father's era, in my father's era, we challenged our politicians. We didn't just take what they said for granted, sure there was an alliance and sure there was a certain level of belief, but we were willing to challenge the politicians. Now you don't see that, and as a result, you see in this this morphing of populism rise up on empty rhetoric and selling scapegoat ism, and you know you're hearing it, because they don't talk about their vision, they just talk about what's wrong, and they make the person feel heard, and that is a huge political pull for someone who feels they have no agency. As a Latino, I remember, you know, I call this ping pong politics, where you go far right, far left, far right, far left. And although in Peru we have five year terms, not four year terms, a little bit longer. You don't, in the last six presidents, five of them are in jail, and not always because of corruption is fabricated or real. It's like, I'm going to get rid of you so you won't come back and dismantle what I'm building. So it's a democratic coup of sorts, where not a coup of military, but a coup A coup of ideology and empty rhetoric. And that's why I have grave concerns of the rise of the populism. And no one on the left should be dancing with joy that the Liberals are being divided in two, because in that that vacuum will be filled. And I rather least you know, have an understanding where you know who's managing that vacuum, than handing it over to empty rhetoric.

 

Philipp Ivanov  49:58

No absolutely. I totally agree, I guess, on the point on technology, the sort of often we hear about its destructive role in particularly in Division in our society across religious or cultural political lines and but, you know, I think we overestimate in its role. It's definitely a very powerful amplifier of political divisions, or major power competition, any of these trends that I mentioned. You know, technology is a big amplifier and a big, big factor, but we're the one where humans are driving these trends. First and foremost, it's not these trends are not driven by technology. Technology is a tool. It's a very powerful one. And then we're about to learn how powerful artificial intelligence is as a tool, because that takes all that technological revolution to the whole new level, because it plays with cognition, with reasoning, it's something that we have at the moment, at least little understanding and little control of but, but the role of technology should always be discussed in the context of the role of humans. First and foremost, it can't be discussed as a sort of a separate issue that kind of exists in its own universe and drives its own trends and shapes and and influences how societies and nations work. No, it's not like that. It's our tool. We created it, we shape it. And you know, now we've created a new one that we're still learning about and probably will be learning for generations to come. But I think that, you know, taking it to the kind of the world of geopolitics, it is a powerful factor in the way that countries now look at each other, and we know that the technological competition is essentially at the heart of the tensions between the two superpowers that we have now, United States and China. It's really the tension is not about the land. The tension is not really about ideology, but the tension is about who controls the future and who controls the resources and technologies to control the future. And so you know that so our the US China, competition is first and foremost, the technological competition, then geopolitical competition.

 

Wouter Klijn  52:58

Yeah, so talking about the future. We're in a period of transition. We would it's not really clear where we're going or what the next system will be, but do we have a sense of where potentially the new guardrails will come from?

 

Rob Prugue  53:14

For me, look, that's a million dollar question, and I will try to take a stab, if I may, and say I could see three things forming at once. Firstly, a more nationalistic approach to the world. Australia, first, America, first, more self serving interests driving it. Then, as the guardrails have been dismantled and left a vacuum, my concern is that vacuum will be filled by oligarchistic approach in Australia, the mining in the US, the broligarx was called the bro look, the tech leaders, where self serving interest will take that role to fill that was previously done by other department, government departments, perhaps, or influence it, or drive it. And then from a global political point of view, from a multilateral world to a bilateral, unilateral world, where you basic, I could see three blocs forming, the US Europe and The BRICS, where you have three economic powers right there, and how the three will intermingle, how the three will work together. Will the EU come as they did under the the Plaza Accord or the Louvre Accord? I doubt it possible. But I doubt it um. Um, and all these things. When you look at it, the totality means that there's greater uncertainty, and greater uncertainty means that the dividends from the Pax Americana are gone. Yep.

 

Wouter Klijn  55:14

Elizabeth, do you want to contribute to that? Where could potentially guard rails come from? In Australia? Are we just going to have a dominance of mining industries?

 

Elizabeth Humphrys  55:24

There's not much of a future if we're only relying on that. But I think politicians are aware of that, right, like we've had a century of politicians being aware that Australia is too dominant on primary industries and resource extraction, but it's not been able to resolve that policy, either through the Keynesian long boom or through the neoliberal era. There are tensions particular to the Australian economy that I'm not confident that the politicians even know how to address. I you know my expertise is not in not in what guardrails give confidence to international markets. So I'll leave that to you guys to sort of respond to. My thinking is always about can, can, can governments or political sectors lead national projects that that, that that are that cohere and bring justice. We don't just want coherent projects that trample over minorities. We want these, these, these projects that take us forward. For me, that accord era of Hawk and Keating was the last time there was a truly kind of Grand National attempt to have this project that would address those contradictions of the Australian economy at that point, replan industry, give labour a fair share, protect its wages in a high inflation environment, you know, success or not, or criticism or not. Aside, I'm just saying that, that that, that lack of vision we've lived with what for now for 30 plus years. And so when we look at politicians now whose horizons are quite low, who, who they talk about, like the, you know, the small target strategy in elections, none of this gives me much confidence, but and also we just got to remember it's it's not always just about the individual politician who goes down in the history books. It's often about sections of society, what I would call a social base. Right? The social base of the unions gave the Labour Party its power through that long 20th century that's gone. What social base? What? What large groups in society are going to lead to secure futures? I'm not sure where that is and just on climate change. Of course, it's never about fossil fuels versus green greeneries, greenies. Renewable energy is itself a profit making possibility, right? And I think that that that markets understand this, right? But often we're having this debate about so and so versus so and so. For me, my research is about how climate change and its heat is a massive OHS problem for the future, which the insurers are concerned about, politicians barely on their radar. You know, there's a lot of hidden things, but hidden profit making in the in this. So really, this is a war between people who want to make profits between from renewables and people who want to make profits from fossil fuels. But we don't often really talk about it in those terms. We're talking about tree huggers versus, you know, multinational oil.

 

Rob Prugue  58:55

But Elizabeth, aren't you also concerned that you talked about the base? Isn't it also possible that there's a new base forming that is that disgruntled, the left, those who are left out, those who have been disenfranchised, and therefore that they're going to be in the populace who are, are are, let's face it, opportunists. They're not ideological driven. They're opportunists. They will tap into that make promises.

 

Elizabeth Humphrys  59:24

Absolutely. You've not read my work, but you're you're in the vibe of it. If there is a vacuum, it will be filled. And what I see anti politics, or you're calling populism, creates an environment that is not of the left or the right people, then individuals or political parties try and capitalise on that, so we can have both Trump in the US and Syriza in Greece, or Podemos, the mass movement out of the progressive Square protests in Spain. It is not automatic that it goes to the left or the right, and these are they. But the problem for these individual politicians or political parties is if they cannot deliver on their promises, this just leads to, often, their their quick ousting. Right now, Trump has has survived longer than most promising things to the rust belt, but then barely delivering these, tensions can't be paper and over forever. And so part of I think, the the contestation in the US is because Trump can't deliver on the populist promise of those which he was first elected, and now this has led into a much more racialized kind of policy framework and punitive policy framework that we see in the current era. Sometimes I think that even the geopolitics is about managing the domestic, internal contradictions and problems that Trump has. But he's I just really, I just reject an approach that really sees the problems as lying with an individual figure like Trump. So the people want to say Trump's crazy, or pathologize him, or pathologize his voters as being you know, those articles, people who vote for Trump have a 10 point lower IQ. This gets us nowhere, right? They're less educated, they are voting out of their interests, their life experience, and who they're hoping can realise a different future. And in that sense, every voter in the US here, any other country, is up for grabs in in in a period of turmoil. And we want, I think we want civil society organisations, politicians and just generally, community leaders as trying to map out paths economically and socially that take us forward. You know that, and there's nothing automatic about that to my mind.

 

Wouter Klijn  1:01:59

Do you want to respond to that?

 

Rob Prugue  1:02:03

One point I would add to that is media. Yeah, you know the so we don't, we may have algorithm and social network, but we have politically divided media as well. On the one hand, you have the right of, you know, News Corp or channel nine, and then on the left you have the guardian, or in the US, of course, you have Fox News on one side and MSNBC on the other. And this has happened for a long time in the UK. It's now spread throughout the world. But all these things and again, make it the vacuum is getting larger and larger, and Elizabeth raise a really valuable point at the end of the day, someone's going to fill it. And if it's filled with someone without a unified vision, then this, this turmoil, will just continue. This, this divisive world of us versus them will just continue to burrow in, and from I guess, a market point of view, continue to drive this uncertainty.

 

Wouter Klijn  1:03:10

So we end up there with a lot of questions. We never promised any answers. We just tried to describe sort of the movement, from that post war, neoliberalization to where we are now, which is a almost permanent state of uncertainty, but hopefully we've given you something to think about. So with that, I would like to thank Rob Philipp and, of course, Elizabeth as well. Thank you very much for this debate.

In this episode, I'm speaking with James Richards, Co-portfolio Manager of Fidelity International's Transition Materials Strategy. James runs a strategy that invests in stocks of companies that are exposed to materials that will play a crucial role in the energy transition. And it's not all about copper or lithium. James keeps his investment universe wide and includes commodities, such as animal fats and wood chips. We discussed the spike in rare earth materials earlier this year. We also look at why this is a super-cycle, but unlike the previous, China-led one. And finally, we explore whether this strategy correlates with the Australian economy and its emphasis on materials and style factors, including value. Enjoy the show.

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Overview of podcast with James Richards, Fidelity

 

01:00 What are transition materials?

04:00 This was an analyst-driven idea, based on common themes emerging in different materials, rather than a product team idea

06:00 This is a different supercycle from the China-driven supercycle

07:00 There is a school of thought that says iron ore is benefiting from the transition. I don't really believe that

9:00 The energy transition will have an element of decommoditisation to it. There will be pockets of price premiums

11:00 Rare earth prices spiked earlier this year as generalist investors came into this market

14:00 In the first six months of this year, China has installed as much wind and solar as 90 per cent of all wind and solar ever built in the US.

17:00 Are we experiencing a uranium/nuclear renaissance?

21:00 This is not a commodity strategy; you invest in equities. Why?

24:00 We are looking to expand the universe rather than contract it, because we think the opportunity set is wider than even we envisaged. Chemicals is an interesting area.

25:30 Correlations with the commodity-heavy Australian industry.

29:00 You can see the way the world is heading, but when we get there is often unclear. You can lose a lot of money investing in a great demand stories that are just uninvestable at this time

31:00 Is this a value play?

 

Disclaimer:

The content in this podcast is for institutional and wholesale investors and is not for distribution to retail investors.  This podcast has been prepared without taking into account any person's objectives, financial situation or needs. It is provided for general information purposes only and is not intended to constitute advice of any kind. References to specific stocks is for illustrative purposes and is not a recommendation to buy, sell or hold those stocks. You should consider the relevant PDS and TMD for any Fidelity Australia product mentioned before making any investment decisions, available at www.fidelity.com.au.

Full Episode Transcript

Wouter Klijn  01:16

James, welcome to the show. 

 

James Richards Hi. Wouter, thanks very much for having me.

 

Wouter Klijn So let's start at the beginning. What are transition materials and why should institutional investors care?

 

James Richards  02:15

You know, I think that the transition is one of the big structural thematics of the next couple of decades, and transition materials are what I call a wide range of commodities and materials that benefit from the process of the transition, and in many cases, the demand driven from the transition, coupled with the fact that it is never been so difficult to bring on new supply of a number of commodities, will create the conditions where, you know what I think could be the next super cycle for a wide range of commodities. And this is a very, very investable thematic, in my view,

 

Wouter Klijn  02:49

Before we get to the super cycle, can you tell me a little bit about where this idea came from? Because I understand this was more of an analyst driven idea to set up the strategy. Is that right? Yeah.

 

James Richards  03:00

I mean, you know, I think normally ideas are born in this, in the product team, and, you know, then they go and find a portfolio manager, you know, this one is something that came out through, you know, hours and meetings and the sort of the work that we were doing around, around the commodity space, and the same themes, you know, started to come up again and again, first of all, in copper. But then, you know, we began to get increasingly excited when we saw the same themes coming up across a wide range of commodities, and, you know, as far afield as vegetable oil and animal fats. And it was then that we saw that there was a sort of wide ranging, quite diversified, investable thematic here.

 

Wouter Klijn  03:41

So what's the story with animal fats?

 

James Richards  03:45

Well, animal fats is so the renewable diesel chain, you know, particularly in the US, but also also wide. What are more widely, you know, is sealed by animal fats and vegetable oil. And you know, there is a, there is a fine, a finite supply of these things, and so you have to incentivize it. And the only way to incentivize new suppliers through price and, you know, the demand that is in there's been created by stricter regulatory standards and and stepping up of requirements, you know, really places a challenge on those supply chains.

 

Wouter Klijn  04:22

Yeah. So is that in your portfolio animal fats and oils?

 

James Richards  04:26

We certainly think that the vegetables animal fats is a very interesting long term thematic,

 

Wouter Klijn  04:30

yeah. Okay, interesting. So coming from themes that you saw in copper and copper is, of course, a key material in electrification. So is this transition the story to renewable energy? Is it just about electrification, or are there themes involved in this as well?

 

James Richards  04:51

So I mean electric, if you look at the sort of the current opportunity set, electrification is an obvious one. You know, it has various aspects. You know. Renewables is one obvious aspect. Electric vehicles is another. And if you think about sort of the grid requirements of the increased demand for electricity, you know that that that that also has some pretty found profound implications. But it's not just electrification. If you think about sort of hard to abate areas like like steel production, maritime fuels, aviation fuels, you know, the circular economy is a very is a very interesting area. You know, it's a much, much wider area than just electrification.

 

Wouter Klijn  05:38

And I think you've mentioned digitization and urbanisation, as to key thematics that are related to the transition materials. In particular,

 

James Richards  05:47

I think one of the one of the interesting aspects that you get here is that you get demand that is driven by the transition but then you have a lot of other structural demand drivers that are also facing in the same direction and pulling on the same commodity demand chains. And so, for instance, AI and data centres will drive demand for copper and other and other commodities, but also the industrialization of India and Southeast Asia as they start to hit levels where commodity intensity picks up quite dramatically. You know, they're essentially being competition with the transition and data centres for scarce supply of commodities and, you know, and that is quite exciting, I think, in terms of compromises will have to be made. I mean, if you look at the sheer population size in India, and you put a sort of average peak commodity intensity on it, like the numbers are mind boggling. And so, you know, compromises are going to have to be made. And the only way that you get those compromises made, and the signal that you get to to get substitution, and all the ways to get the numbers to work. You know, the only way you can get there is through price.

 

Wouter Klijn  07:03

So there's a couple of big trends involved. You just mentioned one around the super cycle in commodities. So when you sort of look back over time, have we had some of these super cycles before?

 

James Richards  07:16

I mean, I do have a history degree, but not much of a history student, so I'm kind of more focused on, on the most recent, which is, you know, the early, the early years of my career were with the China driven super cycle. And, you know, that was one of the reasons, where I saw, you know, clear echoes of what I was seeing, you know, today, you know, versus what I was seeing there are seeing above trend demand for commodities driven by China hoovering up, you know, pretty much every commodity in sight. And you know, decades worth of under investment in commodities at the time. So you had a relatively curtailed supply side. And that's really important is, you know, in order to make money in commodities, the supply side has to struggle to keep up with demand. And so, you know, commodity with 20% demand, keiger, you're not necessarily going to make money if the supply side is a lot, is it elastic? And so, you know that supply side is really, really important, but it is a different super cycle, I think, from from the China driven super cycle. In the the China driven super cycle, I think mainly had winners, whereas in this super cycle, I think, you know, there are clear winners and losers in terms of in terms of demand, you know, and you know, the transition kind of gives the clue to that in thermal coal, demand should decline over time. All demand should decline over time. You know, we're talking, we're talking longer term here. And you know, there are areas like, I think, although there are some demand benefits for steel, you know, the process of decarbonizing steel is quite, is quite difficult and expensive. And so I think there is, there's some difficulties around that. And you know, I'm in Australia, and you know, there's a school of thought which, which says that iron ore is benefited by the transition. I don't really believe that, you know, I think that the iron iron ore, and particularly lower grade iron ore, is one, is one of the commodities I have big question marks on on a 10 to 15 year view.

 

Wouter Klijn  09:18

Why is that? Because you could imagine, that you know, steel is still used in some of the infrastructure. I mean, you know, you think of windmills, probably mainly carbon fibre, but there's still elements of steel.

 

James Richards  09:31

Sure. But if you're, if you're going to produce low carbon, low carbon steel, you know, the the miners are working with the steel companies on technologies, but you know, there's a lot of unanswered questions around what the cost implications of those that are, what the capital implications of those are, and who's going to pay for it. And so I'm not I, I think that I find it difficult to see a world that doesn't use Pilbara, Pilbara, but I just don't know exactly what that world looks like. And. And what, and what the what the implications are for their position on Costco.

 

Wouter Klijn  10:04

Yeah, yeah. So another element of this super cycle that is relatively unique to this one is there's an element of a de commoditization of certain materials. And I think it's an interplay where ESG credentials, geopolitical alignment and some processing capabilities can cause changes in prices and cause some price premiums. Can you explain that a little bit?

 

James Richards  10:30

So it's something I believe in quite strongly. And you know there is, there's active debate, and you definitely come across people in the industry who disagree with my point of view on this, but, but my point is this is that, essentially, you know, as we begin to look forward for different things in a, you know, a tonne of commodity, of commodity product, the features that we that we need to promote, are going to have to be incentivized in some way. So if you want a low carbon tonne of aluminium, you're gonna have to pay a premium for that. And if you look at the producer's day, you get some people who do get premiums for that. You get you get some who don't. And there are some commodities where it's quite difficult to see these premium but we've seen a really interesting example this year in rare earths, where, you know, the world has priced rare earths for the immediate part, for the last few years on essentially the China price. And you know, supply chain security suddenly come right to the front of people's focus and and you know, the US government has done a deal with with a large US rare earth producer this year, giving a price floor which was very significantly above the China price. And so, you know, if you particularly in a world where you mind about the security of your supply chain, there are areas where you're gonna have to pay a differentiated price, I think, to incentivize

 

Wouter Klijn  12:06

Yeah, so the rare earths were a bit of a outlier, I think, in recent times, where they spiked up, and I think more recently, came down a bit. But I remember you talked about like the teslaization of rare earth stocks. Can you explain it a little bit?

 

James Richards  12:23

I've been doing this, this for 20 years, and I'm kind of used to generous participation in in in metals and mining being been sporadic and selective, and multiples generally being quite low. And you've seen, you know, so you've seen in various, in various spaces, this year, the the multiples suddenly expand dramatically, as as, I guess a wider investable public has come into the stocks. And, yeah, I mean, as rare earths were, were right at the forefront of attention, you know, the multiples did expand, you know, very, very dramatically, which is, you know, which is a lot of which is very pleasurable all around,

 

Wouter Klijn  13:07

yeah, so did you do some profit taking on that?

 

James Richards  13:09

I think Fidelity would really like me not to answer that.

 

Wouter Klijn  13:16

Fair enough. So rare earths are intricately linked to China. And I think we've seen in a number of transition materials, where, where China comes up. I saw somewhere a statistic that I already control 70% of global mineral refinery capacity. That makes you think, are there geopolitical elements that you have to be aware of when you invest in this space, because obviously there are some tensions between China and some of the Western developed countries. If they have a sort of a stronger strangle hold over some of these materials that can potentially impact valuations, there might be strategic considerations that come into play. Is that something that you keep in mind when you look at this?

 

James Richards  14:02

I mean, absolutely. I mean, you know, rare earth, as you said, is a really good example. I mean, it's not 70% processing in rare earths. It's more like 90. And, you know, magnet making is also dominated by the by the Chinese. And, you know, I think, I think, given, the events of this year, people are very, very sensitive. You know, people have, certainly, over the last two or three years, have become a lot more sensitive as to where their supply chains are. You know, we've seen, we've seen several geopolitical events over that period increase that consciousness and and so if you, if you want trade routes to and supply chains to shift, you're going to have to incentivize that. And there are some areas, you know, and we talked about about rare earths, where the process of that incentive incentivization has begun, and you've seen stocks, individual stocks, benefit quite significantly from that. And there are some where it hasn't so. And you know, China dominates with the world's processing of a number of metals. But, you know, you look at copper smelting, and and, and some other, some other processing industries, and you know, there aren't, at the moment, huge incentives being offered. And, you know, and the there is limited incentive to build new capacity in the West, and in the longer term, we're going to have to think about whether that's right or not, and how we change that.

 

Wouter Klijn  15:32

Yeah, yeah. Now another potentially geopolitical, and definitely a political topic is the Trump presidency. Of course, we have seen the impact on, you know, the energy transition in the US, where less attention for for renewable energy. But how do you look at that in terms of investing in the transition materials? Does that impact your strategy a lot?

 

James Richards  15:57

It's great. Stat in the in the bhp commodity review at mid year, you know, it said that. It said that China had installed, I think, as much wind and solar in the first six months of this year, equivalent to 90% of the wind and solar ever built in the US. And that is, I mean, mind blowing. And you look at quite significant rollout in other Asian countries, Africa is beginning to, is beginning to instal some meaningful amounts of renewable energy as well. And so you definitely have some gives and takes, and even in the US, like I'm not going to comment on policy, on policy, but you've seen some areas where which have been much, much stronger than than expectation, as well as some areas which are probably where our demand expectations have dropped a bit.

 

Wouter Klijn  16:52

And what about the tariff war that we saw earlier this year? I remember you were speaking at one of our events in February, and there was a lot of questions around Trump, but a tariff war hadn't happened yet. And, you know, materials, commodities, it's a global trade. Did that get a bit of a knock from them?

 

James Richards  17:11

Well, we obviously saw a lot of volatility in the in the first in the first half of this year. And you know, the lack of visibility was, I think, difficult for producers and customers were kind of feeling their way to a degree. But I mean, kind of, if you think about what you actually saw, speculation about copper tariffs led to a huge amount of the world's visible and invisible copper inventories heading to the US, tightening the global market and and and so and so, arguably, was copper positive. And you know, there's still a large, a large amount of inventory sitting in the US, which you know, would need shifting if it was to come available to China or the rest of the world. And you know, tariffs can create new profit pools and and as well, as well as reduce, reduce other ones. And so, like, I think, for an active portfolio manager, you need to watch change and when, regimes shift, you need to be mindful, but more often not, they create opportunities as well as risks.

 

Wouter Klijn  18:26

Yeah, yeah, for sure. Now, Trump is not the only one that sort of affects the energy transition. We also seen a lot more demand coming from the rise of artificial intelligence and use of artificial intelligence, especially data centres where, you know, they're quite energy hungry operations. How do you look at that? Is that affecting you? Think the transition could derail it? Could it, you know, delay it? What's your What, what's your take there?

 

James Richards  18:55

I mean, it's, it's something that that we factor into the way we think about commodity demand and, and, you know, is, is it's nice to have in many cases, rather than utterly central to investment cases. And, yeah, as I said, I think earlier, like we see AI and and data centres as, as competing with, with other significant structural drivers for in some cases, you know, quite scarce supply of commodities. So, I mean, it's definitely, it definitely, for me, a positive, but it's one of a number of positives. It's not the it's not a main driver, and it's not massively significant, particularly in copper today, so and so the relevance is still to come.

 

Wouter Klijn  19:41

We have seen that some of the key players, such as Amazon and Google that they're looking now at nuclear energy generation. And I think in some of the white papers you've written, you talk about uranium as potentially experiencing a structural demand Renaissance.

 

James Richards  19:58

And I think that's happening all. Already like, because obviously you had a long period of decline, you know, from which lasted for a prolonged period of time. You know, partly because of nuclear accidents in the past, but people have begun to understand that, particularly as you roll out renewables, you need a base load of low carbon power, and nuclear is an obvious source of that. And so you've seen, and again, like the tech players, are nice to have and definitely additive to the demand story. But what you've also seen is a series of governments change their view around around nuclear, and in some cases, make u turns. And you've seen, again, like China, just drive nuclear power growth, which leads to significant amounts of uranium demand. And then longer term, obviously, and you know it again. It's a It's tomorrow's story, rather than necessarily today's you've got, you've got the innovation of small modular reactors, which I think changed the use case for for nuclear. And are tremendously exciting potential, you know, tremendously exciting potential innovation.

 

Wouter Klijn  21:18

So how do you look at nuclear, or, more specifically, uranium as the material in the context of your strategy, because I could imagine that some people also invest in this type of strategy with an element of ESG in the back of the mind. It's not necessarily an ESG strategy, but there are elements there where you can think the E is obviously very relevant when you invest into the energy transition. But at the same time, uranium also has, you know, dual use. It has some issues with pollution. How do you look at it from that angle? Do you get questions around that?

 

James Richards  21:55

Less so than you think. You know, sustainability is important to us, and you know, I kind of often say that, you know, I've been an ESG analyst for a lot longer than the most because if you think about metals and mining, it's, it's inherently an impactful activity. But a lot of what we know, what we could now call ESG, have been, you know, business issues for for the majority of my career, availability of water, how you get on with the local communities? You know, they're not new issues, just because we now call them ESG. And so, you know, this has always been a part of how we think about about stocks. You know, safety. You know, if you're running, if you're running an operation properly, you should be able to keep your employees safe. And so and so. We apply those same frameworks to to Uranium companies. We don't punish uranium for for its use, for its potential use in weapons, because we do see it as critical to the to the transition.

 

Wouter Klijn  23:00

Yeah. Now, if we delve a little bit into the way you approach investing in this space, this is not a commodity strategy, necessarily. You invest in stocks. You invest in equity. Why do you choose this route and not go to the raw materials?

 

James Richards  23:16

I feel, I feel quite passionate about this because, you know, I really feel that commodity based strategies are the wrong way to do this. And there are various reasons for this, you know, one is, I think liquidity can can force you to make compromises and into going to areas that you don't necessarily want to go into. Because, you know, in several of the interesting areas that we're talking about. There isn't really a liquid, a liquid instrument to play. Rare earths is a good example, very difficult to play as a commodity. And then, you know, as a I would say this is an equity person. But you know, the way that we choose stocks is focusing on, ideally, the low cost, high quality assets, ideally with growth, with solid capital allocation. And we're looking for, ideally for assets that generate free cash flow through the cycle. And so, for instance, you can, you can own a commodity, but if you own a low cost producer of that, of that commodity on a flat commodity price, you can own quite a decent carrying yield. And obviously, if the commodity then does what you expect it to and goes up, then you have leverage to that. And if you're growing as well, then, then, then, then you get further leverage. And so as long as I think you are picking the right kind of stocks, you know, I will always believe that equities is a superior way to do this than commodities.

 

Wouter Klijn  24:57

And how do you sort of limit or define. Your Universe, because we talked earlier about animal fats. I know there's, I think wood pulp as well, is in material in your portfolio. How do you sort of limit it to the relevance to the energy transition?

 

James Richards  25:15

We've intentionally looked widely because, you know, I think, I think you can think about this matter too narrowly, and the the impact it's going to have on our on our lives, you know, getting to where we need to get to is not narrow and so and so we are constantly looking for new areas, and particularly less well understood areas. You know, chemicals is a really good example in that you have there a space where you ask management teams about the relevance of transition to their portfolios and and I haven't yet got that many really good replies. And so chemicals is an example of so we're looking to expand the universe rather than contract it, because we think that the opportunity set is even wider than we've envisaged. And as you say, we've construed this, the opportunity set is more widely than most.

 

Wouter Klijn  26:09

Yeah, what sort of chemicals are involved in energy transition?

 

James Richards  26:13

Well, this is, I mean, this is, this is the point is that I don't think that that people have a good grip on, you know, polysilicon is an obvious one where, where where there is demand benefits and solar, but in the same way as as copper goes into all these applications, it can't be true that, that there aren't a wide range of chemicals that are driving this in a way that I don't think is is sufficiently understood. Yeah, so look, silicone is also, you know, going, going to into a you also see demand benefits in silicones. So it's, it's, they are there, but just, it needs some finding.

 

Wouter Klijn  26:52

Yeah, is there any application in, say, coolants, or is that just water?

 

James Richards  26:59

You know, it's very the thing I really like about talking about this area is everybody I talk to gives me ideas, and you've given me something to go and work on.

 

Wouter Klijn  27:11

Fair enough. So when you look at this area, there's obviously a lot of commodities involved. There's a lot of metals involved. We're sitting here in Australia talking about this topic. And obviously Australia is a very mining heavy commodity heavy economy. To what degree does this strategy correlate with, say, an Australian Equities portfolio,

 

James Richards  27:30

As far as commodity share demand drivers, and particularly in terms of China, there should be some correlation, particularly with the mining slice, you know, I think over time, you know, copper and commodities that are geared to this thematic, in my view, should, should outperform some of the commodities which are more geared, I think, to the previous Super Cycle rather than the next one. That's my view.

 

Wouter Klijn  28:01

Yeah. So we have a lot of iron ore here, which obviously is not escorted, but also lithium.

 

James Richards  28:08

So lithium, lithium obviously sees tremendous demand. You and this, you know, I've talked about supply being as important as demand and inside and understanding the supply side being been utterly critical to this. And you know, lithium is a commodity where the China is supporting on an immense amount of supply. And so economics in that industry have been pretty challenged long term. Assuming that lithium continues to grow at Advanced caga, then you know, we have to keep on bringing on new supply, and so that has to be incentivized somehow. And so, you know, I see the future for lithium has been brighter than it is today, but not necessarily anytime soon, although, you know, things can change so fast. And you know, we've seen a couple of months ago, suddenly everybody was talking about anti involution in China and the need to make industries profitable. And so think things can change pretty fundamentally, very, very quickly, and that's why I think you need an active portfolio manager keeping an eye on on this and reacting as things change, rather than more passive strategies.

 

Wouter Klijn  29:23

Yeah, do you also keep an eye on, sort of, like, new materials coming out?

 

James Richards  29:29

I mean, keep an eye on everything. I'll be honest, like it's like, that's why it's insanely exciting and interesting space, because you see these innovations, and the majority of things that you see can't go nowhere. Some of them are uninvestable, but things can, things can change. And you particularly need to keep, at the moment, an eye on what's happening in China, because so much innovation is happening there. And so I. You know, this is a space that's characterised by innovation and change, and so reacting to that and sensing the opportunities as they come and the threats as they come as well is part of the day job.

 

Wouter Klijn  30:11

Yeah, because there is a lot of innovation in this space. Like, I think a couple of months ago, there was a lot of chatter about superconductors, and they were getting closer to that, that will be a game changer. I've seen to this space

 

James Richards  30:23

Well, and people only, people talk about game changers in the nuclear area as well. And so in a number of these cases, you know, the world may well get there, but it's whether it's five years, 10 years, 15 years, you know, it's, you can see the world the way the world's heading. It's just, it's when, when we're going to get to that destination is often, is often unclear, and something, and some things, will get there faster and but in many cases, things get pushed out. Yeah, I saw a really interesting stat the other day with great minds predicting innovations, and the innovations they predicted were almost always correct. They just, they just, would, they just their prediction was just too early.

 

Wouter Klijn  31:09

Yeah, that's, that's the question, when to, you know, jump into a particular material as well. Because so,

 

James Richards  31:15

I mean, that is really, really important, because you can get, you can lose enormous amounts of money in investing in a great demand story that that is just uninvestable near tan, because that, and that's why, you know, I said again and again and again, you need to think about demand, but you need to think about supply almost as much As demand, because I don't want to lose money for two years and be right in tan, you know, I think it's really important to invest in the long term but with a short term focus,

 

Wouter Klijn  31:53

Yeah, because we looked a little bit into where we're at with nuclear fusion. And one of the approaches that has been tried here in Australia uses boron, but I presume it's a little bit too early to jump into boron in a moment?

 

James Richards  32:08

Boron is something I look at every now and again, and I haven't found and I can see work be exciting, but I haven't. I haven't, I haven't got the stage where I'm excited enough, yeah, yeah. But, and, and if I think about the first time I find it exciting, I'm very glad I didn't invest at that point, because it would not have been exciting.

 

Wouter Klijn  32:32

Fair enough. Fair enough. So I asked you about the correlation with Australian equities, because obviously this can function as a bit of a diversification strategy. When you look at investment styles, where do you think this has overlap? Because you could imagine that some of these commodity plays could potentially be value stocks, a bit of the cyclical companies there. Does that turn out to be true? Is this sort of a value play?

 

James Richards  33:02

I think, I think if you look at, if you look at the way that we invest, it's very much valuation focused, but with a strong quality overlay in that we want to be in good assets. We don't love leverage on the balance sheet and and so and so. I mean, I think if you look top down portfolio, it screens well for value. And as you say, multiples are different across different commodities. But So yeah, from a top down basis, we screen as value, but if you look under the under the under the lid, it's a little bit more complicated.

 

Wouter Klijn  33:46

Yeah, so this strategy plays into the energy transition. And of course, the purpose of the energy transition is to basically decarbonize the economy, the global economy. But how does this sit next to, sort of a decarbonization goal or an emissions reductions goal? Because, you know, the production of some of these materials are potentially quite intensive in that perspective. How do you think about that?

 

James Richards  34:16

I mean, this is the, this is the consistent RNA is that, you know, it's, it's a lot of, on the face of it, the carbon footprint of the portfolio is, is higher than you'd like it to be, because, you know, these, these activities, have a physical footprint. There's, there's heavy processing, and there's trucks and and there is, there's a significant amount of mission emissions involved, but, and you know, those emissions are more for some commodities, and then they offer for others. But these commodities, we think are necessary to unlock the transition. And so, you know, the view we take is that, you know. We are willing to take that footprint in the short term, but in the longer term, we're looking for producers to reduce their emissions and to get and have a realistic pathway to a better point in the future.

 

Wouter Klijn  35:14

Yeah, it's sort of along the same lines as you know, if you have a portfolio of windmills, it's not necessarily low carbon, but obviously it's going to help with the energy transition,

 

James Richards  35:25

Yeah, and, but I think direction of travel is also really important in that, you know, there are, in most cases, there are ways to decrease that footprint quite, quite materially. And so you want to see companies working along that path, and and and kind of helping and sponsoring innovation to help with the remaining emissions where it's more difficult to shift, yeah, and that's why, and, you know, so we think about scopes one and two, but we think about scope three as well, because, you Know, supply chain emissions are important, and the extent to which the company, a company, can influence its supply chain emissions, you know, is something that that we think about a lot.

 

Wouter Klijn  36:10

Your strategy does sometimes get compared to other climate solutions out there in the market. And I think you're quite passionate about the fact that you have a different way to approach what you see as the enablers of the transition. Can you tell me a little bit about that?

 

James Richards  36:26

Yeah, I mean, I think there are many valid ways to approach this, but I think you need, you need to know what, you need to know what you're doing. And I think it's quite difficult to have the same level of expertise in the commodity space and in the technology space, you know, I think the very different multiples, the risks and the challenges are different across both and so I think a more focused strategy in both areas kind of makes sense. And, you know, the thing that I love about the way that we're doing here is that, if you have the transition developing faster in China and the east, you versus the west from the technology side, I think the winners and losers are different because, you know, Chinese decarbonization is not necessarily going to use Western providers. In fact, it's most unlikely to and vice versa. Whereas, if you're going to consume a unit of commodity, it doesn't really matter where that unit's been. In many cases, it doesn't matter where that unit has been is being consumed.

 

Wouter Klijn  37:40

Yeah, I think you said in a previous conversation, I don't I don't care where the copper is sold, as long as it's sold.

 

Speaker 2  37:48

That's probably more brutal than I was intending to be. But in the spirit there, I can understand why I said that.

 

Wouter Klijn  38:00

Fair enough. We might finish up with a bit of a left field question. We were close here to Martin Place, and there's like 400 people aligned outside of the gold place. Now there's some limited applications of gold in industrial use, but is this a transition material, or is this not in the portfolio?

 

James Richards  38:18

I mean, there's, there's been many times this year where I wish that that we thought that gold was a transition material, but I've been, I think the the relevance is minimal silver. You know, obviously has some, some some applications in, in in photovoltaics in particular. And you do get, I mean, so there's a fair amount of gold in the portfolio, because, because gold and others, is often produced by silver, by companies who also produce silver and and also companies who also produce copper and so and so there is, there is gold exposure in the portfolio. But do we target pure play gold companies? No, because we don't think that kind of that thematic appear.

 

Wouter Klijn  39:03

Fair enough. Fair enough. Well, James, thank you very much for this conversation, and thanks for coming to our offices. Well, thank you very much for having me. This podcast was sponsored by fidelity international as such, the sponsor may make suggestions for topics, but final control remains with the investment Innovation Institute.

 

Wouter Klijn  39:38

Thank you for listening to the i three podcast. For more information, please visit our website at www.i3-invest.com. That's the letter i The number three, Dash invest.com and don't forget to like subscribe and review. Thank you very much. 

Ben Darwin is the Co-founder and General Manager of Corporate at Gain Line Analytics and in this episode we're going to take a look at what makes teams successful and stay successful.

Ben is a former Wallaby player, having played 28 test matches for Australia. He's a former coach and a performance analyst, having worked with a number of rugby teams, including a Japanese team, the NTT Shining Arcs and Suntory Sungoliath, he started Gain Line in 2013 out of a desire to introduce a greater degree of empirical analysis into professional sports. 

But his research goes broader than just sports, it also goes into the dynamics of professional teams across industries and the cultures they foster. In this podcast, we're looking at how this has implications for investment teams and also for super fund organisations.

 

Overview of Podcast with Ben Darwin, Gain Line Analytics

 

03:00 I was always interested in Australian sports punching above its weight

05:00 I realised that my efforts as a coach did not necessarily have any influence on the outcomes

08:30 We would find that teams that didn't buy new talent and held on to the players they didn't want did better

11:50 Attribution bias, we overly attribute performance to the individual

13:00 With cohesion, I'm trying to measure the attributes that drive people's understanding of each other

14:00 We all misattribute what change does

18:30 When people try to make things better, they usually make things less cohesive

20:30 The dangers of growing organisations (super funds) too quickly

23:30 Growth is really hard

27:00 Cohesion is not the same as culture

37:30 Is it possible to build cohesion in a team with a high level of turnover?

44:00 The tumble down effect: one change causes more changes, which causes even more changes

48:30 Cohesion can drop 50% in a week, but it can't grow 50% in a week. It grows maybe five per cent a year

52:00 My experience is that economies of scale are vastly overrated

1:05:00 Often we are dealing with a competent person who works in a structure that makes them look like they are incompetent

1:06:00 Building interpersonal trust is great, developing clarity is better

 

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Full Transcription of Episode 115

Wouter Klijn  00:00

Hello and welcome to the [i3] podcast, conversations with institutional investors. My name is Wouter Klijn, and I'm the director of content for the investment Innovation Institute. For more information about our educational forums for institutional investors, please visit our website at www.i3-invest.com There, you can also subscribe to our complimentary newsletter, [i3] Insights, in which we discuss investment strategy and asset allocation questions with asset owners from around the world. Now, as you all know, we love our disclaimers in this industry, so here's ours. This recording is for educational purposes only. It does not constitute financial advice and is intended for institutional and wholesale investors only. Please enjoy the show. Welcome to the [i3] podcast, conversations with institutional investors. I'm here today with Ben Darwin, who is the co founder and general manager of corporate at Gain Line Analytics. And today's topic is a little bit different from our normal investment focus podcast, because we're going to take a look at what makes teams successful and stay successful. So Ben is a former Wallaby having played 28 Test matches for Australia. He's a former coach and a performance analyst, having worked with a number of rugby teams, including a Japanese team, the NTT shining arcs and Centauri Sun Goliath, he started gain line in 2013 out of a desire to introduce a greater degree of empirical analysis into professional sports. But as research goes broader than just sports, it also goes into the dynamics of professional teams across industries and the cultures they foster. So in this podcast, we're going to have a look at how this has implications for investment teams and also for super fund organisations. So Ben, welcome to the show.

 

Ben Darwin  02:21

Thank you so much.

 

Wouter Klijn  02:22

So tell me a little bit about the origin story behind gameline. I just mentioned why you started it, but can you tell us a little bit about the history of it?

 

Ben Darwin  02:31

I suppose I have to begin in a way, and I apologise to go back, but with my own history in that not being Australian and coming from the UK, I always sort of had a bit of a always felt like a bit of an outsider in my view of the world and becoming sort of, then part of Australian Rugby. I was always confused by this idea of, like, people say to me, you know, I go to the UK. Oh, geez. They breed them big in Australia. Actually, I was born in crew in the Midlands, like, I'm not even from Australia. And they would say, you know, you Australians, you're so good at sport and things, and I'd be like, I don't, I don't quite understand why. And so I was always interested by this idea about Australian sport punching above its weight, and why rugby particularly punched above its weight, and also why countries like England or France for that matter, or just generally, larger countries would would have all the resources in the world and not necessarily be as successful. And I remember a particular phrase by Peter Fitzsimons talking about England coming out to play, and thinking, is this the best they can put together? Because with, you know, they've they have a million rugby players. For example, in England, Ruffin, I think we have 60,000 so it's like, how's it, how's this taking place? So as a player coming into that environment, I was a little bit confused by it. And then you become, you know, one of the problems with sport is we all see things. So magically, we all see and we, you know, we see individuals as heroes, and not sort of think of them as everyday people. So you then sort of become part of that environment, and you meet the coaches, and you meet people as part of the system, and think, well, like, how is this successful? It doesn't, doesn't make sense. And not that people aren't talented, but the people you're up against being just as talented, if not more, talented, and not understanding why. So then I became a then I became a coach, because I had a spinal injury 2003 so I got very young into coaching, and the first club I was ever a part of, I don't think I won a game as a coach, so I'm like, Okay, I'm a terrible coach. And then I went to another club, which was the Western Force, which was a startup team, and we didn't win anything. And then I went to Japan and didn't lose for two years. Then I come back and coach somewhere else and win there. And then I coached again in Japan and didn't lose. And thinking, okay, maybe it's just me in Japan, but then I'd have other teams in Australia to do well or poorly. So I began to understand that that my influence on a team was sometimes good, sometimes bad, but that didn't necessarily lead to outcomes, and I've got so probably my worst coaching I ever did was in a team that did not lose the whole year. So my son. I was trying to derail them, and almost did derail them, to be honest, but they won despite me. And once you bounce around enough organisations, you start to kind of see some causality around performance. And sometimes teams win with good coaches. Sometimes they win despite good coaches. Sometimes they lose with good coaches. You talk to enough people with enough experience, they'll tend to tell you the same thing. So the last team I was part of, from a coaching perspective, I also became a data analyst, and that was the Melbourne rebels, and that one of the questions they asked me was after two years, because we spent a lot more than the market. We basically spent double what the market had in terms of talent, but we didn't win a lot of games. And so the question came up for me as an analyst, how long is it gonna take for us to win? So that question led me down this path, and I did one more stint, sorry, approaching at Suntory, like I said, and I came back to Australia and basically started the business because I didn't want to work in sport anymore, because I could not control the outcomes at all. Yeah, the team that last job I had as a coach, I was literally fired after we went undefeated. So I'm like, okay, bugger this. I could this is not working. So gameline is basically a consultancy company because then, because you see a lot of people in sport, when they lose their jobs, or in business, they become a consultant to kind of fill the time. This is basically that option. It's just gotten out of hand, but it's a stock gap that's gotten out of hand now for 13 years.

 

Wouter Klijn  06:28

Yeah, it's got out of hand in a good way.

 

Ben Darwin  06:30

Yeah, in a good way. So that's kind of how I arrived that point. But the original idea for the business was actually not cohesion analytics, as we call it. It was actually something entirely different, which was a model whereby clubs would come to us, and we would tell them who was, who was off contract. And the way I arrange the data is I always arrange the data visually so I could just easily find a player, and I arranged them by team, but I would couple all the all the players in that team together, and then I would notice contractual changes year to year between teams. And there was one particular team that that basically came to us and said, We want to gut the whole team. Can you help us find new players? And we tried to help them do that. And then they came back and said, We're really sorry. The owners got financial problems. We have to keep the players we don't want. So we knew what they wanted and didn't want, and it wasn't what they had they didn't want. And the next year, they went from, I believe, second last in the year they came to us, and the next year, they made the finals for the first time. And I don't think they've had the final since. So this one year where they stabilised because of an external force, which was the financials, made them keep the place they didn't want, they dramatically improved. And I'm like, okay, that does not make sense. And then there was another example. At the same time in 2013 of a team called the highlanders in Super Rugby, who had a recent period of under performance. And they were gifted through New Zealand Rugby, a large amount of players have been highly successful at the 2011 World Cup and and the the market responded by saying, Okay, look how much talent they have. So they went, I believe, from 40 to one, so with 2% chance of winning the competition, to six to one, which put the favourites second favourites. And they won three games, including losing to the rebels, which generally gets you five as a coach, right. But, yeah, but that that team two years later, without most of those guys, then won the cop. So I was really confused now because, and it was almost running against my own self interest, because we were trying to help players go into the marketplace. And what it was saying was, don't buy talent. Yeah, hold on to the talent you don't want. And so the more that people that imported, the less they could do. So sorry, the more, yeah, more people imported, the worse they got. And the less they imported, the better they got. So I started to run analysis on this, and just built some very simple algorithms, one called Twi, which the acronym I'll regret forever, particularly in financial services that we've that's what we've got and and we just started to find some commonality. And then we found weaknesses in that system. And then there was a it's been a continuous iteration ever since, on this kind of formula for success or failure. And then team started talking to us, but the core of that research was not out of sport. It was it was out of Grossberg work on portability talent. It was around military data on shared experience. It was around hospital research on contractual stability. It was on other military research around structure and size of teams, and we just then applied it to sport, and then it came back again, where we've taken it back to corporate again. But this the we just found it to be particularly long term, really strongly predictable on performance, but also we felt was getting to the heart of causality, because a lot of data in financial services and in sports. Sports industry is fundamentally measuring outcomes, measuring performance, but what we're trying to get to the heart of is what's causing that performance. Yeah, so we're not really interested. In, in the scenario of like a company is selling this much more, what, which is, why are they selling this much more? Or why are they having performance? So we're trying to remove ourselves from form. And the turn of phrase I'll use to that is, the closer we've what we're finding is the closer you would get to correlation, the further you would move from causation. Yeah, two things were so tired, I'll give a very simple example. This in sport, in rugby, the team that makes the most line breaks or gets the most run metres will generally win the game. Okay, well, that's pretty close to try scored, because you can't really make one score tries without making line breaks. So why don't we just say the team with the highest score wins the game? Okay, but that's really not getting to the heart of causation at all. Let's go right further back. Why are they catching the ball? Why are they able to pass the ball? Let's keep, keep coming back to the core about why the skills of the players develop so well. And so what we're we're really trying to is to move entirely away from form, because form has no hard end causation.

 

Wouter Klijn  10:59

 Yeah, yeah, you touch upon something there that I thought was interesting as well. You, you did a presentation for us at our strategy forum in May, and you were talking about this concept of spending a lot of money on talent is actually not necessarily helping the team perform better. And I sort of made a comparison there with investment teams, where you often have a star investor or a star fund manager, but if you take them out and put them in a different team, in a different company, they don't always perform as well or are as successful either. And you talked a lot about cohesion within a team. Can you tell us a little bit about what do you mean by cohesion, and how do you develop it?

 

Ben Darwin  11:41

So that turn of phrase, and all of these pretty much terms have been used, you know, brought up by other people, but the turn of phrase attribution bias, I really like, which is we overly attribute performance to the individual, either successful or unsuccessful, to the individual, rather than the collective of the situation that person's performing in. So what we're trying to do is to understand what are the drivers of that individual performance. And so we know that a player is is much more likely to perform well when, for example, in rugby, you have a 910 combination, a passer and a catcher, if that passer has been passing to that person 9000 times before they're going to know where to put the ball. Okay, in financial services, for example, you might have a researcher. Relationship between a researcher and a fund manager, and that researcher knows how to deliver the information effectively. And you can use all of the terms and phrases that we like you know, and can get to a shorthand, or can look for the keys that this person's really interested in? Well, that's just a relationship that can work much faster and cover off more detail. And we also like how the things are handed to us. So whatever form this takes, whether it be sport or corporate, I don't really see too much of a difference. So what I'm trying to do in cohesion is I'm trying to measure the attributes which directly drive understanding between people. And there's different forms of understanding. So that understanding could either be interpersonal understanding, it could be system understanding, it could be role understanding, and then things like size of the team, which we can touch on later on, then structure, which is extremely important how different parts interact. In fact, there's a group I did some some work with in Sydney. Was a was a asset management company, and they had different divisions in the business, and realised the different divisions were not talking to each other, and another one would make a change, and the other one would say, Why didn't you tell us this was going to take place? This is going to take place, this is going to completely stuff our systems up. And they were like, we didn't even think of talking to you. And I mean, I've done work with an almond manufacturing company that had the same problem, right? It doesn't systems are systems are systems. And of course, there's different nuances to each scenario, but, but under we all miss attribute what change does in its many forms, and so cohesion is fundamentally trying to measure change as well as the level of understanding between the component parts of the team. So if I look at a if I look at a team, and we've done work with Platinum, for example, the Platinum team has a level of measurable understanding that we can map at any one point, and it's shifting all the time, up, down and and when a team doesn't change, it's shifting. So if you and I do something, if we do this podcast, there'll be misunderstandings. We do it again, and you'll go, Ben yesterday, I heard about this, but I want to talk more about this. Or you might say, I I know when Ben's talking too long, or, you know, I know with my wife, for example, you know when the when the left eyebrow goes up, that's a dishwasher related issue, right? We have this shorthand that we all misunderstand, right? If I could give you a really easy example of this, and I. Didn't present this at the thing, but I was, I was in the supermarket one day, and I normally shop at Woolworths in Blackburn, and I was up at Doncaster, which is a little bit further from our house, with our daughter, and my wife said, Can you do the weekly grocery shop? Okay, now, sometimes I sit my car on my phone after I've done a grocery shop, and my wife sells me say, Why are you taking so long? And on this particular occasion, I couldn't find anything in the Woolworths in Doncaster, right? And my wife messaged me, why you taking so long? It's like because bread's not where bread is. It's in my mind's eye. I had a picture because I know I actually do this sometimes at conferences. I say, right? Tell me who does the shop right, and which, which one do you go to? And they say, Woolworths here. I say, Where's the bread? They'll go, oh, seven. Where's the chocolate? All four, right? You have in your your head of mine's eye. So not every Woolworths is mapped out the same. And so there is a map in your head of what that looks like. Or, you know, you get in the car and the indicator goes off because the windscreen wipers on the other side now, right? Yeah. And so we we use the human brain, uses shortcuts all the time to help us, and it's discombobulating when it becomes ambiguous as to where things are, and all of a sudden we keep going to the wrong places, yeah. That's cohesion. That's a form of cohesion. I have a level of cohesion with that supermarket. Now, if I keep going to Doncaster, I'll build up a different cohesion. The problem is the learning and the unlearning, right? That's also a form of cohesion, and because if you've done something a lot before, now it becomes the problem, right? If I have a if I have a CRM that I'm using in my financial services business, and I changed to a new one, because it's better. The problem now becomes the old system, and my knowledge of the old system, the longer I've used the old system, the harder it is me. Whereas there's some kid who's just come straight out of uni, he's never used a CRM before, he doesn't have to unload, yeah, and all of this have this all the time, and it's moving all the time. We're learning, we're unlearning all the time. And so what I'm trying to do is just put all of that into a number, and that's how we're doing it. And it's really objective. It's not, it's not like I said, whether we like each other, it's not. And I'm not saying that doesn't contribute, but what I'm trying to find is, what can I measure and what can I see, and what does that do?

 

Wouter Klijn  17:19

So can you tell us a little bit about the different ingredients of that measurement? Because, of course, cohesion can be between team members, but it can also be related to the environment in which they operate and even the organisation in which they operate. They all tie together in a way. How do you measure it?

 

Ben Darwin  17:41

So I can't, obviously, go into the human brain, and I can't do questionnaires, because we're looking at 1000s on 1000s of teams every day. And we also don't The question is, don't always naturally give you the question. I mean, Enron was regarded as the best place to work in America, literally, as they were being indicted, right? So yeah, it's right to the phrase, so that's just not going to necessarily give us the answer. What I can measure is how long people have done something. I can measure how long people have done something together. I can measure how long they've been in those roles, and I can measure what they've done before. Okay? And each of these components will have a different impact on the performance. I can measure the size of the team. I can measure how long they got at work, right? Like, like, COVID produced some really interesting data for us, because things started to take longer, or it trapped people working together, yeah, and their performance improved, you know, because of that, okay, they were forced into groups they weren't normally part of. They were isolated. There's a really interesting test bed for us, because one thing that we actually find is when people try to make things better, they generally make things less cohesive. Cohesion is usually driven by disaster, bankruptcy, firings, inadvertent changes that improve, that improve systems inherently, but weren't meant to do so, you know, I was, I was looking this morning at sporting leagues in Australia, and one of the competitions that's improved dramatically in Australia is the NBL, and it did so because they It fundamentally. They tried to grow it too fast, too many teams came and went, and it went into chaos, and so they shrank it and stabilised it and made it better. The same things just happened with Super Rugby. They're talking about this being one of the greatest seasons ever, because it shrank and stabilised. Yep, you sack half your staff, they will, inadvertently, the numbers will go up for cohesion, you know, you shrink it, stabilise it, or right size it, as it's often the turn of phrase. But growth, as we talk about a lot, is the enemy of understanding. Trying to grow because you have to hire, trying to grow because you have more people, fundamentally works against the nature of cohesion.

 

Wouter Klijn  19:55

So that's quite an interesting point, because we're at that stage. Much in the Australian super innovation industry, where there's a handful of funds that are growing quite quickly. And partly it's because of the demand that it inflows from Super innovation itself. And partly it's because they're starting to do some of the investment functions themselves in house. So they need to have the expertise in house. So there's, there's a couple of organisations that, literally, in a couple of years, went from maybe 2030 people to hundreds of people, in some cases getting up to 1000 people. What are some of the dangers of that rapid growth then?

 

Ben Darwin  20:34

Well, I think, I think the military has got a lot to teach us about growth. And you know, what the military's always done is they've broken themselves up into groups. And you know, if we, if we go back to the the notion II had a really interesting conversation with some of the guys at platinum, and talking about the early days of platinum, and one of the points they made to us was, when there was six of us in a room, I could just turn the chair and get the answer, and they know we they would know what even the question was before I answered it. And you can't replicate that in a large organisation, right? And so they talked about the growth they had, and then it became too hard to get a room big enough to have the meetings of everybody, and no one get the herd right. And then it got harder to bring people into the organisation. So the things that you can do in the early days of your success are no longer achievable on a when you become a corporation, when you become a large organisation. So you have to then change the steps of which you go about. You have to have, you know, all hands meetings are pretty ineffective. So you have to understand who needs to be in the room. What is the information want to disseminate? We're going to have to give everybody this information first, whatever it might be. And we've been working in Formula One, and one of the teams that had been highly stable for a number of years, we said to them, Do you have an org chart? And they said, No, we don't. Don't have one. It's like, why? It's because we never needed one, because everyone knew where they were supposed to be. Now we've taken on a whole bunch of people. Everyone's asking for an org chart, and we're like, okay, maybe we do need one right now. So So growth will have to drive a change of the processes. I think one of the mistakes that early startup businesses make is they try to introduce the processes the large organisations have when they don't actually need them. You know, we had an investor coming to us and say, you need to do this, this and this, this and this. And it's like, you know, have all your notes taken for meetings. And you know, you know, you and your business partner, Simon, need to process everything so you can communicate properly. I'm like, but he hears my conversations because he's at the desk next to me.

 

Wouter Klijn  22:35

Yeah,

 

Ben Darwin  22:35

and and we talk every day because he drives me to work. We don't need some of these processes that we think we need. So I think, I think right sizing process is a really important point. If you then break your company up into different divisions, the danger then becomes the different divisions will divert in their behaviour from one another, right? So then you build a set of offices all around Australia, and I don't if you remember the McDonald's movie they made about the founder, no, they they the early days of McDonald's. They would build different ones around the country, and they'd come across and, like some of them, were serving fried chicken, completely deviating from the processes that made the organisation successful the first place. So having having the processes that allowed you to maintain cohesion. Because if you just become an amorphous mass, you have chaos, right? But if you, if you don't, if you break yourself up, it comes with its own challenges of deviation behaviour. So there's, there's all these things, and, like, I say, growth is really, really hard.

 

Wouter Klijn  23:36

Yeah, is there sort of a optimum size? Because, you know that there is this concept that's often used within sort of corporate culture focused strategies, and it's a concept borrowed from anthropology, where they say, you know, once an organisation grows beyond the 150 people, it's no longer possible to know everyone within the company. And sort of the idea that maybe, in the olden days, tribes were consisted of no more than 150 people, and after that, they would split off. Is there sort of a, you know, sweet spot there?

 

Ben Darwin  24:10

It entirely depends on what you're trying to do, and the and the complexity or the simplification of the task that is required. You know, military always tend to say, once you go beyond six, it gets really hard, but, but I'd just say mathematically, it just as it grows out, it gets harder and you get less time. Okay, so do you sport a doubles tennis team? Can probably learn to play together very, very quickly. But a a basketball team takes longer, a a symphony takes longer. A an AFL team takes longer. But if you take a symphony, for example, there's different parts of that symphony. There's the violin section, and they can take cues off one another. So it's it's always context, and it also we need to understand what is the context of performance. Okay? So to win the a league, you don't actually need a lot of stability. You saw the success that Auckland FC have had in their first year with some limited, what we call externally shared experience, prior shared experience with New Zealand. But the a league is not a very cohesive league to win the Champions League. You know, we were looking at the most cohesive team that's ever existed in the in the Champions League. And I think it was Real Madrid in 2018 and the numbers were extraordinary, because they're up against other teams with money and cohesion, you know, such as the formerly Manchester United used to be, or IX, for example. You know, they're really well built clubs, and so it it all depends on what your notion of good looks like. And to give an example, there's a there's a group of jet fighter pilots in the US, and they have called the Blue Eagles. I'm going to I'm going to get that wrong. Maybe we can correct me and I apologise, but I watched a documentary on them, and they rotate new teams every sort of two years. Yeah, they have a a level of closeness. They can get to each other in formation that at the start of the year they won't even attempt. So they're trying to get inside five metres, and they're trying to get inside one metre from each other. And they slowly progress through the year that by the end, if they can get to less than one metre from each other, then they're in a fantastic place. But they don't attempt that at the end. So that's what their good looks like. If your good is inside 10 metres, you probably do in a couple of weeks. Yeah. So and also depends on what are we up against? So the AFL is the highest stability league in the world, and part of that is that their teams are so stable that even to get competitive in that league takes five years, right? Where's the a league? Six months, you know, three months you can make you into competitive. So none of this is is a or b or black and white. It's like there's levels of this and and the other part is, too. Is what are you doing ... how much complexity does this job require? How complex is this task? Need that we have how we have to work together in order to get to a level of success?

 

Wouter Klijn  27:10

 Yeah, you also make the difference between cohesion and culture. Culture is something that think is increasingly more on the agenda, because if you have a good culture, then a lot of benefits stem from that. And it's increasingly seen as not just like a soft skill, but it's, it's, you know, an important way of creating a sustainable business. But it's not the same as cohesion. Can you explain it a bit?

 

Ben Darwin  27:39

Well, I think the one of the one of the challenges that we see, particularly in sport, is it's very difficult for people sometimes to understand success or failure. And so they'll say, why is this team so great? Because, you know, they've had a lot of success, and they go, Okay, well, they got a great coach. And then that coach will leave. So for example, if we use football Liverpool, right? They had a great coaching clock. He left, the new coach comes in, and there's like, well, it's gonna take a long time to come. And they won the league in the first year, right? And so it's like, okay, well, maybe it wasn't him, maybe it was something else. So then what they go is, okay, well, the club's got a great culture. Now, one of the things I might find is when teams are winning, people do point to them having a great culture. But my experience, and particularly when I was at the Brumbies, you know, we would, we were just as much of a set of rat bags, if not worse, than anyone else, right? But people wouldn't believe me. They would say, you know, how are you? You know you must your team's winning, therefore must have a great culture. And I'm like, have you met our players? Right? Have you? Have you been with us on end of Season trips? Like we're just as badly behaved as anyone else. But one thing that happens that I I'm lived in Newcastle quite a lot, and one thing I would find is, if the team was winning, the town would protect them, right, right? They would hide the behaviour of the fires. Oh, boys will be boys. When things are losing, you're on your own. Now, full of bad behaviour comes out. So in terms what I find behaviourally is that if things are winning, the bad behaviour takes longer to get out, but it's still there. Now, the next part is, what is culture? I mean, what do you believe culture to be?

 

Wouter Klijn  29:24

Well, I actually have a background in anthropology, and it's probably the most discussed question in anthropology, and to my knowledge, they never really came up with with one definition of it. But, you know, basically it has to do with a set of relationship, a set of customs and sort of historic knowledge of those type of interactions.

 

Ben Darwin  29:46

So one way of describing it might be, for example, normative behaviours. Well, you cannot achieve normative behaviours with a bunch of people thrown together, right? You get chaos. I. I talk it was like being like a refugee camp, whole bunch of different, you know, influences and a mishmash of different cultures, so to speak, different sets of behaviours. You throw them in together, and then what happens is the environment will then drive the behaviours right, and you keep people together long enough, and that will start to become a normative behaviour. So for example, in small towns, if you and I move to a small town, because we all have to see each other every day, you say hello to each other every day, right? You take care of your neighbour, right? Because we know that's the best thing for us to do in terms of our survival of the town is not to foster a bad reputation in terms of our interpersonal, you know, behaviour amongst one another. So we become more service orientated towards other people the town. Now the driver of our behaviour, then, is actually the size of the town, right? So, so I see cultural funds as an outcome of of the circumstances in which that team exists. So small teams will build understanding faster. Their normative behaviours will be adapted to quicker. And then, for example, if you set in place rewards, you know, like this is why we had a Royal Commission in financial services, right? You you build certain rewards, people start behaving in certain ways, and so and so. But if you and I go from that small town into a city, we cannot say hello to everyone, we cannot look after everyone, it will destroy us, right? So you then you stop saying hello to everyone, and again, that's an outcome. So I see, often times, culture, the normative behaviours, as an outcome of the drivers, right? And and those normative behaviours sometimes are good, and sometimes they're not very, not very good. And an example I give sometimes is, you know, there was a team in the AFL of the West Coast Eagles who who were very well known, I was living in Perth at the time for their off field behaviour. And one of the players recently went to jail and said, as part of his criminal case, I was told by the senior players, if you're not going to to take gear with us or smoke crystal meth with us, then you're not going to be part of this team. So he did it, and he The team played well. They won the grand fall. They made the final 16 of 19 years, and they're in the compost, or six out of 18 years. And they they won three grand finals, and they were very, very successful. Now, a lot of those players then left off the back of that, and the and the cohesion dropped, yeah, away and they they're now stuck in a bit of a hole themselves, and they're not getting great outcomes. So I think one of the challenges is, is if culture is the normative behaviours, sometimes those normative behaviours are driven by the conditions under which they are built, but also part of those conditions is the amount of turnover that you have in that environment. And so I think there can be, you know, with the background that you have. And I don't, you know, I don't have degrees in this, right? I'm just trying to be as objective as I can be. But I think there are times when we mistake behaviours for causality, right? So, and I'll give you an example. They did a study on hugging in the NBA, yeah, and they found that the teams were hugging each other were winning, right? And we know that hugging gives you oxytocin, makes you feel good. And they thought that might be at the heart of success, so they coded it. And they looked at the teams who are hugging before the games and touching each other on the bum and all this sort of stuff and high fiving and saying, Well, maybe this affecting their performance. And there's a link, there's a link between doing it and success, but if you then go and say to a team, you need to hug each other more, right? Which is what then happened, and teams I've been associated with started doing it. It wasn't going very well because the players were not comfortable to do it, yeah. What was actually taking place is the teams have been together for a long period of time, knew each other, and the hugging like if you saw me on the street now, we wouldn't have right? We're not quite there yet. Maybe, maybe we have coffee 10 times. The 10th time we'll have a hug. Okay, yeah, but we would have built understanding over that period of time. That is what I believe was taking place, is that the teams who buy product of being together for a long time knew each other, therefore they were hugging. But that was not a driver of the outcome, and I think that a lot of these ideas around culture I built on that. Now, if I might divert, I mentioned to you earlier, I had a story about culture, yes, so in the world of in the world of Twitter, I caught quite a bit sometimes, and, and there was a turn of phrase that comes up quite a bit. And I've even had this I met with a guy who was part of the Big Four, you know, any said, you know, I believe that that cohesion can have a profound impact on performance. And he said, Well, what about culture? Each strategy for breakfast? Like, yeah, it's a phrase, right? So that phrase has been attributed to Peter Drucker, yes. And so this person on Twitter was saying, culture is strategy for breakfast, therefore you're wrong. Like, okay. So I wanted to look it up. And so I looked up that there is actually a Drucker Institute. And someone had put on Twitter that the Drucker Institute on the front page has cohesion eats strategy for breakfast. I'm like, Okay, well, if they're writing it, then you must have said it. So I then went and found this other podcast where they said we looked in everything Drucker ever said. And he never said it, but he did say, I'm paraphrasing here, culture is extremely difficult to shift, yeah, which I definitely agree with. And so I emailed one of the university professors. Now, I don't have a degree, and I'm always very intimidated by dealing with anyone who has university degrees and professors, and my mum actually has a master's in ancient history and archaeology. But one thing I've always been interested is, like, you know, the whole thing about peer review and about research and, you know, writing bibliographies. Okay, so I emailed this guy and who had, who had written this, this piece for the the Drucker Institute, and I said, Did you and I said, Did you know Drucker never said that? And he said, to be honest with you, I never thought to check. I just Googled it, and in google it says he said it. So I put it on the front of it, and then all of these other university professors came onto this email chain, and then one of them came out and said, No, here's the guy who said it, someone from MIT. Drucker never said this. And there was all these kind of people saying, Okay, well, maybe we're not mistaken. I was, like, stunned, because if there's anyone ever that makes sure they do research as university professors, and even they were falling into the trap that we all do, of course, which is, you just Google it and that makes sense.

 

Wouter Klijn  36:32

Yeah, it's shorthand, yeah, yeah.

 

Ben Darwin  36:34

And so I think that happens a lot. You know, there's so many phrases that people use and say, Okay, well, that phrase is the evidence. Like, maybe it's not even the case. We just say it, right?

 

Wouter Klijn  36:43

Yeah, yeah. It's just a way to quickly come to conclusions. I think, yeah, there's a whole range of quotes attributed to Einstein, to Mark Twain, to Keynes, that all things that they've never said, but they're still good quotes.

 

Ben Darwin  36:58

Yeah, one of my favourites is that no one ever built a no one ever built a statue to a critic. And Roger Ebert, the film critic, actually has a statue of him sitting there, so it's one of my favourite ones.

 

Wouter Klijn  37:08

That's great. That's great. So you mentioned earlier there as well, like turnover. So when we go to this concept of cohesion is driving performance? Is it possible to build cohesion in a team or in an organisation that has a high level of turnover?

 

Ben Darwin  37:28

So again, there's a nuance to this, which is one, what are you up against? You know, the team that has the least turnover, you know, will probably build the most levels of cohesion. I think one of the key components here is, where are you drawing your talent from, and what has that talent done before? Yeah. So there's different components to people and and if I just give the easy example of if I take somebody who's been part of Magellan for a period of time, and then they come across to a platinum they're going to bring things with them. They're going to bring previous experience, they're going to bring bring biases, and they're going to bring fantastic information. But what's important to understand is that it's different, and that doesn't necessarily mean it's going to work at your other organisation. And I apologise I probably said the completely wrong thing in terms of organisations. But the point being that that it's not just turnover, it's also from where you grab your talent, the position, you know, one thing we find is very much in sport, is certain positions require understanding, or less or more understanding the context of the group of what you're going into. So when we did, when we looked at football, so, so Grossberg said that he felt that the research he did on Morgan Stanley, sorry, not felt the research he did on Morgan Stanley, said took someone three and a half years to peak performance. We did the same thing in the EPL. The answer was 2.9 seasons. But it was, it was conditional one, where are you coming from? Where are you going to? What is the state of the team you're entering? The more stable the 10 you enter into, the greater the chance you have of performing. Well, there's a turn of phrase called the Bayern Munich mirage. So if you come what you're coming from, is what I'm talking about here, is they say that in football, once, if you leave Bayern Munich, you'll never be the same again, because they have had, particularly 2010s at a period of high level of sustained stability, which went on to the German national team and and so if you leave that environment, you won't be able to, and that's attribution bias, right? You won't be able to perform to the same standard and then different different parts. So strikers, for example, it's easier for them to change clubs than midfielders, because that's the management position, right? And each industry will be affected in different ways. Generally, in rugby, cohesion manifests itself in defence. I've just been working on the NFL, and it actually works itself in attack, because you have to work together more on attack than you in defence. So each each part will have a different component, the position will have a different component, and then you slowly start to work out what those different parts are.

 

Wouter Klijn  39:58

 Mm. So within corporate teams, what would sort of be, you know, quick and easy wins for people to build cohesion.

 

Ben Darwin  40:08

So the first thing we always begin with is, what am I looking at? What I mean by that is, is that we tend to all attribute performance with that term, attribution bias to the individual and to try to understand as best we can, is this, what is creating this success or failure in this person? And so if, if they have come from another system, what are they struggling to adapt to? So and we're not saying don't bring people into other places. That's fantastic, but if they've been using a different CRM, for example, a different organisation, they're going to struggle with yours, right? So they're going to take three times as long, and they're going to take longer than the kid you just got out of university. But there's some things that this person knows that that kid doesn't know, so the juice might be worth the squeeze in this particular case. So we need to give them more time. So don't compare the young person to the older person. So if you the first thing is the context of the individual's performance, the second part is the context of the team. They might have gone in to an A team, right? So you go into play for the Melbourne storms of the world and people generally perform, well, okay, whereas and different teams inside your organisation will be built differently. And then, if I use the rugby league turn of phrase, you then go to play for a West tigers, you then don't generally perform well, okay, but you need to understand that performance in that context. What is the context of how they're performing? Why are they performing the way they are? And then also understand that turnover is never black and white so and to give an easy example, everyone's got choices all the time, and organisations will say to us, we're so unlucky. We've had so many people decide to travel in the same year or so many people decide to have kids. Okay, now my wife and I have four kids, and you know, there's certain points in time where my wife's like, I'm not enjoying work. Why don't we turn another kid? Right? So, so, you know, you know. So sometimes people might decide not to have another child or not travel because they're enjoying work so much, they don't lose their opportunity at the organisation they're in, or they start to think, you know what, I'm not enjoying myself, so I might go and do something else, or, you know, get picked up. So turnover is turnover, in my mind, right? In sport, yes, you have injuries, whatever it might be, but if people are doing things they haven't done before, sometimes they're more likely to get injured. So I think it's really important to look at at the context of what you're ending up with, and why are we losing people so much, or why are we getting people so much? And I always say, like, just because somebody, you know, if somebody is creating turnover in their behaviour, then you probably need to exit that person. So it's not saying don't ever have people leave. And once we understand what we're looking at, and once we understand the decisions we're making and and to look at turnover in a very opaque level, then the thing is to understand, okay, what changes Am I looking to make, and what is the speed of that change? And one thing that does also happen is that people are always going to be their own biggest fans. You know, with sport, we know at the parents, right? The parents are going to so we talk about, if you import talent above someone else, the people below will leave. We talk about, sign one, lose three. And to give a very easy turn of phrase, let's say, you know, in a business perspective, you sign a very talented 50 year old and you lose 230 year olds, right? That 50 year old comes with you for five years, and he does okay, but the 252 30 year olds have gone off and started another firm, which is now one of your competitors against you. So you lose those two guys, the 50 year old their leaves, and you're like, we don't have those next guys ready to go, because those 230 year olds left. So because we don't have any with that level of talent. HR, go find someone for me tomorrow. That person comes in, and then they introduce a new CRM, that all of a sudden, 10 of your people are now underperforming. And so you he says, I need to sack five of those guys. I need to bring people with the last organisation we're in. And then Away you go, right. There's a whole we talk about the tumble down effect one. Change creates more change creates more change. So there always needs to be a context of, if I'm going to get talent, what is that talent? And even if that person is the nicest person in the planet, and I've been that guy, and you've been that guy, and you know, this is not about people being good or bad, it's just, what is the context here of, what will this do? Yeah, and so that is not necessarily thought about enough. I'd say, Yeah,

 

Wouter Klijn  44:41

I think there was an interesting slide as well that you put up at your presentation where it showed the interconnectedness between different employees. So if you remove one person, it might affect, say, four or five relationships, or maybe a bit more. But if you remove four or five people, then suddenly it starts escalating, because there's. Of you know this, this almost compounding interest type of relationship, where you remove a handful of people, and it can affect up to 5060, different type of relationships, and it's much harder to to deal with and to replace than just with the single individual. Can you explain it a bit more?

 

Ben Darwin  45:17

yeah. So, so, you know, literally, I believe sometimes multinationals can be brought down by these sort of things, right? Can I use a sporting example? Is that? Of course, yeah, okay, so, so Alex Ferguson had this really interesting impact on football when he was coaching people, inadvertently were having a bias towards Scottish coaches. There was nine Scottish coaches in the top two divisions of English football. There's now one. But when he was coaching, everyone believed he was very that was maybe part of the deal, right? They'd hear a Scottish accent. They go, Okay, we want that. So when he left and and he brought it, they brought in Moyes, who was also Scottish, who was having success at Everton. Okay, now this is from the best I can glean, and we have some insights, and some people we work with in football that can help us with a lot of this. So we kind of, we're not just guessing, but one of the things Ferguson did was like, don't change too much. And then Moyes wanted to introduce the things he did at Everton to the group, so he didn't change the team, but he changed the way they played. So now that group is and also understanding that Ferguson had been able to weather the storm of the new ownership of the club, right, which is we, you know, we know what's going on now with menu, and we're now at the peak point of that tumbledown effect. It's now at the end of its cycle, moist change the way they played, and the players could not adapt fast enough to the way he wanted to play. So his response was that was going to be okay. Well, I'm going to bring in people who can right? And I remember talking to somebody at Manu at the time saying they're completely changing how we recruit now to match this new way of playing, right? So, so now that doesn't work. They they move him on, and then they bring in another coach. And my memory's gonna fail me here. They bring in another coach, so German style, for example, of coaching, or Dutch style coaching, and that guy comes in, and now all their recruiters are recruiting to the wrong model, because they're recruiting to the Everton model. Yep, yeah, they're going to change again. Yeah. They're not quite sure what they're supposed to be looking for. And then they got half the team. And so the cohesion numbers are just dropping and dropping and dropping, and they've been dropping ever since. And so they're spending money to bring in the new talent, because the talent they just acquired is not performing very well. And so everyone says the biggest problem at menu is recruitment. Okay, so that doesn't work. So they go another coach again. They go another coach again. But the the ownership at this point is just trying to squeeze every dollar they can out of the organisation. And so we keep having to buy to find the answer, which is creating less stability. Now, one of the biggest drivers of skill acquisition stability if I, if I'm dealing with constant change, I don't get better, because I'm spending all my time adapting to new environments, right? And so those young people come into a Bed of Chaos. They don't become good at what they do, so they can't create talent to sell. And it just has that tumble down effect. So it can literally begin with one thing, which is maybe Scottish coaches are great. Let's get Moyes to all of a sudden, now the club is basically having to sell its entire list. And the hardest part now is, you know, it's very difficult to have a conversation with somebody at that level of crisis. You want to stop it at the head and say, just think about what you do next, right? Because these, the way we describe cohesion is it can drop 50% in a week, but it can't grow 50% in a week. It grows 5% a year, right? So it grows slow, but can be destroyed fast, like you're building a house, right? Can't build a house fast, but you cannot open pretty quickly. So that that kind of small components can lead to underperformance, which will lead to more change, which will lead to greater under performance. And now you get chaos, clouding, causality, right? And so what they tend to do is we need to go get the players who are playing well somewhere else, who then don't play well for you, or we go get a coach who's coaching well somewhere else. And the classic in rugby league at the moment is you go and get the assistant coach from the great club, and they don't necessarily perform to the same level. That happens everywhere all the time. Yeah.

 

Wouter Klijn  49:29

So do you think there are learnings in that for mergers and acquisitions in the corporate world we see currently, within the super innovation system, there's lots of funds that are merging. Some of them are very different. Organisations come from the different industries. How, how you bring that together is quite tricky, and sometimes it's better. You know, especially in corporate, corporate acquisitions, they don't always add value, and more often than not, they don't add value. So. Is there some learnings there that makes, perhaps, easier to do mergers?

 

Ben Darwin  50:06

This answer I could give you could take three hours, right? But one thing that happens is, when we look at sporting teams who merge, it's not that common, but the Waratahs just went through it. And rugby as an example, no, no, go for it. You take a bunch of people somewhere else, you bring them together, and so basically, together. And so basically, with the Waratahs this year, they're a merger, a team that just faltered, which is Melbourne rebels. They bring a bunch of kids in right now, one of the things you want to create in any system is you want people coming through the system together, from the university graduates through, well, let's call it your academy, or, you know, the floor where guys are working together, and they become the senior guys and and all of that knowledge and time helps to protect the business from whatever market. So the problem is, when you have a merge, is everyone who's coming up through your system will have never been with any of those people before. So it doesn't just hit you when you have that merge, because you have those people come in with shared experience together, but none of them have worked with anyone else. So over the next couple of years, what will tend to happen is the people who come in together from somewhere else will tend to stick together and then leave together. So one of them goes, they all go, right, yep, yep. Because why would they be loyal? You know, if you, if you join an organisation, and let's say you've been there for 25 years, and they say, we've just hit COVID. Could you take a pay cut? Your wife's going to say to you, they've looked after us. Let's look after them, right? Yeah, if you've been at one for six months, and you come in and they say you need to take a pay cut, your wife's going to say to you, why are we being loyal to this organisation? Because we don't know if they're going to be loyal to us. We it's not that you don't trust them. It's just you don't know them. Yeah, there's no pattern of previous behaviour, so you're going to act quite differently. And that's not, that's just loyalty to family. That's not. There's no good loyalty available. There's just different types of it. So that's the first that's the first component. The next component is you're merging different systems upon each other, right? So there's different types of mergers. If you're buying a technology, if you're buying a business for a technology, that's just the system you're bringing in, but you're not bringing in the people who administer that system. And so it's when you merge people together and systems together with those people at the same time that tends to become a problem. If you're a if you own a mine, and you're just buying a hole in the ground, have at it, right? So there's different types of mergers that we look at, and then there's things like vertical acquisitions. But you know, all of the research that I found so far is telling me that that economies of scale is a vastly overrated issue. Just leave things as they were, for the love of God. And when people do that, that tends to be more successful over time. Yeah, and, and, but how you how you do it, how you go about that process, and, of course, size. So I'm not saying mergers and acquisitions are going to be successful or unsuccessful, but there are certain times, certain ones that we look at and go, this is not going to work at all. Now there's another, there's another form of merger which can take place sometimes, which is like, if you import a CEO from one of your competitors and he brings a whole bunch of people with him, you're fundamentally, fundamentally merging the company. If you look at borghetti, when he came to went to Virgin Airlines. He basically brought Qantas with him, and it was a merger, but not in name, yeah. And so that has its own components of outcome, so to speak.

 

Wouter Klijn  53:32

Yeah, for sure. One concept that I find quite intriguing as well that is related to this is the idea of knowledge management within an organisation. And so there's been studies done into this, whether you can sort of retain a form of institutional memory so that you don't have to reinvent the wheel every time teams change, or, you know, senior management changes, but whether you can sort of codify this for new people to quickly access, see how things are done, what the history is of certain, perhaps transactions or certain techniques that they use, and get up to speed really, really quickly. Do you think that that is possible to then also help improve the cohesion that you have sort of this knowledge base that you can tap into and very quickly understand how an organisation functions.

 

Ben Darwin  54:29

I think I was looking at a study the other day, and I'm not going to quote it directly, but it was talking about most knowledge acquisitions done with 80 before 80% of the time it's done on an informal level. You know, it's the the conversations at the water cooler, so to speak. So I think that, I think that you can optimise that structurally. I'm really interested in German companies, the way the German boards are built in that you have to have people who are on the floor. And I was, you know, looking at Mercedes and Ben. And you look at the CVs of their of their board members, and they're like, you know, Gert. Gert began as a 15 year old intern with BMW, right? And you think about when a decision is thrust upon an organisation like, we're going to switch to this type of tool set. And Gert can say, I remember we did that in 78 9107, and 14, and it only worked once, because of these were the circumstances. We did it slowly, whatever it might be, yeah. So I think that that creating structures that retain institutional knowledge is the most important component of that. And then I think that the way that Australian companies are generally built is this kind of, I'm not going to call it a plague, this kind of scenario of non executive directors on the board, the adults in the room, so to speak, who, and there's different forms of them, absolutely, and they provide a fantastic service. But I think there's always a danger if you have a CEO who is the main font of that knowledge and memory, right? Is you need that memory on your board. I think it's extremely important. Because when the big decisions come, and I remember talking to a board and the AFL and we presented to them, and they said, this was so good, you should have been here five years ago. And I said I was, but none of you were in the room, right? And now we're still having the same conversation, right? Five years later, yeah, which can be, you know, we never name we don't, we don't, some some companies we work with name us, but we don't tend to name who we work with, except if, if I'm sort of presenting to a room up, but I won't, we won't put it up publicly for a whole bunch of reasons, because sometimes they just don't listen at all. Yeah, and one of the questions I actually have for board members is, why are you on the board? Are you on the board so you can tell your mates, are you on the board, and would you be comfortable for this company or team to fail, you know, while you're here, but be successful later, and you not to get any of the responsibility for that. Like, what's the most important thing out of this? You know, if, if you're not winning today, but you're winning in five years time, permanently. And I'm, I've actually got this idea about coaches, which is that coaches should be rewarded, but only for the wins they have five years after they retire. Yeah, because they, you want them to be thinking about that, about how they set up the team for success further down the track, and that needs to be their kind of be all and end all in a way, because otherwise you're just self interest, right? You know, the nature of our work is, is trying to understand self interest. And I've, I've had scenarios where we've talked to coaches and they've said, one, I don't have any permission to do what you think we should do. That's fine. So maybe we need to have a different conversation about this, about how we have success. But also is that that sometimes people want organisations to fail after they leave. Yeah, they don't want to set up for long term success for a whole range of reasons. Right? Revenge is pretty sweet sometimes. So it's, it's needs to be about who is the person who's looking after the long term success and isn't thinking about self interest. I think a lot of self interest is inadvertent. The other part is, and I'll say this, and you know, put this to other other It can't just be about sport. Is that we, we've been presenting to coaches who are performing extraordinarily well, and we actually saying you need to understand you are not necessarily the coach you believe yourself to be .

 

Wouter Klijn  58:29

Or the reason for success.

 

Ben Darwin  58:30

Yeah. And so they're like, Get out of my office, right? Because they're, they're renegotiating their their lease. In fact, there's a great study I just saw from the University of California. I'm going to get this wrong. They did on monopoly. And what they did is they they flipped a coin at the start of the of the game, and the person who landed on heads, they got two dice and got 200 every time they passed. Go, yeah. And the person who who had tails got $100 and they got one dice. So they weren't going around as fast, and so inevitably, the person who had heads would win, yeah. And they did it 180 to 80 something times, and the person with the heads, I think, won all of them. And they would start talking down to the other person, right? Yeah. It starts sort of cheating. Did I present this at the conference?

 

Wouter Klijn  59:18

 Yeah, you did. There were some videos where you can see them just becoming more and more rude, but

 

Ben Darwin  59:24

yeah, and they asked the person at the end, why did you win? And none of them pointed to the coin flip. Okay, that's coaching. Yeah. No one wants to know when the when the The coins are stacked in their favour. So it's like their favour.

 

Wouter Klijn  59:37

That's a big discussion, also in investment industry, right? When you have successful fund managers, are they just lucky, or are they actually doing something that is better and repeatable, or is it just how the markets played out? Because often you see that investment decisions are made and implemented for entirely different reasons than what it's. Played out to be, even if it's a successful trade. And I think there's a sort of a famous example that we've heard is where a fund basically took a position based on the idea that Hillary Clinton was going to win the US elections over Trump. And of course, Trump won, but the rationale behind the trade was, well, if Hillary wins, is great for markets, and we're going to make money out of this. Well, Trump won, and the market still went up, so they still made money, but for completely their own reason. Yeah. So is that like, is that skill?

 

Ben Darwin  1:00:30

Well, the thing is, too, is that then what happens is, because you've you've theoretically now good at what you do, then you get the good trades, right? You get the good information comes to you, particularly in startup investment. The other thing. And I might be wrong about this, but I believe there was a report out of a company that had, you know, like online trading, and they found the best investors were people who either died or lost their login because they hadn't they they weren't making any changes, right?

 

Wouter Klijn  1:00:57

Well, there's definitely correlation to super funds there, because some super funds offer their members self directed options where they have a certain percentage, and it can be quite high. It's up to 60 to 70% of their portfolio that they can invest themselves, and they can invest it in single names, also within bandwidth. And invariably, they do way worse than their just default option, because they just chop and change and incur fees and get out of trade at the wrong time, or get into trade at the wrong time. And usually it is driven by trying to change return, and you're always too late when you do that. So there's definitely a correlation there as well. Maybe to sort of finish up, what are you working on towards future research? Any new areas that you're looking at?

 

Ben Darwin  1:01:46

I'm a really big believer in the turn of phrase. I think it's the stonemasons creed. You know, you keep hitting the same spot, and if you want to break the stone, it's the 100th hit that breaks the stone. So and everyone forgets the first 99 they go, Wow, what a great blow. And it's like, it doesn't work like that. You have to keep going at it. So what I'm finding is, the more we look at the work, the more we keep focusing on the same thing, the more we discover. So it's more of an iteration. And I think about guys, you know, who make the samurai swords. Yeah, you know, they do it for 30 years, and they can understand, Okay, well, if I do this many folds of the metal, it creates this brain, and if I stoke the fire in this way, and so you make mistakes and you improve it, and you make mistakes and you improve it. What we're trying to do at the moment is, in all of the systems we have, we're trying to break it, keep trying to break it and find Okay, so what does the Auckland Football Club, for example, doing well in their first year? What does that tell us? So what's the truth of performance? That's always keeps coming back to for us? What is the truth of performance? And I think one of the great challenges has been, is to keep on questioning the way things are done, particularly in trying to prove things out. And I think through conversations with my mom and that experience with the Peter Drucker experience, yeah, it tells me that just because something is studied and done doesn't necessarily mean they're getting it right, and that applies for us too, and and we need to look at things again and again in the most objective way we can say and begin with, okay, what do we actually know? And everything else is on the outer until we really feel like we can prove this out. What I would say is that we're slowly but surely expanding the different things in which we're looking from and learning, but the for me, you know, there are accountancy firms who are the Canterbury crusaders of accountancy firms, and there are accountancy firms who are the West Tigers of accountancy firms, and they have more in common with each other, yeah, right, than they do the other accountancy firm, right? And I think one thing that is quite interesting is, is how all of this comes from governance, and where it begins from. And I think a structure of governance is where I'm kind of looking at a lot. At the moment, you create conditions. There's a there's a great example of this in rugby league. So the Paramount eels had a lot of success in the 80s and 90s, not perfect by any stretch, but I think they won 58% of the gains, and they decided, because of fundamentally, the dominance of one person in the club, to kind of limit the limits the the tenure on their board. And by simply limiting the tenure of their board, they then went through like 11 CEOs and nine different coaches in 25 years, and went from 58% winning record to 36% winning record because everyone wanted that success inside of that tenure, right? Yeah, so for me, it's what the structures do through good decisions, and what are the long term ramifications of those structures. And then. How can we create structures? And the other part that I think I'm really learning is that, you know, we go to this notion of good and bad culture and good and bad people. I kind of everyone fundamentally, I think, believes they're doing the right thing. Most of the time, they just have a different version of what a good thing looks like. And so, you know, we've had so many different conversations with organisations. We've just been like, my god, you people are you look incompetent, but they're not incompetent. They're just dealing with a really difficult structure. It's making them appear to be incompetent, or also maybe, maybe they're making them appear to be extremely confident, competent. Okay, and let's not over believe that they are necessarily fantastic at what they do. Maybe it's the scenario of that. So with kind of there's an evolving view for us that cohesion is an outcome as well of of other components, and it has obviously a set of ramifications, but everyone's doing their best.

 

Wouter Klijn  1:05:59

Yeah, so it's not simply a matter of sending somebody, a team, away, if we can to do some team building exercises, play ultimate frisbee and they come back as star investors.

 

Ben Darwin  1:06:11

Well, unless your job is to play ultimate frisbee, that would work. But, but literally having this conversation right now internally, you know about what that stuff does. I think, I think developing interpersonal trust is great. I think developing clarity is better. I think doing the thing you're supposed to be doing is best, right? It better to just get that process right first, then the fun comes later. If I walk into an office, I see a table tennis table, I walk straight back out the door, no interest. People just put stuff on it, right and it's noisy. Get rid of it.

 

Wouter Klijn  1:06:43

Yeah, fair enough. Well, Ben, we could talk about this for another few hours, but you've been very generous with your time, so I'll let you go. But thanks very much for this conversation. It was fascinating.

 

Ben Darwin  1:06:55

It's absolute pleasure. Thank you.

 

Wouter Klijn  1:07:12

Thank you for listening to the [i3] podcast. For more information, please visit our website at www.i3-invest.com and don't forget to like, subscribe and review. Thank you very much.

 

 

Alva Devoy is Managing Director Australia for Fidelity International. Alva started out her career as a molecular engineer, developing vaccines, but the Iraq War made her change her mind about her path and she switched to asset management. She talks to MarketFox columnist Daniel Grioli about the business of asset management, robo advice and the quest for the retirement holy grail. Overview of podcast with Alva Devoy: 4:00 As a market strategist you are standing on quicksand. It is the most uncontrolled environment. 4:40 How does research in finance differ from that in science? 5:45 Started out as a pharma analyst. 9:00 As an analyst your models are your safety blanket 10:00 The real art is in finding the why behind the data points 11:30 Coming to grips with the perversity of markets 14:00 Mentors 15:30 Self-actualising; make sure you don't neglect all the other aspects that make up you 17:00 Pulling information towards you is harder in Australia because of distance 19:00 The advantage of using the ebb and flow of labour in Australia to our advantage is incredible 20:30 When I got to Australia I thought I was going to be a hotshot, but the investment expertise in Australia is phenomenal. 22:42 What advice would you give for people in a leadership role? 24:30 Don't transfer your view of success unto other people 26:45 You don't become a leader because you are a subject matter expert anymore. It is about finding experts 34:00 What does a high-performance culture look like? 37:45 Pension funds should really approach investments from a total portfolio level 40:00 This bull run has felt miserable; no one felt confident 43:30 At what size does stock picking become irrelevant? 46:00 What is the problem with favouring boutique fund managers? 48:00 Within Fidelity we have different factories 48:45 Are fund managers just asset gathers? 50:00 Passive + active; but all ecosystems need to be in balance 52:00 The mix of active and passive is like cordial: the water is free and you add concentrate to taste 55:00 Will big tech companies enter asset management? 58:00 Selling today is a mix of product placement and client servicing. Product flogging is dead. 1:00:00 How many true partnerships could we have in Australia? Five. 1:01:00 Retirement; why don't we see more innovation? 1:03:00 The relatively low impact from the GFC on Australia has kept risk appetites high 1:05:00 Fidelity hires former State Plus Head of Research Richard Dinham to design what retirement looks like for Fidelity 1:07:00 Risk profiling is dangerous. 1:09:00 Robo advice is great, but you do need outside expertise to make sure your investments point in the right direction 1:12:30 Three tips for better investment decision-making 1:16:00 You can't legislate against human behaviour 1:17:00 If you don't understand something, even if it is the next best thing, stay away from it.

Tadas Viskanta is among the first wave of successful investment bloggers, starting the Abnormal Returns blog in 2005. Rather than providing its readers with forecasts and other crystal ball-gazing exercises, Tadas focuses on education, writing about best practice in both investing and personal finance. MarketFox columnist Daniel Grioli speaks with Tadas about the early days of blogging, what it takes to write interesting material and how blogging keeps wealth management clients engaged. They also talk about how this blog ultimately led Tadas to join Ritholtz Wealth Management as Director of Education. Podcast overview: 5:00 starting out in the industry 7:00 How did studying at the University of Chicago, the bastion of the efficient market hypothesis, influence your thinking? 11:30 The early days of blogging 14:30 How long did it take for people to engage with your content? 17:00 Taking an educational slant 19:00 Doing this on a daily basis allows me to see the flow of information and how topics evolve over time 20:30 The idea that investors can bring their values to the markets is going to be increasingly a topic for investment 22:00 The debate about whether an ESG strategy will deliver the same or somewhat more than the market is besides the point. The behavioural aspect is much more interesting than the performance. 24:30 There has been much talk about the FANGs, but the way in how these technology companies change and shape our society is something that is important to stay on top off. 29:40 My position at Ritzholtz wealth management is really a function of the blogosphere. 30:30 What does Director of Education mean? 32:30 Treating social media as a monthly performance report. 33:00 Authenticity is the key to writing online. 35:00 Howard Marks of Oaktree was one of the first investors to write in this style, before blogs even existed. 40:30 The great financial crisis was what brought the financial blogosphere to the fore. We were all in the dark and the media started to look at bloggers that had first hand experience in mortgage backed securities. 43:00 We use the blog to update our clients daily on what is going on. They don't have to wait for the quarterly performance report. 46:00 There is no one way to communicate with a client. 47:30 What things in your career did you have to learn the hard way? 48:30 What blogs do you recommend?

In this podcast, MarketFox columnist Daniel Grioli speaks with Research Affiliates founder and chairman Rob Arnott about his research into factors and addresses the criticism that AQR founder Cliff Asness had on his factor timing paper. He makes the case you certainly can time factors and that to sell out of value now, while it is the only factor that is cheap, seems not the best thing to do. He also believes that the industry will undergo significant change, but that machine learning is largely useless for long horizon investing. The three papers discussed in the podcast are: * How Can 'Smart Beta' Go Horribly Wrong? * Timing 'Smart Beta' Strategies? Of Course! Buy Low, Sell High! * Is Your Alpha Big Enough to Cover its Taxes? 3:00 Considering Astrophysics 4:30 Was a quantitative approach unusual in the early days? 5:45 A lot of quant go wherever the numbers lead them 8:15 Shockingly often conventional wisdom turns out not to be true when you test it 11:55 Higher dividend is higher earnings growth 17:15 Buybacks are smoke and mirrors to disguise management remuneration 18:05 What risk premium is normal? 24:15 You will never buy a bargain if you never buy what is out of favour, what is unloved. 24:45 Get people of their fixation with past returns 26:43 The spread between growth and value is wider than historic average. This means either a new normal or that value is a bargain. 31:00 The small cap effect is driven by the 2 or 3 per cent superstar winners. 31:45 Discussing the war of words with Cliff Asness 34:00 People are pouring money into multi-factor strategies, because they are tired of waiting for value to work. 36:00 Low volatility is trading at a premium, whereas historically it has traded at a discount. And people think they have less risk…? 37:45 Four of the five factors are pushing you into an anti-value direction 39:55 When momentum is chasing these bubble stocks you are slightly more likely to have a crash in momentum 42:00 If you must invest in the US, have a defensive stance 48:00 Those who say that factor timing doesn't work, just have not done their homework 50:00 The big failing of the quant communitie is that we view everything as a signal, instead of viewing it as an asset 56:30 Talking ETFs 58:45 My next paper with Cam Harvey and Harry Markowitz looks at how you can screw yourself up with quantitative methods 59:55 Any research is data mining, but not all data mining is research 1:01:15 The quant community is engaged in performance chasing without realising it, for the most part 1:01:30 Start with a principal, start with a hypothesis, then test the hypothesis. Don't go back to the same data again and again and tweak the process. 1:02:30 Machine learning is going to be useless for long horizon investing 1:08:10 The Future of the Financial Industry and discussing zero fees

In this [i3] podcast, we take a look at India. [i3] Insights editor Wouter Klijn spoke with Mugunthan Siva, founder and managing director of India Avenue Investment Management, about the Indian economy, what Modi's reforms mean for institutional investors and changing attitudes towards ESG issues. Siva spent a large part of his career as an asset allocator with the investment arm of Dutch bank ING and later at ANZ. He has a unique view on the opportunities but also challenges that India presents. Podcast overview: 3:30: Why set up a single country fund? 5:00: With India it is a bit more difficult to determine the direct relation with Australia, as we can with China 6:30 Modi reforms, what do they mean for investors? 8:00 What mobile technology means for financial services in India 10:30 What does the introduction of GST mean for interstate trade in India? 12:00 Foreign investments and work for the young population of India 13:00 Urbanisation will see a shift to a more organised economy 14:00 Made in India 15:30 Infrastructure projects in India and land and labour reforms. 16:30 Spending US$ 1 trillion on infrastructure 17:30 Indian stock market consists of US$3trillion and 6000 companies, yet only 200 stocks are covered by brokers 20:00 What is your favourite stock in India? 22:30 Indian banking sector. 24:00 The new bankruptcy code will address bad debt problems among the banks 25:00 India's IT sector 26:30 Buying Indian IT stocks is not an India play; 90 per cent of their revenues come from overseas 27:30 Large distances has caused a speedy take-up of e-commerce 28:30 ESG and governance in India 31:00 Attitudes towards environmental issues: plastic

Former Future Fund Chief Investment Strategist Stephen Gilmore has had a career that is both impressive and dramatic, dealing with warlords in Tajikistan, working at AIG during its bail out and finally at Australia's sovereign wealth fund, the Future Fund. MarketFox columnist Daniel Grioli asks for his insights. Overview of Stephen Gilmore Podcast: 2:20 You started your career in academia, why did you leave? 4:00 A one way ticket out of New Zealand 5:00 Working for the IMF after the Soviet Union broke up 8:00 On to Tajikistan 11:30 Surrounded by warlords 14:00 Inflation at 2000% 15:00 Moving to Morgan Stanley, dealing with the Russian bonds defaulting 19:00 The investment process needs to be collaborative. You don't know who has got the right information. 20:00 Working at AIG when it needed to be bailed out 27:00 The bailout ended up making a lot of money for the US Fed 30:30 Some of my colleagues received death threats and had to go into hiding 31:50 Did reliance on quantitative techniques add to troubles for AIG? 34:30 Joining the Future Fund. After the AIG experience it was important to have a role with some meaning 38:30 Keith Ambachtsheer said the Future Fund is missing out on not internalising asset management. What do you think? 40:00 What is important is that you don't pay fees for things that are easy to do. 42:00 Should the Future Fund manage all of Australians' superannuation money? 44:00 Future Fund's cash holdings 46:45 The benefits of a total portfolio approach 48:00 The challenges of this approach: everyone thinks differently 57:00 Bottom-up in addition to top down approach 1:02:25 The flipside of scale; sometimes you are just too large to take advantage 1:06:00 Where to now for Stephen Gilmore? 1:07:00 Lessons learned and tips

After successfully founding several businesses of which comparison website Finder.com is probably the most well-known, Fred Schebesta immersed himself in cryptocurrencies to see what all the fuss was about. He realised that the crypto space had many similarities to the early days of ecommerce and now runs a crypto exchange called HiveEx and is planning to launch an Australian crypto bank. Overview of podcast 1:30 Are cryptocurrency a store of value or an investment? 3:41 Cryptocurrencies are not correlated to anything 5:10 How do you determine the value of a cryptocurrency? 5:30 You have to look at the tech as well 6:00 Equities are just as much removed from their intrinsic values 8:00 How great is the danger that many of these cryptocurrencies become obsolete? 10:30 The RBA says we already have digital money. Why do we need cryptocurrencies? 11:35 A bank run is not possible with cryptocurrencies, because you own your own money 15:00 You look at technology that is 9 years' old and you expect it to do what a bank has done for hundreds of years. That is short-sighted. 18:43 You have Ethereum miners in your office. Why? 20:00 Do Millennials understand cryptocurrencies better? 23:00 People that have made money with cryptocurrencies, to what degree were they just lucky? 23:50 Bitcoin is illogical. 24:00 Smart contracts will put pressure on law firms. 28:00 Is the move away from cash the logical extension of cryptocurrencies? 31:30 You are launching an Australian crypto bank? 35:00 People think this is the great bubble in crypto, but there have been six bubbles already.

Alex Waislitz is the founder and Chairman of Thorney Investment Group, one of Australia's most successful private investment groups. After being lent $1.15 million, he went on to invest in micro and small caps and ultimately gathered a fortune of $1.39 billion. In this interview, Daniel Grioli takes Waislitz back to the start and dissects how he went about creating his wealth. Waislitz discusses the trappings faced by investors and also has some advice for startups looking for capital. Overview: 3:00 Receiving my first dividend cheque 6:00 Keep your alternative options alive 9:00 Lessons learned from Richard Pratt 14:00 I like the business of business 16:00 If you dream big, you achieve big. 18:00 Turning $1 million into $4 million 21:45 Constructivism; being activist in a non-hostile way 26:30 What is your investment philosophy? 34:30 Determining position sizes. 37:30 Many fund managers cut their profits too early 46:00 Not all small cap companies are inherently risky 48:00 Capacity in a micro cap strategy 50:30 Fairfax and activist investing 54:15 Future of traditional media 57:00 Tailor-made newspapers 1:00:30 Investing in the future is not for everyone 1:02:00 Disruption has never been easier 1:06:00 Facebook and privacy on the internet 1:07:30 What advice would you give startups looking for capital? 1:10:00 Best and worst investments 1:16:30 The luck factor