Video Transcription
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Good morning, everybody, and thank you very much for having me, Caroline.
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So my name's Liz. I'm a partner and head of the charities team at
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Birketts. The title of this session, as you can see, is 'The State of
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the Charity Sector.'
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So what I'm going to do is use that title quite broadly.
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I'll start with sort of the current position, what's happening generally
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across the sector, and then I'm going to look at what that operating environment
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means for charity trustees from a legal and governance perspective.
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The central theme throughout the presentation is around resilience,
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but it's not only about the resources available to a charity, it's
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also about the quality of the decisions that are made by a charity's
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trustees.
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So this is what we're going to cover.
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I'm going to start by looking at financial resilience, which is a very, very
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key theme that we're still seeing through the sector.
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And then I'm going to look at the framework for trustee decision-making,
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and there'll be a sort of short case study within that part of the presentation.
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Then I'm going to consider resilience through four practical legal
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lenses. So decision-making under pressure, financial
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pressure points and legal risk, reputation and regulatory
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scrutiny, and strategic change and adaptation.
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And then I'm going to finish off, I'll round off the session by pulling it all
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together with four questions that I would recommend charity trustees
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should be asking and thinking about.
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So this isn't going to be a conventional legal update in the sense of providing you
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with lots of case law or statutory inquiries that have happened
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recently. My aim is really to look more broadly at what's
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happening in the sector and then connect those developments with difficult
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practical decisions that trustees are having to make at the moment.
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So this takes me onto the central proposition.
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The underlying legal duties of charity trustees haven't changed.
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Trustees have to act within their powers.
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They have to advance a charity's purposes.
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They have to manage the charity's resources responsibly and
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exercise care and skill in decision-making. All of that's the same.
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Nothing's changed. What has changed is the
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context in which those duties must be discharged.
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Many, many boards are now increasingly having to make quite difficult
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decisions, often with limited financial headroom,
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increased demand, and no obviously perfect solution.
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And that makes both the quality of decision-making and the trustees'
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ability to evidence that process particularly important.
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In uncertain times, the principal legal question
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is not what did the trustees decide, it's how did they reach
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that decision, and how can they demonstrate that they've
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approached their decision-making properly?
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So that gives us our first recurring theme.
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Good process doesn't guarantee an easy outcome, but it
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makes a difficult decision more robust, more defensible, and
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more likely to serve the charity well.
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So the need for that discipline is clear from what we're seeing in the sector
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at the moment. Some of you may have seen that the Charity Commission published its
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second-ever risk assessment of the sector in August.
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It published its first risk assessment last year.
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In last year's risk assessment, financial resilience was identified as a key
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systemic risk, and that remains the commission's headline systemic risk
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within its report.
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Sector income in 2024 was about 102 billion, and
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expenditure approximately 100 billion.
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So whilst that sector margin has improved, it remains
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below pre-pandemic levels.
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The aggregate position of the commission's analysis also
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conceals this considerable pressure that's
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happening within individual charities.
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The commission found that 41% of charities are spending more
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than they receive in a year, and the smallest charities are the
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ones that continue to operate on the narrowest margins.
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Also, the commission's casework paints a picture of an evolving
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and more difficult climate. Cases involving
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insolvency and financial difficulty increased by
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27.7%, and that's a huge uptick from
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184 regulatory cases to
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235. And voluntary removals from the register, so
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charities closing or merging, also increased.
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Now, those figures
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sound stark, but they should be kept in proportion.
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It doesn't mean the sector as a whole is in crisis.
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The commission recognizes the substantial impact that the
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sector still achieves and the incredible resilience that's demonstrated by
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charities consistently.
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But what that picture paints is a sector with limited
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financial headroom.
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There's a significant part of the sector that is financially struggling, and for
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trustees, that means there's less capacity to absorb unexpected
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costs,
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the loss of funding, or any increased demand for services.
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The other thing that is drawn out in the 2026 risk assessment, which we didn't
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really see in the previous year, is attention to technology and
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AI and the increasing risk that that presents.
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The governance point around this is not that charities should avoid
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innovation, but boards need to understand where technology is
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used, the risk that it creates, and where human
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accountability remains. And you may well have heard of certain
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grant-making charities that have been forced to close their grant application
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processes, for example, due to an inundated number
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of AI-generated grant applications.
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So there's changes in the way that charities are operating as a result of it.
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So the picture's not one of uniform crisis, but it's one where financial
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pressure remains substantial, and it's increasingly
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translating into difficult governance, operational, and strategic
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decisions.
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Now, before I turn to that decision-making theme, there is one other update that
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I just wanted to touch on today because it is particularly relevant and
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it comes into force today, and that's the new accounting thresholds for
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charities.
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So for financial years ending on or after the 30th of September, so today,
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several statutory thresholds are now increased, and those are all summarized on
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the slide there. I'm not going to go through those in any
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great detail, but it's just worth bearing in mind whether that does have an
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impact on your own charity's need for external scrutiny
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of accounts and whether or not you need an audit, whether you're now below an audit
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threshold, for example. Now, whilst these changes should
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produce, and the aim is to produce, a more proportionate reporting
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regime for charities,
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boards need to not confuse that reduced regulatory burden with a reduced
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responsibility over financial matters.
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Obviously, the obligation to understand a charity's finances,
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maintain appropriate controls, and ensure accurate and
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transparent reporting remains with the charity trustees.
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So the other thing that you could think about is where external scrutiny is
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reduced, actually, a board might need to consider more
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carefully what internal assurance is needed over the financial
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position of the charity.
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So that brings us neatly onto the legal framework.
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What are trustees expected to do when the financial information
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indicates that difficult decisions are approaching?
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Financial pressure and governance risk are actually incredibly closely
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connected. Pressure creates more difficult decisions.
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Difficult decisions attract greater scrutiny, and that makes it
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increasingly important for trustees to demonstrate a proper
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process and a rational basis for what they decide.
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The legal framework is familiar, should be familiar, to everybody.
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You act within your charity's purposes and powers.
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You act in good faith and take decisions that you consider to be in the charity's
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best interests. You make sure you're sufficiently informed, take
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account of all relevant matters, and disregard irrelevant matters,
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manage all conflicts of interests in your decision-making,
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exercise reasonable care and skill, and once you've done all of that, ultimately
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reach a decision that's within a range of reasonable decisions that a
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board of charity trustees could make.
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Now, those principles are set out in the Commission's decision-making guidance,
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which is fundamentally unchanged in terms of what those principles
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say, and it's reinforced as well by the Commission's financial and
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reserves guidance. Financial oversight's not a separate
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function sitting outside of trustee legal duties.
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It's one of the principal ways in which trustees discharge their
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responsibilities to act in the charity's interests, manage the resources
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responsibly, control risk, and take appropriate
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advice.
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None of this means that you can predict the future or fully eliminate risk, of
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course. We all know that.
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And it doesn't mean that you should step into the shoes of your executive for
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charities that operate with an executive team.
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But management information isn't a substitute for trustee
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scrutiny. And actually, there was a recent regulatory case that you may have read
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about concerning the Coventry City of Culture Trust, where the
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trustees were actually specifically criticized by the Commission
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for inadequate budgeting and financial planning,
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excessive reliance on the executive team, insufficient
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scrutiny of the financial sustainability, which is what led to the
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issues in that case. So whilst you might rely on an
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executive team, you have to still engage with
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what information you're getting and make sure that you are scrutinizing
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all of that. Because ultimately, the buck stops with the charity trustees.
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So the practical lesson from all of that is you have to do more than receive the
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papers. You have to make sure that they're presented in a way that allows you to
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understand the assumptions, test the information, ask appropriate
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questions, and be in a position to act on the warning
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signs. And that gives us our second recurring theme, which is that
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trustees may delegate, and may delegate quite substantial functions,
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but they cannot delegate their ultimate responsibility for oversight and
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decision-making.
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So I'm going to examine that trustee responsibility through four
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connected legal lenses.
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Firstly, how trustees make decisions under pressure.
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Secondly, the points at which financial stress triggers particular legal
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requirements. Third, how charities maintain trust
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and prepare for regulatory and stakeholder scrutiny.
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Fourthly, how trustees approach strategic change and
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adaptation. Now, those four lenses are not separate silos.
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They don't operate independently of each other.
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Any sort of strategic change or significant decision will
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usually involve financial analysis and reputational
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considerations at the same time. And I'm going to just use an
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illustrative,
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fully made-up case study to connect the four themes.
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So
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imagine a charity, a midsize charity, which relies on a
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mixture of grant funding and public donations.
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As we've seen in a huge number of charities, demands increased.
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Staffing and operational costs have also risen.
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We all saw that happening with increases in NICS, for example, last year.
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But income has remained broadly flat.
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So the charity's now running an operating deficit, again, something we're seeing
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quite commonly across the sector, and it's having to draw on its reserves.
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So the board has to make a decision, and they're considering three
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broad responses.
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Firstly, they could close or reduce some of the services.
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The second option would be to restructure the delivery of the services, and the
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third option is to explore a merger.
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And I'd like you to consider, I'm not going to ask anybody to say which one they'd
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go for, but just to consider whether you would be inclined
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towards A, B, or C, what you think might be the right answer.
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Now, hopefully all of you are sat here going, "Well, I don't have enough
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information to tell you what I would do in this case," because you don't.
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And in practice, there is insufficient information at the moment.
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You know that there's a challenge, you know what the options are, but any of those
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three options could be appropriate depending on the circumstances and the
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information you've got.
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Continuing and hoping that the position will
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increase and that donations will come in is technically an option,
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but actually, you could only really do that if there was credible evidence of
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income anticipated or income recovery.
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Just sitting there and hoping isn't really a rational or
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reasonable decision. It needs to be evidence-based, an evidence-based
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expectation, not a passive hope.
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So these options could all be appropriate.
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Retrenchment may be necessary to protect the charity's longer-term
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stability and viability.
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And a collaboration with another charity or a merger might be a more viable and
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sustainable route, but that would depend on the merger partners available and how
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that all looks.
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The legal framework, and this is the key thing, doesn't prescribe what you have to
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do. It doesn't prescribe an outcome, and the commission very rarely, in fact, I
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don't think it ever specifically criticizes decisions of trustees,
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provided that they can be justified as reasonable.
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The commission's interested in the process and how you justify the decision, not
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what your decision was. Because the reality is, if you put this
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problem in front of three separate boards, you might find that each of them
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reaches a different conclusion, and every single one could be reasonably justified.
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So the key question is how do you take your decisions?
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What appears in this case to be a financial question, quickly
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therefore becomes a legal and governance question.
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So the sorts of things that you need to be thinking about and looking at are, are
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we clear about our purposes and our powers, what we're trying to achieve?
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Have we thought about how the surrounding climate, the changes in social and
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economic circumstances have had an impact on our purposes and how we
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achieve them?
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Do we fully understand our financial position, including cash flow,
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restricted funds, reserves, and future commitments?
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Do we know what we've got available?
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Have we considered the impact of each of those options on our beneficiaries or the
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charity's ability to deliver public benefit and to advance its
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purposes, both now and in the longer term?
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Are there any conflicts of interest or loyalty that we need to manage?
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Do we have sufficient information?
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Have we obtained appropriate professional advice?
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Have we considered all of the genuinely available alternative options?
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And will the record of our decisions show how we reached our conclusion?
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And this is something we see quite a lot in practice.
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The objective here isn't to produce an artificial set of perfect
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board minutes after the event. It's to actually start with those
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questions to help improve the decision-making process.
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There isn't a requirement for you to find a perfect solution where there isn't one,
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and in most cases, there isn't a perfect solution.
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All of these options are difficult.
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It requires an informed and reasonable decision, reached in good faith on
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the basis of the circumstances and available information.
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And these questions, therefore, provide a route through those four lenses that I
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was discussing. We begin with process, we look at the specific legal
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triggers, we think about scrutiny and reputation, and then we
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decide what strategic adaptation is right for the charity.
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So what would I say good trustee decision-making looks like in practice?
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The commission, as I've said, has identified those seven principles of sound
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decision-making, which I talked about earlier.
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For a board under pressure, I'd translate those principles into four
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practical disciplines. So the first one there is the
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purposes and intended public benefit.
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And this is a key point that often we have to remind people of, and
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hopefully nobody in this room falls into this trap.
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That the survival of the institution itself isn't what we mean by
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acting in the charity's best interests.
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Keeping this institution, the organization, going isn't what we mean.
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What we mean is how do we best advance the charity's purposes?
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And
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keeping the charity going and advancing the purposes is not always
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in alignment. And actually, the Charity Commission, in its own
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guidance and in its risk assessment, specifically draws attention to the fact that
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sometimes closure or merger are the right solutions for advancing the
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charity's purposes.
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So then the second part is to make sure you've got the right information and any
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advice that you think you need. Test the underlying assumptions of all of the
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potential options. Ask what needs to be true for a
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proposal to succeed. What could cause it to fail?
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What happens if the assumptions prove wrong?
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Then create space for proper challenge.
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It's difficult to do this within a board.
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It can be
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a challenging thing to invite people to
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express different views about a particular scenario in a
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respectful way. But the most effective boards and the most effective
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chairs create that space for challenge in a way
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that is productive and leads to a better decision.
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And then finally, a clear record of the decision, and this is the
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bit where, as a lawyer, I'm most likely to emphasize.
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Make sure you have a record of what you decided and why, because ultimately,
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that's what your evidence is of how you reached the decision.
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And when you look back, if a regulator gets involved or there's ever
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any question about the reasonableness of your decision, any challenge,
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that is how you prove it. If you don't have a written record of what you did
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and how you reached the decision, it's impossible to show that you followed a good
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process. And ultimately, if something does go wrong, because you
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don't have a crystal ball, that's what you need to rely on to say, "But at the
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time that we made the decision, it felt like a reasonable and the
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right decision for us."
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So the minutes need to identify the material information
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that you relied on, the principle options that were considered, the
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significant risks that you took into account, any management of
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conflicts, and
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ultimately, what the reasons were for your decisions.
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The common pitfalls that we see in practice are optimism bias,
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delaying difficult choices, treating hope as a strategy,
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as nice as that would be if it were something that worked.
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Over-reliance on executive views, unmanaged conflicts, which
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is a huge theme in statutory inquiries, and records
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that state the result but don't show how you got there.
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Now, obviously, resilience also relies on your reputation.
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It relies on maintaining trust.
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The Commission's research that was published in August,
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found that 57% of the public continue to have high trust and
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confidence in charities, which is a very strong position.
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But trust, public trust is closely connected to visible impact.
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That's also what the findings showed.
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Financial transparency and confidence that money reaches the intended
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cause.
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Now, the other thing I think is really important to say is whilst those figures are
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great and really encouraging, that general public trust in the
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sector shouldn't be confused with everybody universally
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agreeing.
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And the research also showed that a staggering quarter of
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charities reported being impacted by social polarization or
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division, what you might have heard being referred to as culture wars, for example.
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So, this is an increasing challenge for charities, where you have a
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divergence of views among key stakeholders, which is something that makes
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decision-making even more challenging.
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Trustees can face scrutiny from regulators, from funders, from
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beneficiaries, from staff, from donors, from the media,
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and from groups which disagree strongly with whatever it is that you're deciding to
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do. All of those things put everybody under pressure and make decisions
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more hard to take. But the legal and governance
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response to that isn't simply about better PR.
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It starts with being clear about purposes, making sure you have
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evidence-based decisions, and being consistent between what you say and
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what you do.
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Communication needs to be accurate, transparent, and appropriately
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timed.
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And trustees should also bear in mind, and this is a general point,
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when something happens that's so serious in the context of your charity that you
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should consider submitting a serious incident report to the Charity Commission.
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Sometimes the sorts of decisions that you're going to be taking will be in relation
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to quite a serious crisis for a charity.
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Safeguarding is an example of that, but also financial challenge.
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Now, serious incident reporting is often mistaken as an admission of fault or
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having done something wrong, but that is not what it is.
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And actually, I was in a meeting with David Holdsworth where he said
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1.6% of serious incident reports result in regulatory
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intervention of any kind. So it's a very, very low number that result in the
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Commission doing anything. But what it does is it puts you on the front
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foot. So if you've reported it to the Commission, you've told them what you're
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doing, the Commission's satisfied that the trustees are acting properly,
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they won't get involved. But if somebody, the media, somebody else, a third party
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complains about what you're doing or your decision-making, the
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Commission's already informed, and you're far less likely to find yourself, at a
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difficult time already, suddenly the subject of a regulatory
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00:21:36,220 --> 00:21:39,220
investigation because the Commission's asking, "What's going on, and what are you
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doing?" That just adds more pressure and piles on more work at an
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already difficult time. So do think about whether a serious incident
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report is helpful to your charity when you're dealing with a difficult crisis.
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The practical takeaway is assume that a significant decision
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may later be examined. The more strategic, the
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more controversial, the more significant the decision is, the more
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likely it is that that could happen.
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And ensure that both the decision and the record of your decision, critically, are
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capable of withstanding any scrutiny that might come down the line.
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So the final
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lens... Oh, sorry, I was on the wrong slide for you there.
377
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The final lens is strategic change and adaptation.
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So standing still is really very, very, very, very
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rarely neutral in a changing environment.
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Some charities need to redesign services, collaborate, share back
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office functions, establish group structures, merge, or use
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their assets differently.
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The legal message is not that the law prevents that kind of change, which I hope
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you all already know, but it's that the law provides a
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framework by which trustees should make and implement that change.
386
00:22:53,840 --> 00:22:57,340
So you should think about the legal and structural constraints
387
00:22:57,440 --> 00:22:57,920
early.
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They may include your objects and powers.
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00:23:01,840 --> 00:23:05,480
It may include restrictions affecting funds or property, may
390
00:23:05,540 --> 00:23:08,780
include contractual commitments, employment and pension
391
00:23:08,840 --> 00:23:12,740
obligations, regulatory permissions, and the treatment of assets and
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00:23:12,800 --> 00:23:13,640
liabilities.
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A robust business case should compare those realistic options that
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00:23:20,660 --> 00:23:23,820
you have to address benefits, costs, risks,
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00:23:23,960 --> 00:23:27,880
implementation, and importantly, the consequences of doing nothing
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00:23:27,920 --> 00:23:28,460
at all.
397
00:23:29,360 --> 00:23:32,920
And that's important because I've put it in the bottom here, just
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00:23:33,020 --> 00:23:36,580
avoid the pitfall of decision-based evidence gathering.
399
00:23:36,600 --> 00:23:39,640
And what I mean by that is where you've decided what you want to do, and then you
400
00:23:39,680 --> 00:23:42,940
kind of backfill the evidence to justify the decision.
401
00:23:43,860 --> 00:23:47,060
Instead of assembling the evidence to justify a decision, do it the other way.
402
00:23:47,160 --> 00:23:49,280
Good governance works in the opposite direction.
403
00:23:49,820 --> 00:23:53,560
You define the issue, obtain the information, examine the options, and then
404
00:23:53,620 --> 00:23:54,560
take your decision.
405
00:23:56,520 --> 00:24:00,240
Recent Commission inquiries also continue to demonstrate the risks created,
406
00:24:00,340 --> 00:24:04,200
where arrangements with connected organizations are informal and
407
00:24:04,280 --> 00:24:08,220
conflicts aren't properly managed, and you can't demonstrate why the
408
00:24:08,240 --> 00:24:10,400
decision was in the charity's best interests.
409
00:24:11,080 --> 00:24:14,820
While strategic collaboration is often a good course of action,
410
00:24:14,880 --> 00:24:18,500
entirely legitimate, you do have to think about any connections between your
411
00:24:18,560 --> 00:24:21,960
organizations, and often there are, because that's how you know each other.
412
00:24:22,460 --> 00:24:26,120
But where those connections exist, just think about whether those arrangements
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00:24:26,160 --> 00:24:30,060
require particular discipline or particular steps to be
414
00:24:30,120 --> 00:24:30,560
taken.
415
00:24:32,710 --> 00:24:36,630
The commission's 2026 data also records a substantial
416
00:24:36,770 --> 00:24:40,470
increase, sadly, in disputes within charities, and that
417
00:24:40,510 --> 00:24:43,970
reinforces the importance of clear authority, properly conducted
418
00:24:44,050 --> 00:24:47,790
meetings, managing conflicts, and records showing how a board
419
00:24:47,830 --> 00:24:51,610
reached its decision. And I'd also encourage all charities to
420
00:24:51,650 --> 00:24:55,510
consider putting policies and procedures in place for how you actually deal with an
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00:24:55,550 --> 00:24:58,710
internal conflict that escalates, because we
422
00:24:59,390 --> 00:25:03,150
have seen a huge increase in clients coming to
423
00:25:03,230 --> 00:25:07,150
us where things have become so entrenched that it becomes incredibly difficult to
424
00:25:07,210 --> 00:25:11,090
unravel, and it has a huge impact on the charity's ability to
425
00:25:11,150 --> 00:25:14,970
function. And the commission has said time and again, they will not get involved in
426
00:25:15,030 --> 00:25:17,110
internal disputes within charities.
427
00:25:18,530 --> 00:25:22,270
So, the strategic message here is good governance enables
428
00:25:22,310 --> 00:25:26,290
responsible change. Poor governance delays change, increases
429
00:25:26,350 --> 00:25:29,590
costs, and can leave a charity with fewer
430
00:25:29,670 --> 00:25:30,350
options.
431
00:25:32,410 --> 00:25:32,650
So,
432
00:25:33,770 --> 00:25:36,850
pulling it all together, what does a resilient board look like?
433
00:25:37,390 --> 00:25:41,330
Well, a resilient board's clear about its charity's purposes, maintains
434
00:25:41,450 --> 00:25:45,110
strong governance discipline, engages proactively with
435
00:25:45,150 --> 00:25:48,990
risk, and is prepared to take difficult decisions and adapt its strategy where
436
00:25:49,050 --> 00:25:49,710
necessary.
437
00:25:50,990 --> 00:25:53,990
And I would suggest for a lot of charities, and you don't need to do this
438
00:25:54,810 --> 00:25:58,370
necessarily every year, but in times of turbulence and change,
439
00:25:58,930 --> 00:26:02,810
taking the time to have a strategically focused meeting outside of
440
00:26:02,850 --> 00:26:06,690
your normal rotation of trustee meetings is incredibly helpful,
441
00:26:07,170 --> 00:26:11,010
because it's very difficult to shoehorn these kind of big decisions into
442
00:26:11,310 --> 00:26:14,010
the day-to-day business of trustee meetings.
443
00:26:14,530 --> 00:26:18,410
So, I do encourage charities to consider strategic
444
00:26:18,490 --> 00:26:22,210
away days, half days, full days sometimes, where
445
00:26:22,410 --> 00:26:26,030
there's a lot going on, there is a difficult decision on the
446
00:26:26,070 --> 00:26:29,910
horizon. And not waiting until that difficult decision forces your hand.
447
00:26:30,470 --> 00:26:32,670
Make sure that you're having those conversations early.
448
00:26:32,710 --> 00:26:36,550
Don't shy away from them because you will have more options the earlier
449
00:26:36,690 --> 00:26:37,670
that you get involved.
450
00:26:39,349 --> 00:26:42,690
And then there are four questions that I would encourage boards to ask.
451
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Do you understand your current financial position and the assumptions on which all
452
00:26:47,130 --> 00:26:48,590
of the forecasts depend?
453
00:26:49,970 --> 00:26:53,170
Would your board papers and minutes demonstrate a properly informed and balanced
454
00:26:53,210 --> 00:26:54,650
decision-making process?
455
00:26:55,790 --> 00:26:59,650
Is your structure and strategy still providing the most effective way to
456
00:26:59,710 --> 00:27:01,270
further your charity's purposes?
457
00:27:02,130 --> 00:27:05,930
And are you acting while your options remain available or waiting until the
458
00:27:05,990 --> 00:27:07,950
circumstances dictate the outcome?
459
00:27:09,210 --> 00:27:12,870
The boards that are most likely to navigate this environment, this very
460
00:27:12,930 --> 00:27:16,750
challenging environment well, will be those that understand their position,
461
00:27:17,510 --> 00:27:21,190
engage proactively with risk, act in good time,
462
00:27:21,450 --> 00:27:24,610
and can explain the reasons for what they decide.
463
00:27:25,130 --> 00:27:28,490
So, my closing message today is that in uncertain times,
464
00:27:29,090 --> 00:27:32,990
resilience isn't just about financial resources, it's actually
465
00:27:33,070 --> 00:27:36,070
fundamentally about the quality of trustee decision-making.
466
00:27:37,390 --> 00:27:38,410
Thank you very much, and I'm
467
00:27:39,450 --> 00:27:40,650
happy to take questions.
468
00:27:51,330 --> 00:27:51,730
Thank you.
469
00:27:52,970 --> 00:27:55,610
Thank you for that excellent presentation.
470
00:27:55,650 --> 00:27:56,030
Thank you.
471
00:27:56,070 --> 00:27:59,250
As a trustee, I have a far better idea of what I should be doing.
472
00:27:59,310 --> 00:28:02,310
So, thanks for that. I've one follow-up question.
473
00:28:02,570 --> 00:28:05,070
What about data protection breaches?
474
00:28:05,130 --> 00:28:05,270
Your
475
00:28:06,230 --> 00:28:08,210
trustees have to deal with two regulators-
476
00:28:08,250 --> 00:28:08,250
Mm-hmm
477
00:28:08,250 --> 00:28:11,590
... the Information Commissioner, as well as the Charity Commission.
478
00:28:11,650 --> 00:28:15,250
Is there anything particular to add about that, given the very
479
00:28:15,330 --> 00:28:18,750
tight disclosure timetable the Information Commissioner
480
00:28:19,270 --> 00:28:19,930
prescribes?
481
00:28:20,370 --> 00:28:24,150
Well, yes. You have to report breaches very promptly to the
482
00:28:24,250 --> 00:28:27,950
ICO. I would also suggest, depending on the seriousness of the
483
00:28:27,990 --> 00:28:30,770
data breach, that you consider a serious incident report as well.
484
00:28:31,130 --> 00:28:34,810
As I said, it's not an admission of fault, but it just tells the commission,
485
00:28:35,290 --> 00:28:39,030
"This has happened. This is what we're doing about it." And usually, the
486
00:28:39,070 --> 00:28:42,030
commission won't get involved if it's satisfied that the trustees are acting
487
00:28:42,090 --> 00:28:45,410
properly. So, if you haven't already got a policy or a
488
00:28:45,470 --> 00:28:49,169
process for how to respond to a data breach, then that is
489
00:28:49,310 --> 00:28:52,850
something worth having. And having a dedicated person, if this is a
490
00:28:52,910 --> 00:28:53,510
particular
491
00:28:55,350 --> 00:28:59,170
issue or risk issue that's been identified for your charity, having a particular
492
00:28:59,250 --> 00:29:03,010
person responsible for dealing with a data breach scenario is
493
00:29:03,050 --> 00:29:06,370
really, really helpful. Somebody who will act quickly and knows what to do.
494
00:29:07,130 --> 00:29:11,090
So, I think it varies. There's not a sort of single right solution
495
00:29:11,130 --> 00:29:14,850
for every charity because it will depend on the size and scale of your organization
496
00:29:15,390 --> 00:29:18,170
and how much of a risk a data breach presents.
497
00:29:18,970 --> 00:29:21,710
Some charities carry and hold a lot more sensitive data than others.
498
00:29:22,010 --> 00:29:25,870
But if it's a risk you've identified, then the sort of solutions are thinking
499
00:29:25,950 --> 00:29:29,710
about the policies, the procedures, the steps that you've got, but also
500
00:29:29,770 --> 00:29:31,330
making sure the right person knows.
501
00:29:31,710 --> 00:29:35,530
So, it's having those lines of reporting through the delegated authority
502
00:29:35,610 --> 00:29:37,070
in place and clear.
503
00:29:37,990 --> 00:29:38,090
Thank you.
504
00:29:38,090 --> 00:29:38,230
Okay.
505
00:29:43,050 --> 00:29:43,210
Very helpful.
506
00:29:43,250 --> 00:29:44,830
Thank you. A really interesting talk.
507
00:29:45,670 --> 00:29:48,350
My question comes when an ethical decision
508
00:29:49,290 --> 00:29:50,930
clashes with a financial one-
509
00:29:51,110 --> 00:29:51,170
Mm-hmm
510
00:29:51,170 --> 00:29:53,930
... and you have... So, I can give you a scenario.
511
00:29:54,010 --> 00:29:55,390
Not my current charity, and I
512
00:29:56,250 --> 00:29:59,310
hope everyone respects in the room a bit of confidentiality.
513
00:30:00,030 --> 00:30:01,670
But it was whether, as a
514
00:30:02,710 --> 00:30:04,950
wildlife rescue charity, we
515
00:30:05,890 --> 00:30:09,470
adopted two white tigers. So financially, that would be good for
516
00:30:09,530 --> 00:30:13,430
visitors, but it was absolutely in conflict with our ethics that we shouldn't
517
00:30:13,470 --> 00:30:16,110
promote mutations, which is what white tigers are.
518
00:30:16,210 --> 00:30:16,310
Mm-hmm.
519
00:30:16,330 --> 00:30:17,490
And the board was split
520
00:30:18,650 --> 00:30:19,570
right down the middle.
521
00:30:19,770 --> 00:30:20,170
Mm.
522
00:30:20,210 --> 00:30:21,410
So, it wasn't about evidence,
523
00:30:22,330 --> 00:30:26,130
it was about whether ethics trumps finance, and
524
00:30:26,350 --> 00:30:28,050
it's kind of your thoughts on how you might-
525
00:30:28,370 --> 00:30:28,470
Yeah
526
00:30:28,490 --> 00:30:29,650
... address that decision.
527
00:30:30,070 --> 00:30:33,710
Ethics is an interesting one, because fundamentally, ethics, and that's
528
00:30:35,770 --> 00:30:38,230
It's not really a legal concept in the same sense.
529
00:30:38,290 --> 00:30:42,090
It's about your reputation and what would be expected of you, and what you say
530
00:30:42,590 --> 00:30:45,670
lining up with what you do. That point I made about your reputation
531
00:30:46,150 --> 00:30:49,590
relying on doing what you say you're going to do, so that
532
00:30:50,030 --> 00:30:53,950
supporters, donors, funders, have the confidence that the charity
533
00:30:54,550 --> 00:30:58,250
has that integrity. So I would say if it's something that the
534
00:30:58,410 --> 00:31:02,390
organization has really put out there as a core tenet of its
535
00:31:02,770 --> 00:31:06,490
mission and its ethos, then to do something that is
536
00:31:06,850 --> 00:31:10,430
directly contrary to that would be a significant
537
00:31:10,590 --> 00:31:12,230
risk from a reputational perspective.
538
00:31:12,290 --> 00:31:16,010
And so my view is that it does become actually a financial
539
00:31:16,090 --> 00:31:19,830
issue as well, because one of the potential consequences of the
540
00:31:19,850 --> 00:31:23,450
decision to take those tigers would be
541
00:31:23,510 --> 00:31:26,870
reputational damage and loss of future funding and donors and
542
00:31:27,570 --> 00:31:29,630
negative media attention, for example.
543
00:31:29,910 --> 00:31:33,650
But you'd have to weigh up how significant that reputational
544
00:31:33,730 --> 00:31:37,610
risk is versus the financial benefit.
545
00:31:37,670 --> 00:31:41,650
And, again, there's not necessarily a right or wrong answer there.
546
00:31:42,030 --> 00:31:45,430
I think it would depend on how significant that ethical
547
00:31:45,530 --> 00:31:49,290
statement was in the context of the charity and how it operates.
548
00:31:50,830 --> 00:31:51,210
Can I?
549
00:31:51,290 --> 00:31:51,430
Yeah.
550
00:31:51,470 --> 00:31:55,430
Sorry.
551
00:31:55,490 --> 00:31:57,130
Which is kind of where we got to, but-
552
00:31:58,130 --> 00:32:01,810
... we had much clearer data on what having a new attraction, which a lot of our-
553
00:32:02,030 --> 00:32:02,070
Yeah
554
00:32:02,070 --> 00:32:04,730
... visitors really liked. So we knew what that would bring in.
555
00:32:04,770 --> 00:32:04,990
Mm.
556
00:32:05,130 --> 00:32:08,550
It's very much harder to quantify the
557
00:32:09,010 --> 00:32:11,550
reputational risk, what that might do to your supporters.
558
00:32:11,570 --> 00:32:11,810
Mm-hmm.
559
00:32:11,870 --> 00:32:15,630
So you're trying to compare some fairly
560
00:32:15,670 --> 00:32:16,670
hard data with some
561
00:32:18,470 --> 00:32:21,130
kind of back of the f*g packet calculations.
562
00:32:21,150 --> 00:32:24,470
And again, for me, that made the decision-making really challenging.
563
00:32:24,510 --> 00:32:25,270
It is tricky.
564
00:32:26,630 --> 00:32:30,550
Another similar example would be, for example, a really obvious example would be,
565
00:32:31,110 --> 00:32:31,130
a
566
00:32:32,030 --> 00:32:35,950
cancer charity being offered a huge amount of money from a tobacco
567
00:32:36,330 --> 00:32:40,010
company, for example. And actually, I heard somebody speaking about this
568
00:32:40,090 --> 00:32:43,970
at the Chartered Institute of Fundraising annual convention, a
569
00:32:44,010 --> 00:32:47,890
huge convention on fundraising, and specifically talking about making
570
00:32:47,930 --> 00:32:49,610
that decision. I don't know if it was a cancer charity.
571
00:32:49,610 --> 00:32:52,810
It may have been an age-related charity where a lot of the
572
00:32:53,390 --> 00:32:56,990
health issues that their beneficiaries are dealing with are related
573
00:32:57,050 --> 00:33:00,830
to smoking in their youth, where there was much more advertising of
574
00:33:00,870 --> 00:33:04,390
tobacco, for example. So they had this conundrum, should we accept this
575
00:33:04,470 --> 00:33:08,050
enormous amount of money that would do so much good for all of our beneficiaries
576
00:33:08,650 --> 00:33:11,630
from a company that has caused a lot of those issues?
577
00:33:15,270 --> 00:33:19,190
There were split views on it because some people were of the view that, well, if we
578
00:33:19,230 --> 00:33:22,170
think that a lot of the issues our beneficiaries are dealing with is because of
579
00:33:22,250 --> 00:33:26,030
smoking, then why not take that money from
580
00:33:26,090 --> 00:33:29,910
them to help us resolve it? On the other hand, there were
581
00:33:29,950 --> 00:33:31,170
people who said, "No, absolutely not.
582
00:33:31,210 --> 00:33:34,850
We can't accept a donation." So there wasn't a right or wrong, and they wouldn't
583
00:33:34,930 --> 00:33:36,510
have been criticized either way
584
00:33:37,330 --> 00:33:41,270
for the decision because they were doing it based on what they believed was the
585
00:33:41,290 --> 00:33:43,910
reputational risk. You can't say for certain you're right.
586
00:33:44,270 --> 00:33:48,070
It is a risk assessment, and if you take the decision not to take that
587
00:33:48,150 --> 00:33:52,110
action, you're never going to know whether your guesstimate of the risk
588
00:33:52,150 --> 00:33:55,250
is accurate or not because your decision was not to go down that route.
589
00:33:55,630 --> 00:33:59,350
So ultimately, I would say there is not a right or wrong, and it doesn't come down
590
00:33:59,390 --> 00:34:01,810
to just balancing the financial scales.
591
00:34:02,190 --> 00:34:06,110
But sometimes financial decisions are trumped by reputational risk
592
00:34:06,190 --> 00:34:09,111
and longer-term thoughts about the reputation and
593
00:34:09,170 --> 00:34:13,051
integrity of a charity. I have another actual
594
00:34:13,091 --> 00:34:16,910
example from a client where they were in a position where they had
595
00:34:16,970 --> 00:34:19,210
various properties that were let out commercially.
596
00:34:19,690 --> 00:34:23,670
They'd let out a premises to a couple who were
597
00:34:23,730 --> 00:34:26,170
running it commercially as a shop or something.
598
00:34:26,870 --> 00:34:30,850
Went into COVID, the tenants stopped paying the rent completely,
599
00:34:31,350 --> 00:34:34,150
and it was in lots and lots of rent arrears, and then they just absconded.
600
00:34:34,190 --> 00:34:38,071
And so there was all this damage, the dilapidations, the rent arrears, quite a
601
00:34:38,111 --> 00:34:41,350
lot of money owed to the charity by the tenants.
602
00:34:42,130 --> 00:34:46,091
Now, the chap who had been the main tenant had sort of
603
00:34:46,150 --> 00:34:46,630
done a runner
604
00:34:47,511 --> 00:34:50,670
and tried to get away with it, but it turned out he'd basically gone bankrupt and
605
00:34:50,690 --> 00:34:53,490
he had no assets, so he wasn't somebody worth going after.
606
00:34:53,970 --> 00:34:57,650
But his partner, who'd also been on the lease, had a house and had some
607
00:34:57,730 --> 00:35:00,530
funds that could have been gone after by the charity.
608
00:35:01,190 --> 00:35:04,210
But when they got in touch with her, they used tracing agents and managed to get in
609
00:35:04,270 --> 00:35:08,050
touch with her. She basically explained that he'd been abusive.
610
00:35:08,110 --> 00:35:09,870
She had no idea what she was signing.
611
00:35:11,010 --> 00:35:14,790
She had nothing to do with the business, and that she was frightened that if he
612
00:35:14,850 --> 00:35:17,090
found out where she lived, that she would be in danger.
613
00:35:17,470 --> 00:35:21,430
So there was this horrible situation where they were like, "Well, we're not suing
614
00:35:21,470 --> 00:35:25,390
her because that would go against what we are established for as
615
00:35:25,830 --> 00:35:29,450
an organization, and ethically it's just wrong." But the question they had for me
616
00:35:29,490 --> 00:35:32,590
is, can we make a decision not to pursue the debt?
617
00:35:32,690 --> 00:35:36,570
Because it's a chosen action. They have a right to that money. It was a debt.
618
00:35:36,970 --> 00:35:40,790
So the question was, do we even have the power to take a decision
619
00:35:40,870 --> 00:35:44,610
not to pursue it? My view was, actually, this could be an ex
620
00:35:44,650 --> 00:35:47,770
gratia situation, so we should go to the commission and seek consent.
621
00:35:47,810 --> 00:35:51,710
But the commission said, "No, we think you can make the decision based
622
00:35:51,790 --> 00:35:55,250
on a balance of reputational risk versus financial gain."
623
00:35:55,810 --> 00:35:57,330
And ultimately, that's what they did.
624
00:35:57,370 --> 00:36:01,310
So the commission, even then, when they had a bang-to-rights debt
625
00:36:01,370 --> 00:36:04,850
claim and clear financial gain, and nothing
626
00:36:04,910 --> 00:36:08,690
financially if they didn't pursue it, the commission said, "Actually, we think
627
00:36:09,050 --> 00:36:13,010
reputational considerations can be taken into account, and you're free to make
628
00:36:13,070 --> 00:36:16,630
a decision not to pursue the debt claim." So it's not
629
00:36:17,410 --> 00:36:20,910
a science, it's an art, and it's one of those that
630
00:36:22,230 --> 00:36:26,070
it will depend on what your perception of the risk is and
631
00:36:26,670 --> 00:36:30,570
how important integrity and reputational protection is
632
00:36:30,630 --> 00:36:33,350
in that particular context for your organization.
633
00:36:35,010 --> 00:36:36,790
Yep. Does that answer your-
634
00:36:37,030 --> 00:36:37,150
Thank you.
635
00:36:37,210 --> 00:36:37,330
Yeah.
636
00:36:38,390 --> 00:36:38,850
Hi.
637
00:36:38,910 --> 00:36:39,690
Thank you for a very
638
00:36:40,970 --> 00:36:41,770
Interesting update.
639
00:36:42,750 --> 00:36:45,330
My question is around the conflicts.
640
00:36:46,110 --> 00:36:47,610
You mentioned that there was an increase-
641
00:36:47,770 --> 00:36:47,790
Mm
642
00:36:47,790 --> 00:36:51,590
... in the conflicts, a significant increase. What's the nature of those conflicts?
643
00:36:52,510 --> 00:36:56,110
Conflicts crop up in almost every statutory inquiry that the commission
644
00:36:56,150 --> 00:36:59,890
publishes. So I don't know if I would say that there's an increase in
645
00:36:59,950 --> 00:37:03,510
conflicts. It's just, it's a really common theme that we see and have seen for
646
00:37:03,590 --> 00:37:06,210
years in the commission statutory inquiries.
647
00:37:06,590 --> 00:37:10,250
The commission has tried to improve its guidance to make it clearer what it
648
00:37:10,310 --> 00:37:13,910
means by conflicts. I think one of the most stark
649
00:37:13,970 --> 00:37:17,110
examples that I can think of in recent years is the
650
00:37:17,690 --> 00:37:19,730
Suzanne Goodban disqualification.
651
00:37:20,230 --> 00:37:23,910
I have an article on our website about this particular statutory inquiry if
652
00:37:23,930 --> 00:37:25,710
anyone's interested in reading it.
653
00:37:26,170 --> 00:37:29,490
It was really interesting because she was disqualified from acting as a trustee,
654
00:37:29,530 --> 00:37:32,250
and she challenged her disqualification, which is quite rare.
655
00:37:32,650 --> 00:37:35,930
So because it went through the tribunal, the whole history of what
656
00:37:35,990 --> 00:37:38,730
happened was all in the tribunal's decision.
657
00:37:39,530 --> 00:37:42,990
Fundamentally, what she had done, she'd ticked all of the legal
658
00:37:43,030 --> 00:37:46,470
boxes. So she had engaged herself as a
659
00:37:46,510 --> 00:37:50,190
consultant via her company to deliver services to the charity,
660
00:37:50,610 --> 00:37:53,970
and the amount of income, it was a huge proportion.
661
00:37:54,250 --> 00:37:57,590
Something like two-thirds of the charity's income was being paid to her
662
00:37:57,650 --> 00:38:00,970
consultancy company. But she'd done it with
663
00:38:01,670 --> 00:38:05,050
trustees who were not technically connected with her passing the decision.
664
00:38:05,410 --> 00:38:08,750
So on paper, you can do that. There is a power to do that.
665
00:38:09,190 --> 00:38:13,110
But when you actually looked and went into the substance of it, what had happened
666
00:38:13,150 --> 00:38:14,410
is the decision to make
667
00:38:15,290 --> 00:38:18,590
a strategic decision to go down that particular route that would
668
00:38:19,230 --> 00:38:23,150
result in her company needing to be engaged, she had very much
669
00:38:23,250 --> 00:38:25,970
pushed, and she was very dominant force in that decision.
670
00:38:26,270 --> 00:38:28,890
There'd been a difference of views on the board, and she'd got rid of anybody who
671
00:38:28,930 --> 00:38:30,890
disagreed with her and brought in other people.
672
00:38:31,410 --> 00:38:35,310
So it was not an obvious conflict of interest at the decision to
673
00:38:35,350 --> 00:38:38,950
enter into the contract, but at the strategic decision-making point,
674
00:38:39,050 --> 00:38:43,030
she had a strategy that she knew involved her
675
00:38:43,970 --> 00:38:47,910
being engaged to do this work, and she was so blinkered that she believed
676
00:38:47,950 --> 00:38:51,890
she was the only person that could possibly help this charity and navigate
677
00:38:51,910 --> 00:38:54,730
it into this new strategy, and she was just dogmatic.
678
00:38:54,750 --> 00:38:57,950
And even in the tribunal, she just still could not see that she'd done anything
679
00:38:57,970 --> 00:39:01,910
wrong. So that's an example where if at any point down
680
00:39:01,930 --> 00:39:02,590
the line,
681
00:39:03,410 --> 00:39:06,270
at any decision that you're taking, it doesn't have to be at the point that you're
682
00:39:06,310 --> 00:39:09,010
entering into a contract or a transaction.
683
00:39:09,530 --> 00:39:13,210
If there is a risk that there could be a conflict of loyalty or a
684
00:39:13,250 --> 00:39:17,150
conflict of interest at a later stage, then you have a conflict at that point
685
00:39:17,230 --> 00:39:18,390
as well. So
686
00:39:19,250 --> 00:39:22,510
people often think of it solely in the context of contracts
687
00:39:23,230 --> 00:39:26,970
or transactions, but it's much, much broader than that, and it can
688
00:39:27,030 --> 00:39:29,030
include conflicts of loyalty
689
00:39:29,890 --> 00:39:33,690
where nobody's necessarily... You're not financially gaining, but you've got a
690
00:39:33,750 --> 00:39:37,710
real loyalty to somebody else that could either affect
691
00:39:37,750 --> 00:39:40,830
your decision or be perceived to have affected your decision.
692
00:39:41,270 --> 00:39:44,770
Conflicts, I could talk about a whole other session on conflicts of interest, but
693
00:39:45,210 --> 00:39:49,130
one of the big things you see with conflicts a lot is the concept of
694
00:39:49,190 --> 00:39:51,290
perception or possible conflict.
695
00:39:51,730 --> 00:39:55,250
Even if you think, "Well, I can still make a perfectly reasonable
696
00:39:55,290 --> 00:39:57,710
decision in the best interest of the charity.
697
00:39:57,730 --> 00:40:01,610
It's not going to affect me." But if other people think it might, then that can
698
00:40:01,690 --> 00:40:05,610
taint the decision as well. So I always recommend erring on the side
699
00:40:05,650 --> 00:40:09,550
of caution, and if you're not sure, then read the guidance or seek professional
700
00:40:09,610 --> 00:40:13,250
advice and just take care to pause and think about
701
00:40:13,310 --> 00:40:16,750
conflict management in decision-making. Does that help? Yeah.
702
00:40:18,490 --> 00:40:19,490
Thank you so much.
703
00:40:20,110 --> 00:40:20,190
Okay.
704
00:40:20,250 --> 00:40:22,350
Unfortunately, we're going to have to draw a line under it there.
705
00:40:22,390 --> 00:40:25,670
But Liz, thank you so much for sharing with us your expertise.
706
00:40:25,730 --> 00:40:28,590
That was fascinating. And I know there were a few other hands up.
707
00:40:28,650 --> 00:40:31,030
Now, I think your time is limited with us today.
708
00:40:31,090 --> 00:40:33,630
Unfortunately, I have to go into a tender pitch this afternoon.
709
00:40:33,730 --> 00:40:36,730
So yes, I can't stay beyond the lunch,
710
00:40:36,990 --> 00:40:37,730
unfortunately.
711
00:40:37,950 --> 00:40:38,090
Yeah.
712
00:40:38,450 --> 00:40:38,510
Yeah.
713
00:40:38,550 --> 00:40:40,770
Well, so you might be around for a little bit at the break-
714
00:40:40,830 --> 00:40:41,070
Yes
715
00:40:41,090 --> 00:40:44,790
... to answer a few questions. But may I ask everyone
716
00:40:44,830 --> 00:40:48,810
please to thank Liz and wish her luck on her tender in the usual
717
00:40:54,970 --> 00:40:54,970
way?
718
00:40:55,170 --> 00:40:55,290
Thank you.
719
00:40:55,330 --> 00:40:56,410
Good morning, everyone.
720
00:40:57,490 --> 00:41:01,270
Just a quick show of hands here. How many of you have checked the news
721
00:41:01,310 --> 00:41:01,690
today?
722
00:41:02,750 --> 00:41:06,290
A few of you. Okay. For those of you who haven't,
723
00:41:07,050 --> 00:41:10,710
I'll fill you in. Apparently, a Chinese artificial
724
00:41:10,750 --> 00:41:14,090
intelligence tool can now build a
725
00:41:14,170 --> 00:41:17,690
bioweapon to hand out assassinations.
726
00:41:18,790 --> 00:41:20,610
But don't worry because
727
00:41:21,770 --> 00:41:25,650
Trump is having a super intelligence summit as we
728
00:41:25,730 --> 00:41:27,950
speak, so I'm sure he's on it.
729
00:41:29,810 --> 00:41:33,450
So I think that really captures what it's been
730
00:41:33,510 --> 00:41:37,230
like to be an investor this year, just the
731
00:41:37,370 --> 00:41:40,090
sheer amount of headlines that we've been seeing,
732
00:41:41,090 --> 00:41:44,290
and just all of the craziness. So hopefully today,
733
00:41:45,110 --> 00:41:47,850
my goal is to help
734
00:41:48,950 --> 00:41:52,610
put some context into how we're thinking about the headlines and how we're
735
00:41:52,690 --> 00:41:56,550
translating that into markets and portfolios.
736
00:41:57,270 --> 00:42:00,490
And so just a quick introduction. My name is Arielle.
737
00:42:00,950 --> 00:42:04,670
I'm an investment specialist on our central investment strategy team at
738
00:42:04,730 --> 00:42:08,310
Evelyn Partners. So my team is looking
739
00:42:08,450 --> 00:42:12,110
at some of these driving forces that are facing markets today
740
00:42:12,750 --> 00:42:16,490
and thinking about how we're positioning portfolios, setting
741
00:42:16,550 --> 00:42:20,430
strategic and tactical asset allocation decisions, so
742
00:42:20,470 --> 00:42:23,530
that mix of equities, bonds, and real assets.
743
00:42:23,910 --> 00:42:27,770
And ultimately, our goal is to build portfolios that are resilient.
744
00:42:28,630 --> 00:42:32,530
Because I appreciate all of you as charity investors aren't investing
745
00:42:32,650 --> 00:42:36,310
in days and weeks, but rather years and
746
00:42:36,370 --> 00:42:40,190
decades. And so the goal is not to react to every headline,
747
00:42:40,570 --> 00:42:42,610
but rather have that resilient portfolio
748
00:42:44,038 --> 00:42:47,798
And so looking at the order of play today, we'll just have a
749
00:42:47,858 --> 00:42:51,518
quick review of where we're at with markets before
750
00:42:51,578 --> 00:42:51,858
we
751
00:42:52,678 --> 00:42:56,438
spend a little bit more time looking at geopolitics, because I
752
00:42:56,498 --> 00:43:00,097
think we can all agree that has really been a driving force in
753
00:43:00,138 --> 00:43:01,718
markets in 2026.
754
00:43:02,518 --> 00:43:06,238
And then after that, we'll get into our
755
00:43:06,538 --> 00:43:10,378
view on the macroeconomic situation and how that trickles down into
756
00:43:10,418 --> 00:43:14,038
our views across the different asset classes, and just a little bit on that
757
00:43:14,078 --> 00:43:15,058
investment strategy.
758
00:43:17,858 --> 00:43:21,258
So, looking at 2026 so far,
759
00:43:21,958 --> 00:43:23,978
you can see here the
760
00:43:25,058 --> 00:43:28,478
returns year to date across the major asset classes,
761
00:43:28,638 --> 00:43:30,638
equities, commodities, bonds.
762
00:43:31,498 --> 00:43:35,238
And what you can see is that it's actually been a pretty positive
763
00:43:35,298 --> 00:43:36,898
year in markets so far.
764
00:43:37,818 --> 00:43:41,598
May not have felt that way, I think especially when we're checking the news all the
765
00:43:41,658 --> 00:43:45,198
time, but actually major global
766
00:43:45,258 --> 00:43:48,858
markets, the stock market, for instance, is up double-digit
767
00:43:48,898 --> 00:43:50,418
returns year to date.
768
00:43:51,718 --> 00:43:52,198
And
769
00:43:53,658 --> 00:43:57,558
real assets such as oil also have had a very strong year,
770
00:43:57,658 --> 00:43:59,798
which is probably no surprise to anyone.
771
00:44:00,638 --> 00:44:04,598
Even bonds, which have had a slightly more challenging year with the
772
00:44:04,678 --> 00:44:08,658
change in inflation expectations, have also been delivering a
773
00:44:08,718 --> 00:44:12,618
consistent income. So for your average multi-asset
774
00:44:12,678 --> 00:44:15,918
investor, it's actually been a very good year.
775
00:44:17,178 --> 00:44:21,098
But I appreciate it hasn't felt like that, so let's talk about why that is and what
776
00:44:21,118 --> 00:44:21,678
we're seeing.
777
00:44:23,998 --> 00:44:27,378
So this chart here looks at the major
778
00:44:27,458 --> 00:44:30,838
regional equity indices across the different
779
00:44:30,898 --> 00:44:34,138
regions, and it's really showing more of
780
00:44:34,258 --> 00:44:36,478
the path of
781
00:44:37,338 --> 00:44:39,138
where markets have gone so far this year.
782
00:44:39,198 --> 00:44:42,438
You can see it certainly has not been an easy road.
783
00:44:43,418 --> 00:44:46,098
I think the year started off pretty strong.
784
00:44:46,958 --> 00:44:50,518
We had inflation easing, central banks
785
00:44:50,578 --> 00:44:54,397
were expected to cut rates, and companies were
786
00:44:54,518 --> 00:44:58,218
looking pretty good. But a lot of that did change
787
00:44:58,338 --> 00:45:01,978
on the 28th of February when the conflict in Iran broke out.
788
00:45:02,638 --> 00:45:06,298
And so we did see a retrace and a giveback of a lot of those
789
00:45:06,358 --> 00:45:08,918
gains in that first quarter.
790
00:45:10,098 --> 00:45:13,478
But I think the interesting thing to point out here is that
791
00:45:13,998 --> 00:45:17,318
even though there wasn't a formal ceasefire until the
792
00:45:17,738 --> 00:45:18,858
15th of June,
793
00:45:19,738 --> 00:45:21,038
markets actually did
794
00:45:21,878 --> 00:45:25,118
move forward and recover long before there was that certainty.
795
00:45:25,918 --> 00:45:29,718
Now, I appreciate that ceasefire has since been broken many times over,
796
00:45:30,478 --> 00:45:32,458
and there is just continued volatility,
797
00:45:33,478 --> 00:45:36,758
but markets are still doing well even despite that.
798
00:45:37,378 --> 00:45:41,138
So I think the key point here for all of us is to remember that
799
00:45:41,558 --> 00:45:45,338
markets are forward-looking. So by the time you are reading a headline,
800
00:45:45,498 --> 00:45:49,278
they have already moved on. They're pricing in all of that known information,
801
00:45:50,118 --> 00:45:54,018
and so you have to position portfolios for
802
00:45:54,078 --> 00:45:57,118
the future, and that's where we try to come in,
803
00:45:57,638 --> 00:45:59,538
ensuring that we are still
804
00:46:00,838 --> 00:46:04,638
participating in those compounding gains while still
805
00:46:04,678 --> 00:46:07,038
protecting from that downside in volatility.
806
00:46:09,038 --> 00:46:12,938
So just taking a closer look at geopolitical risk and how
807
00:46:13,018 --> 00:46:14,138
we approach this.
808
00:46:15,098 --> 00:46:18,838
I think in past years, the perception was perhaps that
809
00:46:18,918 --> 00:46:22,398
geopolitics is just this tail risk, a very small
810
00:46:22,438 --> 00:46:24,978
percentage that you just have to think about.
811
00:46:25,298 --> 00:46:27,978
But now, I think as we're in a world
812
00:46:28,938 --> 00:46:29,318
where
813
00:46:30,598 --> 00:46:33,998
there's de-globalization, there's increased
814
00:46:34,058 --> 00:46:37,418
competition amongst countries and a lot of
815
00:46:37,498 --> 00:46:41,378
tensions, our team really does view geopolitics
816
00:46:41,498 --> 00:46:45,418
as a structural shift, a structural risk that
817
00:46:45,478 --> 00:46:47,678
we need to be considering every single day.
818
00:46:48,558 --> 00:46:51,998
So just looking at a few of the flashpoints that we monitor closely.
819
00:46:52,818 --> 00:46:55,798
Of course, the Middle East continues to be a big one this year.
820
00:46:56,838 --> 00:47:00,697
We also have, in Eastern Europe, the Russia-Ukraine War
821
00:47:00,858 --> 00:47:02,958
continues on for many years.
822
00:47:03,798 --> 00:47:07,758
But I think in terms of this year, some of the big ones that we've
823
00:47:07,838 --> 00:47:09,338
also looked at are,
824
00:47:10,238 --> 00:47:13,258
for instance, US-China relations
825
00:47:13,918 --> 00:47:17,798
and the artificial intelligence arms race that
826
00:47:17,858 --> 00:47:18,618
is happening.
827
00:47:19,918 --> 00:47:23,278
We see that in the headlines today. There's always a new development.
828
00:47:23,338 --> 00:47:27,038
The companies are racing for control of the supply chain
829
00:47:27,498 --> 00:47:31,358
and the most powerful new model. And that, of course, has
830
00:47:31,418 --> 00:47:33,658
impact for companies.
831
00:47:34,538 --> 00:47:38,218
It certainly has an impact for countries like Taiwan and
832
00:47:38,458 --> 00:47:42,318
Taiwan Semiconductors, who's a major player in the supply
833
00:47:42,378 --> 00:47:45,298
chain, and potential aggressions there with China.
834
00:47:46,138 --> 00:47:47,678
That continues to be a risk.
835
00:47:48,498 --> 00:47:51,858
And then, of course, finally, in the US, there's
836
00:47:51,958 --> 00:47:55,758
always something happening with President Trump and
837
00:47:55,858 --> 00:47:56,338
his
838
00:47:57,818 --> 00:47:58,598
presidency.
839
00:47:59,478 --> 00:48:03,018
For instance, the US midterms is coming up in
840
00:48:03,058 --> 00:48:03,538
November,
841
00:48:04,618 --> 00:48:08,438
and so typically leading up to a midterm, that
842
00:48:08,538 --> 00:48:11,598
tends to be a focal point for
843
00:48:12,118 --> 00:48:16,098
markets speculating if he might lose power or gain power
844
00:48:16,158 --> 00:48:17,838
and what that might mean for policy.
845
00:48:18,978 --> 00:48:22,838
But what we've seen is that after the midterms,
846
00:48:22,978 --> 00:48:26,578
once a result is known, that can actually be a
847
00:48:26,658 --> 00:48:30,258
positive for markets. So you do get some volatility to the
848
00:48:30,358 --> 00:48:31,278
upside as well.
849
00:48:33,018 --> 00:48:36,998
And what we've seen also historically is that if a president has
850
00:48:37,098 --> 00:48:40,818
a less than 50% approval rating, they are very
851
00:48:40,878 --> 00:48:44,718
likely to lose power in Congress with their party being voted out
852
00:48:44,838 --> 00:48:47,538
of the Senate and the House of Representatives.
853
00:48:48,258 --> 00:48:51,858
But you'll certainly see more headlines as that ramps up as well.
854
00:48:54,128 --> 00:48:57,668
So let's look at now how this impacts the stock market.
855
00:48:59,028 --> 00:48:59,268
So
856
00:49:00,188 --> 00:49:04,168
this slide shows starting all the way back in 1940 with
857
00:49:04,188 --> 00:49:07,788
the start of World War II, put major geopolitical
858
00:49:07,888 --> 00:49:10,128
shocks in chronological order.
859
00:49:11,068 --> 00:49:14,948
And we've looked at what the stock market return has been over
860
00:49:14,988 --> 00:49:18,728
different time periods. So looking out over one month, three
861
00:49:18,848 --> 00:49:22,788
months, six, and 12 months. And what you
862
00:49:22,828 --> 00:49:26,588
can see is that while all of these events were very
863
00:49:26,628 --> 00:49:29,268
different, you certainly can't predict any of them,
864
00:49:30,088 --> 00:49:33,108
there is a broad theme that emerges.
865
00:49:33,588 --> 00:49:37,408
So typically, that first month is going to be negative after a
866
00:49:37,448 --> 00:49:41,428
geopolitical shock because markets are pricing in what's happening, there's
867
00:49:41,508 --> 00:49:45,488
a lot of uncertainty, and fear does drive markets
868
00:49:45,548 --> 00:49:49,488
during that time. However, once you start to look out
869
00:49:49,568 --> 00:49:52,588
over three, six, or 12 months, there is
870
00:49:52,668 --> 00:49:55,748
overwhelmingly positive returns in the market.
871
00:49:56,048 --> 00:49:59,568
Things bounce back much quicker than you would potentially expect
872
00:50:00,088 --> 00:50:02,728
when you're looking at some of these major events.
873
00:50:04,028 --> 00:50:07,148
And so the key points that we can take from this are that
874
00:50:07,588 --> 00:50:10,748
whilst every single event is unique,
875
00:50:12,108 --> 00:50:15,908
I think the way markets react, the way humans react is somewhat
876
00:50:15,948 --> 00:50:19,768
predictable. I think sometimes history doesn't repeat
877
00:50:19,808 --> 00:50:21,468
itself, but it often rhymes.
878
00:50:22,528 --> 00:50:25,468
And those drawdowns are usually short-lived.
879
00:50:26,528 --> 00:50:29,728
I do think this is because markets
880
00:50:30,228 --> 00:50:33,568
are quite heartless. There is obviously a huge
881
00:50:34,588 --> 00:50:38,348
human impact to these events, and it can be quite devastating from a human
882
00:50:38,388 --> 00:50:42,228
perspective, but markets are just completely agnostic to that, and they
883
00:50:42,268 --> 00:50:43,588
will just simply weigh up
884
00:50:45,108 --> 00:50:47,168
who are the winners and who are the losers.
885
00:50:47,508 --> 00:50:51,408
And so these events aren't necessarily destroying economic value, but
886
00:50:51,468 --> 00:50:55,448
just shifting it around. And that's why it's important to ensure that you have a
887
00:50:55,508 --> 00:50:58,328
portfolio that is hedged appropriately,
888
00:50:59,308 --> 00:51:03,187
an investment strategy that has a core and counter strategy
889
00:51:03,228 --> 00:51:06,328
and is well diversified so that you are not caught out or
890
00:51:06,368 --> 00:51:08,508
exposed when these events happen.
891
00:51:10,548 --> 00:51:13,968
And so just zooming out again over the long term now looking
892
00:51:14,068 --> 00:51:17,988
over many decades, this chart looks at the
893
00:51:18,368 --> 00:51:21,488
global equity returns since 1985.
894
00:51:21,948 --> 00:51:25,808
And so if you do zoom out, you can see that over many
895
00:51:25,888 --> 00:51:29,868
decades, markets do tend to climb what we call that wall
896
00:51:29,948 --> 00:51:30,568
of worry.
897
00:51:31,708 --> 00:51:35,568
So despite those pullbacks, which are very normal,
898
00:51:35,788 --> 00:51:39,568
healthy features of the stock market, you
899
00:51:39,608 --> 00:51:40,648
can see that
900
00:51:41,788 --> 00:51:45,068
if you were to invest in 1985, you would get
901
00:51:45,648 --> 00:51:48,508
very strong compounding growth over those years.
902
00:51:48,608 --> 00:51:51,788
And so it's important to still be invested,
903
00:51:52,428 --> 00:51:56,248
even though it can feel uncomfortable at times because markets
904
00:51:56,328 --> 00:52:00,308
are very resilient. Ultimately, those companies are still doing what they're doing
905
00:52:00,368 --> 00:52:00,968
day to day.
906
00:52:03,228 --> 00:52:06,508
I will say that the message is not by any means to just
907
00:52:07,188 --> 00:52:09,748
ignore it, stay invested, don't worry about anything.
908
00:52:10,888 --> 00:52:14,868
We certainly take an active approach, and that's really where our role
909
00:52:14,948 --> 00:52:18,388
comes in. We are actively making tactical
910
00:52:18,448 --> 00:52:22,328
decisions, making tweaks, and adjusting portfolios to ensure
911
00:52:22,388 --> 00:52:25,228
that we are well-positioned over these many years.
912
00:52:25,748 --> 00:52:29,548
And so, that's why I do want to touch a little bit on what we're
913
00:52:29,628 --> 00:52:33,588
seeing in terms of the data and fundamentals looking at the
914
00:52:33,668 --> 00:52:34,828
economic situation.
915
00:52:37,388 --> 00:52:41,248
So first, looking at the global
916
00:52:41,328 --> 00:52:43,848
economic growth that we're seeing this year.
917
00:52:44,908 --> 00:52:48,708
I think the growth picture is holding up well despite
918
00:52:48,768 --> 00:52:50,988
those geopolitical shocks that we talked about.
919
00:52:52,068 --> 00:52:55,528
The expectation going into the year was that global
920
00:52:55,628 --> 00:52:58,948
economic growth would be positive but unspectacular,
921
00:52:59,988 --> 00:53:03,888
and that has really come true. If you look on the left-hand
922
00:53:03,968 --> 00:53:07,808
chart, this is looking at growth expectations.
923
00:53:07,948 --> 00:53:11,828
This is a more forward-looking survey of growth estimates,
924
00:53:12,227 --> 00:53:15,968
and you can see that it did take a dip early in the year when the
925
00:53:16,048 --> 00:53:19,888
Iran conflict broke out. But even though things are now
926
00:53:19,968 --> 00:53:23,288
still persisting, those growth expectations have
927
00:53:23,348 --> 00:53:27,108
rebounded because growth has so far held up better than
928
00:53:27,148 --> 00:53:29,768
expected, and you can see that on the right-hand chart.
929
00:53:30,208 --> 00:53:33,408
This is now looking at the actual data.
930
00:53:34,148 --> 00:53:37,248
And global growth is a backwards-looking indicator.
931
00:53:37,568 --> 00:53:41,408
We often get the quarterly results when the market has already moved way past that,
932
00:53:41,808 --> 00:53:45,468
so it's really just helping us fill in the story of what has been happening this
933
00:53:45,488 --> 00:53:45,748
year.
934
00:53:47,568 --> 00:53:50,828
The reason that economic growth remains strong is
935
00:53:50,868 --> 00:53:53,628
because businesses have been
936
00:53:54,628 --> 00:53:55,908
very healthy this year.
937
00:53:56,708 --> 00:54:00,548
Focusing on US businesses just because the US is the largest economy,
938
00:54:00,668 --> 00:54:03,448
but this does apply to other developed nations.
939
00:54:04,088 --> 00:54:06,848
You can see business investment, for instance.
940
00:54:06,908 --> 00:54:09,048
That's that chart on the left-hand side.
941
00:54:09,528 --> 00:54:12,968
That red line is going straight up at the moment.
942
00:54:13,788 --> 00:54:16,488
So historically, very strong business investment.
943
00:54:17,148 --> 00:54:18,088
Businesses really,
944
00:54:18,968 --> 00:54:21,968
they can be quite risk adverse. They wouldn't be investing if they didn't have
945
00:54:22,048 --> 00:54:26,008
confidence that that money would be bringing them a
946
00:54:26,048 --> 00:54:29,768
return, and that capital is circulating around the
947
00:54:29,828 --> 00:54:32,248
economy. We see this as well with
948
00:54:33,148 --> 00:54:36,528
bank loan growth. This is the right-hand chart.
949
00:54:37,028 --> 00:54:39,568
You can see also that is positive and healthy.
950
00:54:40,508 --> 00:54:43,628
Again, banks being risk adverse, they're not going to want to
951
00:54:44,388 --> 00:54:47,888
give loans to companies and individuals if they're expecting a
952
00:54:47,948 --> 00:54:51,808
downturn in recession. So when the capital, again,
953
00:54:51,868 --> 00:54:53,108
is moving around the economy,
954
00:54:54,208 --> 00:54:58,188
people can have access to credit and capital that is a
955
00:54:58,248 --> 00:54:59,528
positive for markets.
956
00:55:01,504 --> 00:55:05,324
However, there are some risks to the economic situation that we
957
00:55:05,404 --> 00:55:09,144
monitor closely. One of those things is the labor
958
00:55:09,244 --> 00:55:13,004
market. You do tend to have a period or an upswing of
959
00:55:13,084 --> 00:55:16,404
unemployment if a recession were to occur.
960
00:55:17,164 --> 00:55:20,344
So on the left-hand chart, you can see looking at
961
00:55:21,144 --> 00:55:24,784
unemployment, there actually was a brief uptick earlier in the year.
962
00:55:25,664 --> 00:55:29,444
However, that has since come down, and if you do put that
963
00:55:29,504 --> 00:55:32,624
into context of history,
964
00:55:33,364 --> 00:55:36,784
unemployment is very low by historical standards
965
00:55:37,024 --> 00:55:40,784
still. And that's even despite all of the fears that we're seeing and all the
966
00:55:40,824 --> 00:55:44,764
headlines around how artificial intelligence is going to steal everyone's
967
00:55:44,844 --> 00:55:45,964
jobs and cause a
968
00:55:46,884 --> 00:55:47,444
major
969
00:55:48,324 --> 00:55:51,544
downturn. We haven't seen evidence of that at this time.
970
00:55:53,204 --> 00:55:55,524
We do monitor recession risk, however.
971
00:55:55,984 --> 00:55:59,604
The right-hand chart is looking at a survey of
972
00:55:59,684 --> 00:56:03,264
major economists of if they believe a
973
00:56:03,304 --> 00:56:07,184
recession will happen in the next 12 months, and you can see that there was
974
00:56:07,244 --> 00:56:11,204
a brief spike this year where those recession probabilities did go
975
00:56:11,324 --> 00:56:15,184
up around the Iran conflict as it was
976
00:56:15,264 --> 00:56:18,984
weighing up whether or not this would spread to a larger regional or global
977
00:56:19,064 --> 00:56:19,744
conflict.
978
00:56:20,664 --> 00:56:21,724
But ultimately,
979
00:56:23,164 --> 00:56:26,804
the recession probabilities have come back down, although they're still
980
00:56:26,884 --> 00:56:29,184
slightly elevated from historical standards.
981
00:56:29,884 --> 00:56:33,424
But we always look at the different scenarios when we're managing
982
00:56:33,484 --> 00:56:37,444
portfolios. So we'll have a base case or central
983
00:56:37,524 --> 00:56:37,984
case.
984
00:56:38,804 --> 00:56:42,764
Recession might be a downside tail risk, but
985
00:56:42,824 --> 00:56:46,744
our base case today is that the economy
986
00:56:46,784 --> 00:56:49,504
will still be positive and produce growth.
987
00:56:49,624 --> 00:56:52,124
So we're not expecting a recession.
988
00:56:54,644 --> 00:56:58,444
One of the key risks this year, which has been
989
00:56:58,544 --> 00:57:02,304
challenging for investors, is the inflation picture,
990
00:57:03,404 --> 00:57:07,204
and that has been difficult because, again, going into this
991
00:57:07,284 --> 00:57:09,403
year, things were on the downswing.
992
00:57:09,644 --> 00:57:11,524
Inflation was moderating nicely.
993
00:57:12,224 --> 00:57:15,704
That did all change with the conflict in the Middle East,
994
00:57:15,784 --> 00:57:19,204
unfortunately. You have oil prices that got
995
00:57:19,304 --> 00:57:22,744
over $120 per barrel at one point.
996
00:57:23,324 --> 00:57:26,284
This all, of course, has implications for all of us.
997
00:57:27,144 --> 00:57:30,484
Certainly, when we go to the pump, the price of petrol has
998
00:57:30,544 --> 00:57:33,184
skyrocketed. That is going to place pressure.
999
00:57:33,844 --> 00:57:37,324
So you can see there has been an uptick across the major economies,
1000
00:57:37,404 --> 00:57:40,704
with headline inflation now back up over
1001
00:57:40,924 --> 00:57:41,604
3%.
1002
00:57:44,104 --> 00:57:47,944
And looking a little bit more closely at the underlying drivers,
1003
00:57:49,064 --> 00:57:52,764
again, I mentioned that crude oil price, it's been very volatile this
1004
00:57:52,804 --> 00:57:56,464
year. You can see where it spiked up during the conflict, that
1005
00:57:56,524 --> 00:58:00,504
left-hand chart, and then it came back down with the ceasefire, and now it's
1006
00:58:00,544 --> 00:58:04,324
back up again. And so that all feeds through to that headline
1007
00:58:04,364 --> 00:58:05,384
inflation number.
1008
00:58:06,544 --> 00:58:10,024
So headline inflation is looking at that basket of goods and
1009
00:58:10,104 --> 00:58:13,624
services in the economy. The headline number also
1010
00:58:13,664 --> 00:58:17,564
includes more volatile categories, such as food
1011
00:58:17,624 --> 00:58:21,604
and energy prices. Actually, if you remove those and look at
1012
00:58:21,704 --> 00:58:25,544
core inflation, this has been relatively subdued.
1013
00:58:25,604 --> 00:58:28,844
It's come up a little bit, but we haven't seen that
1014
00:58:28,964 --> 00:58:32,924
pass-through or transmission that we saw back at the end
1015
00:58:32,964 --> 00:58:35,764
of COVID when things skyrocketed across the board.
1016
00:58:36,204 --> 00:58:39,684
So at the moment, this really has been more of an energy shock.
1017
00:58:40,324 --> 00:58:43,064
And so if the Middle East conflict,
1018
00:58:44,524 --> 00:58:48,324
if things calm down or the Strait of Hormuz opens back up fully
1019
00:58:48,364 --> 00:58:52,204
without risk, that would do a lot to subdue
1020
00:58:52,264 --> 00:58:56,004
inflation because at the moment we're not seeing that pass-through.
1021
00:58:56,664 --> 00:58:59,764
So you can see on the right-hand chart this dynamic play out.
1022
00:59:00,364 --> 00:59:03,484
The black line is looking at one-year inflation
1023
00:59:03,564 --> 00:59:07,484
expectations. So you can see that that number did
1024
00:59:07,564 --> 00:59:10,664
skyrocket this year. So the expectation is that
1025
00:59:10,784 --> 00:59:14,524
near-term inflation will be elevated and quite painful for
1026
00:59:14,624 --> 00:59:18,504
us. However, if you look out over the long term, that's that
1027
00:59:18,603 --> 00:59:22,184
red line looking at five-year expectations, it's actually
1028
00:59:22,244 --> 00:59:25,724
continued to remain quite muted. And so
1029
00:59:26,184 --> 00:59:29,884
that's something that we think about when we're putting together portfolios because
1030
00:59:29,944 --> 00:59:33,224
different asset classes are more resilient
1031
00:59:33,844 --> 00:59:36,704
and can produce better real returns than others.
1032
00:59:37,124 --> 00:59:40,784
And so we're always thinking about what that inflation dynamic might look
1033
00:59:40,844 --> 00:59:41,144
like.
1034
00:59:43,264 --> 00:59:46,924
And of course, this has an impact on central bank
1035
00:59:47,004 --> 00:59:50,624
policy and interest rates. We've seen this year
1036
00:59:50,764 --> 00:59:54,384
after an easing cycle, starting the year,
1037
00:59:55,484 --> 00:59:59,384
central bankers were pausing. They didn't
1038
00:59:59,464 --> 01:00:03,004
raise or lower rates. They were waiting to see what would happen.
1039
01:00:03,584 --> 01:00:07,464
And now more recently, with the last meeting in September, the Federal
1040
01:00:07,544 --> 01:00:10,684
Reserve did hike rates 25 basis points.
1041
01:00:11,364 --> 01:00:14,664
The Bank of England held rates, and the
1042
01:00:15,964 --> 01:00:18,304
European Central Bank also hiked rates.
1043
01:00:18,464 --> 01:00:22,164
So I think the expectation is that we're now potentially back in a hiking
1044
01:00:22,244 --> 01:00:22,724
cycle.
1045
01:00:23,564 --> 01:00:26,424
This, of course, depends very much on the dynamic around
1046
01:00:26,504 --> 01:00:30,184
inflation and the labor market. But this is something
1047
01:00:30,584 --> 01:00:34,104
really that we look at closely because, in general,
1048
01:00:35,164 --> 01:00:38,524
having higher interest rates, tighter financial
1049
01:00:38,584 --> 01:00:42,204
conditions can be quite negative for financial markets.
1050
01:00:43,084 --> 01:00:44,644
It's certainly negative for all of us.
1051
01:00:45,844 --> 01:00:49,684
I unfortunately am having to remortgage my house at the moment,
1052
01:00:49,864 --> 01:00:53,544
and that does not look good at the moment with the
1053
01:00:53,924 --> 01:00:57,344
two and five-year fixed rates skyrocketing in recent months.
1054
01:00:57,684 --> 01:01:00,924
I think I missed the August lull, and so that certainly,
1055
01:01:01,624 --> 01:01:05,304
I think, is one personal impact of how that might be
1056
01:01:05,384 --> 01:01:09,304
negative for consumers and their discretionary spend
1057
01:01:09,344 --> 01:01:10,064
that they have.
1058
01:01:12,254 --> 01:01:15,894
And the expectations, of course, are important because we're always trying to be
1059
01:01:15,974 --> 01:01:19,674
forward-looking in markets. You can see that it's just been a huge
1060
01:01:19,734 --> 01:01:23,134
shift, a huge rewrite in the expectations.
1061
01:01:23,654 --> 01:01:27,213
You can see this chart looks at whether or not
1062
01:01:27,894 --> 01:01:31,734
cuts or hikes are expected. That zero line would be a
1063
01:01:31,794 --> 01:01:35,734
hold. So you can see at the beginning of the year, the expectation was
1064
01:01:35,794 --> 01:01:37,014
for an easing cycle
1065
01:01:38,314 --> 01:01:41,334
with potentially up to 50 basis points of cuts.
1066
01:01:41,914 --> 01:01:45,494
And then from February, that switched around and there is an
1067
01:01:45,574 --> 01:01:49,234
expectation of several rate hikes across the major
1068
01:01:49,294 --> 01:01:51,054
central banks moving forward.
1069
01:01:52,274 --> 01:01:55,934
So that all has implications on asset classes and how we
1070
01:01:55,974 --> 01:01:57,374
position portfolios.
1071
01:01:58,714 --> 01:02:02,154
I do want to now go through the major asset
1072
01:02:02,214 --> 01:02:06,034
classes and what we're seeing and just talk a little bit about
1073
01:02:06,134 --> 01:02:09,314
our investment strategy, just to give that
1074
01:02:09,374 --> 01:02:12,314
context. So looking at the stock market,
1075
01:02:14,354 --> 01:02:18,154
I think that what we've seen is that, again, despite the
1076
01:02:18,214 --> 01:02:19,834
challenges and risks this year,
1077
01:02:21,114 --> 01:02:24,914
global stocks have held up well. Companies are doing well this
1078
01:02:24,954 --> 01:02:28,854
year. And a lot of that is because they're
1079
01:02:28,954 --> 01:02:32,714
able to continue to produce earnings and make a really
1080
01:02:32,774 --> 01:02:33,714
healthy profit.
1081
01:02:34,634 --> 01:02:38,534
So this chart here shows the S&P 500, that's the
1082
01:02:38,674 --> 01:02:40,774
US stock market, that's the red line there,
1083
01:02:41,674 --> 01:02:44,854
and the profit margins that they've experienced this year.
1084
01:02:45,794 --> 01:02:49,394
The black line then shows the S&P 500 or that US stock
1085
01:02:49,434 --> 01:02:52,794
market without those top six artificial
1086
01:02:52,834 --> 01:02:56,714
intelligence companies. And then the blue line beneath
1087
01:02:56,774 --> 01:02:59,934
that is the world excluding the US.
1088
01:03:00,614 --> 01:03:04,114
So really the key point here is that we've seen these
1089
01:03:04,194 --> 01:03:07,934
technology companies in the US really drive a lot
1090
01:03:08,054 --> 01:03:09,534
of the returns,
1091
01:03:10,714 --> 01:03:14,594
profits that we've seen in the markets, and that has, you can see
1092
01:03:14,674 --> 01:03:18,434
since the launch of ChatGPT, has really taken off.
1093
01:03:19,794 --> 01:03:20,954
However, there is a
1094
01:03:21,854 --> 01:03:25,714
steep uplift, not just for those top six companies,
1095
01:03:26,114 --> 01:03:29,754
but also you can see the rest of the world in blue is catching those
1096
01:03:29,814 --> 01:03:32,994
companies up. So from our perspective,
1097
01:03:33,634 --> 01:03:35,874
these companies are the ones getting a lot of hype.
1098
01:03:36,274 --> 01:03:39,854
They're the ones investing huge amounts of money into this build-out of
1099
01:03:39,914 --> 01:03:43,574
artificial intelligence. And we think it does make sense to have that
1100
01:03:43,634 --> 01:03:45,454
exposure to that
1101
01:03:46,654 --> 01:03:50,574
technology. However, we also think it's very important
1102
01:03:50,634 --> 01:03:53,894
to be diversified and ensure that you're
1103
01:03:54,354 --> 01:03:58,134
investing in other countries and sectors away from just
1104
01:03:58,194 --> 01:04:02,054
those technology names that are becoming quite expensive and also take
1105
01:04:02,114 --> 01:04:04,454
up a huge share of the global stock market.
1106
01:04:04,934 --> 01:04:08,754
And so there's other industries such as materials or
1107
01:04:08,814 --> 01:04:12,374
healthcare, which might benefit from the artificial intelligence
1108
01:04:12,434 --> 01:04:13,074
revolution
1109
01:04:14,434 --> 01:04:15,134
tangentially,
1110
01:04:16,014 --> 01:04:19,854
and we make sure that we are looking at all of those opportunities, not just
1111
01:04:19,894 --> 01:04:21,134
those big tech names.
1112
01:04:22,774 --> 01:04:23,674
And you can see,
1113
01:04:24,814 --> 01:04:28,454
now looking at the fundamentals, one of the
1114
01:04:28,574 --> 01:04:32,174
big things that has been in the news recently is whether or not
1115
01:04:32,634 --> 01:04:35,934
these companies can live up to those lofty expectations,
1116
01:04:36,534 --> 01:04:39,674
whether or not they can continue to produce real earnings.
1117
01:04:40,314 --> 01:04:44,234
So this chart on the left looks at the proportion of companies
1118
01:04:44,274 --> 01:04:46,794
who are beating these lofty expectations,
1119
01:04:47,594 --> 01:04:50,174
and it's been near record highs, actually.
1120
01:04:50,254 --> 01:04:53,894
Over 85%, about, have beat
1121
01:04:53,974 --> 01:04:56,114
expectations in the last earning season,
1122
01:04:57,014 --> 01:05:00,114
and then similar story for the sales estimates.
1123
01:05:00,714 --> 01:05:03,274
And so it's not just speculation and hype.
1124
01:05:03,714 --> 01:05:07,554
I've seen some of those comparisons from the tech bubble
1125
01:05:07,614 --> 01:05:11,554
in '01. But in that instance, many of those
1126
01:05:11,594 --> 01:05:15,034
companies had no real earnings or revenues even to
1127
01:05:15,394 --> 01:05:19,034
prop up those lofty prices. And that is not the case
1128
01:05:19,114 --> 01:05:19,574
today.
1129
01:05:21,714 --> 01:05:25,674
So again, you can see when you now look at the returns
1130
01:05:25,734 --> 01:05:29,573
across all the regions on the left-hand side and the
1131
01:05:29,654 --> 01:05:32,214
sectors on the right-hand side, you can
1132
01:05:33,934 --> 01:05:37,634
decompose the returns and look at what proportion of those returns is
1133
01:05:37,694 --> 01:05:40,774
driven by earnings. That's that red bar.
1134
01:05:41,774 --> 01:05:45,554
And so you can see even in the technology sector, it is,
1135
01:05:45,694 --> 01:05:47,974
again, real earnings backing up these companies.
1136
01:05:48,034 --> 01:05:51,414
And so I think this is part of the reason why in a
1137
01:05:51,474 --> 01:05:54,834
multi-asset portfolio this year, we are
1138
01:05:56,034 --> 01:05:58,854
emphasizing equities over bonds.
1139
01:05:59,454 --> 01:06:03,054
We are modestly or cautiously optimistic on
1140
01:06:03,134 --> 01:06:06,954
equities, and we think that it is important to be exposed to this asset
1141
01:06:07,014 --> 01:06:08,954
class and be getting that capital growth.
1142
01:06:11,474 --> 01:06:15,194
Now looking at fixed income, it's been a little bit more of a challenging picture
1143
01:06:15,254 --> 01:06:15,694
this year.
1144
01:06:17,234 --> 01:06:19,834
Fixed income or bonds, looking at
1145
01:06:21,134 --> 01:06:24,734
yields this year, this is the amount of income or coupon
1146
01:06:25,534 --> 01:06:29,154
that the bonds are offering us as investors to compensate us for our
1147
01:06:29,214 --> 01:06:32,894
risk. And you can see that those yields have been rising this year.
1148
01:06:33,454 --> 01:06:37,434
So that does tend to place that downward pressure on bond prices
1149
01:06:38,234 --> 01:06:41,974
because the current bond you hold is going to be worth less if you can go and
1150
01:06:42,034 --> 01:06:45,894
get a new bond at a higher income. So this
1151
01:06:45,954 --> 01:06:48,854
has been a challenging environment for bond investors.
1152
01:06:49,374 --> 01:06:53,214
However, it still is important to continue
1153
01:06:53,774 --> 01:06:55,534
being exposed to bonds because
1154
01:06:56,394 --> 01:06:59,694
as you hold them, even if the price goes down a little bit, you're still getting
1155
01:06:59,734 --> 01:07:03,474
that higher income. So yields being over 5%, this is just
1156
01:07:03,514 --> 01:07:07,414
looking at government bonds, which are relatively lower risk than
1157
01:07:07,734 --> 01:07:11,694
corporate debt. And you're still getting that predictable
1158
01:07:11,954 --> 01:07:15,538
income It does tend to dampen volatility in your
1159
01:07:15,638 --> 01:07:19,618
overall portfolio. And when you invest in bonds
1160
01:07:19,678 --> 01:07:23,598
as well as equities, you're diversifying your sources
1161
01:07:23,658 --> 01:07:26,358
of risk. So, we still invest in bonds.
1162
01:07:26,738 --> 01:07:30,258
We do prefer equities a little bit more than bonds at the moment due to the
1163
01:07:30,298 --> 01:07:33,598
challenging environment, but this is why we've been investing in
1164
01:07:33,678 --> 01:07:37,458
shorter-dated bonds, which are actually a little bit less exposed to some of
1165
01:07:37,518 --> 01:07:41,158
that uncertainty over government spending and
1166
01:07:41,218 --> 01:07:44,978
inflation. If you're investing in bonds, maybe two, three, four
1167
01:07:45,638 --> 01:07:48,618
years, they're going to be less exposed to that risk.
1168
01:07:50,558 --> 01:07:54,358
We also look at corporate debt. So, this
1169
01:07:54,438 --> 01:07:56,898
slide is looking at credit risk.
1170
01:07:57,918 --> 01:08:01,878
The slide shows the credit spreads, so
1171
01:08:01,958 --> 01:08:05,898
looking at the additional income that an investor can
1172
01:08:05,958 --> 01:08:09,858
get for the different credit qualities relative to if you
1173
01:08:09,898 --> 01:08:11,618
were just to invest in government debt.
1174
01:08:12,258 --> 01:08:15,838
And what this shows us is if you look at the spreads, that's been narrowing over
1175
01:08:15,898 --> 01:08:19,558
time, and so investors aren't necessarily being
1176
01:08:19,638 --> 01:08:22,458
compensated for taking on more credit risk.
1177
01:08:23,279 --> 01:08:26,598
We've been investing in high-quality debt,
1178
01:08:27,279 --> 01:08:31,058
shorter-dated credit, and that has provided a nice
1179
01:08:31,418 --> 01:08:35,079
income to the portfolios without taking on that extra risk.
1180
01:08:37,018 --> 01:08:40,418
And then finally, want to talk a little bit about diversifiers,
1181
01:08:40,478 --> 01:08:43,838
because in our view, it's not just enough to invest in
1182
01:08:43,938 --> 01:08:45,279
equities and bonds.
1183
01:08:46,258 --> 01:08:49,538
You also want to be investing in diversifying those
1184
01:08:49,579 --> 01:08:53,218
diversifiers, especially in an environment where there's heightened
1185
01:08:53,318 --> 01:08:57,178
geopolitical risk, inflation, interest rates rising, all of
1186
01:08:57,218 --> 01:08:58,258
these forces.
1187
01:08:59,418 --> 01:09:03,178
So, looking on the chart on the left-hand side, you can
1188
01:09:03,258 --> 01:09:06,338
see that in terms of the diversifiers in the portfolio,
1189
01:09:07,318 --> 01:09:11,199
over one year, the oil and gas stocks have by
1190
01:09:11,279 --> 01:09:12,858
far been the best performers.
1191
01:09:13,659 --> 01:09:16,938
So even though those are equities or companies,
1192
01:09:17,498 --> 01:09:20,758
they do act a little bit more like commodities.
1193
01:09:20,798 --> 01:09:23,579
They're more sensitive to that oil price.
1194
01:09:23,918 --> 01:09:27,858
And so even though, again, the conflict in Iran has been devastating
1195
01:09:28,918 --> 01:09:32,878
from a human perspective, those oil prices have risen, and that can
1196
01:09:32,938 --> 01:09:35,138
create a hedge in portfolios.
1197
01:09:36,098 --> 01:09:36,659
As well,
1198
01:09:37,579 --> 01:09:41,378
looking at the blue, that's the global stock market returns year to
1199
01:09:41,438 --> 01:09:45,318
date, and then the bar next to it is
1200
01:09:45,398 --> 01:09:49,298
hedge fund returns. And that is another area that we look at to
1201
01:09:49,538 --> 01:09:52,579
diversify sources of returns in portfolios.
1202
01:09:53,298 --> 01:09:56,938
So hedge funds, for instance, an absolute
1203
01:09:56,978 --> 01:10:00,438
return strategy, their whole goal might be to just
1204
01:10:00,478 --> 01:10:04,178
produce a steady, positive return over time.
1205
01:10:04,558 --> 01:10:08,518
They're going to move differently and react to different risks than equities and
1206
01:10:08,658 --> 01:10:11,498
bonds, so they'll have that what we call low correlation,
1207
01:10:12,298 --> 01:10:16,118
and that can also help shield portfolio from downside
1208
01:10:17,038 --> 01:10:17,938
over the short term.
1209
01:10:19,178 --> 01:10:19,718
And
1210
01:10:20,738 --> 01:10:24,518
I don't know what happened there, but I think the key message
1211
01:10:24,638 --> 01:10:25,258
is that
1212
01:10:26,058 --> 01:10:29,598
we really want to ensure that the mix of different
1213
01:10:29,898 --> 01:10:33,038
assets that we're investing in are suitable for
1214
01:10:33,738 --> 01:10:36,438
today, what we're seeing in the market in terms of risks.
1215
01:10:36,938 --> 01:10:40,438
And those diversifiers and that mix might change over time.
1216
01:10:41,758 --> 01:10:44,358
It's not on there, but the... Oh, there we go.
1217
01:10:44,838 --> 01:10:48,558
I was going to say over five years, for instance, the best diversifier would've
1218
01:10:48,578 --> 01:10:52,558
been gold. So on this chart, that's the highest performer over
1219
01:10:52,638 --> 01:10:55,398
five years, even though it's had a more challenging year this year.
1220
01:10:56,298 --> 01:10:59,698
So, this is a little bit of what we think about when we're constructing
1221
01:10:59,778 --> 01:11:02,178
portfolios to build that resilience.
1222
01:11:03,158 --> 01:11:05,758
And so, I think the takeaways today are,
1223
01:11:06,618 --> 01:11:10,238
first off, markets do reward that patience.
1224
01:11:10,598 --> 01:11:13,298
We're not trying to predict every event or move.
1225
01:11:13,418 --> 01:11:14,858
We certainly don't have a crystal ball.
1226
01:11:15,778 --> 01:11:19,498
But it is just that steady patience and getting that compounding return.
1227
01:11:20,698 --> 01:11:24,518
And then, of course, those short-term headlines, they're rarely going to be
1228
01:11:24,598 --> 01:11:27,258
changing those long-term investment outcomes.
1229
01:11:27,638 --> 01:11:31,478
And so, in our view, there is more of a risk of reacting or
1230
01:11:31,538 --> 01:11:34,757
stepping away from the market and missing out on that growth.
1231
01:11:35,578 --> 01:11:36,338
And finally,
1232
01:11:37,138 --> 01:11:40,618
well-diversified portfolios are built to withstand that
1233
01:11:42,398 --> 01:11:46,258
volatility that we're seeing, and so it is so important to
1234
01:11:46,718 --> 01:11:50,698
ensure that you're investing and stress-testing the portfolio.
1235
01:11:50,738 --> 01:11:54,658
We're doing all of that, looking at all the different scenarios that could happen.
1236
01:11:55,118 --> 01:11:59,038
So, I hope that provides a little bit of context into what we're seeing in
1237
01:11:59,058 --> 01:12:02,358
the markets, but I will pause there for any questions.
1238
01:12:02,998 --> 01:12:05,338
Thank you so much, Ariel. Does anyone have any questions?
1239
01:12:08,458 --> 01:12:09,238
Just a quick one.
1240
01:12:09,478 --> 01:12:09,658
Sure.
1241
01:12:09,798 --> 01:12:12,818
I may have missed it, but I don't think you mentioned anything about property
1242
01:12:13,238 --> 01:12:14,898
investment and property funds.
1243
01:12:15,998 --> 01:12:19,958
I did not, but I'm happy to briefly cover.
1244
01:12:20,138 --> 01:12:23,118
Is your question more just around the outlook, or did you have a specific-
1245
01:12:23,198 --> 01:12:26,738
Yes, the outlook of whether they should be part of a balanced
1246
01:12:26,798 --> 01:12:27,378
portfolio.
1247
01:12:27,958 --> 01:12:31,878
Yeah. So we do invest in some infrastructure
1248
01:12:32,018 --> 01:12:35,458
funds. We do think that it is another diversifier in the
1249
01:12:35,498 --> 01:12:36,338
portfolio,
1250
01:12:37,178 --> 01:12:40,838
and again, can move differently, have different risks to
1251
01:12:40,898 --> 01:12:44,838
equities and bonds. And so, it's something that we do cover
1252
01:12:44,898 --> 01:12:48,738
and add to portfolios. I think particularly with
1253
01:12:49,018 --> 01:12:52,218
that steady income component, that can help to dampen
1254
01:12:52,838 --> 01:12:56,278
volatility. It can be a little bit more challenged,
1255
01:12:56,898 --> 01:12:59,018
as you can imagine, when rates are going up.
1256
01:12:59,818 --> 01:13:03,738
But there are different types of property funds that invest in
1257
01:13:03,778 --> 01:13:07,518
different areas of the market that might be a little bit more shielded from
1258
01:13:07,578 --> 01:13:11,318
that. And so that's something your investment manager might look at.
1259
01:13:11,718 --> 01:13:15,558
But again, it also depends on your individual preferences and risk and
1260
01:13:15,638 --> 01:13:17,398
all of that, whether or not we would look at that.
1261
01:13:23,046 --> 01:13:23,666
I was just wondering
1262
01:13:24,626 --> 01:13:25,546
how the markets were
1263
01:13:26,405 --> 01:13:29,846
pricing in the environmental risks we're facing, obviously, with super El
1264
01:13:29,906 --> 01:13:33,766
Niños, supposedly an even hotter summer, drier summer
1265
01:13:33,826 --> 01:13:34,446
next year.
1266
01:13:36,146 --> 01:13:39,726
Are they pricing that in or are they ignoring it?
1267
01:13:39,826 --> 01:13:40,146
Yes.
1268
01:13:41,146 --> 01:13:42,466
They are pricing it in.
1269
01:13:43,786 --> 01:13:47,326
So, I think we see this most clearly in
1270
01:13:48,526 --> 01:13:52,046
what we call the risk premium or the yields.
1271
01:13:52,646 --> 01:13:56,106
Specifically in the bond market, you can see yields are rising for many different
1272
01:13:56,186 --> 01:13:59,986
reasons. I think one of that is that bond investors
1273
01:14:00,046 --> 01:14:03,926
are seeing that there is more risk out there, and
1274
01:14:03,946 --> 01:14:05,686
they're demanding that higher premium.
1275
01:14:06,126 --> 01:14:10,046
And so that is something that can potentially impact financing.
1276
01:14:10,706 --> 01:14:13,326
I think it's something we'd certainly have to consider carefully.
1277
01:14:14,046 --> 01:14:17,526
Luckily, we do have our in-house sustainability expert, our head of
1278
01:14:17,566 --> 01:14:21,246
sustainability, Katrina Brown, right here, and she's going to do an
1279
01:14:21,306 --> 01:14:25,206
excellent presentation, so I don't want to steal her thunder, but I'm sure she can
1280
01:14:25,246 --> 01:14:28,866
give a little bit more context as to how we view that and look at that.
1281
01:14:32,406 --> 01:14:33,246
Any other questions?
1282
01:14:34,746 --> 01:14:37,106
No? In that case, Arielle, thank you so much.
1283
01:14:43,226 --> 01:14:46,846
Well, good morning, everybody. And goodness me, what a fantastic morning it has
1284
01:14:46,886 --> 01:14:47,686
been so far.
1285
01:14:48,526 --> 01:14:52,446
I'm conscious that I'm between you and a cup of tea, and certainly I feel like my
1286
01:14:52,486 --> 01:14:55,966
voice could do with one. So I'm sure you could all do with one as well.
1287
01:14:56,766 --> 01:15:00,126
So as I have been described as head of responsible
1288
01:15:00,166 --> 01:15:03,606
investment, here at Evelyn Partners, that means three things.
1289
01:15:03,986 --> 01:15:07,666
So it means thinking about environmental, social, and governance
1290
01:15:07,766 --> 01:15:11,626
risks as part of our decision-making, and I think Arielle has just smashed it
1291
01:15:11,686 --> 01:15:15,346
today, frankly. Geopolitics is a great example of an ESG
1292
01:15:15,406 --> 01:15:19,226
risk, and you can see that our strategy is laced with analysis on
1293
01:15:19,286 --> 01:15:19,606
that.
1294
01:15:20,426 --> 01:15:23,786
And then in terms of stocks decisions, we have actually been
1295
01:15:23,826 --> 01:15:27,786
investigating El Niño, in particular, on the consumer staples sector,
1296
01:15:28,126 --> 01:15:31,806
and we've done quite a bit of work on which companies may be exposed from a
1297
01:15:31,846 --> 01:15:35,226
geographic perspective, and we're still working on that, for example.
1298
01:15:35,766 --> 01:15:39,726
And then the next part of my job is about spearheading our stewardship
1299
01:15:39,786 --> 01:15:43,026
program, which is where standards fall below our
1300
01:15:43,086 --> 01:15:46,806
expectations with companies, but the investment case remains
1301
01:15:46,866 --> 01:15:50,666
intact, and we want to go and talk to companies about what we
1302
01:15:50,726 --> 01:15:54,246
think that they could do to improve disclosures or strategy.
1303
01:15:54,566 --> 01:15:57,646
And we've actually engaged with 70% of our
1304
01:15:58,066 --> 01:16:01,966
discretionary assets under management that are held directly for you
1305
01:16:02,026 --> 01:16:05,966
on your behalf in the last three years. So it's a really extensive program.
1306
01:16:06,126 --> 01:16:08,806
Very happy to talk a little bit more about that shortly.
1307
01:16:09,346 --> 01:16:13,106
And then finally, my role ensures that we can offer sustainability
1308
01:16:13,226 --> 01:16:17,086
preferences to our clients, and that includes divesting from
1309
01:16:17,186 --> 01:16:19,826
areas as well as investing in a more positive way.
1310
01:16:20,266 --> 01:16:24,146
And so, here at Evelyn Partners, we can really tailor any
1311
01:16:24,186 --> 01:16:26,226
portfolio to your specific needs.
1312
01:16:26,266 --> 01:16:30,226
It's a real strength of the investment managers that a number of you we
1313
01:16:30,266 --> 01:16:33,666
have in the room today. And I'd be very happy to talk in the breaks
1314
01:16:34,086 --> 01:16:37,986
about any issues that you have that may arise as a result of what I
1315
01:16:38,046 --> 01:16:40,986
talk about or anything else. Very happy to do that.
1316
01:16:42,566 --> 01:16:44,846
So, the pros and cons of
1317
01:16:46,286 --> 01:16:49,406
divesting and engaging. Let's just set the scene for a minute.
1318
01:16:49,466 --> 01:16:53,406
Divesting is about avoiding specific areas of the market,
1319
01:16:53,826 --> 01:16:57,506
and engaging is all about that stewardship that I was mentioning that
1320
01:16:58,006 --> 01:17:00,306
I have the good fortune to be doing on your behalf.
1321
01:17:01,106 --> 01:17:04,786
So can it be said that you could do one or the other?
1322
01:17:04,966 --> 01:17:07,686
And I'm here to explore what that might look like.
1323
01:17:08,186 --> 01:17:10,226
So many charities do exclude things.
1324
01:17:10,546 --> 01:17:13,366
Tobacco is a normal given, weapons is another.
1325
01:17:13,686 --> 01:17:17,446
And what I'd like to do is show you some of the effects historically that that has
1326
01:17:17,526 --> 01:17:19,626
had on your portfolio, and
1327
01:17:20,606 --> 01:17:22,146
potentially also the risks.
1328
01:17:23,066 --> 01:17:26,706
Clearly, there are reputational issues, and we heard so
1329
01:17:26,766 --> 01:17:30,666
eloquently this morning from Liz about how
1330
01:17:31,386 --> 01:17:34,866
charities have an enormous role to play, both in terms of the
1331
01:17:34,886 --> 01:17:36,226
reputation of
1332
01:17:37,226 --> 01:17:40,206
the charity as well as that financial responsibility.
1333
01:17:40,625 --> 01:17:44,526
So the investment portfolio can follow through with those
1334
01:17:44,586 --> 01:17:46,586
values as you see fit.
1335
01:17:47,566 --> 01:17:51,386
So I'm going to start with divestment, and then I'm going to finish
1336
01:17:51,726 --> 01:17:55,226
with engagement, and just to say, obviously, very happy to talk
1337
01:17:55,306 --> 01:17:58,146
further with any specific needs that you might have.
1338
01:17:59,686 --> 01:18:03,526
So, on exclusions, I've mentioned already that
1339
01:18:03,806 --> 01:18:07,646
charities think about their investment portfolio as an extension of their
1340
01:18:07,706 --> 01:18:11,666
purpose, and they want to align those with their values.
1341
01:18:12,766 --> 01:18:16,106
Potentially, you could argue that that might reduce
1342
01:18:16,166 --> 01:18:20,026
exposure to long-term risks over time, and I've
1343
01:18:20,066 --> 01:18:21,886
heard that done many times.
1344
01:18:22,726 --> 01:18:26,626
The potential disadvantages are that we've heard a lot, again, from
1345
01:18:26,846 --> 01:18:30,306
Arielle about diversification. I actually have one of her slides that I have
1346
01:18:30,406 --> 01:18:34,206
sneaked into this presentation. It's very colorful, though, so I think you'll all
1347
01:18:34,266 --> 01:18:35,126
quite enjoy it.
1348
01:18:36,006 --> 01:18:38,526
And that is really, really key to investing.
1349
01:18:39,986 --> 01:18:43,506
There is a performance impact, potentially over the shorter term, which I have
1350
01:18:43,546 --> 01:18:47,166
managed to quantify for you, and the complexity of your
1351
01:18:47,206 --> 01:18:51,166
portfolio does increase, because what we need to do is make sure
1352
01:18:51,186 --> 01:18:54,106
that we've clearly defined your requirements.
1353
01:18:54,966 --> 01:18:58,946
And that when you've got revolving trustees sometimes, that could mean
1354
01:18:59,006 --> 01:19:02,666
that a set of trustees have made some commitments, and then over
1355
01:19:02,726 --> 01:19:05,126
time, that's not so well understood.
1356
01:19:06,386 --> 01:19:10,306
If you exclude, that means that I can't go to the company and say, "We
1357
01:19:10,366 --> 01:19:14,146
own this much in this company. We really want to talk to you about your carbon
1358
01:19:14,166 --> 01:19:17,386
emissions." So that's potentially a loss of influence within
1359
01:19:18,866 --> 01:19:22,826
the market, and I can explore how our engagement program does do lots
1360
01:19:22,886 --> 01:19:23,286
of good.
1361
01:19:25,226 --> 01:19:26,746
So diversification,
1362
01:19:27,966 --> 01:19:31,946
the only free lunch in finance. Clearly, they had no idea that we were putting
1363
01:19:32,026 --> 01:19:35,566
on this conference because you are having a free lunch
1364
01:19:35,766 --> 01:19:38,066
today courtesy of Even Partners. But essentially,
1365
01:19:38,866 --> 01:19:42,386
one of the sort of giants of modern portfolio theory makes this
1366
01:19:42,986 --> 01:19:45,886
point. And I think, as I say, I'm going to skip over this a little bit because
1367
01:19:45,926 --> 01:19:47,126
you've heard this from Arielle.
1368
01:19:48,086 --> 01:19:51,366
So the theory is make sure you have lots of different kinds of assets.
1369
01:19:51,646 --> 01:19:52,386
And now this is the
1370
01:19:53,246 --> 01:19:55,986
slide that I've stolen brutally from Arielle,
1371
01:19:56,866 --> 01:20:00,306
which is that all these are different colors.
1372
01:20:00,406 --> 01:20:04,226
I don't expect you to be able to read the words, but they're all different asset
1373
01:20:04,286 --> 01:20:06,046
classes performing in different ways.
1374
01:20:06,426 --> 01:20:08,386
So it's a tapestry of different returns.
1375
01:20:08,686 --> 01:20:12,546
And so as you have heard, we provide balanced returns, and that's incredibly
1376
01:20:12,586 --> 01:20:16,506
important and actually is very interesting in terms
1377
01:20:16,566 --> 01:20:19,426
of the white one, if you can see how that works.
1378
01:20:19,766 --> 01:20:23,346
The 60/40 portfolio, that's 60% equities, 40%
1379
01:20:23,406 --> 01:20:26,946
bonds, typically doesn't do too badly most of the time.
1380
01:20:27,106 --> 01:20:28,586
And the year-to-date one
1381
01:20:29,626 --> 01:20:32,246
on the right-hand side is a very small period of time,
1382
01:20:33,226 --> 01:20:36,166
and it's not actually that up to date. It's April year to date.
1383
01:20:37,226 --> 01:20:40,666
But essentially, the point is that spreading your assets
1384
01:20:40,786 --> 01:20:44,486
is a good idea, and that matters when it comes to
1385
01:20:44,546 --> 01:20:46,406
talking about exclusions.
1386
01:20:48,246 --> 01:20:51,926
So some more practical effects I was going to
1387
01:20:52,326 --> 01:20:55,386
share with you on exclusions. Reduced sector exposure.
1388
01:20:55,666 --> 01:20:57,706
So Arielle's just shown us
1389
01:20:58,806 --> 01:21:02,566
a chart of how oil has done the best so far this year.
1390
01:21:02,726 --> 01:21:06,706
Now, many charities have excluded fossil fuels from
1391
01:21:06,766 --> 01:21:08,486
their portfolio and
1392
01:21:09,386 --> 01:21:12,946
often defense as well. So in a year where you have
1393
01:21:13,506 --> 01:21:16,126
a war about oil, that's not great.
1394
01:21:16,646 --> 01:21:20,526
Surprisingly, sustainability portfolios have actually done pretty well
1395
01:21:20,566 --> 01:21:23,966
this year for different reasons, but that has been a headwind,
1396
01:21:24,086 --> 01:21:27,966
certainly, at that particularly critical times
1397
01:21:28,166 --> 01:21:29,246
of different quarters.
1398
01:21:30,326 --> 01:21:33,465
Then you could potentially have more risk, as I was explaining.
1399
01:21:33,506 --> 01:21:36,746
That was a key issue on reducing your universe.
1400
01:21:37,266 --> 01:21:37,526
And you
1401
01:21:38,426 --> 01:21:42,286
need to work really hard to avoid factor tilts, which is essentially if
1402
01:21:42,326 --> 01:21:46,086
you're removing ballast from the portfolio, you might err
1403
01:21:46,186 --> 01:21:50,046
too far towards growth stocks. So you have to work quite hard to make
1404
01:21:50,086 --> 01:21:52,346
sure you don't do that with different proxies.
1405
01:21:54,566 --> 01:21:57,846
I will just go on to how do you, as
1406
01:21:57,906 --> 01:22:01,626
trustees, think about creating a policy that actually
1407
01:22:01,866 --> 01:22:05,486
does what you want it to do, i.e., restricts you
1408
01:22:05,546 --> 01:22:09,006
from areas of the market, but doesn't have unintended
1409
01:22:09,066 --> 01:22:12,626
consequences that mean that your portfolio is unnecessarily
1410
01:22:12,666 --> 01:22:13,326
restricted?
1411
01:22:14,386 --> 01:22:17,966
So when we're looking at these and drawing up restrictions,
1412
01:22:18,466 --> 01:22:21,906
what we want to do, as your trusted
1413
01:22:21,966 --> 01:22:25,766
advisor, is to make sure that you understand the consequences of the wording
1414
01:22:26,246 --> 01:22:27,966
within an investment policy statement.
1415
01:22:28,246 --> 01:22:32,026
So, for example, you could come to me and say, "Well, I don't want anything to do
1416
01:22:32,046 --> 01:22:35,106
with tobacco. Nothing at all." I'd say, "Okay, that's fine.
1417
01:22:36,066 --> 01:22:40,026
So do you mean tobacco producers?" "Oh, yes, definitely." "Well,
1418
01:22:40,106 --> 01:22:42,866
do you mean supermarkets that sell
1419
01:22:43,466 --> 01:22:44,146
tobacco?"
1420
01:22:44,986 --> 01:22:48,926
"Well, I'm not so sure about that. That's quite a resilient asset in
1421
01:22:48,966 --> 01:22:52,746
a portfolio." Exactly. So what we need to make sure is that we have the
1422
01:22:52,806 --> 01:22:56,186
data now to actually see exactly what
1423
01:22:56,246 --> 01:22:59,526
exposures there are. Now, that's great, but it's also a
1424
01:22:59,566 --> 01:23:03,326
disadvantage when you get to a point where AstraZeneca
1425
01:23:03,446 --> 01:23:06,786
is flagging for fossil fuels. Now, that's absolutely
1426
01:23:07,106 --> 01:23:10,986
madness, you might say. Well, that's because they have a combined heat and
1427
01:23:11,066 --> 01:23:14,906
power plant which operates within one of their plants,
1428
01:23:14,966 --> 01:23:18,686
and so they're effectively producing natural gas, but
1429
01:23:18,726 --> 01:23:20,646
that's clearly not what was intended.
1430
01:23:20,686 --> 01:23:24,346
But if you gave us a fossil fuel, any tight restriction,
1431
01:23:24,746 --> 01:23:26,466
we would not be able to own AstraZeneca.
1432
01:23:26,906 --> 01:23:30,306
Why that matters is that's a contractual obligation that we have undertaken on your
1433
01:23:30,346 --> 01:23:32,506
behalf, so we're going to honor that.
1434
01:23:33,406 --> 01:23:37,086
So what we want to do is think about how you might actually use
1435
01:23:37,166 --> 01:23:40,966
revenue thresholds, which are potentially going
1436
01:23:41,046 --> 01:23:45,026
to actually give you what you intended from that restriction.
1437
01:23:46,325 --> 01:23:47,166
I think also
1438
01:23:48,746 --> 01:23:52,426
investment managers come to me and say, "Well, how about if I
1439
01:23:52,526 --> 01:23:56,166
invest on a collective basis? Can we honor any of the desires that
1440
01:23:56,206 --> 01:23:59,606
charities have?" And I say yes now, because
1441
01:23:59,726 --> 01:24:03,586
actually the collectives or investment trust, unit trust
1442
01:24:03,646 --> 01:24:07,546
world has actually become really full of choice
1443
01:24:07,606 --> 01:24:10,126
for people that do have these kind of restrictions.
1444
01:24:10,586 --> 01:24:14,446
So while it wouldn't be a contractual obligation for funds to
1445
01:24:14,506 --> 01:24:18,366
follow your restrictions process, it would be done on a best endeavors
1446
01:24:18,406 --> 01:24:22,306
basis, where we would select funds with those policies, and
1447
01:24:22,346 --> 01:24:26,286
where we can see through the data to their underlying holdings, where
1448
01:24:26,326 --> 01:24:28,506
they are honoring what you've suggested.
1449
01:24:29,066 --> 01:24:31,266
And it is also possible to use passives.
1450
01:24:31,746 --> 01:24:35,326
So they're very cheap and clearly a good part of any
1451
01:24:35,526 --> 01:24:39,186
investment structure, and a number of them have ethical restrictions
1452
01:24:39,666 --> 01:24:41,326
that we can accommodate as well.
1453
01:24:43,406 --> 01:24:46,826
Just wanted to show a quick example of how we can
1454
01:24:46,906 --> 01:24:50,806
apply really complex screens, and this one is
1455
01:24:51,106 --> 01:24:54,706
with a client that has thresholds of exposure.
1456
01:24:54,766 --> 01:24:58,686
So they're comfortable with this position in
1457
01:24:58,726 --> 01:25:02,466
the middle in terms of exposures. So what we can do is
1458
01:25:02,706 --> 01:25:06,386
honor those thresholds and then provide the exposures and the portfolio
1459
01:25:06,426 --> 01:25:09,046
exposures which are well within those thresholds.
1460
01:25:09,086 --> 01:25:13,046
And this is a very simple and standard thing that we do for all kinds
1461
01:25:13,086 --> 01:25:16,866
of clients. As I say, very happy to talk further if you would like to do
1462
01:25:16,946 --> 01:25:17,206
so.
1463
01:25:19,022 --> 01:25:22,362
Now, this is hopefully the pièce de résistance of my
1464
01:25:23,062 --> 01:25:26,402
presentation. I hope you can see it at the background now I've just said that.
1465
01:25:27,382 --> 01:25:31,102
But essentially, it is about quantifying those exclusions,
1466
01:25:31,962 --> 01:25:35,242
both in terms of long-term returns and
1467
01:25:35,542 --> 01:25:37,962
volatility, which is our key measure of risk.
1468
01:25:38,422 --> 01:25:39,702
So if we start from the top,
1469
01:25:40,522 --> 01:25:43,162
and if you can't see it at the back, don't worry, because I'll explain it as we go
1470
01:25:43,222 --> 01:25:43,582
along.
1471
01:25:44,602 --> 01:25:48,322
But the MSCI World is the standard equity index that we were
1472
01:25:48,342 --> 01:25:51,542
describing, and these numbers are to the end of December.
1473
01:25:52,542 --> 01:25:55,602
They are really stonking returns we've had over the last three years,
1474
01:25:55,682 --> 01:25:57,902
17% annualized.
1475
01:25:59,102 --> 01:26:01,342
Really impressive results.
1476
01:26:02,602 --> 01:26:06,502
And then in terms of volatility, it starts with 11,
1477
01:26:06,582 --> 01:26:08,542
so 11.7%.
1478
01:26:09,422 --> 01:26:10,862
Goes up a bit over the 10 years
1479
01:26:11,682 --> 01:26:14,942
in terms of volatility, but if you just think of those numbers for a moment.
1480
01:26:15,622 --> 01:26:18,082
Then what we've got is an index that excludes tobacco.
1481
01:26:19,122 --> 01:26:22,842
And so what happens there is very minimal results
1482
01:26:23,242 --> 01:26:26,742
from that, I would say, just the odd decimal point here and there.
1483
01:26:27,382 --> 01:26:31,122
Now, the third line starts to get pretty serious.
1484
01:26:31,242 --> 01:26:34,082
You're really seeing a little bit more of a divergence there
1485
01:26:35,362 --> 01:26:37,682
in terms of the three and the five-year numbers.
1486
01:26:38,082 --> 01:26:41,522
And the volatility is ticking up a little bit there, so
1487
01:26:41,822 --> 01:26:45,802
0.5 over a five-year period per year is
1488
01:26:45,842 --> 01:26:49,702
becoming significant. The next index has
1489
01:26:49,742 --> 01:26:51,742
got a terrible name, Enhanced CTB.
1490
01:26:51,862 --> 01:26:55,502
Means nothing to anyone but us exclusion geeks like me.
1491
01:26:56,162 --> 01:26:57,882
But essentially what it's doing is it's
1492
01:26:58,682 --> 01:27:01,022
excluding controversial weapons,
1493
01:27:02,142 --> 01:27:04,682
which is things like cluster bombs, mines.
1494
01:27:04,782 --> 01:27:08,262
I can just tell you that there's very little in the way of that in our investment
1495
01:27:08,342 --> 01:27:12,022
universe anyway, I might say, and companies deny being involved with it
1496
01:27:12,102 --> 01:27:15,862
anyway. But it also goes a bit more into the, it has the
1497
01:27:15,922 --> 01:27:19,702
fossil fuels still as well. And there, what you're
1498
01:27:19,782 --> 01:27:23,702
seeing now, those returns, instead of the 17% over three years, it's now
1499
01:27:23,782 --> 01:27:27,501
15.9%. And the 10 years, again,
1500
01:27:27,862 --> 01:27:31,102
a different thing again, with more volatility.
1501
01:27:32,282 --> 01:27:36,082
The next one involves the World SRI, gets rid of all
1502
01:27:36,122 --> 01:27:36,702
weapons,
1503
01:27:37,502 --> 01:27:41,322
and a number of other sins that you could
1504
01:27:41,402 --> 01:27:44,902
list. And again, the numbers are now 13% plays
1505
01:27:44,962 --> 01:27:46,042
17%.
1506
01:27:47,142 --> 01:27:50,302
And then finally, we have a small and mid-cap
1507
01:27:50,642 --> 01:27:54,042
index where it was only investing to show
1508
01:27:54,102 --> 01:27:56,382
alignment with the sustainable development goals.
1509
01:27:56,822 --> 01:28:00,682
Incredibly laudable, but has been really badly
1510
01:28:00,722 --> 01:28:04,522
affected and left behind since its been in
1511
01:28:04,582 --> 01:28:05,262
inception.
1512
01:28:06,242 --> 01:28:10,182
So I think you can see that exclusions over the last three and five years have
1513
01:28:10,222 --> 01:28:14,022
really made a difference. But what I want to also finish on with this
1514
01:28:14,102 --> 01:28:17,762
slide is the 10-year numbers. Because actually,
1515
01:28:18,862 --> 01:28:20,602
they're not that different. So
1516
01:28:21,802 --> 01:28:25,782
the 10-year numbers were 12%, 12.4% for the
1517
01:28:25,802 --> 01:28:29,782
headline index, and the SRI one, with all of
1518
01:28:29,822 --> 01:28:33,742
those sins and weapons excluded, is 12.1.
1519
01:28:34,322 --> 01:28:37,162
And the volatility is 15 versus
1520
01:28:37,202 --> 01:28:41,062
14.6. So I think in the short term, you can have
1521
01:28:41,682 --> 01:28:44,462
bigger dispersions, and you can have a higher risk.
1522
01:28:44,802 --> 01:28:48,602
But over the long term, if trustees understand that that's what they want to do and
1523
01:28:48,622 --> 01:28:51,702
they remain committed despite changes in the underlying
1524
01:28:53,262 --> 01:28:54,502
composition of those boards,
1525
01:28:55,342 --> 01:28:58,722
it really can potentially not be as
1526
01:28:58,782 --> 01:29:00,222
significant as you might think.
1527
01:29:02,222 --> 01:29:06,042
So, stewardship. Can we, instead of
1528
01:29:06,342 --> 01:29:10,082
excluding things, use our influence to affect
1529
01:29:10,142 --> 01:29:10,622
change?
1530
01:29:11,662 --> 01:29:15,262
Well, shareholders can make their views known, and I've got some great
1531
01:29:15,322 --> 01:29:16,102
examples
1532
01:29:16,922 --> 01:29:18,422
to share with you on that.
1533
01:29:19,362 --> 01:29:23,222
We can influence policy through direct meetings
1534
01:29:23,342 --> 01:29:26,862
and, in extreme cases, have actually overturned management.
1535
01:29:28,882 --> 01:29:32,662
The cons on that is on voting, which we are very active here at Evelyn
1536
01:29:32,742 --> 01:29:36,442
Partners, looking at every resolution that comes through on our monitored
1537
01:29:36,522 --> 01:29:39,402
universe. There is a limit to what you can do.
1538
01:29:39,522 --> 01:29:41,542
So typically, the resolutions are around
1539
01:29:42,622 --> 01:29:46,042
voting on a different director. And so we can say, "Oh,
1540
01:29:46,702 --> 01:29:47,402
we don't want to
1541
01:29:48,822 --> 01:29:52,302
support that director." And that's all we can
1542
01:29:52,342 --> 01:29:55,102
potentially do, depending on the subjects that are raised.
1543
01:29:55,982 --> 01:29:59,902
Potentially, there are some companies that even with our best efforts and
1544
01:30:00,362 --> 01:30:04,302
grouping with other investors, there are some companies that may not want to
1545
01:30:04,362 --> 01:30:08,302
talk about some subjects. For example, we can talk to Amazon about biodiversity,
1546
01:30:09,502 --> 01:30:13,302
but they don't really want to talk about some other subjects like labor rights with
1547
01:30:13,382 --> 01:30:17,002
us. And then in terms of curtailing of rights, as you've been seeing
1548
01:30:17,042 --> 01:30:20,942
probably sadly in the US, there has been some ratcheting back of
1549
01:30:21,022 --> 01:30:23,742
where shareholders are positioned.
1550
01:30:24,102 --> 01:30:27,802
I am gratified to say that a number of companies that we've spoken to in the
1551
01:30:27,882 --> 01:30:31,442
US this year have maintained their commitment to things like
1552
01:30:31,502 --> 01:30:35,122
DEI and carbon. Walmart, a big
1553
01:30:35,182 --> 01:30:38,862
company in the US, just restated their external science-based
1554
01:30:39,562 --> 01:30:41,642
carbon reduction target, for example.
1555
01:30:42,502 --> 01:30:44,382
So despite the fact that there are these
1556
01:30:45,302 --> 01:30:46,322
political shifts,
1557
01:30:47,302 --> 01:30:50,402
companies continue to maintain a steady course.
1558
01:30:51,638 --> 01:30:54,698
What I'd like to do is give you a few really good examples this year.
1559
01:30:54,738 --> 01:30:55,978
I'm very happy to share more,
1560
01:30:57,098 --> 01:31:00,898
as and when, if we've got time. But we
1561
01:31:00,978 --> 01:31:04,558
have done some really interesting meetings this year.
1562
01:31:05,338 --> 01:31:08,818
BP was a particular highlight. I'm sure you've all
1563
01:31:09,178 --> 01:31:10,038
heard about
1564
01:31:10,878 --> 01:31:14,638
the change in leadership there. But what they did was,
1565
01:31:15,738 --> 01:31:19,478
ahead of their AGM, is they wanted to reduce the amount of climate disclosures they
1566
01:31:19,498 --> 01:31:23,098
were having. And this riled a number of investors, and we
1567
01:31:23,158 --> 01:31:27,138
had a meeting with Amanda Blanc, who was on "The Today Program" yesterday morning,
1568
01:31:28,198 --> 01:31:30,418
who was the special director
1569
01:31:31,638 --> 01:31:35,618
there. It last minute changed because it was supposed to be with the chair of BP,
1570
01:31:35,698 --> 01:31:39,518
but as we then discovered, he was suspended, so he couldn't join us.
1571
01:31:40,778 --> 01:31:44,338
But what we wanted to say to them was that we thought that climate disclosures were
1572
01:31:44,378 --> 01:31:48,198
incredibly important, and her point was that they just didn't have time to do
1573
01:31:48,278 --> 01:31:50,978
it. We're talking about one page in an annual report, and
1574
01:31:51,958 --> 01:31:55,598
stop me if I'm wrong, but I don't think many non-executive directors get involved
1575
01:31:55,677 --> 01:31:59,618
with that. So the argument wasn't really sticking, and the
1576
01:31:59,678 --> 01:32:02,838
results of the vote was that it didn't get anywhere near
1577
01:32:03,158 --> 01:32:05,778
passing. So BP is remaining,
1578
01:32:07,318 --> 01:32:09,878
doing the climate disclosures that we asked them to do.
1579
01:32:11,018 --> 01:32:14,878
Otherwise, we talked to Interactive Brokers about remuneration, and
1580
01:32:15,558 --> 01:32:18,798
it was a great meeting. So we had the vice chair of the board,
1581
01:32:19,378 --> 01:32:22,838
and he started out with his investor relations
1582
01:32:23,498 --> 01:32:27,338
lady, definitely on course to say, "Absolutely no, we're not going to do
1583
01:32:27,398 --> 01:32:30,158
anything you say." And halfway through the meeting,
1584
01:32:31,078 --> 01:32:34,598
he rather warmed to our suggestion, which is to look at peer
1585
01:32:34,658 --> 01:32:36,998
group when you're establishing remuneration.
1586
01:32:37,538 --> 01:32:41,278
And so he said that he would actually do that and come back to us next year.
1587
01:32:41,858 --> 01:32:45,778
So we were very pleased with that. And then the final one, sorry, I've got
1588
01:32:45,818 --> 01:32:47,518
another one I'd really like to share as well.
1589
01:32:47,538 --> 01:32:51,378
But we saw TotalEnergies last week, and we were
1590
01:32:51,478 --> 01:32:55,398
asking them about the risk of pollution incidents in the Straits of Hormuz, because
1591
01:32:55,418 --> 01:32:57,678
we think that's a very serious pollution risk.
1592
01:32:57,818 --> 01:33:01,778
We've got bombs flying around, with massive tankers, what
1593
01:33:01,838 --> 01:33:04,438
could happen to the environment of the ocean?
1594
01:33:05,338 --> 01:33:09,258
They were very actually reassuring on this, where they said that the
1595
01:33:09,318 --> 01:33:12,158
drones from Iran are incredibly accurate.
1596
01:33:12,598 --> 01:33:16,118
They know exactly where to hit a ship, and they are doing their
1597
01:33:16,178 --> 01:33:20,118
best not to actually leak any of the
1598
01:33:20,198 --> 01:33:23,138
fuel, which I thought was quite reassuring,
1599
01:33:23,938 --> 01:33:27,698
if slightly scary about drone warfare and AI, as we've mentioned.
1600
01:33:28,298 --> 01:33:32,198
And then finally on CVS, it's a network of
1601
01:33:32,258 --> 01:33:32,718
vets.
1602
01:33:33,658 --> 01:33:37,338
What we've heard more about over the summer is that House of
1603
01:33:37,398 --> 01:33:41,238
Lords have established that some spot-on treatments for dogs
1604
01:33:41,758 --> 01:33:44,838
are incredibly toxic for aquatic life.
1605
01:33:45,378 --> 01:33:49,278
And they have been banned in agriculture for some years, and yet us
1606
01:33:49,338 --> 01:33:53,318
pet owners are allowed to freely buy them over the counter and put them on
1607
01:33:53,378 --> 01:33:57,338
our dogs. We take them on holiday to a pond or a lake in the Lake
1608
01:33:57,378 --> 01:33:58,338
District that's never
1609
01:33:59,578 --> 01:34:02,978
got anywhere near from a sheep or a cow, let our Springer Spaniel
1610
01:34:04,378 --> 01:34:07,358
swim in it, and it's destroyed the aquatic life in that lake,
1611
01:34:07,938 --> 01:34:08,918
probably forever.
1612
01:34:09,918 --> 01:34:13,818
These are very serious chemicals, and that all of us just don't know.
1613
01:34:14,178 --> 01:34:17,878
And so what we wrote to the vets about is to say,
1614
01:34:18,358 --> 01:34:19,778
"Can you educate your
1615
01:34:21,398 --> 01:34:23,158
customers? There is an alternative.
1616
01:34:23,278 --> 01:34:27,198
They can buy a pill that doesn't have the same kind of devastating effects." And
1617
01:34:27,298 --> 01:34:31,058
I think you'd find that many of their customers would choose to do
1618
01:34:31,118 --> 01:34:35,038
that. And that's the kind of thing, hopefully, with engagement,
1619
01:34:35,418 --> 01:34:39,258
that we can do, alongside with slightly more boring matters
1620
01:34:39,338 --> 01:34:43,158
about closed-end investment trust factors, but important in
1621
01:34:43,218 --> 01:34:46,498
terms of reducing fees, and we've got some very interesting
1622
01:34:46,938 --> 01:34:49,098
success stories we've also made on those.
1623
01:34:50,458 --> 01:34:53,438
So I was just going to end here with this final slide.
1624
01:34:54,578 --> 01:34:58,058
Could it be that there are unintended consequences
1625
01:34:58,178 --> 01:35:01,778
of divesting? Is it possible that engaging with
1626
01:35:01,838 --> 01:35:04,638
companies is so successful that you don't need to do that?
1627
01:35:05,358 --> 01:35:09,178
And I recorded a really interesting podcast with Professor
1628
01:35:09,217 --> 01:35:13,038
Kelly Xu, which is on our website. You can find it from that QR
1629
01:35:13,098 --> 01:35:16,098
code, or just have a look at our responsible investing pages.
1630
01:35:17,118 --> 01:35:20,978
To understand and explore whether if we all divest of
1631
01:35:21,018 --> 01:35:24,238
the dirtiest companies, she would call them brown firms,
1632
01:35:25,218 --> 01:35:26,858
that that affects them in some way.
1633
01:35:27,718 --> 01:35:31,578
And her case was that actually, yes, it potentially could by
1634
01:35:31,658 --> 01:35:35,298
increasing their cost of capital, and therefore, they would actually have to
1635
01:35:35,378 --> 01:35:38,338
make shorter-term decisions about what
1636
01:35:38,998 --> 01:35:42,678
investments to make. And certainly with BP, we have seen that,
1637
01:35:42,878 --> 01:35:46,558
partly driven by activist investors doing the opposite of what I would have liked
1638
01:35:46,578 --> 01:35:50,478
them to do, but also because the returns haven't
1639
01:35:50,518 --> 01:35:52,438
been there because of higher interest rates.
1640
01:35:52,918 --> 01:35:56,738
And so actually, I think what was interesting for her is to say that actually
1641
01:35:56,778 --> 01:35:59,278
engagement is better, in her view.
1642
01:36:00,138 --> 01:36:03,978
But I think in reality, if we could take a step back, it's not likely
1643
01:36:04,238 --> 01:36:07,858
that if Evelyn Partners telling Rolls-Royce that they shouldn't make weapons
1644
01:36:07,918 --> 01:36:11,838
anymore, that there's clearly limits to what engagement can achieve.
1645
01:36:12,798 --> 01:36:16,358
But in the case of carbon emissions, I think it is one that we can
1646
01:36:17,098 --> 01:36:18,738
support and encourage management.
1647
01:36:19,398 --> 01:36:23,218
So I think in terms of charities weighing up, divest or
1648
01:36:23,278 --> 01:36:27,098
engage, potentially a bit of both kind of
1649
01:36:27,158 --> 01:36:31,018
works when it comes to reputational risk, where you exclude
1650
01:36:31,078 --> 01:36:34,638
the areas of the market which you do find to be not
1651
01:36:34,678 --> 01:36:38,638
consistent with your mission, and you do that in a way that continues
1652
01:36:38,698 --> 01:36:41,158
to support diversification across your portfolios.
1653
01:36:41,518 --> 01:36:45,218
But then that you have a manager that is going out there and being
1654
01:36:45,278 --> 01:36:48,198
very active when it comes to engagement.
1655
01:36:49,978 --> 01:36:53,810
So I have hopefully Finished in time for everybody to
1656
01:36:53,890 --> 01:36:57,870
actually get their cup of tea. I'm looking at Caroline. I hope that's the case.
1657
01:36:58,310 --> 01:37:00,110
My guess is I probably won't have any questions.
1658
01:37:00,630 --> 01:37:03,650
We do have time for one or two, if anyone has any questions.
1659
01:37:04,270 --> 01:37:06,770
Or else I'll be free at the break if you would like to talk.
1660
01:37:16,710 --> 01:37:19,910
Yes, I was interested. You showed over 10 years, there wasn't much difference
1661
01:37:19,950 --> 01:37:22,310
between the different groups of the exclusions.
1662
01:37:23,330 --> 01:37:23,790
Why is that?
1663
01:37:25,490 --> 01:37:27,350
Well, it's a great question.
1664
01:37:28,750 --> 01:37:32,590
Having looked into the numbers, I think the biggest driver of returns is the
1665
01:37:34,150 --> 01:37:35,990
resurgence of the defense sector.
1666
01:37:36,730 --> 01:37:40,550
So if you look five years ago, there were certain companies out there that
1667
01:37:40,610 --> 01:37:44,010
were very close to financial disaster,
1668
01:37:44,570 --> 01:37:48,370
and the rearmament of Europe, the story generally
1669
01:37:48,450 --> 01:37:48,770
has
1670
01:37:49,730 --> 01:37:53,310
been fundamental to those figures, I would say.
1671
01:37:53,550 --> 01:37:53,610
So
1672
01:37:55,390 --> 01:37:58,290
when I looked at the numbers, that was the biggest driver of those.
1673
01:38:00,230 --> 01:38:04,150
It's really interesting. It almost suggests it doesn't matter what you invest in
1674
01:38:04,210 --> 01:38:05,850
there over a period of time.
1675
01:38:06,630 --> 01:38:06,870
Well,
1676
01:38:09,290 --> 01:38:10,310
that's a really interesting point.
1677
01:38:10,410 --> 01:38:11,190
So actually,
1678
01:38:12,110 --> 01:38:14,810
when I was looking at a client came to us
1679
01:38:15,970 --> 01:38:18,670
who wanted to invest along vegan lines
1680
01:38:19,890 --> 01:38:22,710
and use only collective funds as well.
1681
01:38:22,810 --> 01:38:26,090
So tie both hands behind my back and see how I can do that.
1682
01:38:27,150 --> 01:38:29,530
So I was very concerned about what that might look like.
1683
01:38:29,570 --> 01:38:33,410
There is a vegan ETF, would you believe, out there, listed in the US.
1684
01:38:33,730 --> 01:38:37,710
We looked at the underlying holdings, and we constructed a portfolio and then
1685
01:38:37,750 --> 01:38:40,970
put it through risk because we thought that would be incredibly important.
1686
01:38:41,610 --> 01:38:45,190
And it had all the normal diversifiers and splits
1687
01:38:45,270 --> 01:38:49,050
across Arielle's preferred options with her
1688
01:38:49,090 --> 01:38:52,970
risk profile. And actually, it wasn't too bad in terms of risk.
1689
01:38:53,230 --> 01:38:57,030
I was very surprised. The real key determinant of
1690
01:38:57,050 --> 01:39:00,350
returns is often the percentage in equity.
1691
01:39:01,030 --> 01:39:04,870
And that is, as we all know from all of our portfolio theory, a
1692
01:39:04,930 --> 01:39:06,970
very important decision to make.
1693
01:39:09,390 --> 01:39:10,850
Do we have any other questions?
1694
01:39:12,310 --> 01:39:14,730
One more right here.
1695
01:39:14,810 --> 01:39:16,490
Hi, thanks for a very interesting talk.
1696
01:39:16,810 --> 01:39:20,590
I thought your example of CVS was interesting because I think this is a
1697
01:39:20,650 --> 01:39:24,490
real risk of known data against not known
1698
01:39:24,550 --> 01:39:27,570
data. So we have the data on Spot-Ons.
1699
01:39:27,890 --> 01:39:31,730
We have no data on pills. So we may be changing to
1700
01:39:31,790 --> 01:39:33,090
something that's potentially
1701
01:39:34,310 --> 01:39:35,110
more harmful.
1702
01:39:35,910 --> 01:39:39,470
So there's this tendency for people to say, "Okay, so we don't like this,
1703
01:39:40,130 --> 01:39:44,090
so we'll do that." But something newer and different often doesn't have
1704
01:39:45,070 --> 01:39:47,670
the length of data. So just an interesting
1705
01:39:48,510 --> 01:39:52,070
perspective on making changes from what we're doing
1706
01:39:52,130 --> 01:39:56,090
now to something that's new and could be a lot better, but potentially
1707
01:39:56,130 --> 01:39:57,530
could be worse.
1708
01:39:57,690 --> 01:40:01,350
Sure. No, that's a great point. But I think generally
1709
01:40:01,450 --> 01:40:05,310
speaking, certainly as a dog owner myself, who is clearly
1710
01:40:05,350 --> 01:40:05,830
apparent,
1711
01:40:06,850 --> 01:40:10,610
I would think twice. Actually, my dogs don't like going in water, but if my dog
1712
01:40:10,670 --> 01:40:14,110
did, I think it would make me think twice whatever
1713
01:40:14,590 --> 01:40:17,050
flea and tick treatment they had on.
1714
01:40:17,270 --> 01:40:19,230
It would simply not have crossed my mind.
1715
01:40:19,770 --> 01:40:23,490
And if you had a marketing program or just posters when you're
1716
01:40:23,530 --> 01:40:27,430
waiting for your appointment, that would affect the consumers
1717
01:40:27,530 --> 01:40:31,430
really profoundly, and they would think twice about the impact their dog has
1718
01:40:31,490 --> 01:40:33,970
on the environment in a way that, at the moment, they don't see.
1719
01:40:34,890 --> 01:40:36,430
But I take your point.
1720
01:40:39,150 --> 01:40:40,730
Thank you so much. Katrina.
1721
01:40:45,970 --> 01:40:46,590
Hello, everyone.
1722
01:40:47,410 --> 01:40:50,730
There's only one thing worse than standing between people and lunch, and that's
1723
01:40:50,790 --> 01:40:52,390
standing between people and drinks.
1724
01:40:52,910 --> 01:40:56,890
So fortunately, I don't think there's any drink, but I'm standing between you and
1725
01:40:57,210 --> 01:40:57,470
lunch.
1726
01:40:58,310 --> 01:40:58,590
So
1727
01:41:00,450 --> 01:41:03,750
I've been asked just to tell you a bit about my story and
1728
01:41:04,250 --> 01:41:08,050
kind of moving from seeing a charity model as a way of
1729
01:41:08,090 --> 01:41:11,910
changing the world to seeing a purpose-driven business model as a way to
1730
01:41:11,950 --> 01:41:13,470
change the world, and what I've learned
1731
01:41:14,450 --> 01:41:18,190
about that. And I'm really pleased to be here,
1732
01:41:18,290 --> 01:41:18,910
having met
1733
01:41:20,350 --> 01:41:23,490
someone from my ex-employer, the Archdiocese of Liverpool over there.
1734
01:41:23,570 --> 01:41:26,910
The Episcopal Vicar of Finance for the Archdiocese of Liverpool is here, which is
1735
01:41:26,950 --> 01:41:28,610
amazing. And then Linda Minnis,
1736
01:41:29,550 --> 01:41:33,490
who used to work at Littlewoods and was a great advisor when I
1737
01:41:33,510 --> 01:41:36,030
was running a social enterprise in Liverpool.
1738
01:41:36,610 --> 01:41:36,810
So,
1739
01:41:39,150 --> 01:41:43,110
a bit about me. So, I'm Liam. I'm the son
1740
01:41:43,150 --> 01:41:46,170
of Irish working-class immigrants into this country.
1741
01:41:46,250 --> 01:41:50,110
My dad, my granddad all came over here to dig holes and
1742
01:41:50,150 --> 01:41:52,110
build motorways and lay gas pipes.
1743
01:41:53,090 --> 01:41:57,030
So I'm the sort of beneficiary of an astonishing, in
1744
01:41:57,110 --> 01:41:58,090
one generation,
1745
01:41:58,970 --> 01:41:59,350
sort of
1746
01:42:00,290 --> 01:42:01,390
social mobility.
1747
01:42:02,450 --> 01:42:03,230
So this is
1748
01:42:04,510 --> 01:42:04,790
Maggie,
1749
01:42:05,590 --> 01:42:06,630
my wife, and these are
1750
01:42:07,670 --> 01:42:10,430
our four grandchildren, the joy of my life.
1751
01:42:10,710 --> 01:42:11,050
So I'm
1752
01:42:13,010 --> 01:42:16,850
not eight anymore. So I'm at that period of my life where I can choose
1753
01:42:17,430 --> 01:42:20,450
what it is that I do. And what I do is,
1754
01:42:21,330 --> 01:42:24,550
I spend as much time I can with these children, and number five is due to land
1755
01:42:25,490 --> 01:42:26,670
in six weeks' time.
1756
01:42:27,690 --> 01:42:31,530
And I'm on the board of three companies, which I'll talk to you a little bit
1757
01:42:31,630 --> 01:42:35,090
about. And I've got quite a thriving mentoring and coaching
1758
01:42:35,190 --> 01:42:38,990
practice where I work with leaders and entrepreneurs that are trying to
1759
01:42:39,050 --> 01:42:39,870
change the world,
1760
01:42:40,850 --> 01:42:43,250
either through charities or business or whatever it might be.
1761
01:42:45,050 --> 01:42:47,270
I went to Christian Brothers School, like a lot of good,
1762
01:42:48,510 --> 01:42:49,710
Paddys in this
1763
01:42:50,590 --> 01:42:54,270
country. And I would've denied this for decades, the influence of the
1764
01:42:54,330 --> 01:42:57,690
church on me in my politics and my view of the world. No.
1765
01:42:58,770 --> 01:43:00,030
Well, actually, what's the old saying?
1766
01:43:00,110 --> 01:43:02,810
You can take the boy out of the Catholic church, but you can't take the Catholic
1767
01:43:02,870 --> 01:43:06,810
church out of the boy. So in my dotage now, I'm actually very grateful,
1768
01:43:07,410 --> 01:43:09,770
apart from the beatings that were handed out by the Christian brothers.
1769
01:43:10,650 --> 01:43:12,610
Brother Athanasius, may you rot in hell.
1770
01:43:17,210 --> 01:43:21,110
Ask me about Brother Athanasius. Anyway, so that's a bit about me.
1771
01:43:22,250 --> 01:43:26,090
So when you're asked to talk about your life, one of the key questions is where do
1772
01:43:26,110 --> 01:43:29,790
you start, right? So I'm going to start in my mid-30s
1773
01:43:30,110 --> 01:43:33,550
in Liverpool. And, I was at that time
1774
01:43:33,650 --> 01:43:37,210
working for Crisis, the homelessness charity,
1775
01:43:38,050 --> 01:43:41,490
who got a big donation from a very wealthy Manchester
1776
01:43:41,530 --> 01:43:44,990
businessman called John Tsakonas of Cousin's Soap fame.
1777
01:43:45,690 --> 01:43:46,130
And his
1778
01:43:47,690 --> 01:43:50,190
mandate was you can only spend that money in Manchester and the Northwest.
1779
01:43:50,210 --> 01:43:53,870
So they opened up an office, I was recruited, and I ran that
1780
01:43:53,950 --> 01:43:57,870
office and ran the north of England and the north of Ireland for about seven or
1781
01:43:57,890 --> 01:43:58,390
eight years,
1782
01:44:00,770 --> 01:44:04,070
fundraising money and then giving it away to single homeless projects.
1783
01:44:04,110 --> 01:44:07,970
And we had more money than we could give away in my patch.
1784
01:44:08,110 --> 01:44:11,490
We were really good fundraisers. And so the trustees said, "Go out there and
1785
01:44:11,590 --> 01:44:15,510
find things we can put substantial sums of money into that
1786
01:44:15,530 --> 01:44:19,090
will have a big impact in the lives of homeless and vulnerably housed
1787
01:44:19,170 --> 01:44:23,090
people and has a chance at becoming financially viable." So I
1788
01:44:23,150 --> 01:44:26,630
hosted all sorts of meetings all around the north of England, in town halls at
1789
01:44:26,670 --> 01:44:29,090
Manchester and Liverpool, Newcastle, Belfast.
1790
01:44:29,830 --> 01:44:31,930
I met a couple of guys who were involved with a
1791
01:44:33,050 --> 01:44:36,330
charity in Liverpool called Furniture Resource Center, which was a very
1792
01:44:36,430 --> 01:44:37,150
traditional
1793
01:44:37,950 --> 01:44:38,790
give us some money,
1794
01:44:40,230 --> 01:44:43,370
charitable trust, Liverpool City Council, Littlewoods,
1795
01:44:44,270 --> 01:44:44,630
whoever.
1796
01:44:45,830 --> 01:44:48,610
And then we'll have a s****y old van that runs around Liverpool picking up
1797
01:44:48,650 --> 01:44:51,370
secondhand furniture, and we'll give it away to really poor people.
1798
01:44:51,730 --> 01:44:53,809
That was the model. And then we run out of money,
1799
01:44:55,010 --> 01:44:57,450
we'll stop doing that, and we'll go and try and raise some more money.
1800
01:44:58,170 --> 01:44:58,690
And so,
1801
01:45:00,430 --> 01:45:04,130
long story short, we're the same age, we're in our early 30s,
1802
01:45:04,770 --> 01:45:08,670
and we decided that this model of begging other people for
1803
01:45:08,730 --> 01:45:10,310
money so that we could do
1804
01:45:11,950 --> 01:45:15,930
what we wanted to do in the world was crap, and we didn't want to do it
1805
01:45:15,970 --> 01:45:19,110
anymore. So we wondered, could we create
1806
01:45:19,750 --> 01:45:23,170
businesses that would achieve our purposes, which were
1807
01:45:24,010 --> 01:45:27,550
getting furniture into the homes of vulnerable people, and in the doing of all of
1808
01:45:27,630 --> 01:45:31,230
that, create work for long-term unemployed Scousers?
1809
01:45:31,450 --> 01:45:34,830
Could we do that? So we went on a roadshow. We came down to London.
1810
01:45:34,870 --> 01:45:38,490
We went to see Esmee Fairbairn Foundation and all the places, and we said, "Here's
1811
01:45:38,510 --> 01:45:41,650
the thing. We have this idea to transform this
1812
01:45:41,730 --> 01:45:45,210
organization." We didn't use the word social enterprise, social entrepreneur.
1813
01:45:45,870 --> 01:45:48,590
We want to transform it, but we need some money to do that.
1814
01:45:49,330 --> 01:45:53,010
So I can't remember how much we... Crisis were putting a bunch in, and we went down
1815
01:45:53,050 --> 01:45:54,390
to raise some money. We said, "Here's the deal.
1816
01:45:54,930 --> 01:45:58,870
You give us 50 grand, 100 grand," or whatever it was we were asking for, "and
1817
01:45:58,910 --> 01:45:59,930
you'll never see us again.
1818
01:46:00,950 --> 01:46:04,890
Either because it will have worked and we won't need your support
1819
01:46:04,950 --> 01:46:08,630
anymore, or it won't have worked and we'll be so ashamed of ourselves
1820
01:46:09,310 --> 01:46:12,550
that we'll never come back." And so in 1994,
1821
01:46:13,350 --> 01:46:15,090
we relaunched the organization,
1822
01:46:16,030 --> 01:46:19,370
making furniture, logistics, all sorts of things.
1823
01:46:19,470 --> 01:46:23,450
And so the business got going. Still going today, turning over 20
1824
01:46:23,490 --> 01:46:27,010
million quid, employing loads of people, still probably one of the bigger employers
1825
01:46:27,510 --> 01:46:29,670
in the city after you take out the council and the
1826
01:46:30,750 --> 01:46:31,650
universities.
1827
01:46:33,910 --> 01:46:36,370
There were lots of spinoffs. Those of you in Liverpool might remember this
1828
01:46:36,410 --> 01:46:39,770
business, Bulky Bob's. We did a deal with Liverpool City Council to collect all of
1829
01:46:39,830 --> 01:46:43,290
the unwanted bulky household furniture and then had a whole
1830
01:46:44,010 --> 01:46:47,650
value chain of social enterprises refurbishing it, selling it, and so on.
1831
01:46:48,690 --> 01:46:49,050
We
1832
01:46:49,870 --> 01:46:53,650
set up a company called Cat's Pyjamas, which was a consultancy to help
1833
01:46:53,690 --> 01:46:54,770
people learn from
1834
01:46:55,630 --> 01:46:59,530
the journey that we were on from an earned income model to a sales model,
1835
01:46:59,590 --> 01:47:02,609
and the huge mistakes we made in terms of culture and
1836
01:47:03,250 --> 01:47:04,590
funding and governance.
1837
01:47:05,870 --> 01:47:08,370
No one from the Charity Commission here, is there? It's probably too old now.
1838
01:47:10,110 --> 01:47:13,890
And we had hundreds of people came to Merseyside to see
1839
01:47:13,970 --> 01:47:15,650
us and some other social businesses.
1840
01:47:16,470 --> 01:47:20,410
We ran events in America. We ran events in Africa. It was great.
1841
01:47:20,730 --> 01:47:23,710
And myself and Jeremy Nicholls, who was my partner in that, we wrote a book called
1842
01:47:24,130 --> 01:47:27,450
"There's No Business Like Social Business: How to Be Socially Enterprising,"
1843
01:47:28,170 --> 01:47:31,490
which sort of said, if you want to do this, move from
1844
01:47:32,410 --> 01:47:34,930
that place here to that place there.
1845
01:47:35,030 --> 01:47:37,650
This is what we're learning, and you need to bear in mind.
1846
01:47:38,750 --> 01:47:42,610
And, one of the people who read that book was one of Jamie Oliver's
1847
01:47:42,650 --> 01:47:43,310
advisors.
1848
01:47:45,110 --> 01:47:47,010
He told me he read it, but I don't think he did.
1849
01:47:47,530 --> 01:47:49,150
I think one of his advisors read it.
1850
01:47:49,650 --> 01:47:53,210
And this was in 2003-ish,
1851
01:47:54,050 --> 01:47:57,570
and it was a year after this program was on the telly, where Jamie's Kitchen, where
1852
01:47:57,630 --> 01:48:01,250
he ran, looking for young people to join an apprenticeship and
1853
01:48:01,790 --> 01:48:05,610
so on. And so anyway, long story short, I decided to
1854
01:48:05,650 --> 01:48:06,310
leave Liverpool,
1855
01:48:07,450 --> 01:48:11,370
and drag my children that were still at home out of Liverpool, they
1856
01:48:11,410 --> 01:48:11,930
didn't want to go.
1857
01:48:12,790 --> 01:48:16,670
And we came down here, and then I was
1858
01:48:16,710 --> 01:48:20,170
then in charge of the Fifteen organization, which was
1859
01:48:20,670 --> 01:48:24,290
basically fancy restaurants with an apprenticeship in the kitchen.
1860
01:48:24,770 --> 01:48:28,510
Very straightforward concept, very challenging business model
1861
01:48:29,170 --> 01:48:32,510
to make work. And we opened up businesses in London.
1862
01:48:32,550 --> 01:48:35,970
This is in Cornwall, Amsterdam, Melbourne.
1863
01:48:36,530 --> 01:48:40,510
We had an events business imaginatively called Fifteen
1864
01:48:40,570 --> 01:48:41,010
Events.
1865
01:48:41,950 --> 01:48:42,290
And,
1866
01:48:43,710 --> 01:48:45,030
I was there for about
1867
01:48:46,218 --> 01:48:49,757
... four years, and it was fantastic, and it really
1868
01:48:50,738 --> 01:48:53,458
cemented in me the idea that if you want to support
1869
01:48:54,378 --> 01:48:57,358
young people and get them out of
1870
01:48:58,338 --> 01:49:02,278
now what we call NEAT world, then you need to put them into a
1871
01:49:02,338 --> 01:49:05,498
real work environment with a lot of support around them.
1872
01:49:05,558 --> 01:49:09,438
So not a sort of training program that doesn't really matter what happens at the
1873
01:49:09,498 --> 01:49:13,278
end of it, but actually what you do in the kitchen matters, because if that
1874
01:49:13,358 --> 01:49:17,298
pasta is undercooked, someone who's paying 50 quid for it is
1875
01:49:17,338 --> 01:49:21,018
going to kick off. And we think that's a good way to learn.
1876
01:49:21,158 --> 01:49:22,218
And so fundamentally,
1877
01:49:23,178 --> 01:49:26,238
Jamie's insight, which again is an old insight, is that
1878
01:49:28,198 --> 01:49:31,498
if you hold young people, particularly from troubled
1879
01:49:31,558 --> 01:49:35,418
backgrounds, in a different present moment, and there's nothing
1880
01:49:35,458 --> 01:49:39,218
like a kitchen for living in the present moment, you have the opportunity
1881
01:49:39,678 --> 01:49:43,618
to make the past not so influential in their life, and maybe a
1882
01:49:43,658 --> 01:49:46,558
different future is possible. So it was all about
1883
01:49:47,018 --> 01:49:47,718
identity.
1884
01:49:48,658 --> 01:49:49,818
So I did that for a while.
1885
01:49:51,058 --> 01:49:53,278
And then that brings me to my late 40s,
1886
01:49:54,098 --> 01:49:57,278
and I decided that going into my 50s,
1887
01:49:58,338 --> 01:49:59,658
I wanted to make some money for myself.
1888
01:50:00,038 --> 01:50:03,238
So I had created millions of value for these
1889
01:50:03,498 --> 01:50:05,398
organizations, which is fantastic.
1890
01:50:05,938 --> 01:50:08,958
But going into my 50s, I did not want to be a burden on my kids,
1891
01:50:09,818 --> 01:50:10,638
et cetera.
1892
01:50:11,618 --> 01:50:15,358
So myself and two friends had this idea, and the idea was,
1893
01:50:16,038 --> 01:50:19,358
I was meeting loads of social entrepreneurs and nonprofit leaders from all over the
1894
01:50:19,398 --> 01:50:22,818
world. He was meeting loads of senior corporate people.
1895
01:50:22,918 --> 01:50:25,358
He was working for the What If consultancy at that point.
1896
01:50:25,858 --> 01:50:29,818
And we thought, "Hmm, maybe there's a business in bringing those worlds together
1897
01:50:30,238 --> 01:50:31,498
and that they learn together."
1898
01:50:32,518 --> 01:50:33,918
Which is fairly commonplace now.
1899
01:50:35,338 --> 01:50:37,818
What was it? Eight, 15 years ago, whatever it was.
1900
01:50:38,998 --> 01:50:42,238
17 years ago now. That was still quite a new idea.
1901
01:50:42,838 --> 01:50:46,178
So we created a business called Wavelength, the idea being there are lots of
1902
01:50:46,218 --> 01:50:49,918
leaders on the same wavelength, but they don't get brought together in smart
1903
01:50:49,978 --> 01:50:53,298
enough, clever enough ways, and we were going to do that.
1904
01:50:53,837 --> 01:50:56,818
So we cried for about 18 months as we
1905
01:50:57,178 --> 01:50:58,498
failed to find
1906
01:50:59,298 --> 01:51:03,198
a business model that worked, but eventually we cracked it, and we created a thing
1907
01:51:03,238 --> 01:51:06,518
called Connect, which is basically a membership model
1908
01:51:07,198 --> 01:51:10,958
where corporates and others would pay us a membership fee for the
1909
01:51:11,018 --> 01:51:14,638
year, and that would then get them access to all sorts of
1910
01:51:14,698 --> 01:51:18,358
interesting things. So it could be you spend a whole day at John Lewis looking at
1911
01:51:18,418 --> 01:51:20,358
customer service, or you go to Tesla
1912
01:51:21,158 --> 01:51:24,498
to find out about AI and the future of the motor industry.
1913
01:51:24,958 --> 01:51:28,798
Or it could be we bring you to India and you look at Aravind, which is
1914
01:51:28,858 --> 01:51:29,858
an astonishing
1915
01:51:30,698 --> 01:51:34,358
organization there that it set up to cure needless blindness.
1916
01:51:35,418 --> 01:51:39,398
And it was fantastic. And we had lots of great people come through, and it
1917
01:51:40,518 --> 01:51:43,878
became a very profitable cash generative business.
1918
01:51:44,298 --> 01:51:48,058
And because we were not young, we didn't make young
1919
01:51:48,118 --> 01:51:49,578
people's mistakes in--
1920
01:51:50,418 --> 01:51:53,938
We were talking about the mistakes we make when we're young. We didn't make them.
1921
01:51:53,998 --> 01:51:57,738
So we had no offices. It was all done, God bless
1922
01:51:57,818 --> 01:52:01,658
Apple. The barriers to entry to set up a business, particularly one like us,
1923
01:52:01,798 --> 01:52:02,578
are so low,
1924
01:52:03,698 --> 01:52:04,498
and it went very well.
1925
01:52:05,898 --> 01:52:09,058
We then had lots of our clients say to us, "Oh, we love that.
1926
01:52:09,258 --> 01:52:11,598
Could you do one for us?" And so we
1927
01:52:13,498 --> 01:52:17,298
resisted the word consultancy business, but I think probably is what we was.
1928
01:52:17,878 --> 01:52:19,118
And so we would do things like this.
1929
01:52:19,198 --> 01:52:22,238
We'd be asked, "Would you take the top 25
1930
01:52:22,898 --> 01:52:26,358
leaders of Dyson to Silicon Valley for a week to look at
1931
01:52:26,398 --> 01:52:26,998
robotics?"
1932
01:52:28,318 --> 01:52:32,158
And then we would put everything together from the content, the people they
1933
01:52:32,238 --> 01:52:34,658
met, all the way through to picking them up at the airport,
1934
01:52:35,958 --> 01:52:37,078
and so on. And we did that
1935
01:52:38,018 --> 01:52:40,738
here, China, India, and
1936
01:52:41,898 --> 01:52:44,838
we operated a cross-subsidy business model.
1937
01:52:45,778 --> 01:52:48,578
So I told you it was a private company. We owned it, a third each.
1938
01:52:49,658 --> 01:52:53,478
And the thing was, how do we get senior people
1939
01:52:53,558 --> 01:52:54,758
from Dyson,
1940
01:52:55,998 --> 01:52:57,498
name a company, we had them,
1941
01:52:58,538 --> 01:52:59,958
in the same room as
1942
01:53:01,258 --> 01:53:02,777
an entrepreneur from Kenya
1943
01:53:03,878 --> 01:53:07,398
knocking his brains out, trying to address
1944
01:53:08,218 --> 01:53:10,538
sexual violence against women. How do we do that?
1945
01:53:11,018 --> 01:53:14,738
And so basically, very simple. You charge the corporates as much as you think you
1946
01:53:14,758 --> 01:53:15,438
can get away with
1947
01:53:16,758 --> 01:53:20,618
and you say to them, "We think your learning is going to be much better
1948
01:53:21,178 --> 01:53:23,958
if you're in a room that is genuinely diverse.
1949
01:53:24,038 --> 01:53:27,698
Not just diverse in terms of skin color, but diverse in terms of
1950
01:53:27,798 --> 01:53:30,198
class and diverse in terms of
1951
01:53:31,258 --> 01:53:34,138
what people are doing." So you might be Vodafone
1952
01:53:35,158 --> 01:53:38,698
doing Vodafone stuff. We think your learning will be better if you're sitting
1953
01:53:38,738 --> 01:53:40,698
beside a social entrepreneur trying to tackle
1954
01:53:41,638 --> 01:53:43,258
poverty and homelessness in Liverpool,
1955
01:53:44,178 --> 01:53:47,858
for example. So here you see a group of clients that we took to
1956
01:53:48,318 --> 01:53:51,138
Silicon Valley one year, and there you'll see,
1957
01:53:53,318 --> 01:53:55,078
we've got Channel 4,
1958
01:53:56,178 --> 01:53:59,458
Dyson, lots of financial services people.
1959
01:54:00,978 --> 01:54:03,678
Interesting. And then you have entrepreneurs from India,
1960
01:54:04,858 --> 01:54:06,898
Ghana, and Nigeria.
1961
01:54:07,818 --> 01:54:10,298
Nothing is free. We didn't give anything away.
1962
01:54:11,878 --> 01:54:15,538
All of the nonprofit social entrepreneurs that took part in our programs had to pay
1963
01:54:15,598 --> 01:54:19,278
something. It was way less than what the corporates were paying because my view is,
1964
01:54:19,578 --> 01:54:21,058
if you give something away for free,
1965
01:54:22,318 --> 01:54:26,218
people don't value it. So you have to put a value on it, and also,
1966
01:54:26,378 --> 01:54:28,598
if you've put some money in, you're likely to turn up.
1967
01:54:29,838 --> 01:54:33,518
If it's free, your chances of not turning up are higher, and that embarrasses
1968
01:54:33,618 --> 01:54:33,898
us
1969
01:54:34,978 --> 01:54:38,478
as the guest because we've promised all of our members that you're going to be with
1970
01:54:38,518 --> 01:54:41,538
a really interesting bunch of people.
1971
01:54:42,398 --> 01:54:45,398
And one of the places we went was Bangladesh.
1972
01:54:45,838 --> 01:54:47,398
Does anyone know who the guy on the left is?
1973
01:54:49,058 --> 01:54:52,878
This is Muhammad Yunus, who was the founder of the Grameen Bank,
1974
01:54:53,038 --> 01:54:54,018
the banker to the poor.
1975
01:54:54,858 --> 01:54:56,518
If you haven't read his books, read them.
1976
01:54:56,738 --> 01:55:00,558
So he created the Grameen Bank, which gets microfinance to millions and
1977
01:55:00,638 --> 01:55:03,838
millions of people. An amazing man.
1978
01:55:04,538 --> 01:55:08,198
So we organized a trip to Bangladesh to have a particular look at what
1979
01:55:08,238 --> 01:55:12,158
Grameen Bank were doing in partnership with Danone, the big French dairy
1980
01:55:12,238 --> 01:55:16,078
company. They were doing some amazing stuff at huge scale to
1981
01:55:16,118 --> 01:55:18,218
address poverty in Bangladesh.
1982
01:55:19,218 --> 01:55:19,478
And
1983
01:55:20,518 --> 01:55:23,078
everybody wanted to meet Yunus one-to-one.
1984
01:55:23,938 --> 01:55:27,878
And so this guy here is called Richard Brass.
1985
01:55:27,978 --> 01:55:30,658
He doesn't look like that anymore, he looks crap now. But he looked really young.
1986
01:55:31,338 --> 01:55:34,158
He looks really young. I think he looks lovely there.
1987
01:55:34,538 --> 01:55:37,298
And he was a wealth manager at Schroders.
1988
01:55:38,238 --> 01:55:38,778
And,
1989
01:55:39,698 --> 01:55:42,778
I can't remember how he convinced Schroders to pay for him to come on the trip, but
1990
01:55:42,818 --> 01:55:43,178
he did.
1991
01:55:44,198 --> 01:55:46,758
And he sits opposite Yunus,
1992
01:55:47,798 --> 01:55:50,578
and I'm watching, I'm sort of facilitating the conversation.
1993
01:55:51,818 --> 01:55:53,958
And Yunus, the banker to the poor,
1994
01:55:54,998 --> 01:55:56,658
says to Rudy, as we call him,
1995
01:55:57,538 --> 01:55:59,898
the wealth manager at Schroders, "So what do you do?"
1996
01:56:01,558 --> 01:56:02,658
And Rudy goes, "Well,
1997
01:56:03,778 --> 01:56:03,958
I'm
1998
01:56:04,758 --> 01:56:08,518
a wealth manager at Schroders." I think half expecting Yunus to say, "Get out of
1999
01:56:08,578 --> 01:56:12,438
here." And he went, "No." He said, "So you understand how
2000
01:56:12,558 --> 01:56:16,298
capital and networks operate?" And he went, "Yeah, I do.
2001
01:56:16,338 --> 01:56:19,278
That's my job." So he said, "Why don't you do something with that?"
2002
01:56:20,218 --> 01:56:24,138
And so led by Rudy, with some help from me and some others, he created a fund
2003
01:56:24,198 --> 01:56:27,858
called Impact Ventures UK, which was a 50-million pound,
2004
01:56:28,218 --> 01:56:31,958
small by the standards of... But this is 15 years ago or something,
2005
01:56:33,738 --> 01:56:37,678
to invest in what we call entrepreneurs who want to change the world, to
2006
01:56:37,718 --> 01:56:41,318
give them capital and support to bring their
2007
01:56:41,438 --> 01:56:42,418
ideas to scale.
2008
01:56:45,978 --> 01:56:47,878
So I'm now,
2009
01:56:48,938 --> 01:56:50,498
how old was I? 50? I don't know.
2010
01:56:51,438 --> 01:56:51,918
57.
2011
01:56:53,118 --> 01:56:56,038
And I decided that it was time for me to leave, been doing it for 10 years.
2012
01:56:56,398 --> 01:56:59,338
And had my first grandchild, the gorgeous Isabelle.
2013
01:57:00,118 --> 01:57:01,558
And any grandparents in the room?
2014
01:57:02,678 --> 01:57:03,518
Bloody great, isn't it?
2015
01:57:04,398 --> 01:57:06,298
It's the best. It is the best thing.
2016
01:57:07,578 --> 01:57:10,918
And I thought, well, I'm now in a position where I can spend lots of time there and
2017
01:57:10,958 --> 01:57:14,598
pick him up from school, and be available at half-term and that kind of thing.
2018
01:57:15,018 --> 01:57:16,498
Largely because the men in my life were
2019
01:57:17,738 --> 01:57:20,978
suboptimal masculine role models, shall we say.
2020
01:57:21,958 --> 01:57:23,738
So I left and,
2021
01:57:26,218 --> 01:57:27,858
at Rudy's invitation,
2022
01:57:28,698 --> 01:57:32,678
went in as the exec chair of one of the portfolio companies
2023
01:57:33,238 --> 01:57:33,978
of IVUK,
2024
01:57:35,058 --> 01:57:36,698
which at the time was called The Big White Wall.
2025
01:57:37,518 --> 01:57:41,238
And it was created by a woman whose best friend took her own life.
2026
01:57:45,138 --> 01:57:49,058
Jen, the founder, was in the emergent sort of digital economy in
2027
01:57:49,098 --> 01:57:52,778
London at the time, and she thought, well, maybe if there had been somewhere that
2028
01:57:52,858 --> 01:57:56,758
she could have gone anonymously to talk about how
2029
01:57:56,798 --> 01:57:59,618
she was feeling, she might not have taken her own life.
2030
01:57:59,978 --> 01:58:03,898
So in her mind, imagine a big white wall and you spray on it,
2031
01:58:04,618 --> 01:58:08,538
"I really need help," or, "I'm feeling really anxious," or, "I've started
2032
01:58:08,598 --> 01:58:12,518
hurting myself," or, "I'm thinking of killing myself." Maybe she
2033
01:58:12,538 --> 01:58:13,438
might have got some support
2034
01:58:14,458 --> 01:58:15,658
not to do that anonymously.
2035
01:58:16,538 --> 01:58:20,258
And so I went into that business eight years ago as the exec chair
2036
01:58:20,878 --> 01:58:22,618
with a, "Do we kill it?" It wasn't doing very well.
2037
01:58:23,158 --> 01:58:26,658
Do we kill it or do we keep it mandate? And I fell in love with it.
2038
01:58:26,978 --> 01:58:29,358
There's nothing like it, and there still is nothing like it in the world.
2039
01:58:29,678 --> 01:58:33,598
So today we rebranded. It's called Togetherall, and we're a
2040
01:58:33,638 --> 01:58:36,118
B2B2C business. So
2041
01:58:36,838 --> 01:58:40,458
we're in 1,000 universities
2042
01:58:41,298 --> 01:58:44,978
in here, United States, Ireland, Australia, and New Zealand,
2043
01:58:45,038 --> 01:58:46,738
English-speaking countries.
2044
01:58:48,738 --> 01:58:52,138
So if you are a farmer in America, in
2045
01:58:52,178 --> 01:58:55,658
Wisconsin or wherever you are, they're a
2046
01:58:55,878 --> 01:58:59,678
client. You can go onto your phone and give and receive
2047
01:58:59,738 --> 01:59:00,938
support. So we have
2048
01:59:01,758 --> 01:59:05,678
hundreds of thousands of people who have used the platform.
2049
01:59:06,118 --> 01:59:09,518
And then we have a squad of clinicians that monitor that
2050
01:59:10,858 --> 01:59:14,738
24/7. And we've got some great software that picks up all sorts
2051
01:59:14,818 --> 01:59:18,398
of stuff. And AI, we've been talking about as a lot of mental health
2052
01:59:18,438 --> 01:59:22,358
businesses, a huge debate about the extent to
2053
01:59:22,398 --> 01:59:23,678
which you could use AI,
2054
01:59:24,818 --> 01:59:28,518
given that our USP is it's always a human
2055
01:59:28,578 --> 01:59:32,418
being that you encounter, whether one of our clinicians or one of
2056
01:59:32,458 --> 01:59:36,398
the many thousands of people who populate the platform.
2057
01:59:38,378 --> 01:59:42,058
We raised 10 million for this a few years ago, just after
2058
01:59:42,118 --> 01:59:42,578
COVID,
2059
01:59:43,698 --> 01:59:47,338
in order to launch in the States. And we were effectively a kind of
2060
01:59:47,458 --> 01:59:50,038
UK business with a few bits and bobs in North America.
2061
01:59:50,098 --> 01:59:53,458
We're now effectively, in terms of business, an American,
2062
01:59:54,238 --> 01:59:57,398
a US business with some NHS contracts broadly.
2063
01:59:58,498 --> 02:00:00,138
So that's that.
2064
02:00:01,518 --> 02:00:02,458
And then recently I've--
2065
02:00:03,358 --> 02:00:04,958
Anyone from Liverpool recognize that?
2066
02:00:06,018 --> 02:00:08,438
That's Calderstones Mansion in Calderstones Park.
2067
02:00:08,918 --> 02:00:12,738
So I was looking for an opportunity to have a reason to go back to Liverpool
2068
02:00:13,278 --> 02:00:16,038
rather than knocking on the door of FRC and saying to Sean, my
2069
02:00:16,618 --> 02:00:18,238
long-suffering, "How is it going?"
2070
02:00:19,598 --> 02:00:19,858
So
2071
02:00:21,078 --> 02:00:22,218
The Reader is a
2072
02:00:23,018 --> 02:00:23,498
charity
2073
02:00:24,378 --> 02:00:25,838
that promotes
2074
02:00:26,678 --> 02:00:29,198
well-being through shared reading. Great charity.
2075
02:00:29,878 --> 02:00:33,198
And just before COVID, they were offered by the city council
2076
02:00:33,958 --> 02:00:36,898
a 150-year lease on the Calderstones Mansion.
2077
02:00:38,318 --> 02:00:41,098
And they took it, and then they put a lot of money into doing it up.
2078
02:00:42,078 --> 02:00:42,458
And
2079
02:00:43,638 --> 02:00:47,558
today it's a thriving hub of all sorts
2080
02:00:47,638 --> 02:00:47,798
of
2081
02:00:48,758 --> 02:00:50,918
things, from weddings to
2082
02:00:52,194 --> 02:00:56,094
Ukulele festivals. We have restaurants, we have bookshops, we have all
2083
02:00:56,134 --> 02:00:58,974
sorts of things going on. I found out at our last board meeting we had
2084
02:00:59,174 --> 02:01:00,574
450,000
2085
02:01:02,034 --> 02:01:02,474
visitors
2086
02:01:03,754 --> 02:01:07,634
last year. And the purpose of the trading subsidiary, whose
2087
02:01:07,674 --> 02:01:11,374
board I sit on, is to every year generate as much
2088
02:01:11,454 --> 02:01:14,654
cash surplus as we can
2089
02:01:15,334 --> 02:01:19,214
for the charity. So as we've been hearing this morning, it's harder and harder
2090
02:01:19,274 --> 02:01:22,214
to raise money for charities. Charitable foundations are
2091
02:01:22,674 --> 02:01:23,414
besieged
2092
02:01:25,874 --> 02:01:27,874
by people wanting their money and et cetera.
2093
02:01:28,394 --> 02:01:31,634
And so our goal is to make as much money as we can
2094
02:01:32,274 --> 02:01:35,654
through having a, well, I'm saying we need to aim for a world-class
2095
02:01:37,954 --> 02:01:39,274
hospitality offer
2096
02:01:40,154 --> 02:01:43,794
that will generate cash surplus that we can donate
2097
02:01:44,534 --> 02:01:48,274
to the charity. And we talked about margin versus
2098
02:01:48,354 --> 02:01:51,914
mission. There's a really interesting dynamic between the
2099
02:01:51,974 --> 02:01:55,954
charity and the culture of the charity and the culture of
2100
02:01:55,994 --> 02:01:59,834
the trading subsidiary, which we are managing through the exec and
2101
02:01:59,874 --> 02:02:03,354
through the board. Put really simply,
2102
02:02:04,994 --> 02:02:05,074
and
2103
02:02:05,914 --> 02:02:08,394
I'm not particularly talking about the reader now, this could be true lots of other
2104
02:02:08,414 --> 02:02:10,214
places. In a charity,
2105
02:02:11,754 --> 02:02:13,674
often you get multiple years' funding.
2106
02:02:13,794 --> 02:02:17,534
So you'll get, "We'll pay your salary for three years."
2107
02:02:18,354 --> 02:02:21,834
The tendency is, if you're not careful, that you kind of, you relax then.
2108
02:02:21,854 --> 02:02:25,554
"Oh, we've got money for three years." Whereas in a business, particularly in
2109
02:02:25,594 --> 02:02:29,514
hospitality, you are only as good as your last quarter's
2110
02:02:29,894 --> 02:02:33,634
performance, and sometimes your last month's performance.
2111
02:02:34,474 --> 02:02:35,654
And so that tension of
2112
02:02:36,814 --> 02:02:39,154
culture I find absolutely fascinating.
2113
02:02:39,234 --> 02:02:43,054
It's why I joined, and it's just intriguing to
2114
02:02:43,114 --> 02:02:46,734
go along and see how the two entities are working out how we
2115
02:02:46,774 --> 02:02:50,714
balance the needs of the charity to have unrestricted
2116
02:02:50,874 --> 02:02:54,574
cash and our need as the trading subsidiary to
2117
02:02:54,614 --> 02:02:57,234
invest in the future of the business.
2118
02:02:58,014 --> 02:03:01,533
And there's some really interesting things about pay scales, about
2119
02:03:02,614 --> 02:03:03,694
et cetera. It's
2120
02:03:05,374 --> 02:03:06,814
brilliant. If you live in Liverpool, go.
2121
02:03:07,494 --> 02:03:10,954
If you don't live in Liverpool, come and have a look and spend as much money
2122
02:03:11,574 --> 02:03:15,494
as you can, and then buy a load of books on your way out.
2123
02:03:18,314 --> 02:03:19,754
I haven't got time for another great anecdote.
2124
02:03:20,494 --> 02:03:22,474
I get a rest from all this commercial stuff.
2125
02:03:22,554 --> 02:03:25,394
I'm on the board of the Jaguar Land Rover Foundation,
2126
02:03:26,434 --> 02:03:29,834
where it's great. Where JLR, despite its
2127
02:03:29,874 --> 02:03:33,554
challenges, totally committed to giving us a load of
2128
02:03:33,614 --> 02:03:37,574
money to give away in unrestricted multi-year funding to
2129
02:03:37,634 --> 02:03:41,594
youth services in the Liverpool City region and the Midlands, where JLR
2130
02:03:42,794 --> 02:03:46,434
does its work. I was really interested in the Evelyn
2131
02:03:47,154 --> 02:03:50,934
executive who was talking earlier on about risk management and is the
2132
02:03:50,954 --> 02:03:54,774
board working well. So I've taken pictures of all of that and already forwarded it
2133
02:03:54,834 --> 02:03:55,194
to our
2134
02:03:56,734 --> 02:03:58,534
execs, saying, "We've got some free consultancy.
2135
02:03:58,654 --> 02:04:02,134
Let's have a chat about it at the next board meeting."
2136
02:04:04,674 --> 02:04:08,474
I've benefited hugely from mentoring in my
2137
02:04:08,514 --> 02:04:09,754
life, where people
2138
02:04:11,474 --> 02:04:11,754
have
2139
02:04:13,674 --> 02:04:17,334
taught me things, have advised me things, have opened doors for me, have told me to
2140
02:04:17,654 --> 02:04:18,514
cop myself on
2141
02:04:19,474 --> 02:04:20,374
when I need it.
2142
02:04:21,354 --> 02:04:24,154
And I do quite a bit of that
2143
02:04:25,074 --> 02:04:25,934
now across
2144
02:04:27,194 --> 02:04:29,134
corporate, so you can spot the corporate guy there.
2145
02:04:30,094 --> 02:04:34,054
That's Chris Thorpe. But I'm really interested in entrepreneurs that
2146
02:04:34,094 --> 02:04:35,774
are trying to make sense of this,
2147
02:04:36,954 --> 02:04:40,674
getting a business model that has a powerful social purpose with a
2148
02:04:40,734 --> 02:04:42,034
commercial engine. So
2149
02:04:43,194 --> 02:04:45,554
on the left there is Kerry. Kerry is one of the
2150
02:04:46,534 --> 02:04:49,594
portfolio from the Ivy UK fund that I mentioned.
2151
02:04:50,614 --> 02:04:54,254
And she is one of the country's leading clinicians in eating
2152
02:04:54,314 --> 02:04:54,874
disorders,
2153
02:04:56,054 --> 02:04:58,934
who didn't like, just thought there's a much better way of doing this.
2154
02:04:59,514 --> 02:05:03,454
So we invested, I think it was 6, 7 million, I can't remember now, it was
2155
02:05:03,494 --> 02:05:03,994
a while ago,
2156
02:05:04,874 --> 02:05:07,954
into an idea she had for a new treatment model.
2157
02:05:09,453 --> 02:05:11,674
And that's really interesting about how you price it.
2158
02:05:12,354 --> 02:05:16,014
The trade-off between, you'd be dealing with a horrible
2159
02:05:16,094 --> 02:05:18,674
landlord who wants to do X, Y, and Z.
2160
02:05:19,134 --> 02:05:22,954
And then over here you have clinicians demanding, rightly, more
2161
02:05:22,994 --> 02:05:26,414
resource to do more stuff. And so how those
2162
02:05:26,454 --> 02:05:30,214
decisions are made so you don't affect clinical excellence, but you
2163
02:05:30,294 --> 02:05:31,354
also make sure that the
2164
02:05:32,494 --> 02:05:36,374
business itself is good. This is Chen Mao, who's
2165
02:05:36,634 --> 02:05:39,974
an amazing woman, who's an Oscar-winning special effects
2166
02:05:41,054 --> 02:05:44,894
software developer. Just Google her, Chen Mao.
2167
02:05:46,294 --> 02:05:46,534
And
2168
02:05:48,314 --> 02:05:48,674
she
2169
02:05:49,814 --> 02:05:52,574
won an Oscar. You remember, she won an Oscar for Blade Runner 2.
2170
02:05:53,414 --> 02:05:55,994
And the thing she's most proud of, apart from the business she now has.
2171
02:05:56,074 --> 02:05:57,894
Anyone seen Paddington Bear movies?
2172
02:05:58,874 --> 02:06:01,514
And that bit where Paddington brushes water off his
2173
02:06:02,414 --> 02:06:03,254
thing, she did that.
2174
02:06:04,174 --> 02:06:07,294
And she's really proud of that. And in Gravity,
2175
02:06:08,754 --> 02:06:12,474
where George Clooney and Sandra Bullock are floating around the Earth, that bit
2176
02:06:12,514 --> 02:06:16,194
where I think it's Sandra Bullock looks at the Earth and the Earth is reflected in
2177
02:06:16,654 --> 02:06:17,514
the... She did that.
2178
02:06:18,854 --> 02:06:19,314
Anyway, she
2179
02:06:22,254 --> 02:06:26,154
had her first baby and had a terrible time latching the baby onto her breast,
2180
02:06:26,994 --> 02:06:30,634
and had all the things you don't want when you're trying to feed a baby.
2181
02:06:31,014 --> 02:06:34,814
And then the anxiety and the sense of isolation and everything else
2182
02:06:35,254 --> 02:06:37,174
that follows from that. Let me put this down here.
2183
02:06:39,314 --> 02:06:41,554
And so she thought, "Could I
2184
02:06:42,494 --> 02:06:45,814
bring my AI software skills
2185
02:06:46,434 --> 02:06:49,294
into helping women at their most vulnerable
2186
02:06:50,294 --> 02:06:52,574
deal with all the issues that come with it?"
2187
02:06:53,774 --> 02:06:55,294
And I've helped her raise some money and
2188
02:06:56,094 --> 02:06:58,354
been mentoring her about how you move from being
2189
02:06:59,414 --> 02:07:03,270
a software ... developer to being a CEO of a company,
2190
02:07:03,350 --> 02:07:03,610
where the
2191
02:07:04,910 --> 02:07:06,910
pressures and the demands are very different.
2192
02:07:07,910 --> 02:07:09,730
And that's Dave McQueen on there.
2193
02:07:11,290 --> 02:07:12,970
I wrote a book. I wrote a couple of books.
2194
02:07:13,050 --> 02:07:16,070
You lucky b*****s, you've got a free copy.
2195
02:07:16,870 --> 02:07:18,350
So I want you to do a deal with me.
2196
02:07:19,410 --> 02:07:20,270
If you read it,
2197
02:07:21,110 --> 02:07:22,990
please then pass it on to someone else.
2198
02:07:23,070 --> 02:07:26,730
Once you've read it, you'll get a sense of, obviously, he said stupidly, you'll get
2199
02:07:26,790 --> 02:07:29,810
a sense of what it's about. If you're not going to read it,
2200
02:07:30,950 --> 02:07:33,290
either leave it behind or give it to
2201
02:07:34,150 --> 02:07:38,070
somebody else. It's written from all of the above experience here and
2202
02:07:38,130 --> 02:07:40,050
all the mentoring I've done about
2203
02:07:41,530 --> 02:07:45,390
the feeling of being an imposter, when you're in business with someone else, how
2204
02:07:45,430 --> 02:07:48,990
difficult that can be, how you know it's time to move on from the
2205
02:07:49,050 --> 02:07:51,330
organization that you're in, et cetera.
2206
02:07:51,730 --> 02:07:54,310
And a few laughs and a bit of irreverence.
2207
02:07:54,770 --> 02:07:58,650
That's Maff Potts, who's one of my favorite social entrepreneurs, who said,
2208
02:07:58,890 --> 02:08:00,650
"Liam, your book is good enough to eat."
2209
02:08:02,970 --> 02:08:04,650
All right. I'll wrap up now.
2210
02:08:06,830 --> 02:08:10,690
Claude designed this for me, as you can completely tell,
2211
02:08:11,270 --> 02:08:12,690
because I didn't have time, I ran out of time.
2212
02:08:13,670 --> 02:08:15,470
But the words are mine. So
2213
02:08:19,590 --> 02:08:20,770
I'm not going to read through all of these.
2214
02:08:22,050 --> 02:08:25,810
So I think these are some of the things that I have sat with in
2215
02:08:25,850 --> 02:08:27,930
the organizations I've been trying to run.
2216
02:08:28,510 --> 02:08:32,230
We try and balance this kind of mission and margin conundrum.
2217
02:08:33,410 --> 02:08:39,670
This
2218
02:08:39,710 --> 02:08:41,730
one down here, mission drift is huge.
2219
02:08:42,990 --> 02:08:46,870
The pulling away. So, for example, we might be able to-- So the
2220
02:08:47,010 --> 02:08:50,710
mental health business exists to democratize access to digital mental
2221
02:08:50,750 --> 02:08:51,890
health. Right?
2222
02:08:53,650 --> 02:08:56,650
Now, we could, we've never tried this, but we could've said, "Look, why don't we
2223
02:08:56,710 --> 02:08:58,030
sell it to Evelyn Group?"
2224
02:08:59,190 --> 02:09:02,870
And then it can just be for anxious executives in the wealth
2225
02:09:02,970 --> 02:09:04,070
management field.
2226
02:09:05,230 --> 02:09:06,910
Well, they might pay us a good price
2227
02:09:07,730 --> 02:09:11,530
for that, but it completely cuts away the mission at the
2228
02:09:11,550 --> 02:09:13,050
heart of it, which is to democratize
2229
02:09:13,950 --> 02:09:14,310
things. So
2230
02:09:15,310 --> 02:09:17,930
all of those things turn up in big decisions about
2231
02:09:19,750 --> 02:09:23,710
valuations and who you might sell the company to and who you wouldn't sell the
2232
02:09:23,750 --> 02:09:25,570
co-- Should we sell the company to Meta,
2233
02:09:26,930 --> 02:09:30,650
for example? You could make the argument that if this was available on every
2234
02:09:30,710 --> 02:09:32,650
Facebook page in the world,
2235
02:09:33,570 --> 02:09:37,110
our mental health business, we could reach literally billions of people.
2236
02:09:37,650 --> 02:09:40,690
But would we want it to be aligned with-- And does that undermine trust?
2237
02:09:41,050 --> 02:09:43,310
So all of those are down to small
2238
02:09:44,930 --> 02:09:48,350
things. But the thing that I find the most challenging
2239
02:09:49,070 --> 02:09:49,930
is to find
2240
02:09:51,250 --> 02:09:55,050
people for the boards and for the executive
2241
02:09:55,090 --> 02:09:58,910
particularly, who are able to balance the mission and
2242
02:09:58,970 --> 02:09:59,790
margin thing.
2243
02:10:00,670 --> 02:10:00,950
Again,
2244
02:10:02,030 --> 02:10:05,510
stereotypes for ease of rhetorical
2245
02:10:05,690 --> 02:10:06,270
clarity.
2246
02:10:07,870 --> 02:10:08,350
Either
2247
02:10:09,490 --> 02:10:13,090
you often get people who apply for the various jobs from the
2248
02:10:13,170 --> 02:10:14,210
charity world,
2249
02:10:15,310 --> 02:10:16,610
who don't know what a margin is,
2250
02:10:17,670 --> 02:10:20,490
and are used to a much slower pace of
2251
02:10:21,310 --> 02:10:24,910
stuff. I have confused hugely, particularly in
2252
02:10:24,950 --> 02:10:28,890
Liverpool when we transformed, that if you're a good fundraiser, you'll be a
2253
02:10:28,930 --> 02:10:29,930
good salesperson.
2254
02:10:31,770 --> 02:10:34,350
It's a very different mindset. And
2255
02:10:36,710 --> 02:10:40,610
I'm having a bit of trauma now. I remember the first big contract we
2256
02:10:40,690 --> 02:10:43,050
sold was to Salford City Council
2257
02:10:43,970 --> 02:10:44,970
for a million quid.
2258
02:10:46,030 --> 02:10:49,750
Fantastic. I remember when Jan, the saleswoman, came back and went, "We've just got
2259
02:10:50,290 --> 02:10:53,090
Salford." "How much?" "A million quid." "A million quid?
2260
02:10:53,290 --> 02:10:56,650
We can sleep." Give you the co-op managers, but
2261
02:10:57,250 --> 02:11:00,690
big up to the Co-op Bank, actually, for keeping us alive for a few years.
2262
02:11:01,870 --> 02:11:05,750
And then I gave it to Sean, who's now the CEO, who
2263
02:11:05,770 --> 02:11:08,930
took over from me ages ago, and he read it and he goes, "You do realize that every
2264
02:11:08,990 --> 02:11:12,950
time that vehicle goes out, we lose money on those deliveries, don't you?" I
2265
02:11:12,990 --> 02:11:16,190
went, "Do we?" "Yeah." "Why do we do that?" "Because we
2266
02:11:16,970 --> 02:11:20,669
fill in the blanks up the pricing of this."
2267
02:11:21,750 --> 02:11:24,850
So it was priced up by someone who used to be a fundraiser who went, "Well, we need
2268
02:11:24,910 --> 02:11:28,430
to raise-- This is how much money we want to get to." But didn't think about
2269
02:11:28,490 --> 02:11:32,410
margins or any of that. But we then won some other big contracts,
2270
02:11:32,490 --> 02:11:35,710
which we made money from. So we didn't mind it eventually,
2271
02:11:36,350 --> 02:11:37,410
Salford, because it was a
2272
02:11:38,210 --> 02:11:41,830
good client to have, and it helped us with our marketing and so on.
2273
02:11:42,510 --> 02:11:46,230
But finding the people that are happy to hold onto the
2274
02:11:46,270 --> 02:11:49,810
mission and know what we are there for fundamentally,
2275
02:11:50,310 --> 02:11:54,210
and also have a hard commercial edge to make the business
2276
02:11:54,310 --> 02:11:56,110
work, increase EBITDA,
2277
02:11:57,030 --> 02:12:00,670
increase the money that falls out of the company for the reader and so on, that
2278
02:12:01,010 --> 02:12:01,650
is the biggest
2279
02:12:02,490 --> 02:12:05,790
challenge that I see at the senior level.
2280
02:12:06,470 --> 02:12:07,530
And also getting
2281
02:12:08,510 --> 02:12:09,230
board members
2282
02:12:10,170 --> 02:12:13,330
who are very happy to do that. We're lucky
2283
02:12:13,350 --> 02:12:17,330
with the mental health business in a sense, that the
2284
02:12:17,890 --> 02:12:20,890
bigger the company is, the bigger the social impact is.
2285
02:12:21,670 --> 02:12:24,430
The more people we have using it, the bigger the community, the richer the
2286
02:12:24,470 --> 02:12:27,490
community, the more support is given and taken.
2287
02:12:28,430 --> 02:12:28,650
And
2288
02:12:29,450 --> 02:12:32,830
our main investor now, it wasn't IVE UK, it's now a
2289
02:12:33,430 --> 02:12:36,990
private equity firm called FPE, really get that
2290
02:12:37,570 --> 02:12:41,410
and have been fantastic in not only sticking money in when we need it, but
2291
02:12:41,490 --> 02:12:45,130
also then introducing us to a whole load of other
2292
02:12:45,170 --> 02:12:46,930
digital businesses that are part of their
2293
02:12:47,750 --> 02:12:48,350
portfolio.
2294
02:12:50,670 --> 02:12:52,050
I'll stop now, shall I, Carol?
2295
02:12:52,910 --> 02:12:56,210
1:00? We done? Right. Okay. Thank you very much.
2296
02:12:56,530 --> 02:12:57,850
Read the book and then give it away.
2297
02:13:09,146 --> 02:13:10,426
Oh, I've got one more slide. Hang on.
2298
02:13:16,466 --> 02:13:20,026
So I do a podcast called "Walking Out Loud" with
2299
02:13:20,846 --> 02:13:24,366
Dave McQueen, who you saw on one of those earlier slides, where we sort of nut
2300
02:13:24,426 --> 02:13:25,686
through a lot of these things.
2301
02:13:26,486 --> 02:13:30,346
Please have a look at it. We're actually up for Business Podcast of the Year
2302
02:13:30,406 --> 02:13:33,046
tomorrow night at O2, which is very exciting.
2303
02:13:33,546 --> 02:13:37,386
I also do a substack called "Peace, Love and Profit," where I dig into
2304
02:13:37,446 --> 02:13:39,686
some of these things as well. So if you're interested in
2305
02:13:41,105 --> 02:13:45,046
hearing more from me, and why wouldn't you be, then subscribe
2306
02:13:45,086 --> 02:13:45,386
to that.
2307
02:13:46,786 --> 02:13:46,906
Indeed.
2308
02:13:46,946 --> 02:13:47,726
And now enjoy your lunch.
2309
02:13:51,406 --> 02:13:55,086
Well, thank you very much, Liam, and thank you so much to all of our speakers
2310
02:13:55,126 --> 02:13:57,146
today. We are delighted to have you here.
2311
02:13:57,726 --> 02:14:00,446
I learned lots of new things, and some of them were my colleagues talking, so there
2312
02:14:00,486 --> 02:14:00,806
we go.
2313
02:14:02,586 --> 02:14:06,306
Just to wrap up, because I know that I really am the person keeping you from some
2314
02:14:06,346 --> 02:14:08,486
lunch and a glass of wine as it happens.
2315
02:14:10,646 --> 02:14:14,586
We do events like this throughout the year, both in person around the country
2316
02:14:15,186 --> 02:14:18,866
and virtually. Hopefully, all of you are
2317
02:14:19,226 --> 02:14:22,726
receiving our monthly charity newsletter that does have invitations to the upcoming
2318
02:14:22,766 --> 02:14:26,346
events that we have. If not, we are happy to add you to that.
2319
02:14:26,846 --> 02:14:30,706
And in those, you will find invitations to our webinars,
2320
02:14:30,786 --> 02:14:34,566
invitations to our in-person events, articles on
2321
02:14:34,626 --> 02:14:38,086
various subjects that some of which were touched on today.
2322
02:14:38,206 --> 02:14:40,746
In fact, there's something over here you can't really see.
2323
02:14:40,766 --> 02:14:44,346
It's about a barbell approach. Anyone who was in Charlotte's Total Return
2324
02:14:44,426 --> 02:14:44,786
session,
2325
02:14:45,866 --> 02:14:49,006
she touched on that. And I would just like to
2326
02:14:50,266 --> 02:14:54,246
say thank you again to all of our speakers, to
2327
02:14:54,326 --> 02:14:57,626
all of you, our guests, and please do feel free to ask any
2328
02:14:57,686 --> 02:14:59,526
questions of any of us, either with
2329
02:15:00,546 --> 02:15:04,386
purple name tags, purple lanyards, or just looking like we
2330
02:15:04,426 --> 02:15:05,086
belong in the joint,
2331
02:15:05,906 --> 02:15:07,026
out at the lunchtime. So
2332
02:15:08,146 --> 02:15:10,246
if you have any questions otherwise, please do email.
2333
02:15:10,506 --> 02:15:12,306
Thank you so much, and thank you to our speakers.
This year’s theme, Fostering Financial Resilience, explores how charities can respond confidently to today’s economic and regulatory landscape, strengthen governance and make informed investment decisions for the future.
What was covered
0:00 - State of the Charity Sector – Liz Brownsell, Partner & Head of Charities, Birketts LLP
41:07 - Market Update – Arielle Ingrassia, Evelyn Partners
1:16:00 - Divest or Engage? The Pros and Cons – Katrina Brown, Evelyn Partners
1:40:00 - Mission vs. Margin: The Challenges of Doing Good and Doing Well – Liam Black, Social Entrepreneur
Breakout sessions
11:00am:
0:00 - Breakout 1A: Income: Considering a Move to Total Return? - Charlotte Attwood, Evelyn Partners
33:00 - Breakout 1B: The Risk You Need for the Return You Want: A Guide to Achieving Your Investment Goals – Richard Griffith, Evelyn Partners
11:35am:
0:00 - Breakout 2A: How 2027 Inheritance Tax Changes May Grow Charity Income - Evelyn Partners
33:00 - Breakout 2B: The Risk of Passive Investments in a Concentrated Market - John Dolan, Evelyn Partners
Time & Location
Evelyn Partners, 45 Gresham Street, London, EC2V 7BF
