Speaker 0:
Well, good afternoon. It's very nice to be here with, uh, Edward Bonham Carter. Thank you very much for taking the time to join fund Boards Council for for this, um, informal chat, I think it's going to be We're not going to do the Paxman stuff on them. Anyway. I'm gonna start somewhere which people might not think we might start. But where we We have a common interest, which is, um, charitable work. And 40 years ago, I founded a charity

Speaker 0:
with just one person. It's now runs 50 city academies and stuff like that. You now a trustee of the Esme Fairburn Foundation, which has a strong link to fund management. And I wondered if you could tell us a bit about the history of of the foundation and what it does

Speaker 1:
now. Yeah, well, fairly. I didn't found it, so well done. You, um Esme Fairburn Foundation was funded and founded about 60 years ago,

Speaker 1:
I think. Yeah, so we're about the same age. Funnily enough, since I'm early sixties and Esme was married to one of the Fairburn family. I think they're all called John who'd founded and established the m n g uh, unit trust business a long time ago, M and G. I think it was one of the original unit trust business. You can tell me back in the thirties

Speaker 1:
to give, uh, the average person a chance to invest collectively, probably in the UK stock market then and then internationally and globally. They then were endowed with about 30% of the shares in M and G and the family, uh, gifted those shares. And in 2000, you might remember the Prudential bought M and G and the foundation got a check for around £600 million which, uh, even now is a hell of a lot of money and certainly in the turn of the century was a lot.

Speaker 1:
And they're focused principally on UK courses. And it's sometimes easier to say what they don't do. They don't fund, uh, medical or educational, but they I think about it both people and places in the UK people in terms of communities and fairer future as they call it, and places in terms of the environment. So we will fund a whole range of entities, often for 3 to 5 years, and I'm very lucky to be a trustee and I now chair the investment committee.

Speaker 1:
Obviously quite a responsible position. Absolutely.

Speaker 0:
That is interesting. And, uh, you're right. M g founded the first open ended, um, company unit Trust in I think it was 1939. And they were They were the leaders in in in this, uh, country M g al are also interesting in in another respect, something else we've discussed in the past. I can remember you saying to me probably 10 years ago, uh, in another informal chat like this, um, that the key to equity investing, certainly in the UK

Speaker 0:
is, uh, dividends and the reinvestment of dividends. And over time, it comes to provide two thirds of the total return M and G. When I came into the industry, uh, it's probably 20 years ago they were writing to all their invest e companies, saying You must keep dividends up. You must keep the dividends high. So how do you view dividends these days? Is the dividend story still there?

Speaker 1:
Yeah, it's really interesting. It just made your question has made me think of. I think it's Philip Cogan wrote a piece in the F on the weekend looking at the UK stock market, in which he pointed out that the UK stock market up to 2000, had a pretty decent compound growth with dividends reinvested. But since 2000, the capital value the just to point out, I think, first hit sort of 697

Speaker 1:
around 2000 and has been broadly flat in terms of level. Obviously, it's gone up and down, and the main return the investors got is from the dividends, Uh, and maybe the reinvestment of the dividends. Now, of course, what we don't have is a control experiment to show that if the payout ratio in the UK had been lower,

Speaker 1:
would the investment in British business, for example, in the wider sense being a higher? And would the returns coming from that higher investment would have produced a higher capital return and a higher indices?

Speaker 1:
Some would say, because the UK stock market is made out of relatively mature companies. Some would say dinosaurs. The term has been used that actually it's a rational thing for companies that aren't growing to pay out dividend rates. So I'm giving you a typical lawyers or economist's answer. I'm not giving yes or no, but academically. Absolutely. It is right. Is that investors? If they're able to reinvest their dividends and watch them compound,

Speaker 1:
that is the best way to make your return. Certainly, in the UK stock market, you have to be slightly careful with applying that analysis worldwide because tax does make a difference and your investor status makes a difference. But broadly in the UK, that's been true, Uh, whether that policy is starved. Great Britain of investment. I don't know. I think we don't have a control experiment. There's something in it. I mean, it's somewhat disappointing, as no doubt in the same article. I think, Philip pointed out, We've hardly had any technology. Companies

Speaker 1:
in the UK are being now trying to refloat in the US, not the UK. So it's a difficult one. I suspect it's partly a reflection of our economy and its maturity.

Speaker 0:
Yes, well, that's an interesting question. Another thing you said not to me, but again, probably about 10 years ago is that one of the reasons you liked asset management was because, um, it was both science and art.

Speaker 0:
The science I can see it is full of numbers. Tell me about the art as

Speaker 1:
well science and art. I often said partly the reason I I was lucky enough to go into asset management. Started my career in shredders in the early eighties when the great bull market started.

Speaker 1:
Uh, I think it was coincidence, rather than cause is my father was s G W for many years. So if you like, he represented the science or the discipline of the finance industry and the art, um came from my mother, who for many years was a psychotherapist. So the study of human motivations and the makeup of their psychology

Speaker 1:
And if you do fund, manage which not everyone does by interviewing uh, CEO s and CFO s and trying to understand some of the more nuanced and subjective elements behind successful businesses, maybe governance. We can talk about that in a second but strategic vision and whether the current management team are going to execute on that vision, plus the risk around the business, For example, I would say that's the artistic side

Speaker 1:
because there are no objective measures you and I can could see the same management team of a business and come to maybe probably similar conclusions, but subtly different And that would have an impact on whether we were a a keen buyer of the business via its shares, or maybe a less keen or maybe a seller or or neutral. So mixing art and science. I think it's, uh, very interesting. And I think the city and perhaps economists and I was allegedly a trained economist.

Speaker 1:
Um, often claim too much science behind them. Certainty, certainly in terms of forecasts. And as we know the lessons way back before the pandemic is, the city spends a lot of time forecasting most of it. Um, erroneous.

Speaker 0:
I couldn't agree with you more. And, uh, it's an absolutely fascinating art. Um, and we could, uh, go off down a rabbit hole. Uh, follow.

Speaker 1:
I think rabbits are very interesting.

Speaker 0:
I I used to have the same discussions with, uh when I was when I was in the bank. I'm not an economist, but I used to sit down with the economists and, uh, you know, they do their quarterly, um um, forecasts. And I always ask the same question,

Speaker 0:
Uh, which was What's the what's the, um, the exchange rate path And it was always the same, you know, it was always going to gradually decline. And the one thing you knew was not going to happen.

Speaker 0:
And they never seem to

Speaker 1:
understand. Exactly. Well, well, I'm afraid, uh, people being held hostage to models and then sticking them and not accepting at least the bank of, you know, some years ago, you'll probably remember. Beth and I introduced fan graphs of predictions of interest, which I think is a far more sensible way to think about the future. A range of possibilities which have then different probabilities attached. But even applying a probability has a false science to it. Anyway.

Speaker 0:
You you mentioned governance. I'd like to ask you about governance. Um, you had quite an interesting, um, series of governance issues in Jupiter. I can remember the first time I came to Jupiter. I was then the new head of the, uh, trade association.

Speaker 0:
And I sat down for a nice lunch with Jonathan Carey, and before the lunch had ended, the door flew open and John Duffield came in and he lent on the wall opposite me and said, Who are you and what are you doing? You perfectly well. Who I was and what I was doing, but anyway and, um, the you worked your way through John who I know you have a high respect for I got on with him. Well, in the end, But, um uh, but you had a series of things there.

Speaker 0:
You now are on some footsie boards.

Speaker 0:
How would you describe good governance?

Speaker 1:
Yeah. No, it it's a good question. Uh, not easy. How would you say good governance? So, in terms of listed companies and I'm on the board of Land Securities

Speaker 1:
and on ITV both listed companies, um, both still in the I think land securities is in the I think ITV is hovering between the two. Um, I mean, a board is there to and I think that probably goes for charities, but in a slightly different way to be, uh and I'm sorry if I'm going to descend into sort of cliches, but I think critical friend is a good way to describe what a chairman and a non-executive director she or he should be doing

Speaker 1:
is you are supporting the executive team. You want the entity to succeed in the wider sense, and that just doesn't just mean profits up and share price up Uh, and it's for for the benefit of all the stakeholders, particularly the customers

Speaker 1:
or your clients in a a charitable sense, the people who work in the business

Speaker 1:
and, uh, your suppliers, as well as the regulatory and political environment the entity operates in. And only then do the owners in a public company should get their fair and just return. And people are saying, Oh, this stakeholder thing is a recent phenomenon. If you look back at the success of many listed companies and I think I'm thinking of I used to be a US equity analyst of Johnson Johnson,

Speaker 1:
they set out in what they call their credo many years ago, that order of priorities starting with the customers. This is now sort of new thinking, not shareholder primacy, where any business, I think, including private businesses that have lasted, let's say through a number of generations, have got that right, instinctively or explicitly. So the board is there to answer your question to ensure that in the longer term,

Speaker 1:
a quoted company fulfils that duty. Uh, trying to measure what good governance is is a really interesting provocation, and and that's partly comes back to the art that you mentioned earlier what you're trying to establish, uh, when I was a fund manager, my colleagues at and I'm sure in other fund management companies in the active management space

Speaker 1:
is how is the governance being exercised and more particularly a really difficult thing to assess but we all know is important. What's the culture of the entity

Speaker 1:
and trying to work? You know, every company. It's rather like every restaurant says that they're the best or male drivers. 25%. I think they're in the top 25%. So self marking is a really, uh, it can be a dangerous thing. So the art is trying to establish the culture which is promoting the entity or the corporate entity and governance. Is there really to ensure that we often think of it as rules?

Speaker 1:
But it's far more than that. It's often expressed in observing corporate governance rules and going through the audit and the risk and the re all very important. But the commercial widest sense commercial success of the entity is really what governance should be about.

Speaker 0:
And can I ask you, um, given your background, I would have thought that, um when you moved away from being full time in Jupiter that you must have got lots of offers to join boards.

Speaker 1:
So, yeah, I was quite choosy. How did you choose? Well, I Well, uh, I I'd like to think I had lots of offers. I didn't think it was that many. I did have offers in the financial area, and funnily enough, I didn't want to do. I wanted to if you like, test myself and offer what limited skills I had to other sectors.

Speaker 1:
So I didn't really And I'm not particularly interested at work. They're crucial, obviously, banks and insurance companies, which is your area of expertise. But I felt in a sense that there is a lot of regul necessary regulation there, particularly in the banking world.

Speaker 1:
And I was more interested in other sectors which, um maybe what? The businesses are a bit more distinct in their offering. I mean, let's take ITV. It's a bit more distinct. Well, without being rude to Barclays or NatWest or whatever. Money is essentially a commodity, and there's very little to distinguish in terms of brand values and pricing power, which is as an old farm manager. That's What what's your barrier to entry in that business? So back thanks

Speaker 1:
have a higher barrier to entry because of regulation, even with the new banks coming on the scene. But it's very difficult to distinguish between a sort of competitive edge is the key point between certain banks, whereas in other sectors I think it's more interesting to me.

Speaker 1:
Um, which is why I was drawn to, Let's say, ITV. Uh, land security is interesting. They don't have pricing power in contradiction to what I say, but it's more of an investment angle of a pool of assets, and hopefully one can add value in that sense.

Speaker 0:
And did you talk a lot to the boards before you joined them? Your point about psychotherapy and

Speaker 1:
probably not enough. I think it's always quite tricky, Uh, for prospective board members to have extensive discussion. You can do it in the interview process. I mean, normally boards, and I've been on a few non Cos nomination committees who are interviewing the candidates. That is an opportunity well for both sides, but particularly for the candidate to try and work out

Speaker 1:
the culture of business. But even then it's It's difficult because It's an interview process. The annual report only gives you some insight taking references. Both sides need to take references if you like on on on on the boards or on the candidates. I think that's some way. Gives a good insight to how a business is set up and what what the governance is like. Can

Speaker 0:
I, um, go more broadly now, Um,

Speaker 0:
you've been in the industry longer than I have. Um

Speaker 0:
uh, because, as you say, I started. I started in banking, and you also mentioned the degree of regulation in fact, in, uh, in reference to banking rather than to asset and fund management. Last 20 years, there's been a lot of increase in regulation of of fund management,

Speaker 0:
do you think? Not just because of the, um, regulation, but more generally, Do you think that investors today are better off than they were 20 years ago?

Speaker 1:
Uh, I assume, Well, it's a very interesting question. Let's take the assumption that individual investors now sadly, maybe it's linked to regulation. I think the trend and you can correct me if you look at the ownership of the UK stock market, which is not perfect, but I think the ownership by first individuals what percent are held by individuals either directly or by unit trust or then in their pension funds has basically been looking from your side a remorselessly downward curve.

Speaker 1:
And the UK stock market is largely owned by overseas investors now, which I think on one level is a great shame. So I think and I think John Kay wrote about it in one of his reports that actually the individual has been removed from his or her investment by intermediaries. Fund managers are part of that pension fund, investors, consultants and at the same time, maybe because of.

Speaker 1:
But I think regulations to some extent have got more burdensome because people are more worried about what's going to happen to individual investors.

Speaker 1:
I It's an interesting question, whether the level of knowledge, if we were to take, let's say our our parents, for if they were investing in the stock market, if they were more or less capable than you or I today, I'd hesitate to opine on that. Um, I mean, I personally think in Jupiter was involved many years ago, uh, in financial education for individuals. It's a personal bugbear of mine that I think

Speaker 1:
learning about oxbow Lakes and school photography is important. I think life skills of which finance saving what is interest? Compound interest, I would suggest, is a more valuable life skill, even even if you're not going into the city. In fact, even more so, you know people making judgments about their credit card bill, for example, making judgments about where they should borrow

Speaker 1:
uh is, in my view, a very vital skill. And I think that,

Speaker 1:
um, personal responsibility is important. Uh, regulation, Often I feel seeks to fill that gap. And so caveat to is, if you like being chiselled away and maybe we become too rules based, as opposed to the

Speaker 1:
the, you know, the spirit of of regulations. So,

Speaker 1:
yeah, I mean, some of it's possibly good again. Rather like your earlier question. We don't have the control experiment to say. If we didn't have this regulation, would we have had more blow ups and scandals or not

Speaker 1:
hard to make that judgement?

Speaker 0:
So I'll ask you to make another judgement and an artistic forecast as as to where do you think this, um, industry is going?

Speaker 0:
What do you think is gonna happen next.

Speaker 1:
What do I think is gonna happen next? I can answer that. I think I think the forces I'm a great believer and I'm interested in demographic forces. I think the trend hopefully for us of healthy ageing, uh, is going to continue More people are going to live longer and which is a good thing in itself. It produces, of course, the intended or the unintended effect that

Speaker 1:
people are living on, how they're going to afford it. I think this has enormous, uh, effects on society. Are this whole retirement thing that we're talking about and the French are? Since I'm past French, I'm allowed to say part French. The French are revelling, particularly over pension reform.

Speaker 1:
Um, I think it's a really big issue. I personally think that I think Linda Grattan wrote about it about the 100 year life, that we're gonna have a series of careers, maybe retraining. I think that's a good thing for healthy living, and that's going to should put more emphasis on the individual to be aware of their savings decisions and investments decisions for the long term. That should be good for the industry.

Speaker 1:
I do think that the active part of the industry where I've certainly come from is under increasing pressure. I don't think it's gonna die by any means. I think there's still a role for the artistic side of fund management,

Speaker 1:
but I'm worried that the the returns to scale, partly because of regulation that you raised, means that they're going to be more bigger. Businesses that's going to re pressurises reduces choice for individuals and indeed, big institutions. And generally reduced choice is not a good thing.

Speaker 1:
I mean, it's not like some other industries. We don't have oligopolies in In fund management, there's still a plethora because I think the barriers to entry on some levels for fund management. You know, you can set up on your own if you could deal with the regulations, which is a good thing. But I think there is a pressure to scale. And, um,

Speaker 1:
I I've always said that active fund management is not responsive to scale in the same way of let's say, making cars where you do get returns to scale and manufacture fund management. Alpha is not scalable in the same way. A

Speaker 0:
big issue at the moment is E. S G sustainability, Um, which in formal terms, particularly in Europe and possibly here seems to be, you know, getting it completely wrong. I think they're gonna have to tear it up and start again in five years. Um,

Speaker 0:
how do you deal with sustainability in a company like C ITV? Maybe you don't want to talk about an individual company, but what are the rules you would apply Nothing to do with the rules imposed on

Speaker 1:
you. Yeah, well, we talked about the of the S G, and it doesn't mean we can't come back to it.

Speaker 1:
So the and the SI mean, in a sense, I think the key thing for a board to focus on and to stand back from the letters and the rules is again the role of the board and governance is how do you not ensure? Because that's impossible. But increase the probability

Speaker 1:
that the business that you're on the board of or working for or working with, uh is going to be sustainable over the long term. So that's how I think about it. It's come to mean box ticking, and,

Speaker 1:
uh, there are lots of subsets of it, you know? What's your climate emissions. What's your carbon footprint, et cetera? And that is getting is important as we go towards whenever we go towards carbon net 0 2050 and then eventually longer term 2100. But I think the rules are masking the importance of the wider objective. And as you've hinted earlier, it could be that there are unintended consequences of these rules we're still in, I think in the early phase, because the data

Speaker 1:
and analysing it's still a bit of apples and pears.

Speaker 1:
Uh, I think companies do need to think about their footprint in the widest sense. And I'm glad to say both companies are involved in it, not sadly, because I'm involved in it. But land security is, uh, when it's measured by other people, is right up there in terms of building sustainable buildings and places. Uh, because buildings do have a big footprint. Um, having said that, I think there is quite a lot of frustration not in land, but generally in the industry is that if you look at the materials in the buildings that we're in,

Speaker 1:
they're still largely concrete, steel and glass. The materials haven't really changed in the last 2030 years. The methods of construction are changing a bit, so companies do need to be thinking about it. The danger is, as you quite rightly say, if you're from a company point of view.

Speaker 1:
20 investors might think of these e S G things in slightly different ways each time. So it does make the job of the executive in particular and the board more complex in terms of reporting requirements, trying to work out what the key metrics are

Speaker 1:
and under a great beliefs, as I'm sure you are, for there been unintended consequences when lots of rules, regulations or market practises come in, you have to be careful. I think green washing is one obvious example, and the other key thing is the danger is all the requirements now being in place, some of it fair on boards? In the wider sense of boards, executive and non exec might distract from the main function of the entity, which is not just as we said, to grow profits, but for the

Speaker 1:
the success of the entity is a whole over the longer term,

Speaker 0:
and I think that's right.

Speaker 0:
Last question. It's the question you always get asked um, because of your name. It's a question about your family.

Speaker 0:
How are your Children?

Speaker 1:
How are they their Children? Very well. I've got We're lucky enough Victoria myself to have Harry who's I will forget his age around 26 is in the media business. Learning to be a cameraman is working for Discovery sport. Um, Maude, our only daughter is about 22. She is teaching tennis in Auckland, New Zealand, so we don't take it personally the other side of the world. But she's very sporty and is just,

Speaker 1:
uh, 19. Uh, we've just come back from Kenya where I was lucky enough and managed successfully to walk up Mount Kenya with our two sons. It's quite a hard trek. Um, he is still volunteering in a Kenyan school on the coast, having a great time, and he's going to come back and hopefully subject to practising hard study classical trumpet at Leeds Conservatoire. So they're all, um, thriving. I hope tennis

Speaker 0:
players and and trumpet players. Exactly. It's very good,

Speaker 0:
Edward. Thank you very much indeed. For spending time with us this afternoon, I think we could have gone on for very much longer. Um, but now I think is the time to call it a day and, uh, once again, thank you. Pleasure

Speaker 1:
seeing you after so many years of knowing you for it. Thank you. Thank you.