Henry Ritchotte is the Founder of RitMir Ventures, investing in financial services businesses with a focus on regulatory- and technology-driven business models. Before that, Henry served as Chief Digital Officer of Deutsche Bank, creating the blueprint for a digital challenger bank within Deutsche Bank. Previously, Henry was Chief Operating Officer and a member of the Management Board and Group Executive Committee at Deutsche Bank. This episode’s podcast covers:
Dealing with the 2008 financial crisis
Running a bank through the eyes of a COO
Why European banks haven’t toppled US banks
Setting up a family office
Growth vs income investing in start-ups
What makes a successful start-up
The era of cheap money is over
Evolution of fintech
AI and blockchain
Health sector
Books mentioned: Works of Kafka
You can follow Henry here (https://www.ritmir.com/) and on LinkedIn (https://www.linkedin.com/in/henry-ritchotte-3a289b112/?originalSubdomain=uk)
Welcome to maive conversations with Bal haiz maive helps educate investors and provide investment insights for all markets from crypto to equities to bonds for our latest views visit macro.com greetings and welcome Henry it’s fantastic to have you on the podcast show thank you very much B it’s great to
See you again it’s been way too long I’m excited to chat great likewise and now before we go into the meat of our conversation I do like to ask all of my guests something about their origin story so uh what did you study at University was it inevitable you’d end
Up in finance and what are some of the key career Milestones that you’ve had over your extensive career absolutely so um I tell this and people sometimes are are quite surprised but I I went to a liberal arts college and I majored in history and I thought
Uh for sure that I’d become an academic uh and never did I think i’ end up in business uh but after writing my dissertation we had to write a dissertation equivalent um where I went to uh to college um I thought I needed a break and so so I looked around
For something uh I also was in debt um I think I had um I think I graduated with something like $20,000 of debt in 1985 which is we prob whatever $120,000 these days and and with a history degree so you can imagine there was a bit of
Pressure for me to perform and so and so as I as I um as I thought about what I do for a couple years um I became um very interested in uh working in banking and finance um and uh I didn’t graduate with the job I actually uh graduated and
And traveled the world for a little bit and thought about like uh and started working uh in the analyst program at credit Su first Boston sort of off cycle in February of 1986 and just had a great experience um I had good mentors there I learned a lot
I was in the uh restructuring group and um we spent all of our time dissecting the asset side of the balance sheet of failed or failing companies and figuring out what was wor keeping and what wasn’t strategically and then working on the liability base that that um resulted
Um at that gr support and and this was the companies on the balance sheet of credit s like loans they had given to these were no these were um for the most part uh companies that had come to credit SP for Boston for advice so I was
In from that side okay yeah and so I was working on at that time there was a lot of oil and gas companies um famously you know a couple of his best those companies uh some nuclear power plants things that had you know great um you know potential steel companies Coal
Companies um but um had not been run with the right uh you know fundamental cost based in mind or have been hit by exogenous EVS that were simply out of the control of management and it was just a fantastic learning experience um and and I did that and I was kind of
Fooked uh from there on uh and and so much uh for U the academic career I was also believe it or not you know um very very interested in fencing so um uh I I was a top branch chancelor in the United States um and so I was also at the time
Thinking maybe I should go for the Olympic you know team and so on and so I could have done that in New York but um you know I gave that up as well if I gave up the history career I gave up the the fancy career and um and started
Focusing on finance and just as a side what what what what did you find so um interesting about fencing that’s kind of an unusual sport what did you like about it so much it’s a it’s a it’s a really fun sport it’s it’s one of those sort of
Niche things that not to many people do so it’s kind of fun to talk about but but also uh it appealed to um uh a very strong competitive streak within me and and um and uh yeah it’s technically very difficult physically very demanding I’m not sure if you’ve ever tried but um
Spend spend two or three minutes on the fencing piece and you know and if you’ve never done it before you’re you know you’re exhausted um so um it’s quite a fun quite a fun sport uh and uh yeah very very competitive so I had to be a
Little bit careful when I when I pick up the the foil I used to foil I had to be a little bit careful when I when I uh when I pick up before oil um but um but really uh just a a great way to learn about you know um about your own
Personality and and what you do and what you don’t like to do um I always say that people can talk about it later podcast that life is all about finding out what you don’t want to do um but um but there a lot of things that you like uh that kind of
Unfortunately um you know Fall by the ways side um you know as you as you winow your way towards you know figuring out what you really want to get in way anyway that’s that’s a side note um but after prin first bson I spent um a year in
Indonesia on a fellowship program um with theose Foundation um which we can talk about I had great experience in uh in Jakarta uh and then I worked um before coming back to United States for business school at m&a Boutique in Japan I learned Japanese is so I already spoke
Um Indonesian after um after preparing for and then living in my jardian traveling in Indonesia and then I went to Japan um learn Japanese worked in a small m&a boutique which is a spin-off from yam Securities really interesting experience fascinating experience and I was there during the major crash um I so
This was in the early 90s then was it kind of after the bubble 1989 okay 19 okay just as the the economy was crashing just as the bubble was know when I arrived in Japan it was still you know gold face and you know suji and sake by the time I left
It you know really s yeah this rice balls and see but um yeah fascinating experience um and then I went to business school um at the University of Chicago and uh met white my my wife had a great time there learned a lot got two degrees one in East Asian studies and
The other in um in business and then um started working um at Maryland New York on their trading board which was a a real fun experience and it actually was a great switch for me because I’d spent a lot of time in corporate finance in sort of Consulting longer term projects
And I really enjoyed the um the um much faster turnaround time uh of sales and trading so I started covering hedge funds um uh out of New York and I get a lot because i’ spent a lot of time in Asia and in Europe growing up um uh my then boss anre Jane
Who ended up um becoming the co- CEO of Georgia Bank um said Henry you the night shift so I would come in at you know 300 or 4 in the morning to focus on Europe um and then every other week C switch uh and focusing on Japan so stay late at
Night and focusing on Japan great expence sadian Rhythm I imagine it not easy but um but it was funing experience I learned a lot so um I spent a lot of time you know learning not just the US markets um you know but also the Asian and the European markets
And and it was it was fascinating cover of the Hedge fine client base because at the time it was the start of near tiger and the big macro you know hedge funds now various places have become very institutionalized but at the time most of the investors were private individuals not institutions and they
Could take a lot of of risk um across multiple different markets so we were trading fixed income uh primarily but doing a lot also in Commodities forign exchange um all sorts of products and and the macroed funds were more interested of course in the broader themes but they depended on us for
Advice as to how to articulate their views so if they wanted to be long you know you know fiveyear you know German you know bonds what was the best way to do that was it two swaps features individual you know bonds how much size could they do and so LED naturally to a
Lot of interesting discussions around you know richness cheapness um we recovering long-term capital as well um all that kind of good stuff U but um uh after a couple years at Mar Lynch um Edson Mitchell aunie Jane um a number of other folks decided to join diry bank
And they recruited me and I left New York to go to London and my wife and I worked in London um for a number of years for Georgia um uh I was focusing on hedge fund coverage and then after a period of time um Onre and Colin grai Jonathan Paul I’m
Not sure if those are year running sales they asked me to go to Asia and so I covered um Asian clients out of Singapore uh for some time so I ran the sales business for doic covering everything I mean you you were covering clients and sales in New York London and
Then Asia um in Broad I mean this is always hard to do but in Broad brush what the cultural differences you you you you found in those either in terms of managing teams like internally and then also when you engage with clients what are what are some of the
Differences you you find I mean if we take the extreme say US versus Asia to kind of cature things yeah yeah I mean I don’t want to overgeneralize or oversimplify because that’s super dangerous um I think the best way to manage people is is to focus on their
Individual needs rather than you know focus on group but um you know I would say that the United States um the uh folks I was managing there were much more self-directed very keen on ensuring that they had their list of clients and that’s what they’re going to focus on
Their mandate was very clear and that they’re going to do um and and it worked right um the in the European situation a little bit more consensual um a little bit more focused uh because of the perspective on client management holistically I’m overgeneralizing because we have some
Great holistic client managers in the US as well um Nancy Don here comes to mind I remember but um uh you know the the the nature of the European markets forced people to be a little bit more gous because they had to go across many different countries and more more
Products whereas the liquidity and the dept the United States made you know for much more product focused individualized uh coverage and and then Asia was the was like even more of an extreme you had to be super generalized you know you were doing everything for a client um
From foreign exchange to money markets to helping you know them figure out how to hedge some of their interestate risk I mean you’re doing everything because the W size was smaller the markets are smaller um and um and people really needed to be more team oriented there
Because it was impossible for one person to be a product expert across some different things um I’m completely overgeneralizing yeah yeah of course yeah hopefully that gives you a little B context um but I you know I I enjoyed all those different roles um I found um I found Japan probably the most
Challenging because you know even though I speak Japanese um uh it it is a very you know um uh specialized market and and by the time I got there from Singapore um there were a lot of regulatory concerns around um marks to Market on credit product and we’re just starting to go through
The credit crisis 0708 and the nuances of how to Mark positions to Market Mark positions to liquidation value Mark positions to theoretical fair value I mean that kind of got lost in the shuffle and the discussions were regular um but uh but it was a super uh learning expand and
When I was in Japan I was I was uh running the whole country not just um uh sales or trading um so had a much more senior position um and then and then I left Asia um to come back to London and the midst of the financial crisis I
Think March of 08 um I came back to help um Bill books and a j sort of focus on restructuring the business uh and markets and prepare for an environment where regulatory you know um risk ratings on assets change quite dramatically so I think we we we forget
Sometimes that in that 2008 period we were dealing not only with significant Market risk um but also with significant regulatory change and all of a sudden you know Banks the under the prior regulatory rigidity might have had a capital ratio of 5% under the new regulatory regime had a capital ratio of
1% well that’s quite change and so you have to find that is exactly the reality of what was going on um and you know European Regulators did not have the neant um or the finess of the US regulator um in uh in managing that process um and so and
So to your point you know um in that period from 2008 to 2009 um you know uh one of the reasons I came back is because we we required radical surgery on the balance sheet and anything that was lazy s 25 basic point where carry risk um got jettisoned and a lot of
Complicated you know um you know derivative products were you know difficult to Mark you know um IL liquid products just had to go um and um and I think that was one of the the driving you know forces behind you know we sell off and asset price you know later late
Into early or not um but good again good learning experience um and after doing a lot of work restructuring the balance sheet in different businesses um uh I did work in um in the same in transaction Banking and corporate finance so applying some of the learnings that we have on the market
Side there and then um and then life changed dramatically when I’m sure Jane and his co- were Ur get fiction ask me to join the board and I was on the board of Georgia Bank um from 2012 to 2015 focusing on Big Picture strategy and outet allocation issues as well as
Much more detailed n-r um uh operations technology um management of the real estate footprint of the bank and so on so forth um again quite quite different from what I’ve done before but but really good learning exp I mean what’s the I mean you know I was obviously at do bank at
The same time as well and we kind of worked on the same floor for a period of time when I was working for Anu um but um you know what one of the things you always have within any company is that you think why doesn’t management just do
XY Z you know it’s so simple they should just do this you know like just cut this region focus on this product that’s not so balance sheet intensive you know U when you’re in the board position you’re a COO obviously you know very sort of senior seite
Position you know what what you find is the constraints I mean what do people not realize you know um from from without you know you know uh you know from from someone like you as a someone who’s done the job so so some things are simple and
Easy like that and and so I was a big fan always of sort of um what’s known uh as pizza box meetings having you know uh just enough people in the room to be able to share Pizza um to make decisions um and that that can be done uh at
Multiple levels in the organization I’m big fan of that and and sort of decentralizing all those decision- making processes I think as much as possible is the right thing to do there’s no doubt about it um that’s presupposes though um that you um made key strategic decisions about which
Which businesses you want to be in and which businesses you don’t want to be in and now so I’m I’m going to extract from doche bank and think more generally about the European Banks because it’s not fair just to to say this about DOA bank but I think all the European banks
Have a very significant you know issue and have had since 2008 2009 which is they’re trading at a very significant discount to book value um and so you have to ask yourself this been since 2008 9 you know this is not like a short-term thing right this’s
Been going on for a long long time um so you have to ask yourself so why for you know two three generations of banking and banking years this two or three generations the banks just don’t trade a book value um it’s it’s obviously not the marks to market the positions right not
After not after you know 15 years after 15 years obviously the marks are good you that’s not the issue um so the issue is not ASE equality or marks um I think the issue is much more one of of focus and scale and um and so to to answer
Your question more directly I think um the reason that that people don’t do the obvious things is because there’s certain businesses that if you’re going to be in them there’s this minimum you know criteria minimum requirements and that can be anything from certain Geographic Footprints to C certain investments in people regulatory
Licenses you know technology and operations infrastructure and so so forth so the easiest and the the simplest thing to do you know um it’s and it’s super easy to say is very hard to do is decide which businesses you really want to be in which businesses you don’t want to be in and
Um uh and that’s you know um and that’s great and easy simple but the reality is that um you know Europe is still not a single banking market right um Bank of Z is different in every country in Europe um Capital Market slots completely different right um consumer and corporate lending laws completely
Different uh so it’s it’s not like the United States where you know yeah so by by state there’ll be some variation certain user laws in certain States certain twists on the banking you know regulations in certain States you know the banking regulator in New York you
Know tends to be much much bigger than the banking regulator in Nevada stuff like that um you know there’s some conflict between you know the SEC and various other you know regulators and you know that little ARG bargy um but that’s quite simple in the context of of what J really accepted to
Be a a large um homogeneous banking Market it’s just not true in Europe and so you’re forced either to run complexity of regulatory relationships across multiple jurisdictions with one product Focus you’re going to do retail across all of Europe but you can’t depend on one regulatory environment you’ve got
Multiple regulatory environments right I mean even to the point where you know you have have to worry about I don’t want to over do it but you have to worry about if you’re going to do consumer Landing in Poland it’s very different from doing consumer Landing it’s a different law to
Do consumer lending in Germany right hop across the border in Poland have the you know it’s easy you know right that so it’s kind of crazy right you know but yeah I can see your points it’s just the complexity levels are just so much higher in Europe because the
Fragmented nature of the um the market there that’s exactly right so so so so what what what ways can you create competitive advantage of a bank right you can specialize in one product in one type of client base or you can specialize in having a certain regulatory relationship right I would
Argue that that you know certain Banks their rais on De is they’ really understand the regulatory environment in country X right they understand all the Regulators they country X and so therefore their raise on death is to focus on Country X A to Z everything that can be done with clients you know
In country X right um and that’s frankly in some ways a little bit easier than having 20 regulatory relationships across 20 countries Ian this is one of the reasons why I think we’re seeing certain Banks you know pulling in their horns from Geographic perspective right um so I’ve
Given you a a long complicated um answer but um I think you know just generally speaking and and I really want to emphasize it should not be you know focused on budget bank but the whole of the European banking Market needs to either push incredibly hard for a
European wide you know um bankruptcy and capital markets Ling logs right option A or option b just decide brutally brutally like I’m only going to do this right um and going back to scale obviously for scale you want to be big you want to go across all
Countries I agree but I mean yeah you know you may not get economies of scale I guess it’s not it’s not the same big doesn’t necessarily mean economies of scale I suppose because of You get you get certain advantages I I agree you get certain advantages from a product perspective right so deposit taking in Germany is not significantly different from deposit taking in France okay um but how many French banks have done really well in Germany and vice versa yeah that’s fact yeah
Yeah that’s the reality of life so so I think absent um uh Europe wide you know um banking laws in general so bankruptcy Landing blah blah blah um I just don’t see um this changing so um so it’s a bit of a a waiting the banks have been very patient
They’ve been sitting there since 2008 2009 trading at you know significant discounts to book value that hasn’t changed I mean I have to say that’s quite remark I always thought we’ go back to trade back to book and initially I thought okay it was maybe some poor
Marks the book so maybe the market didn’t believe what the mark Market was but as you said I mean after one or two generations of of people going through a couple of business Cycles within there as well it’s the same you know all European Banks trade out discount it to
Book um yeah and and it’s very inefficient so um uh you know I mean if if you look at I I forget the numbers off top of my head but you know but but order of magnitude you know since the Savings and Loan crisis this we probably have
Clipped off half of the banks in the United States maybe more um and in Europe that just hasn’t happened yeah right um not nearly the same sort of scale um and so you end up with you know sort of regional you know you’ve got a couple of big Nordic Banks you’ve got a
Couple big French banks you’ve got a couple of big German banks and so on and so forth and then if you’re a German regulator I mean do you really want you know um the top two or three Banks to merge that’s like you know potential disaster because the reality is that you
Know um you know uh because of the market positioning um you and because of the law and and just you know iner in the difficulties um of dealing with crossb you know banking um it’s a really tough decision really tough issue now I I do
Want to go to your your your post Bank life as well but before we get onto that just another question on the banking side many European banks have tried to crack the US market um but they’ve really found that very hard to do you know there’s been periods where they
Have started to be dominant especially things like fixed income lesso equities but they’ve struggled to keep a foothold in in the US um why why do you think that is um I I it’s not a fair characterization maybe maybe yeah I would I would I would say
Requires a little bit more Nuance view I I think some banks some foreign banks have done really well in the United States um and I tend to agree with you it’s more on the fixed income side um but you know us banking law and the US
Tax code has really um uh designed to encourage um uh non us institutions individuals to lend money into the United States right um and um and um yeah it’s it’s it’s not a bad tax if you want to borrow money from overseas so so the us because you know
It’s you know as as um as one of the perks of seniorage can borrow money very cheaply and the tax code actually encourages that um and as long as the US be Remains the Imperial currency as as somebody reminds me in Argentina not too Longo when I asked I
Could pay in dollars um the Imperial currency of course um you know I I think uh foreign lenders will will do well in their states um uh so I so I think it’s a bit more Nuance now um how hard is it to build uh as a foreign institution how
How hard is it to build um a US banking president more broadly I think it’s not easy because you need to have the right cultural you know sort of Paradigm um you know I when I started this conversation with you we were talking about sort of generalized approach um to
Managing sales in these different you know locations the United States is much more complicated it’s much bigger at needs scale not um it need specialization um you know just the mortgage Market is huge right and you have the treasury market and then you have the equity markets um you’ve got
The corporate hedging Market um you know there’s there’s so much specialization required and and therefore whatever foreign Bing whether it be European Japanese you know we’ve seen lots of of folks well they need to create a culture that allows um you know the local management team to really build that you
Know specialization out B by and to stick through it um for various cold um so I’m a bit more optimistic uh about that than maybe some others might be um but there’s no doubt that you know this huge from Advantage if you’re if you’re JB Morgan or um you know a Bank of
America you know the deposit base gives you such cheap funding it’s you know what do you do right I mean that’s that’s an incredible Advantage right um if you’re a Goldman sacks you know the corporate relationships that you built up you know over Generations you know it’s an incredible Advantage yeah and
And uh we might come back to some elements of what you did at doche Bank in particular on the digital Bank but you know after Deutsche Bank you then um changed Tac career-wise um can you just touch on some of the things you’ve been doing since then absolutely so um so I
Spent a lot of time thinking about whether I wanted to be operating again or investing um and so using that lens I decided that you know I had enough of operating things I done a lot of operating and so um I started investing and um and
Uh and that was you know I spent a lot of time talking to uh people I really respect about this most important my wife’s because you know I was taking some pretty significant risk so uh we decided that uh we would run essentially a family autist type of
Structure not take any money externally um but to take significant risk in startups particularly trch which I felt like I understood based on the experience at geia bank not just running the bank but also as you mentioned just now um starting a lot of the digital banking initiatives there
Um uh so one leg of the strategy was focusing on investing Equity into early stage um what’s been Comm described as ftech company but I think it’s a bit of a generalization another leg of the strategy was to uh and remains both these strategies remain remains um to invest in lending
To early stage startups not lending as silicon valy Bank you know sort of venture lending but lending against hard Assets in special purpose Vehicles so using you know um uh you know ABS technology and you know structuring to provide um lending to early stage lenders so to allow them to grow a
Balance sheet or other asset Rich you know startups um so first leg of the of the portfolio highly focused on growth you know the the average holding period you know it’s 12 to 15 years you have to be willing to SN money away for 12 to 15 years not see any cash flows
Out it the second leg of the strategy was very focused on generating cash flow monthly cash flows highly secured um relatively low credit risk um believe it or not because um uh structure guess is over collateralization yeah um but the real risk you’re taking there is is um what I
Call startup risk but that includes a whole range of things like how quickly you know if you provide you know um a borrower a credit line how quickly will they take it down right um uh what kind of operational risk is involved um you know fraud right all
These different things in the start environment which are much trickier than in a regular credit environment okay um so you’re not necessarily taking just credit risk I mean in fact I would regard you again that the credit risk was relatively low you’re taking a lot
Of operating risk and um and I did a lot of work with um a partner um who um you know had been on the board of credit swis and so he and I have done tremendous number of those sorts of transactions um focusing on UK and the
US um we developed a number of Partnerships now so um so we’re less you know Hands-On but um but we’re still doing those sorts of um of lending transactions um and um and then through time and particularly after the um when when when we had Co and afterwards um
We’ve also un building a public Equity portfolio and a public debt portfolio um focusing again on high yield and and we have a real estate portfolio as well so those are the sort of the pillars of what we’re doing um the the focus um particularly since
Co has been on how to generate cash and cash was I I was very worried um and remain you know still worried about um inflation even even during covid times I like oh this is not good we really need to focus on cash flow um so we lightened
Up on the pace we slowed the pace of investing in growth equity and increased the pace of investing in inflation Hedges um since Co times okay I understood hopefully that gives you a little bit of perspective yeah no that’s fantastic yeah um I I guess you one question is you know you’ve obviously
Run as an operator when you were at a bank you ran very successful teams divisions and so on um and then you’ve gone to the other side and become an investor in startups and you’ve with many of them you’ve held them for a long period of time on the startup side um I
Mean do you find that the successful companies are similar to successful teams used to manage within a bank or I mean what what the sort of what the different kind of markers of success because when you build within a bank there’s obviously certain things you look for but then startups is different
Culture but then is it different or or not in the end it’s just about execution yeah so that’s a great question I think it’s a bit hes strip hes so in my experience very early stage startups um the mentality’s got to be very different and and it’s you know I
Spent a lot of time at dorg bank trying to instill that mentality into teams um when they were going into new markets or new products um or they’re fixing really thorny issues that couldn’t be fixed in traditional ways and needed to be fixed in unusual what does that mean you need
To have people who think outside of the box who don’t accept the status quo um who you know don’t need to come in you know in the morning to like Pi a an agenda right so I’ll make it really extreme if if you’re if you’re
Covering you know uh a CL Cent for you know uh interest rate derivatives right and you’ve got that client and five other clients and they’re treating you know 100 times a day you have no time dur during your day to do anything else other than to focus on that client and
Do an excellent job at it right um so trying to take that person out of that job um into and put them into something different or try to take that person um uh and encourage them to think about how to do things differently and more efficiently is hard right it can be done
And the best ones you know do that right the best ones like they Master it and then they figure out how to do it even better right and they how figure out how to even do it better right um the constantly applying you know um you know lifelong learning to Improvement but
There are not too many people like that right most people who do a really good job at focusing on you know a particular product with to go have their Cent base you know they’re good at it because that’s their mentality right um and it’s hard to get people who are good at that
Kind of consistent performance as well as thinking outside the box it’s just different personalities different way of thinking about things let alone the time so it’s an issue of time and focus but also an issue of you know what kind of think you are so in the horses sh hes
You know um response I would say that you know for early stage startups you need a very different type of mentality people who are comfortable with big risk just not having a set agenda thinking outside the box um who are comfortable with the scientific method right just experiment try it doesn’t work do
Something different right um it’s amazing reminds me of the famous thing from Albert Einstein you just just because you failed the first 99 time doing it the exact same way yeah but you know um you know trying you know quick G failing is much much better than you
Know trying like 20 30 times try fail move on um and um and so the process of decision- making needs to be sped up in early stage um you know firms and there can’t be very much oversight I mean you have to be really comfortable with like
Just letting people go like the the you know F and flowers wom strategy um and so um that mentality though has to change as the startup matures and that’s a combination of starting to institutionalize certain practices so you’ve experimented with a thousand different things and you found one or
Two that really work well but then you got to start thinking okay now I need to bring in the people who are good at just optimizing that one or two things and then right so um so I don’t think it’s necessarily like um you know differences in culture and people it’s just what’s
Appropriate for a particular person at a particular time or what’s appropriate for a particular company a particular time um and I think that Nuance is um what separates the really uh successful startup operators through time they get that so they know when they need to you know start to create structure and
Process and discipline um and when you just just let the horses run right and you know one of things we found until very recently um was that we had cheap money you know since covid not since Co well Co but before that GFC as well and so you found that startups were doing
Fantastically well Tech was doing super well it didn’t matter if the company was making profits or not you know just it was about Revenue growth Revenue growth valuations astronomical unicorns and all those sorts of things um I mean how how do you think about that s regime because
Obviously to some extent You could argue that what worked in that period is not going to work today but many people are you know trading off the back of that reputation that they had of being amazing BC investors but was that just cheap money or or not you reminds me that famous cinema
Company startup that M likes to write about it in BR um you know just raise a bunch of money and then use that to subsidize your product look there’s a lot of that stuff going on um the okay so let let me just take a step back so
Um I think uh the post financial crisis period up until you know maybe last year and even then um we’ve had you know almost two decades of negative real interest rate almost two decades of negative real interest rate I think the last time that that happened and I have to check I
Think that was sort of 1870s us um I I don’t even think we’ve had Decades of negative real interest rates in the UK UK been much more reasonable about that so um uh but that that gives you a sense of how unprecedented negative real interest rates are from a historical perspective
Um and and it creates huge distortions huge distortions I you know I remember calling up a major uh life insurer who’s a big big player in the in the German Government Bond Market I spoke to a person who’s responsible for their entire portfolio and I said why are you wasting time buying negative
Nominal and negative real y forget about negative real good that that maybe your time changes but you’re buying negative nominal yields you essentially telling people that you’re managing their money for that you are locking in a negative return right and the answer was well reg I’m like well go fight with the
Regulator take them to court right you know why should you be buying something at 100 cents on the Euro that you know is going to return you 50 cents on the Euro what how how is that possibly the right thing to do for your customer base you have a fiduciary duty to your
Customers here um and he’s like I can’t I’m not gonna waste my time doing that right so that’s just one example of so many that I can give you of how distortionary this you know um period has been um I think that that led to um a whole series of um
Overinvestment and many different types of of of products Um uh there were certain governments who were really smart and locked in longterm money I had to chuckle about the Austrian 100-year Bond yeah um it’s shocking to me that the United States didn’t do do that um I think 80% of the debt United States matures with
The next two years when they had opportunities to issue you know 30-year is Inc just shockingly lower yield but but put that aside um uh I don’t know yet the extent to which um that Distortion um will uh cause future problems and different sectors of the economy there’s
No doubt that um some of the biggest froth in my view went into crypto and went into late stage venture capital I didn’t see that same sort of FR in early stage Venture Capital um and I didn’t see it quite so much in um sort of core markets
Um Poe publicly trading markets though you know I just gave you some example examp of silly stuff right um I could use examples in UK too yeah for forcing you know pons to buy go negative stupid n anyway you know um enough of that so I I think um we’ll
Find out um over the next several years um and I to say that you know to be I think we need to be you know sort of realistic about this I may be wrong I mean maybe I’ve been worried about inflation since Co because I was just so
Worried about all this money just just just going out there um but maybe I’m completely wrong I mean there there are still a lot of people who argue the you know the right level of long-term government bond yields and yes is 2% I I find that incredibly difficult
Even and we can talk about all the reasons why but you know so as long as there’s that debate about where the the right level of long-term you know nomal yelds should be I think um uh you know we should be you know we shouldn’t just assume that the indust r environment has
Completely changed forever right I I I am acting as if it has but I don’t think we should have yeah and now now you all you you mentioned one of the pillars of your investment approach is fintech um you know on the fintech side what you find are the most interesting Trends to
Invest in so I think um the uh the um the industry has matured quite a bit um so you know if I compare where we are now versus where we were in 2010 or 2015 it’s like night and day um so when I first started um you know had a big
Focus on payments a big focus on lending and making lending part of a consumer or corporate uh process right um a big focus on um on analytics um particularly analytics that would support uh lending um but the the there are certain areas that I was very uncomfortable with um one was
Um banking licenses and and startup Banks startups and and Banks you know goes back to my comment about like what what startups do really well versus what banks do really well um um I did like Asset Management I still do for startups um but that hasn’t changed I mean there’s startup you know
Hedge funds and startup asset managers you know all the time but so I still like that um uh going forward you know now that things have matured quite a bit um the areas where I still see the the the most opportunities are in payments in lending
And in Asset Management um you know uh I haven’t seen new themes come out of uh fintech since probably 2017 2018 but a lot of people sort of tweaking things and taking ideas that have been germinated successfully in the UK and in the US more UK a little
Bit of Brazil Brazil been a good you know market for Innovation um uh to other countries um but as a as a risk management matter I just you know I can do UK and us I can’t get my head around some of the other countries it’s just
Too hard um and how about something like blockchain you know one part of crypto that seemed quite interesting and people saying this could disrupt you know payments and and and such you know was blockchain technology I mean did you it’s okay so you know like when I
Think about blockchain or I think about machine learning or I think about you know artificial intelligence um I I consider those as sort of a toolkit right and and so when do you apply that toolkit um you know in my personal experience um you know uh using blockchain for you know bog standard
Bilateral contracts is just a waste of time right um you know why should you create an immutable record like weird I don’t know um you know uh it takes a long time right you know um there are much much faster ways to do large you know um data uh
Work the where where blockchain can be super useful is where you you have five 10 15 different counterparties all working on a particular transaction I’m thinking about the banking perspective and you know and you needed an immutable record right because like you know if it’s just you and me doing a
Deal it’s like a that’s fine easy right but if there’s 15 different people who changed what when and you know and sometimes you need for regulatory legal uh reason sometimes in business you need an immutable record and there’s 15 or 20 different people all putting stuff into
An immutable record and but it’s in there it’s done right so if something did some somebody did something wrong they Chang you you have a record of exactly what happened those situations are incredibly useful um and um and so you know uh I think you know like any
Technology you have to decide very carefully you know what’s the most appropriate application and sorry about that my screen my screen is reacting to my my gestures um and you know not everything is appropriate all times I mean like you know I’ll give you a funny little you so
I F when I first took over technology Dr bank I said so how many different applications do we have all right and I got the number it was it was too large a number and we we did a lot of good work to you know to
Rationalize but then you know one of the technologists that te smart guy said to me remember Henry you know we don’t keep track of all the spreadsheet that people use but people use spreadsheet sometimes because it is it’s just faster easier right it’s not always the right thing to
Do but it’s fast and easy um so we have to just be mindful of of when the The Right Use so I think a lot of the blockchain of the early blockchain startups you know they’re like blockchain I’m like Okay cool so what’s the product what’s the client who’s the
Client what are you going to do right blockchain okay what’s the business man okay you’re going to sell the to Kit okay good so you’re in the business of selling a cool kit so how do you differentiate what you’re selling versus what you know Salesforce Oracle IBM you
Know and 10,000 and one other people are selling um and the same applies to machine learning and AI in your view that it’s a it’s a toolkit very much yeah now so um up until somebody years ago I would have argued that you know we could not use the word AI we
Really couldn’t um and I kept on saying to people look um let’s use machine learning um because I think that that was a more appropriate way to you know to characterize what we’re doing um but you know over the past couple of years we’ve seen some just outstanding
Advances uh often times through Brute Force just sheer you know um ability to to manipulate data um that gets you beyond machine learning to be able to really anticipate um the needs of individual users you know so imagine you typical Bell Cur of you know an experience whatever most businesses just aim for
You know the 8020 role they just don’t worry about you know the far ends of curve but you know um you know good statisticians you know with the usual you know basy and stuff could could do a great job um um especially when you started thinking
About what’s the right curve you want to you know model and then we started seeing you know um really good ADV machine learning and the ability to you know figure out based on the data right rather than imposing your own perspective on what the data could look
Like using the data to figure out what you know um to simplify the do curve look like to now a situation where the belel Cur really doesn’t matter because you have so much data around individuals that you know that if individual X right did y then they’re probably also going
To do Zed with you know probability of X so you know that allows you to be you know really very very tailored in your approach to indidual client um and allows you to just simplify your life I mean you know um I’ve seen a couple my portfolio companies experiment with um
Adding AI to their processes and they’re getting efficiency gains of two or three hours per person and these are relatively highend you know um asset managers you know lenders um people who are you know really smart people who you know adding you know two 3 hours of
Productivity to their day um is a really tremendous you know uh impact on um the productivity uh of the organization as a whole so I’m quite you know optimistic about the broader application of these tools to different businesses um but we shouldn’t kid ourselves I mean you know
A lot of the a lot of the sort of segment that I’m focusing on are really doctor very R of people quick on it but you know how long will it take to get to the you know I you know it reminds you of a story about the horse and the tractor
Right you know it took quite a long time for tractors to you know to to become part of of everyday Society why was that because you know they were expensive they Wen work that great horses were cheap everyone knew how to use them it took like a whole series of
Different events around labor cost and the ability to scale farms and you know all these different things had to come together to to make you know tractors you know uh economical scalable and you know useful anyway but the point is I’m I’m quite optimistic over the long term around the
Application of these tools different is yeah and now now I do know just bit of a pivot here I mean I do know you’ve also been focusing on medicine biot as well as a theme so tell me more about this uh this Focus yeah similar sort of concept
There um you know we’ve seen such a now I’m not an expert in this space and I I you know I I only want to use this as an example of how the world is changing so I I think that um similar to the way
That you know you can use uh new data techniques to personalize customer experiences in a financial space you can use MOA techniques I’m thinking crisper and all the work that’s done um now in you know um in medicine to Tor medicines to individuals right and to individual
Diseases right so being able to create a vaccine for an audience of one was impossible right but imagine applying the same sort of approach that I took to being able to tailor medicines to you know uh an individual’s needs at that particular point in time and I think you
Can see that we’re going to have you know quite a significant um Step change in the way in which um both we anticipate needs going forward as well as cure you know diseases that come up um so I’m I’m quite optimistic that um we’re going to go through quite a
Significant period of um productive um exponential change in um in medicine and and biotechnology um similar to what we’re seeing now in energy and energy use that’s another theme of mine right um you know if you remember you know oversimplifying it but I’m trying to
Tell a story right used to be that you had to put the mill next to the stream because the only way you could get the mil to run was the water right and then we had the you know the steam engine and you know and then you could sort of you
Know build a factory wherever right um but you know then we have electricity and you know and using electricity you had to be dependent on you know on a huge infrastructure grids to set thing um with solar wind and the electrification of a lot of our power
Needs I think over time we’re going to be able to go to a much more decentralized power grid this is like a 20-year process but again I I expect exponential change there as solar and wind has become particularly solar solar is cheapest chips right um and you know
If you happen to be you know unlucky on the solar side you’re generally pretty lucky on the Wind side yeah seeing in the UK I can agree with that well no you know here I am sitting in Panama we see solar panels everywhere and you know every time I’m in northern
Europe including UK I see wind um and windmills um everywhere um uh same is true in in the sou in Chile Argentina and so much rain there know you can use cheap wind power um some places are best with both right you get both sun and wind um but you know um the
The I don’t want to um underestimate the transition I think we need to be very um particularly for for um for veloping countries we have to understand that that you um most of the technologies that are easily scaled right now are powered by coal oil gas um
And that will continue to be the this for 20 30 years um and it requires just a wholesale rethinking of the infrastructure you get to um where we want to be from electrification perspective the good news is you know if you don’t have too much you know already
Invested um you can go straight to the end right so there’s certain countries Panama is a great example I I don’t use any telephone lines or anything like that you know we went straight to mobile right um and and you know we in some ways have avoided the necessity to create you know
Huge huge embedded infrastructure in you know telephone lines physical you know telephone lines uh and maybe there are certain similarities and certain you know lessons we can take away um for application in an Emerging Market on the electric on the electrification side now and yeah we we could carry on talking
We’ll have to come back for part two so I just wanted to round off with a couple of personal questions um one was what’s the best investment advice you’ve ever received from anyone um uh so my my partner on the landing side has to do these which which I definitely
Want to share because you know these are really good the first one he said is that um Financial returns are determined by both the numerator and the denominator um and and in short you know it means that the price at which you buy something and the price at which you
Sell something are both equally important right um so uh always buy cheap and always um sell expensive and the second thing um that you said which really sticks with me so true you never sell anything unless something else is you know is really much cheaper and is
Much more desirable to have right um you want to always stay invested um and um and you have to think that that cash is an active investment straty you’re actively making a decision whenever you hold cash um those two uh things I think are incred important and often times get
Of shun it aside in the way in which people think about things they’re they’re one or two other tidbits that I would throw in there and and you know to think in trees maybe just um keep it to one and that is keeping everything super simple is important um you just want to
Have simple themes simple Expressions um uh creating complexity I think um can be a disaster uh for you know long-term uh investment strategy um you really need to to focus on Clarity yeah now the other one was some of our listeners are young or younger and many of them will leave University
At the end of this year to enter the real world um what advice would you give to them yeah um I I’m a a big believer in taking the path less soled um um so uh so I would encourage them to think about doing non-standard things right things are just different um and
They give you a unique experience and unique perspective um I would say that um uh hearkening back to my earlier comment uh in addition you should really just focus on trying a lot of different things until you settle into one thing um because you know you life is all about figuring out
What you really really like and if you like it if you love it then it becomes something that you’re really happy doing and you you’re going to do it no matter what whether somebody pays you or not hopefully you’ll find something that both you love and somebody will pay you
A lot for um but those two pieces of advice I think are really important um you don’t want to to do something because you’ve been told to do it because it’s a thing to do you want to find the unusual stuff and then when you find somebody you really love you want
To stick to it and do it um and that’ll that’ll serve you well with that’s great great advice and then um what are some of the books that really influenced you over your career I’m a big uh fiction person so I have not yeah yeah so
Um so generally speaking you know um I I Lov Kafka you know um okay you know he was great at just pointing out absurdities they just fantastic author so so a number of his books uh you know I really really like um you know uh those are always very fun to read
Um uh on the non-fiction side I I do like reading history um uh history majer yeah but um you know uh and then sort of historical fiction too can be fun um uh yeah history is um history is really good I’m I’m uh you know I surprise
People I keep on telling that I’m I’m Marxist and they look at me yeah I’m Marxist in a true sense of the word you know that that um economics matter and and what um drives big social trends is often yeah driven by what’s happening in economies um either the macro or the
Micro level um we wouldn’t we wouldn’t have um you know the United States Argentina Brazil if we didn’t have the first and second industrial Revolutions in in Europe um but you know um you know we can talk about that yeah that’s great I like that and just to round off uh just final
Thing if people wanted to follow you in some way is there a way for people to follow your thinking or or connect with you I I’m I generally um am uh quite transparent on my website so people can pop in uh but you’ve reminded me that I
Haven’t updated my website for a little while I’ve been I’ve been traveling quite a bit so I’ll have to go and uh and and add some stuff on board but you know if you Google me you’ll see like um you know um I I do quite like during
Podcast discussions um I’m oftentimes in the Press so people are very welome to okay great I’ll add some links on your to your website and such so I with that I mean it’s been a fantastic conversation I’d love to get you back on sometime in the future as well and um
You know you know have a fantastic sort of time where you are at the moment in Panama and also good luck with all of your Investments as well thank you very much great seeing you and look forward to seeing to you again to great thanks thanks for listening to the episode
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