Opinion: Leading with empathy fosters a culture of success

"While I have always practiced empathy throughout my career, I found it especially important once I reached leadership roles," Juan Key writes......»»

Category: topSource: bizjournalsNov 25th, 2021

Opinion: Leading with empathy fosters a culture of success

"While I have always practiced empathy throughout my career, I found it especially important once I reached leadership roles," Juan Key writes......»»

Category: topSource: bizjournalsNov 25th, 2021

Learning From James Dyson

When you look back in history at some of mankind’s greatest achievements, one of the things that stands out in almost every case is that those successes came with a lot of blood, sweat and tears and an incredible amount of persistence. Often what appeared on the surface to be an “overnight success’’ actually took […] When you look back in history at some of mankind’s greatest achievements, one of the things that stands out in almost every case is that those successes came with a lot of blood, sweat and tears and an incredible amount of persistence. Often what appeared on the surface to be an “overnight success’’ actually took years to achieve. Henry Ford and his self-propelled vehicle, Walt Disney and his animated pictures, Alexander Bell and his telephone and even the Wright Brothers and their aeroplane; all were examples of people who failed many, many times before they eventually succeeded, often facing distressing financial hardship along the way. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get Our Icahn eBook! Get our entire 10-part series on Carl Icahn and other famous investors in PDF for free! Save it to your desktop, read it on your tablet or print it! Sign up below. NO SPAM EVER (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more But if you were one of these people and were inventing something that could be potentially momentous and change things forever, at what point would you give up after encountering multiple failures? After 10 attempts? 50? What about 1,000? You’d have to think you were on a road to nowhere if you had failed that many times. So how about 5,127 times? How does that grab you? Incredibly, that’s the number of hand-made prototypes James Dyson built over a four year period before he finally achieved success with his cyclonic vacuum cleaner. Labouring through trial and error, Dyson overcame a brutal patent abuse, endless rejections from both venture capitalists and the world’s leading appliance manufacturers whilst managing an ever expanding overdraft he didn’t extinguish until the age of forty-eight. Contrast that with today, Sir James Dyson is the UK’s fourth richest resident with a net worth of c.US$9.7 billion. Dyson struck on the idea of a cyclonic vacuum from his experience manufacturing his first product, the ‘Ballbarrow.’ Applying paint to the metal frame created havoc in the factory - excess waste and mess. Seeking a solution, Dyson asked around the trade and eventually arrived at a cyclonic separator. He recalled, ‘I found the centrifuge dust extraction principle of the cyclonic separator utterly fascinating.’ James Dyson’s recently published memoir, ‘James Dyson - Invention: A Life,’ is a tale of constant innovation, incredible challenges overcome and the deep resilience required to create one of today’s leading technology companies. One of my favourite insights from the book relates to the opportunity set afforded Dyson by the vacuum industry’s incumbent players. Hamilton Helmer labelled this power ‘Counter-Positioning’ in his best-selling book on competitive strategy, ‘7 Powers.’ The opportunity arises when a newcomer adopts a new, superior business model which the incumbent doesn’t mimic due to anticipated damage to their existing business. In the case of vacuum cleaners, the incumbents were making billions selling replacement bags to their customers. Why create a product which puts at risk that perpetual revenue stream? If there’s one thing I’ve noticed about successful business founders, it’s that there is no straight line to success. Without perseverance and resilience beyond the scope of all but the rarest of people, these businesses would die on the vine. I’ve included some of my favourite extracts below. Failure and 'Trial & Error' “This might sound boring and tedious to the outsider. I get that. But when you have set yourself an objective that, if reached, might pioneer a better solution to existing technologies and products, you become engaged, hooked and even one-track-minded. Folklore depicts invention as a flash of brilliance. That eureka moment! But it rarely is, I’m afraid. It is more about failure than ultimate success. I even thought about calling this book ‘James Dyson: Failure’, but was talked out of it because it might give the wrong impression.” “The failures began to excite me. ‘Wait a minute, that should have worked, now why didn’t it?’” “Research is about conducting experiments, accepting and even enjoying failures, but going on and on, following a theory garnered from observing the science. Invention is often more about endurance and patient observation than brainwaves.” “Learning by trail and error, or experimentation, can be exciting, the lessons learned deeply ingrained. Learning by failure is a remarkably good way of gaining knowledge. Failure is to be welcomed, rather than avoided. It should not be feared by the engineer or scientist or indeed by anyone else.” “The Ballbarrow - my first consumer product, my first solo effort - was a failure but one from which I learned valuable lessons. There was a lesson about assigning patents, another about not having shareholders. I learned the importance of having absolute control of my company and not undervaluing it.” “One of the really important principles I learned to apply was changing only one thing at a time to see what difference that one change made. People think that a breakthrough is arrived by a spark of brilliance or even a eureka thought in the bath. I wish it were for me. Eureka moments are very rare. More usually, you start off by testing a particular set-up, and by making one change at a time you start to understand what works and what fails. By that empirical means you begin the journey towards making the breakthrough, which usually happens in an unexpected way.” “I worked on the [production] line for two weeks to understand how to make the vacuum cleaner more efficiently and have watched all of our lines ever since .. I learned which components were difficult to assemble and encouraged our engineers to visit lines frequently. Most importantly, this experience helped me look as all our subsequent products to understand where production inefficiencies fell.” “Of the 5,127 prototypes I made in the coach house of the cyclone technology for my first vacuum cleaner, all but the very last one were failures. And yet, as well as painstakingly solving a problem, I was also going through a process of self-education and learning. Each failure taught me something and was a step towards a working model. I have been questioning things and learning every day ever since.” “Learning by doing, Learning by trial and error. Learning by failing. These are all effective forms of education.” “When I was trying, unsuccessfully, to raise capital to start my vacuum cleaner business, all the venture capitalists turned me down, with one even saying that they might consider the opportunity if I had someone heading up the company from the domestic appliance industry. This was at a time when that industry was vanishing from Britain because, taken as a whole, its products were uncompetitive.” Life Lessons “Every day is a form of education.” “It was playing games, however, that taught me the need to train hard and to understand teamwork and tactics. The planning of surprise tactics, and the ability to adapt to circumstance, are vital life lessons. These virtues are unlikely to be learned from academic life and certainly not from learning by rote.” “Long-distance running taught me to overcome the pain barrier: when everyone else feels exhausted, that is the opportunity to accelerate, whatever the pain, and win the race. Stamina and determination along with creativity are needed in overcoming seemingly impossible difficulties in research and other life challenges.” “Doing things with my hands, often as an autodidact and with an almost absence of fear, became second nature. Learning by making things was as important as learning by the academic route. Visceral experience is a powerful teacher. Perhaps we should pay more attention to this form of learning. Not everyone learns in the same way.” Creativity & Invention “In order to stay ahead we need to focus increasingly on our creativity.” “At Dyson, we don’t particularly value experience. Experience tells you what you ought to do and what you’d do best to avoid. It tells you how things should be done when we are much more interested in how things shouldn’t be done. If you want to pioneer and invent new technology you need to step into the unknown and, in that realm, experience can be a hindrance.” “[You] need to listen to your customers, aiming to improve products wherever necessary and, if you are an inventor, simply for improvements sake. This is not to say we at Dyson ask our customers what they want and build it. That type of focus-group-led designing may work inn the very short term, but not for long.” “I still find myself saying and putting into practice some of the same things Jeremy Fry [an early mentor/employer] said and did when I worked for him half a century ago. As an inventor, engineer and entrepreneur, he believed in taking on young people with no experience because this way he employed those with curious, unsullied and open minds.” “The inventing mind knows instinctively that there are always further questions to be asked and new discoveries to be made.” “The Land Rover, the Swiss Army penknife, the Citroen 2CV, the Bell 47 helicopter and Alec Issigoni’s Mini - what I liked so much about these machines - and my affection for them remains undimmed - is their ingenuity and the fact that the power of invention invested in them made for designs that re-imagined and revolutionised their market sectors and even created wholly new markets. And yet, for all their functionality, each is a highly individual product with a character and charm of its own. What is equally interesting is that these radical machines made use of pre-existing ideas and components.” “A design might be considered ahead of its time and, sometimes because of this, even ridiculous. The hugely successful Sony Walkman was dismissed when first launched because who could possibly want a tape recorder that couldn’t record. And it was received knowledge, until Volkswagen and, later, Honda crossed the Atlantic with the Beetle and the Accord that Americans were wedded resolutely to big cars.” “The Sony Walkman is another fascinating success story because, at first, its design appeared to defy common sense. Priced at $150, the compact silver and blue Walkman wasn’t cheap, while within Sony it was controversial and brave because it was unable to record, and no one made a ‘tape recorder’ that wouldn’t do so before… With lightweight foam headphones and no function other than playback, the Walkman emerged. The press lampooned it. Even the name was ridiculous. The Japanese press was wrong, although the market hadn’t known it wanted a tiny personal stereo. When it saw the attractive little device, and heard it in action, it fell in love with it… By the mid-1980’s, the word had entered the Oxford English Dictionary. Sony’s Masura Ibuka - one of the Japanese company’s founders - hoped to sell 5,000 Walkmans a month. He sold 50,000 in the first two months. By the time production ended in Japan in 2010, more than 400 million had been sold worldwide.” “Without entrepreneurship, an inventor may not be able to bring their radical or revolutionary products to the marketplace or at least not under their own control. Without becoming an entrepreneur, they have to licence their technology, putting them at the mercy of other companies that may or may not have a long-term commitment to a particular new idea or way of thinking about the future.” “The idea [for the cyclonic vacuum cleaner] had been in my head since welding up the giant metal cyclone for the Ballbarrow factory. Now it made increasing sense. Here was a field - the vacuum cleaner industry - where there has been no innovation for years, so the market ought to be ripe for something new. And, because houses need cleaning throughout the year, a vacuum cleaner is not, like my Ballbarrow, a seasonal product. It is also recession proof. Every household needs one. It seemed to tick all the boxes. In any case, I’d used one since childhood and knew from experience that there had to be a better vacuum cleaner.” “If you believe you can achieve something - whether as a long distance runner or maker of a wholly new type of vacuum cleaner - then you have to give the project 100% of your creative energy. You have to believe that you’ll get there in the end. You need determination, patience and willpower.” “Bio-mimicry is clearly a powerful weapon in an engineer’s armoury.” “It’s a part of the Dyson story that I made 5,127 prototypes to get a model I could set about licensing. This is indeed the exact number. Testing and making one change after another was time-consuming. This, though, was necessary as I needed to follow up and prove or disprove every theory I had. And, however frustrating, I refused to be defeated by failure. All of the 5,126 I rejected - 5,126 so-called failures - were part of the process of discovery and improvement before getting it right on the 5,127th time. Failure, as I had already begun to learn with my experience with the Ballbarrow business is very important. I find it important to repeat that we do, or certainly should, learn from our mistakes and we should be free to make them.” “Every judgement in science stands on the edge of error and is personal… I have long had great admiration for engineers like Alec Issigonis [designed the Mini] and Andrew Lefebvre of Citroen .. they questioned orthodoxy, experimented, took calculated risks, stood on the edge of error and got things right. And when they got there, they continued to ask questions.” “One of the ways we made Dyson distinctive is by not allowing ourselves to rest on our laurels.” “A jet engine spins at 15,000 rpm, a Formula 1 engine at 19,000 rpm and a conventional vacuum cleaner motor at 30,000 rpm. Why go very much faster? Although at the time we were neither designers nor manufacturers of electric motors, we wanted to come up with a breakthrough in their design, creating a quantum leap in performance: many times faster, much lighter and smaller, brushless for a longer life and no emissions, more electrically efficient and above all controllable for speed, power and consumption.. The turbine speed we initially aimed for was 120,000 rpm.. Today, Dyson pioneers the world’s smallest high-speed motors. These have enabled us to reinvent the vacuum cleaner again with a pioneering new Dyson format. They have also allowed us to improve products in wholly new areas.” “People often ask if we would supply other companies with our motors. Although it might be profitable to do so, we supply no one other than ourselves. This is because I want Dyson engineers to be 100% focused on our next exciting motor development and not retrofitting our motors to someone else’s product.” “With each new motor we aimed to double its power output and halve it’s weight.” “We had been experimenting for some time with blades of air and working with sophisticated computational fluid-dynamics models for a project that remains secret… We had accidentally developed a new form of hand dryer. What’s more it didn’t need a heater… It has a carbon footprint six times smaller than that of paper towels… Despite our inroads, the paper towel industry retains 90% of the hand-drying market, worth billions of dollars each year. The big players want to defend a highly lucrative status quo.” “As often happens, our observations during the development of the Dyson Airblade hand dryer led us to the principles used in other products, like our Air Multiplier fans and, in turn, to heaters, humidifiers and air purifiers.” “For me, [the hairdryer] was another of those products, used frequently by hundreds of millions of people, stuck in a technological time warp. Existing hairdryers were heavy and uncomfortable to use.” “Ever since the Industrial Resolution, inventions had tended to compound inventions.” “It is hard for other people to understand or get excited about an entirely new idea. This requires self-reliance and faith on part of the inventor. I can also see that it is hard for an outsider to understand the challenge and thrill of inventing new technology, designing and manufacturing the product then selling it to the world.” “After the event, a revolutionary new idea can look so obvious - surely no one could possibly have doubted it? At their conception, though, new ideas are not blindingly obvious. They are fragile things in need of encouragement and nurturing against doubting Thomases, know-it-alls and so-called experts. Just as Frank Whittle discovered, it is easy for people to say ‘no,’ to dismiss new ideas and to be stick-in-the-muds, pessimists, or even cynics. It is much harder to see how something unexpected might be a success.” “We certainly have taken big risks, with the digital electric motors, the washing machine, the electric car and our research into solid-state batteries. Not all have been commercially successful. That is the point. By its very nature, pioneering will not always be successful, otherwise it would be all too easy. We don’t start these ventures with the inevitability of success - we are all to aware we may well fail.” Obliquity “Inventors rarely set out to make money per se, and if they do theirs is more often than not a pipe dream.” “I didn’t work on those 5,127 vacuum cleaner prototypes or even set up Dyson to make money. I did it because I had a burning desire to do so. And as do my thousands of colleagues, I find inventing, researching, testing, designing and manufacturing both highly creative and deeply satisfying.” Focus Groups & Experts “Just before the launch of the Mini car, Austin Morris did indeed consult a focus group, and nobody wanted this tiny car with small wheels. So they cut the production lines down to one. When the public saw it on the street, they were most enthusiastic for it. Austin Morris never caught up with demand, missing out on serious profits.” “The bestselling British car of all time is the Mini - If market research had ruled Alec Issigoni’s roost at BMC, it would never had existed… Alec’s view [was] that ‘market research is bunk’ and that one should ‘never copy the opposition.’” “I am cautious of experts .. Experts tend to be confident that they have all the answers and because of this trait, they can kill new ideas. But when you are trying to break new ground, you have no interest in getting stuck in engineering conventions or intellectual mud.” “Venture capitalists proved to be no help. [Six] venture capitals turned me down.” “I had been warned that at £200, or at least three times as expensive as most other vacuum cleaners, the DC01 would prove to be too expensive. It sold really well.” “The marketing team, who I listened to, said to me, ‘If you make it £200 cheaper you will sell a lot more [Dyson washing machines],’ and I believed them. We made it £200 cheaper and sold exactly the same number at £899.99 as we had a £1,089 and ended up losing even more money. I had made a classic mistake. This might sound counter-intuitive, but I should have increased the price. The Contrarotator was not meant to be a low cost washing machine.” “Although there is no guarantee of success, disruptive ideas can revolutionise a company and its finances through intuition, imagination and risk-taking as opposed to market research, business plans and strategic investment.” “Early on in our story, the [Dyson vacuum cleaner’s] clear bin was another ‘clear’ example of going our own way regardless. Trusting our own instincts, we decided to ignore the research and the retailers. Pete and I had been developing the vacuum cleaner and we loved seeing the dust and the dirt. We didn’t want to hide all the hard work the machine had done. Going against established ‘experts’ was a huge risk. No one could confirm that what we were doing was a good idea. Everyone, in fact, confirmed the reverse. The data were all against it. If, however, we had believed ‘the science’ and not trusted our instincts, we would have ended up following the path of dull conformity.” Innovation, Constant Improvement & Change “I greatly admire Soichiro Honda for his addiction to the continuous improvement of products. and Takeo Fujisawa. Their genius was to think against the grain while focusing on continuous improvement. The company [Honda] continues to invest a sizeable chunk of its income into R&D, aiming for constant improvement and innovation.” “Rather like the way some sharks have to keep moving to stay alive, innovative engineering-led manufacturers need continuous innovation to stay competitive. Striving for new and better products is often what defines such companies. At Dyson, we never stand still. In a quarter of a century, we have gone from making a revolutionary vacuum cleaner to prototypes of a radical electric car. Invention tends to compound invention and companies need to be set up for this.” “What was exciting is that, although our main focus was the vacuum cleaner, our thinking was that of a tech company. How else could we evolve cyclonic technology? What other uses could we put it to?” “Investment in new technologies requires many leaps of faith and huge financial commitment over long periods.” “I believe that it is critical to keep on improving and never to relax with a product that appears to be selling well. Permanently dissatisfied is how an engineer should feel.” “Our product development process is now truly a twenty-four hours a day process.” “What I can say is that if you came back to see what Dyson’s up to in five, ten, twenty or a hundred years from now, whether with our products or through our farms, things will be very different indeed. It’s all tremendously exciting and we should have cause for optimism.” “Every day is an adventure and a response to the unexpected. Even if things appear to be in some kind of stasis, a company must move on. It has to get better, evolve and improve in order to survive. There is no greater danger than satisfaction.” “What we do know is that companies always have to change to get better at what they do, plan to do and even dream of doing in the future. The adage that the only certainty is change is true, and this means not being afraid of change even if, for a company, it means dismantling what you have built in order to rebuild it stronger or killing your own successful product with a better one, as we did with our new format battery vacuum cleaners.” Counter-Positioning “Anyone watching me at work might reasonably have wondered why Electrolux and Hoover weren’t making and selling a vacuum cleaner like mine. With all their resources, surely they could have leaped ahead of me - one man and his dog, as it were, in a rural coach house - and cornered the market between them. There were though, at least three good reasons why they didn’t even think of pursuing a similar path to me. One, which went without saying, was that the ‘No Loss of Suction’ vacuum cleaner had yet to be invented. The second was that the vacuum cleaner bag replacement business was highly profitable. And the third, to my surprise, was that well established electrical goods companies seemed remarkably uninterested in new technology. With no outside challenges, they could afford to rest on their laurels. For the moment at least.” “I went to see Electrolux, Hotpoint, Miele, Siemens, Bosch, AEG, Philips - the lot - and was rejected by every one of them. Although frustrating, what I did learn is that none of them was interested in doing something new and different. They were, as I had already understood, more interested in defending the vacuum cleaner bag market, worth more than $500 million in Europe alone at the time. Here, though was an opportunity. Might consumers be persuaded to stop spending so much on replacement bags, which, by the way, are made of spun plastic and are not biodegradable, and opt for a bag-less vacuum cleaner that offered constant suction instead? If so, I might stand a chance against these established companies.” Multi-Disciplinary Approach “I loved my time at the Royal College of Art not least because of its lively and inventive cross-disciplinary approach. Here, as I progressed, I realised that art and science, inventing and making, thinking and doing could be one and the same thing. I dared to dream that I could be an engineer, designer and manufacturer at one and the same time.” Commerciality & The ‘Art of Selling’ “Inventions, though, no matter how ingenious and exciting, are of little use unless they can be translated through engineering and design into products that stimulate or meet a need and can sell.” “Even the most worthwhile and world changing inventions, from ballpoint pen to the Harrier Jump Jet, need to be a part of the process of making and selling to succeed.” “Selling goes with manufacturing as wheels do with a bicycle. It is far more than flogging second-hand cars or contraband wristwatches. Products do not walk off shelves and into people’s homes, And when a product is entirely new, the art of selling is needed to explain it. What it is. How it works. Why you might need and want it.” “Jeremy Fry taught me not to try to pressure people into buying but to ask them lots of questions about what they did, how they worked and what they might expect of a new product. Equally, I learned that most people don’t really know exactly what they want, or if they do it’s only from what they know , what is available or possible at the time. As Henry Ford said, famously if he asked American farmers what they wanted in terms of future transport, they would have answered ‘faster horses.’ You need to show them new possibilities, new ideas and new products and explain these as lucidly as possible. Dyson advertising focuses on how our products are engineered and how they work, rather than on gimmicks and snappy sales lines.” “Word of mouth and editorial remain the best way to tell people what you have done. It is far more believable than advertising and a real compliment when intelligent journalists want to go off and talk about your product on their own free will. If you have new technology and a new product, a journalist’s opinion and comment is far more important and believable than an advertisement.” “Within eighteen months, the DC01 vacuum cleaner was the biggest seller in the UK market. Our first sales were through hefty mail order catalogues. These devoted a few pages to vacuum cleaners. We were among the last pages, at the bottom, with a small, square picture of the DC01… Ours was the most expensive in these catalogues by some margin and they were not the sort of place you would expect expensive items to be sold. Both we and the buyers at the catalogue were, in fact, astonished that DC01 did so well through their pages, with repeat orders coming in. I have never, though, believed that someone’s income is a bar to them wanting to buy the best product and a vacuum cleaner is an important purchase.” “We decided to highlight the Achilles’ heel of other vacuums - the bag and its shortcomings.” “I love the fact we tackled prosaic products, making the vacuum cleaner into a high-performance machine.” “From the beginning we decided that we would create our own publicity materials and advertising. We would not use outside agencies. This is because we want to talk fearlessly about technology, which, of course is what had driven Dyson into being. Since we have developed the technology, we should know how to explain it to others.” “I didn’t want anyone to buy our vacuum cleaner through slick advertising. I wanted them to buy it because it performed. We could be straightforward in what we said, explaining things simply and clearly.” “I believe that trustworthiness and loyalty come from striving to develop and make high performing products and then looking after customers who have bought them. I am not a believer in the theory that great marketing campaigns can replace great products. What you say should be true to who you are.” Manufacturing “Experience taught me that, ideally, a manufacturer - Dyson certainly - should aim to source as little as possible from outside the company. Those of us who drove British cars made in the 1970’s know pretty much exactly why. Poor assembly aside, what often let these cars down were components sourced from poor-quality external suppliers. Electrical failures were legion.” “Obviously at Dyson we cannot make absolutely everything on own own, but we work with suppliers so that they are in tune with us, with our manufacturing standards and our values. Because what we’re doing is special and different, we can’t go to a company like Foxconn, for example. which makes well known American, Canadian, Chinese, Finnish & Japanese electronic products. Those products are mostly made from off-the-shelf components. We design our own components. We don’t buy them off the shelf.” “You can manufacture good-quality, pioneering technology much more readily when you sit side by side with your suppliers rather than 10,000 miles away in a different time zone.” “We build close relationships with owners of factories so we can build our machines in their premises. The tooling, assembly lines and test stations are ours and we control the purchasing and quality. We don’t approach a sub-contractor and say, ‘Make me a product of this or this design.’ We tend to go to outfits which have never made vacuum cleaners before or hairdryers, robots, fans and heaters or purifiers or lights, and we teach their people to make things using our production methods. It’s a heavily engaged and involved process of learning and improvement.” “We need other factories because, expanding at the rate of 25% each year, we simply couldn’t cope with the planning and building of new factories even in Singapore, Malaysia and the Philiipines.” Going Global “I knew that if Dyson was to be a successful technology company, rather than just a British vacuum cleaner manufacturer, we couldn’t be Little Englanders. We needed to become global, and quickly. England, and the rest of the United Kingdom, is simply not a big enough market on its own to sustain the constant and huge investment technology requires.” “In 2004, we took the DC12 cylinder vacuum to Japan, calling it the ‘Dyson City.’ It was engineered specifically for the tiny, perfectly formed homes of Japan. We were amazed by its success. Within three months it had captured 20% of the Japanese market.” “Dyson has become as much an Asian business as a British one: our products are sold in eighty-three countries around the world, so we are arguably a truly global company. Having started in Britain and consistently grown in Britain, we, for some time now, sell over 95% of our products in our global markets.” Acquisitions “We are not in the business of buying up other companies. It may be a quick way to acquire technology or a business that would augment a company, but it can be difficult to assimilate the people and their ways of doing things. Usually, I feel, it’s better to start your own research project or your own business, which, although slower to begin with, develops organically and is stronger for it.” Dyson Electric Car “Because of the shifting commercial sand, we made the decision to pull out of production [of our electric car] at the very last minute. N526 was a brilliant car. Very efficient motors. Very aerodynamic. Wonderful to drive and be driven in. We just couldn’t ever have made money from it, and for all our enthusiasm for the project we were not prepared to risk the rest of Dyson.” “Fortunately, we were able to stomach the £500 million cost and survive. We did, though, push ourselves to learn a great deal in areas including batteries, robotics, air treatment, and lighting. We also learned more about virtual engineering as a tool in the design process and how, we would be able to make products more quickly and less expensively. These were all valuable lessons for the future.” Private Company & Long Term Thinking “Today, Dyson is a global company. I own it, and this really matters to me. It remains a private company. Without shareholders to hold back, we are free to take long-term and radical decisions. I have no interest in going public with Dyson because I know that this would spell the end of the company’s freedom to innovate in the way it does.” “When you own the whole company, and especially if you are free of debt, from the early days and for better or worse, all decisions are your own. So you take these very seriously and follow your own view of risk balanced, hopefully, with reward. This certainly sharpens the mind.” “We’re one family-owned company following its interest and passions.” “The advantages of a family business are that they can think in the very long term, and invest in the long term, in ways public companies are unable to do. I also believe that family-owned enterprises have a spirit, conscience and philosophy often lacking in public companies.” Win-Win & ESG “In our first year in Currys [retailer], Mark Souhami, one of the bosses alongside the founder Stankley Kalms, invited me to lunch with them both. They explained that because of Dyson they were now making a profit in their vacuum cleaner section and he wanted more Dyson products.” “I have always loathed companies that use ‘greenwash’ as part of their marketing. I would rather reduce our environmental impact quietly and by action. We were, and remain, a company primarily of engineers and because of this we have sought from the outset to use as little energy or materials as possible to solve or complete one particular task. Lean engineering is good engineering.” “For me, as for all Dyson engineers, lightness - lean engineering and material efficiency - is a guiding principle. Using less material means using less energy in the process of making things. It also means lighter products that need less energy to power them and are easier to handle and so more pleasurable to use.” “Dyson has always focused on making long-lasting machines that use fewer resources while achieving higher performance. Lighter machines resulting from developing new technology and reinventing the format, consumer less energy and are not only better for the planet but also more pleasurable to use. Our cord-free vacuum cleaners, for instance, are a fraction of the weight and use a fraction of the electricity than their predecessors did. This has come about by taking an entirely different approach and developing new technology, motors and batteries, from the ground up.” “We must move ever closer to a culture whereby we minimise the use of materials through lean engineering along with the recycling of products at the end of their lives. It’s not just okay to politely offset our carbon footprint. We have to deal with it at source.” “As Dyson, we are trying at every turn to touch the ground lightly in everything we do, to make more from less and to create a circular system through which we aim to recycle everything we use.” Removing Middlemen “Over the past three years we had been striving to sell more products direct to our customers ourselves, either online or through Dyson Demo stores. By early 2021 we had 356 Dyson stores. We have been opening them around the world so that customers can try our Dyson products in the best possible way. There are two reasons for this. First, we like to have a direct relationship with our customers, who are buying our product for which we are responsible, and we want to know how we can help them. Secondly, retailers around the world are declining in numbers and sales. They are nothing like the force they were, due of course to the decline of the high street and the rise of internet shopping. If you want to buy from a website, why not buy from the Dyson website! Why not deal directly with the manufacturer?’” “When I started out with the vacuum cleaner business, wholesales and retailers made most of the money .. which is why today a lot of our sales at Dyson are direct.” “Cutting out the middleman, and those who add no value, ought to be a popular national campaign. It would mean a possibility of profit for risk takers and producers, and lower prices for consumers.” Listen to Customers “Listening to what our users say is gold dust and I really enjoy reading or hearing about complaints. We devised a system of reporting all remarks heard by customers in stores or by store salespeople from all over the world, so that everyone in the company can see this priceless intelligence.” Optimism “I have great faith that science and technology can solve problems, from more sustainable and efficient products to the production of more and better food, and a more sustainable world. It is technological and scientific breakthroughs, far more than messages of doom, that will lead to this world. We need to go forwards optimistically into the future as if into the light, and with bright new ideas rather than darkness and end to human ingenuity portrayed by doomsayers.” “The depressing thing is that harbingers of doom and gloom get far more attention than optimists and problem solvers. I feel very strongly that progress should be embraced and encouraged, and it is a duty of governments and companies to catalyse the ideas of the progressive and harness them to achieve good ends.” Summary Most people would consider someone who’d failed 5,126 times and succeeded just once, a failure. Yet, that’s exactly what James Dyson did. That one success was the acorn that grew into a $US10 billion dollar fortune (talk about asymmetric returns!) There’s a myriad of lessons for inventors, investors and entrepreneurs in the pages of this book. Many of the lessons are equally applicable to each endeavour; maintaining focus, taking a long term view, continuously learning, challenging conventional wisdom and adopting a multi-disciplinary mindset. As you delve into the story an investment case emerges and the pieces of the puzzle start to fit together. An inventive fanatic full of passion, tenacity, resilience and self-belief recognises a prosaic industry that’s been neglected by technology and ripe for disruption. The target market is huge and somewhat immune from the vagaries of the economic cycle. A kernel of inventive insight, a variant perception on consumers preparedness to pay more for quality products and constant iteration leads to the development of a revolutionary product. Driven by a purpose beyond wealth accumulation (obliquity), a ‘technology’ business emerges. Full control of the ecosystem and intellectual property become further competitive attributes difficult to challenge. As technology compounds (a’la Brian Arthur) the barriers to competition widen. The tone is set from the top - a culture of continuous innovation and rejecting the status quo flourishes. Risk taking on a scale where failure is tolerable (a’la Palchinsky principle) is encouraged, creating new possibilities. Private ownership and low debt affords a long term view - no one is watching the quarterly shot clock. While there is no spreadsheet or financial model, there is a full scale mental model, or theory, developing. The component mental models, together, shed light on the Dyson company’s extraordinary success. My contention is this latter model will prove more useful in determining whether Dyson will continue to prosper in the future. Let’s not forget however, that without James Dyson, there would be no Dyson. Like many of the great businesses we’ve studied, it started with a fanatic. Source: ‘James Dyson - Invention: A Life,’ James Dyson, Simon & Schuster, 2021. Further Learning: ‘James Dyson - Invention: A Life - Interactive Portal.’ Follow us on Twitter : @mastersinvest * NEW * Visit the Blog Archive Article by Investment Masters Class Updated on Nov 22, 2021, 3:44 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkNov 22nd, 2021

Transcript: Edwin Conway

   The transcript from this week’s, MiB: Edwin Conway, BlackRock Alternative Investors, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS:… Read More The post Transcript: Edwin Conway appeared first on The Big Picture.    The transcript from this week’s, MiB: Edwin Conway, BlackRock Alternative Investors, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, man, I have an extra special guest. Edwin Conway runs all of alternatives for BlackRocks. His title is Global Head of Alternative Investors and he covers everything from structured credit to real estate hedge funds to you name it. The group runs over $300 billion and he has been a driving force into making this a substantial portion of Blackrock’s $9 trillion in total assets. The opportunity set that exists for alternatives even for a firm like Blackrock that specializes in public markets is potentially huge and Blackrock wants a big piece of it. I found this conversation to be absolutely fascinating and I think you will also. So with no further ado, my conversation with Blackrock’s Head of Alternatives, Edwin Conway. MALE VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio. RITHOLTZ: My extra special guest this week is Edwin Conway. He is the Global Head of Blackrock’s Alternative Investors which runs about $300 billion in assets. He is a team of over 1,100 professionals to help him manage those assets. Blackrock’s Global alternatives include businesses that cover real estate infrastructure, hedge funds private equity, and credit. He is a senior managing director for BlackRock. Edwin Conway, welcome to Bloomberg. EDWIN CONWAY, GLOBAL HEAD OF ALTERNATIVE INVESTORS, BLACKROCK: Barry, thank you for having me. RITHOLTZ: So, you’ve been in the financial services industry for a long time. You were at Credit Suisse and Blackstone and now you’re at BlackRock. Tell us what the process was like breaking into the industry? CONWAY: It’s an interesting on, Barry. I grew up in a very small town in the middle of Ireland. And the breakthrough to the industry was one of more coincident as opposed to purpose. I enjoyed the game of rugby for many years and through an introduction while at the University, in University College Dublin in Ireland, had a chance to play rugby at a quite a – quite a decent level and get to know people that were across the industry. It was really through and internship and the suggestion, I’ve given my focus on business and financing things that the financial services sector may be a great place to traverse and get to know. And literally through rugby connections, been part of a good school, I had an opportunity to really understand what the service sector, in many respects, could provide to clients and became absolutely intrigued with it. And what – was it my primary ambition in life to be in the financial services sector? I can definitively say no, but through the circumstance of a game that I love to play and be part of, I was introduced to, through an internship, and actually fell in love with it. RITHOLTZ: Quite interesting. And alternative investments at Blackrock almost seems like a contradiction in terms. Most of us tend to think of Blackrock as the giant $9 trillion public markets firm best known for ETFs and indices. Alternatives seems to be one of the fastest-growing groups within the firm. This was $50 billion just a few years ago, it’s now over 300 billion. How has this become such a fast-growing part of BlackRock? CONWAY: When you look at the various facets which you introduced at the start, Barry, we’ve actually been an alternatives – will be of 30 years now. Now, the scale, as you know, which you can operate on the beta side of business, far surpasses that on the alpha side. For us, throughout the years, this was very much about how can we deliver investment excellence to our clients and performance? Therefore, going an opportunity somewhere else to explore an alpha opportunity in alternatives. And I think being so connected to our clients understanding, that this pivots was absolutely taking place at only 30 years ago but in a very pronounced way today, you know, we continue to invest in this business to support those ambitions. They’re clearly seeing this as the world of going through a tremendous amount of transformation and with some of the challenges, quite frankly, in the traditional asset classes, being able to leverage at BlackRock, the Blackrock muscle to really explore these alpha opportunities across the various alternative asset classes that in our mind wasn’t imperative. And the imperative, really, is from the firm’s perspective and if you look at our purpose, it’s to serve the client. So the need was coming from them. The necessity to have alternatives and their whole portfolio was very – was very much growing in prominence. And it’s taken us 30 years to build this journey and I think, Barry, quite frankly, we’re far from being done. As you look at the industry, the demand is going to continue to grow. So, I think you could expect to see from us a continued investment in the space because we don’t believe you can live without alternatives in today’s world. RITHOLTZ: That’s really – that’s really interesting. So let’s dive a little deeper into the product strategy for alternatives which you are responsible for at BlackRock. Our audiences is filled with potential investors. Tell them a little bit about what that strategy is. CONWAY: So we’re – I think as you mentioned, we’re in excess of 300 billion today and when we started this business, it was less about building a moat around private equity or real estate. I think Larry Fink’s and Rob Kapito’s vision was how do we build a platform to allow us to be relevant to our clients across the various alternative asset classes but also within the – within the confines of what they are permitted to do on a year-by-year basis. So, to always be relevant irrespective of where they are in their journey from respect of liabilities, demand for liquidity, demand for returns, so we took a different approach. I think, Barry, to most, it was around how do we scale into the business across, like you said, real estate equity and debt, infrastructure equity and debt. I mean, we think of that as the real assets platform of our business. Then you take our private equity capabilities both in primary investing, secondary et cetera, and then you have private credits and a very significant hedge fund platforms. So we think all of these have a real role and depending on clients liquidities and risk appetite, our goal was, to over the years, really build in to this to allow ourselves for this challenging needs that our clients have. I think as an industry, right, and over the many years alternatives have been in existence, this is been about return enhancement initially. I think, fundamentally, the changes around the receptivity to the role of alternatives in a client’s portfolio has really changed. So, we’ve watched it, Barry, from this is we’re in the pursuit of a very total return or absolute return type of an objective to now resilience in our portfolio, yield an income. And so things that probably weren’t perceived as valuable in the past because the traditional asset classes were playing a more profound role, alternatives have stepped up in – in many respects in the need to provide more than just total return. So, we’re taking the approach of how do you have a more holistic approach to this? How do we really build a global multi-alternatives capability and try to partner and I think that’s the important work for us. Try to partner with our clients in a way that we can deliver that outperformance but delivered in a way that probably our clients haven’t been used to in this industry before. Because unfortunately, as we know, it has had its challenges with regard to secrecy, transparency, and so many other aspects. We need to help the industry mature. And really that was our ambition. Put our client’s needs first, build around that and really be relevant in all aspects of what we’re doing or trying to accomplish on behalf of the people that they support and represent. RITHOLTZ: So, we’ll talk a little bit about transparency and secrecy and those sorts of things later. But right now, I have to ask what I guess is kind of an obvious question. This growth that you’ve achieved within Blackrock for nonpublic asset allocation within a portfolio, what is this coming at expense of? Are these dollars that are being moved from public assets into private assets or you just competing with other private investors? CONWAY: It’s really both. What – what you are seeing from our clients – if I take a step back, today, the institutional client community and you think about the – the retirement conundrum we’re all facing around the world. It’s such an awful challenge when you think how ill-prepared people are for that eventual stepping back from the workplace and then you know longevity is your friend, but can also be a very, very difficult thing to obviously live with if you’re not prepared for retirement. The typical pension plan today are allocating about 25 percent to 28 percent in alternatives. Predominantly private market. What they’re telling us is that’s increasing quite substantially going forward. But you know, the funding for that alpha pursue for that diversification and that yield is coming from fixed-income assets. It’s coming from equity assets. So there’s a real rebalancing that’s been taking place over the past number of years. And quite frankly, the evolution, and I think the innovation that’s taken place particularly in the past 10 years, alternatives has been really profound. So the days where you just invest in any global funds still exist. But now you can concentrate your efforts on sector exposure, industry exposures, geographic exposures, and I think the – the menu of things our clients can now have access to has just been so greatly enhanced at and the benefit is that but I think in some – in some respects, Barry, the next question is with all of those choices, how do you build the right portfolio for our client’s needs knowing that each one of our client’s needs are different? So, I would say it absolutely coming from the public side. We’re very thankful. Those that had a multiyear journey with us in the public side are now allocating capital to is now the private side to because I do think the – the industry given that change, given that it evolution and given the complexity of these private assets, our clients are looking to, quite frankly, do more with fewer managers because of the complexion of the industry and complexity that comes with it. RITHOLTZ: Quite – quite interesting. (UNKNOWN): And attention RIA’s. Are your clients asking for crypto? At interactive brokers, advisers can now offer crypto to their clients and you could trade stocks, options, futures currencies, bonds and more from the same platform. Commissions on crypto are just 12-18 basis points with no hidden spreads or markups and there are no ticket charges, custody fees, minimums platform or reporting fees. Learn more at crypto. RITHOLTZ: And I – it’s pretty easy to see why large institutions might be rotating away from things like treasuries or tips because there’s just no yield there. Are you seeing inflows coming in from the public equity side also? The markets put together a pretty good string of years. CONWAY: Yes. It absolutely has. And many respects, I think, we’ve had a multiyear where there was big questions around the alpha that can be generated, for example, from active equities? The question was active or passive? I think what we’ve all realized is that at times when volatility introduces itself which is frequent even independent of what’s been done from a fiscal and monetary standpoint, that these Alpha speaking strategies on the traditional side still make a lot of sense. And so, as we think about what – what’s happening here, the transition of assets from both passive and active strategies to alternative, it – it’s really to create better balance. It’s not that there’s – there’s a lack of relevance anymore in the public side. It’s just quite frankly the growth of the private asset base has grown so substantially. I moved, Barry, to the U.S. in 1998. And it’s interesting, when you look back at 1998 to today, you start to recognize the equity markets and what was available to invest in. The number of investable opportunities has shrunk by 40 plus percent which that compression is extraordinarily high. But yet you’ve seen, obviously, the equity markets grow in stature and significance and prominence but you’re having more concentration risk with some of the big public entities. The converse is true, though on the – on the private side. There’s this explosion of enterprise and innovation, employment creation, and then I believe opportunities has been real. So, I look at the public side, the investable universe is measured in the thousands and the private side is measured in the millions. RITHOLTZ: Wow. CONWAY: And I think part of the – part of the part of the thing our clients are not struggling with but what we’re really recognizing with – with enterprises staying private for longer, if not forever, and with his growth of the opportunities that open debt and equity in the private market side, you really can’t forgo this opportunity. It has to be part of your going forward concerns and asset allocation. And I think this is why we’re seeing that transformation. And it’s not because equities on fixed income just aren’t relevant anymore. They’re very relevant but they’re relevant now in a total portfolio or a whole portfolio context beside alternatives. RITHOLTZ: So, let’s discuss this opportunity set of alternatives where you guys at Blackrock scene demand what sectors and from what sorts of clients? Is this demand increasing? CONWAY: We’re very fortunate, Barry. Today, there isn’t a single piece of our business within – within Blackrock alternatives that isn’t growing. And quite frankly too, it’s really up to us to deliver on the investment objectives that are set forth for those clients. I think in the back of strong absolute and relative performance, thankfully, our clients look to us to – to help them as – as they think about what they’re doing and as they’re exploring more in the alternatives areas. So, as you know, certainly, the private equity and real estate allocations are quite mature in many of our client’s portfolios but they’ve been around for many decades. I think that the areas where we’re seeing – that’s called an outside demand and opportunity set, just but virtue of the small allocations on a relative basis that exist today is really around infrastructure, Barry, and its around private credits. So, to caveat that, I think all of the areas are certainly growing, and thankfully, for us that’s true. We’re looking at clients who we believe are underinvested, we believe they’re underinvested in those asset classes infrastructure both debt and equity and in private credit. And as you think about why that is, the attributes that they bring to our client is really important and in a world where your correlation and understanding those correlations is important that these are definitely diversifying assets. In a world where you’re seeing trillions of dollars, quite frankly, you’re providing little to no or even there’s negative yield. Those short falls are real and people need yield than need income. These assets tend to provide that. So the diversification, it comes from these assets. The yield can come from these assets and because of the immaturity of the asset classes, independence of the capital is flowing in, we still consider them relatively white space. You’re not crowded out. There’s much room for development in the market and with our client’s portfolios. And to us, that’s exciting because it presents opportunities. So, at the highest level, they’re the areas where I believe are most underdeveloped in our clients. RITHOLTZ: So let’s talk about both of those areas. We’ll talk about structured credit in a few minutes. I think everybody kind of understands what – what that is. What – when you see infrastructure as a sector, how does that show up as an investment are – and obviously, I have infrastructure on the brink because we’re recording this not too long after the giant infrastructure bill has been passed, tell us a little bit about what alternative investments in infrastructure looks like? CONWAY: Yes. It’s really in its infancy and what the underlying investments look like. I think traditionally, you would consider it as – and part of the bill that has just been announced, roads, bridges, airports. Some of these hard assets, some of the core infrastructure investments that have been around for actually some time. The interesting thing is the industry has evolved so much and put the need for infrastructure. It’s so great across both developed and emerging economies. It’s become something that if done the right way, the attributes we just spoke of can really have a very strong effect on our client’s portfolios. So, beyond the core that we just mentioned, well, we’ve seen a tremendous demand as a result of this energy transition. You’re really seeing a spike in activity and the necessity transition industry to cleaner technologies, a movement, not away completely from fossil fuel but integrating new types of clean energy. And as a result, you’ve seen a lot of demand on a global basis for wind and solar. And quite frankly, that’s why even us at BlackRock, albeit, 10-12 years ago, we really established a capability there to help with that transition to think about how do we use these technologies, solar panels, wind farms, to generate clean forms of energy for utilities where in some cases they’re mandated to procure this type of this type of – this type of power. And when you think about pre-contracting with utilities for long duration, that to me spells, Barry, good risk mitigation and management and ability to get access to clean forms of energy that throw off yield that can be very complementary to your traditional asset classes but for very long periods of time. And so, the benefits for us of these – these assets is that they are long in duration, they are yield enhancing, they’re definitely diversifying. And so, for us, where – we’ve got about, let’s call this 280 assets around the world that we’re managing that literally generate this – this clean electricity. I think to give the relevance of how much, I believe today, it’s enough to power the country of Spain. RITHOLTZ: Wow. CONWAY: And that’s really that’s really changing. So you’re seeing governments – so from a policy standpoint, you’re seeing governments really embracing new forms of energy, transitioning out of bunker fuels, for example, you know, burning diesels which really spew omissions into the – into the into the environment. But it’s really around modernizing for the future. So, developed and emerging economies alike, want to retain capital. They want to attract new capital and by having the proper infrastructure to support industry, it’s a really, really important thing. Now, on the back of that too, one things we’ve learned from COVID is that the necessity to really bring e-commerce into how you conduct your business is so important and I think from the theme of digitalization within infrastructure to is a huge part. So, it’s not just the energy transition that you’re seeing, it’s not just roads and bridges, but by allowing businesses to connect to a global consumer, allowing children be educated from home, allowing experiences that expand geographies and boundaries in a digital form is so important not just for commerce but in so many other aspects. And so, you think about cable, fiber optics, if you think about all the other things even outside of power, that enable us to conduct commerce to educate, there are many examples where, Barry, you can build resilience into your portfolio because that need is not measured in years. Actually, the shortfall of capital is measured in the trillions so which means this is – this is a multi-decade opportunity set from our vantage point and one of which our clients should really avail of. RITHOLTZ: Quite interesting. And I mentioned in passing, structured credit, tell us a little bit about what that opportunity looks like. I think of this as a space that is too big for local banks but too small for Wall Street to finance. Is that an oversimplification? What is going on in that space. CONWAY: I probably couldn’t have set it better, Barry. It’s – if we go back to just the even the investable universe, in the tens of thousands of companies, just if we take North America that are private, that have great leadership that really have strategic vision under – at the – in some cases, at the start of their growth lifecycles are even if they maintain, they have a very credible and viable business for the future they still need capital. And you’re absolutely right. With the retreat of the banks from the space to various regulations that have come after the global financial crisis, you’re seeing the asset managers in many respects working behalf of our clients both wealth and institutional becoming the new lenders of choice. And – and when we – when we think about that opportunity set, that is really understanding the client’s desire for risk or something maybe in a lower risk side from middle-market lending or midmarket enterprises where you can support that organization through its growth cycle all the way to some higher-yielding, obviously, with more risk assets on the opportunistic or even the special situations side. But it – it expands many things. And going back of the commentary around the evolution of the space, private credit today and what you can do has changed so profoundly, it expands the liquidity spectrum, it expands the risk spectrum. And the great news is, with the number of companies both here and abroad, the opportunities that is – it’s being enriched every single day. And were certainly seeing, particularly going back to the question are some of these assets coming from the traditional side, the public side. When we think of private credit, you are seeing private credit now been incorporated in fixed-income allocations. This is a – it’s a yelling asset. This is – these are debt instruments, these are structures that we’re creating. We’re trying to flexible and dynamic with these clients. But it really is an area where we think – it really is still at its – at its infancy relevant to where it can potentially be. RITHOLTZ: That’s really quite – quite interesting. (UNKNOWN): It’s Rob Riggle. I’m hosting Season 2 of the iHeart radio podcast, Veterans You Should Know. You may know me as the comedic actor from my work in the Hangover, Stepbrothers or 21 Jump Street. But before Hollywood, I was a United States Marine Corps officer for 23 years. For this Veterans Day, I’ll be sitting down with those who proudly served in the Armed Forces to hear about the lessons they’ve learned, the obstacles they’ve overcome, and the life-changing impact of their service. Through this four-part series, we’ll hear the inspiring journeys of these veterans and how they took those values during their time of service and apply them to transition out of the military and into civilian life. Listen to Veterans You Should Know on the iHeart radio app, Apple Podcast or wherever you get your podcast. RITHOLTZ: Let’s stick with that concept of money rotating away from fixed income. I have to imagine clients are starved for yields. So what are the popular substitutes for this? Is it primarily structured credit? Is it real estate? How do you respond to an institution that says, hey, I’m not getting any sort of realistic coupon on my bonds, I need a substitute? CONWAY: Yes. It’s all of those in many respects. And I think to the role, even around now a time where people have questions around inflation, how do substitute this yield efficiency or certainly make up for that shortfall, how do you think about a world where increasingly seeing inflation, not of the transitory thing it feels certainly quasi-permanent. These are a lot of questions we’re getting. And certainly, real estate is an is important part of how they think about inflation protection, how client think about yield, but quite frankly too, we’ve – we’ve gone through something none of us really had thought about a global pandemic. And as I think about real estate, just how you allocate to the sector, what was very heavily influenced with retail assets, high street, our shopping behaviors and habits have changed. We all occupied offices for obviously many, many years pre the pandemic. The shape of how we operate and how we do that has changed. So, I think some of the underlying investment – investments have changed where you’ve seen heavily weighted towards office space to leisure, travel in the past. Actually, now using a rotation in some respects out of those, just given some of the uncertainties around what the future holds as we come – come through a really difficult time. But the great thing about this sector is between senior living, between student housing, between logistics and so many other parts, there are ways in real estate to capture where there’s – where there’s demand. So still a robust opportunity set and it – and we do think it can absolutely be yield enhancing. We mentioned infrastructure. Even if you think about – and we mention OECD and non-OECD, emerging and developed, when I think about Asia, in particular, just as a subset of the world in which we’re living in, that is a $2.6 trillion alternative market today growing at a 15 percent CAGR. And quite frankly, the old-growth is driven by the large economic growth in the region. So, even from a regional perspective, if we pivot, it houses 57 percent of the world’s population and yet delivers 47 percent of the world’s economic growth. So, think of that and then with regard to infrastructure and goes back to that, this is truly a global phenomenon. So if we just even take that sector, Barry, you’ll realize that the way to maintain that type of growth, to attract capital, to keep capital, it really requires an investment of significant amount of money to be able to sustain that. And when you have 42 million people in a APAC migrating to cities in the year going back to digitalization, that’s an important thing. So, when I say we’re so much at the infancy in infrastructure, I really mean it. It can be water, it can be sewer systems, it can be digital, it can be roads, there’s so much to this. And then even down to the regional perspective, it’s a – it’s a need that doesn’t just exist in the U.S. So, for these assets, this tend to be long in duration. There’s both equity and debt. And on the debt side, quite frankly, very few outside of our insurance clients and their general account are taking advantage of the debt opportunity. And – and as we both know, to finance these projects that are becoming more plentiful every single day, across the world, including like, I said, in APAC in scale, there’s an opportunity in both sides. And I think that’s where the acid mix change happen. It’s recognizing that the attributes of these assets can have a role, the attributes of these assets can potentially replace some of these traditional assets and I think you’re going to see it grow. So, infrastructure to us, it’s really equity and debt. And then on the credit side, like I mentioned, again, too, it’s a very, very big and growing market. And certainly, the biggest area today from our vantage point is middle-market lending from a scale opportunity standpoint. So, we think much more to come in all of those spaces. RITHOLTZ: Really interesting. And let’s just stay with the concept of public versus private. That line is kind of getting blurred and the secondary markets is liquidity coming to, for lack of a better phrase, pre-public equities, tells little bit about that space. Is that an area that is ripe for growth for BlackRock? CONWAY: Yes. We absolutely think it is and you’re absolutely correct. The secondary market is – has grown quite substantial. If you even look at just the private equity secondary market and what will transact this year, I think it will be potentially in excess of 100 billion. And that’s what were clear, not to mention what will be visible and what will be analyzed. And that speaks to me what’s really happening and the innovation that we mentioned earlier. It’s no longer about just primary exposure. It’s secondary exposure. When we see all sort of interest and co-investment opportunities as well, I think the available sources of alpha and the flexibility you can now have, albeit if directed and advised, I believe the right way, Barry, can be very helpful and in the portfolio. So, your pre-IPO, it is a big part of actually what we do and we think about growth equity. There is – it’s a significant amount of capital following that space. Now, from our vantage point, as one of the largest investors in the public equity market and now obviously one of the largest investors and they in the private side, the bridge between – between private to public – there’s a real need. IPOs are not going away. And I think smart, informed capital to help with this journey, this journey is really – is really a necessity and a need. RITHOLTZ: So let’s talk a little bit about this recent restructuring. You are first named Global Head of Blackrock Alternative Investors in April 2019, the entire alternatives business was restructured, tell us a little bit about how that restructuring is going? CONWAY: Continues to go really well, Barry. When you look at the flow of acid from our clients, I think, hopefully, that’s speaks to the performance we’ve been generating. I joined the firm, as you know, albeit, 11 years ago and being very close to the alternative franchise as a critical thing for me and running the institutional platform. To me, when you watched this migration of asset towards alternatives, it was obviously very evident for decades now that this is a critical leg of the stool as our clients are thinking about their portfolios. We’re continuing to innovate. We’re continuing to invest, and thankfully, we’re continuing to deliver strong performance. We’re growing at about high double digits on an annual basis but we’re trying to purposeful too around where that growth is coming from. I think the reality is when you look at the competitive universe, I think the last number I saw, it was about 38,000 alternative asset managers out there today, obviously, coming from hedge funds all the way to private credits and private equity. So, competition is real and I do think the outcomes for our clients are starting to really grow. Unfortunately, some – in some cases, obviously, very good, and in some cases, actually not great. So our focus, Barry, is really much on how can we deliver performance, how can we be a partner? And I think we been rewarded with a trust and the faith our clients have in us because they’re seeing something different, I think, from us. Now, the scale of the business that you mentioned earlier really gives us tentacles into the market that I believe allows us to access what I think is the new alpha which is in many respects, given the heft of competition sourcing and originating new investments is certainly harder but for us, sitting in or having alternative team, sitting in 50 offices around the world, really investing in the markets because that – the market they grew up with and have relationships within, I think this network value that we have is something that’s quite special. And I think in the world that’s becoming increasingly competitive, we’re going to continue to use and harness that network value to pursue opportunities. And thankfully, as a result of the partnership we’ve been pursuing with her clients, like, we’ve – we’re certainly looking for opportunities and investments in our funds. But because of the brand, I think because of the successes, opportunities seeks us as much as we seek opportunity and that has been something that we look at an ongoing basis and feel very privileged to actually have that inbound flow as well. RITHOLTZ: Really quite interesting. There was a quote of yours I found while doing some prep for this conversation that I have to have you expand on. Quote, “The relationship between Blackrock’s alternative capabilities and wealth firms marked a large opportunity for growth in the coming years.” This was back in 2019. So, the first part of the question is, was your expectations correct? Did you – did you see the sort of growth you were hoping for? And more broadly, how large of an opportunity is alternatives, not just for BlackRock but for the entire investment industry? CONWAY: Yes. It’s been very much an institutional opportunity set up until now. And there’s so much to be done, still, to really democratize alternatives and we certainly joke around making alternatives less alternative. Actually, even the nomenclature we use and how we describe it doesn’t kind of make sense anymore. It’s such a core – an important allocation to our clients, Barry, that just calling it alternative seems wrong. Just about the institutional clients. It ranges, I think, as I mentioned on our – some of our more conservative clients which would be pension plans which really have liquidity needs on a monthly basis because of the liabilities they have to think about. At about 25 plus percent in private markets, to endowments, foundations, family offices, going to 50 percent plus. So, it’s a really important part and has been for now many years the institutional client ph communities outcomes. I think the thing that we, as an industry, have to change is alternatives has to be for the many, not for the few. And quite frankly, it’s been for the few. And as we talked about some of the attributes and the important attributes of these asset classes to think that those who have been less fortunate in their careers can’t access, things they can enrich their future retirement outcomes, to me, is a failing. And we have to address that. That comes from regulation changes, it comes from structuring of new products, it comes from education and it comes from this knowledge transmission where clients in the wealth segment can understand the role of alternatives and the context of what can do as they invest in equities and fixed income too. And we think that’s a big shortfall. So, the journey today, just to give you a sense, as we look at her clients in Europe on the wealth side, on average, as you look from what we would call the credited investors all the way through to more ultra-high-net worth individuals, their allocation to alternatives, we believe, stands at around two to three percent of their total portfolio. In the U.S., we believe it stands at three to five. So, most of those intermediaries, we speak to our partners who were more supporting and serving the wealth channel. They have certainly an ambition to help their clients grow that to 20 percent and potentially beyond that. So, when I look at that gap of let’s call it two to three to 20 percent in a market that just given the explosion in wealth around the world, I think the last numbers I saw, this is a $65 trillion market. RITHOLTZ: Wow. CONWAY: That speaks to the shortfall relative to the ambition. And how’s it been going? We have a number of things and capabilities we’ve set up to allow for this market to experience, hopefully, private equity, hedge funds, credit, and an infrastructure in ways they haven’t in the past. We’ve done this in the U.S., we’re doing it now in Europe, but I will say, Barry, this is still very much at the start of the journey. Wealth is a really important part of our future given our business, quite, frankly is 90 plus percent institutional today, but we’re looking to change that by, hopefully, democratizing these asset classes and making it so much more accessible in that of the past. RITHOLTZ: So, we hinted at this before but I’m going to ask the question outright, how significant is interest rates to client’s risk appetites, how much of the current low rate environment are driving people to move chunks of their assets from fixed income to alternatives? CONWAY: It’s really significant, Barry. I think the transition of these portfolios is quite profound, So you – and I think the unfortunate thing in some respects as this transition happens that you’re introducing new variables and new risks. The reason I say it’s unfortunate and that I think as an industry, this goes back to the education around the assets you own, understanding the role, understanding the various outcomes. I think it’s so incredibly important and that this the time where complete transparency is needed. And quite frankly, we’re investing capital that’s not ours. As an industry, we’re investing our client’s assets and they need to know exactly the underlying investments. And in good and bad times, how would those assets behave? So certainly, interest rates are driving a flow of capital away from these traditional assets, fixed-income, and absolutely in towards real estate, infrastructure, private creditors, et cetera, in the pursuit of this – this yield. But I do – I do think one of the things that’s critically important for the institutional channel, not just the wealth which are newer entrants is this transmission of education, of data because that’s how I think you build a better balanced portfolio and that’s a – that’s a real conundrum, I think, that the industry is facing and certainly your clients too. RITHOLTZ: Quite interesting. So let’s talk a little bit about the differences between investing in the private side versus the public markets, the most obvious one has to be the illiquidity. When you buy stocks or bonds, you get a print every microsecond, every tick, but most of these investments are only marked quarterly or annually, what does this illiquidity do when you’re interacting with clients? How do you – how do you discuss this with them in and how do perceive some of the challenges of illiquid investments? CONWAY: Over the – over the past number of decades, I think our clients have largely held too much liquidity in their portfolios. Like, so what we are finding is the ability to take on illiquidity risk. And obviously, in pursuit of that premium above, the traditional markets, I mean, I think the sentiment they are is it an absolute right one. That transition towards private market exposure, we think is an important one just given the return objectives, the majority of our clients’ need but then also again, most importantly now, with geo policy, with uncertainty, with interest rate uncertainty, inflation uncertainty, I mean, the – going back to the resilience point, the characteristics now by introducing these assets into the mix is important. And I think that’s – that point is maybe what I’ll expand on. As were talking to clients, using the Aladdin systems, and as you know, we bought eFront technologies, albeit a couple of years ago, by allowing, I think, great data and technology to help our clients understand these assets and the context of how they should own them relative to other liquidity needs, their risk tolerances, and the return expectations are really trying to use tech and data to provide a better understanding and comprehension of the outcomes. And as we continue to introduce these concepts and these approaches, by the way, that there is, as you know, so used to in the traditional side, it – it gives them more comfort around what they should and can expect. And that, to me, is a really important part of what we’re doing. So, we’ve released recently new technology to the wealth sector because, quite frankly, we mentioned it before, the 60-40 portfolio is a thing of the past. And that introduction of about 20 percent into alternatives, we applaud our partners who are – who are suggesting that to their clients. We think it’s something they have to do. What we’re doing to support that is really bringing thought leadership, education, but also portfolio construction techniques and data to bear in that conversation. And this goes back to – it’s no longer an alternative, right? This is a core allocation so the comprehension of what it is you own, the behavior of the asset in good and bad times is so necessary. And that’s become a very big thing with regard to our activities, Barry, because your clients are looking to understand better when you’re talking about assets that are very complex in their nature. RITHOLTZ: So, 60-40 is now 50-30-20, something along those lines? CONWAY: Yes. RITHOLTZ: Really, really intriguing. So, what are clients really looking for these days? We talked about yield. Are they also looking for downside protection on the equity side or inflation hedges you hinted at? How broad are the demands of clients in the alternative space? CONWAY: Yes. It ranges the gamut. And even – we didn’t speak to even hedge funds, we’ve had differing levels of interest in the hedge fund world for years and I, quite frankly, think some degree of disappointment too, Barry, with regard to the alpha, the returns that were produced relevant to the cost. RITHOLTZ: It’s a tough space to say the very least exactly. CONWAY: Exactly right. But when you start to see volatility introducing itself, you can really see where skill plays a critical factor. So, we are absolutely seeing, in the hedge fund, a resurgence of interest and demand by virtue of those who really have honed in on their scale, who have demonstrated an up-and-down markets and ability to protect and preserve capital, but importantly, in a low uncorrelated way build attractive risk-adjusted returns. We’re starting to see more activity there again too. I think with an alternatives, you’ve really seen a predominant demand coming from privates. These private markets, like a set of growths so extraordinarily fast and the opportunities that is rich, the reality too on the public side which is where our hedge funds operate, they continue to, in large part, do a really good job. The issue with our industry now with these 38,000 managers is how do you distill all the information? How do you think about your needs as a client and pick a manager who can deliver the outcomes? And just to give you a sense, the difference now between a top-performing private equity manager, a top quartile versus the bottom quartile, the difference can be measured in tens of percent. RITHOLTZ: Wow. CONWAY: Whereas if you look at the public equity side, for example, a large cap manager, top quartile versus bottom quartile is measured in hundreds of basis points. So, there is definitely a world that has started where the outcomes our clients will experience can be great as they pursue yield, as they pursue diversification, inflation protection, et cetera. I think the caveat that I would say is outcomes can vary greatly. So manager underwriting and the importance of it now, I think, really is this something to pay attention to because if you do have that bottom performing at the bottom quartile manager, it will affect your outcomes, obviously. And that’s what we collectively have to face. RITHOLTZ: So, let’s talk a little bit about real estate. There are a couple of different areas of investment on the private side. Rent to own was a very large one and we’ve seen some lesser by the flip algo-driven approaches. Tell us what Blackrock is doing in the real estate space and how many different approaches are you bringing to bear on this? CONWAY: Yes, we think it’s both equity and debt. Again, no different to the infrastructure side, these projects need to be financed. But on the – as you think about the sectors in which you can avail of the opportunity, you’ve no doubt heard a lot and I mentioned earlier this demand for logistics facilities. The explosion of shopping online and having, until we obviously have the supply chain disruption, an ability to have nearly immediate satisfaction because the delivery of the good to your home has become so readily available. It’s a very different consumer experience. So the explosion and the need for logistics facilities to support this type of behavior of the consumer is really an area that will continue to be of great interest too. And then you think about the transformation of business and you think about the aging world. Unfortunately, you can look at various economies where our populations are decreasing. And quite frankly, we’re getting older. And so, were you’re thinking of the context of that senior living facilities, it becomes a really important part, not just as part of the healthcare solution that come with it, but also from living as well. So, single-family, multifamily, opportunities continue to be something that the world looks at because there is really the shortfall of available properties for people to live in. And as the communities evolve to support the growing age of the population, tremendous opportunity there too. But we won’t give up on office space. It really isn’t going away. Now, if you even think about our younger generation here in BlackRock, they love being in New York, they love being in London, they love being in Hong Kong. So, the shape and the footprint may change slightly. But the necessity to be in the major financial centers, it still exists. But how we weighed the risks has definitely changed, certainly, for the – for the short-term and medium-term future. But real estate continues to be, Barry, a critical part of how we express our thought around the investment opportunity set. But clients largely do this themselves too. The direct investing from the clients is quite significant because they too see this as still as a rich investment ground, albeit, one that has changed quite a bit as a result of COVID. RITHOLTZ: Well, I’m fascinated by the real estate issue especially having seen some massive construction take place in cities pre-pandemic, look over in Manhattan at Hudson Yards and look at what’s taking place in London, not just the center of London but all – but all around it and I’m forced to admit the future is going to look somewhat different than the past with some hybrid combination of collaborative work in the office and remote work from home when it’s convenient, that sort of suggests that we now have an excess of capacity in office space. Do you see it that way or is this just something that we’re going to grow into and just the nature of working in offices is changing but offices are not going away? CONWAY: Yes. I do think there’s – it’s a very valid point and that in certain cities, you will see access, in others we just don’t, Barry. And quite frankly, as a firm, too, as you know, we have adopted flexibility with our teams that were very fortunate. The technologies in which we created at BlackRock has just become such an amazing enabler, not just to help us as we mention manage the portfolios, help us a better portfolio construction, understand risks, but also to communicate with our clients. I think we’ve all witnessed and experienced a way to have connectivity that allows them to believe that commerce can exist beyond the boundaries of one building. However, I do look at our property portfolios and even the things that we’re doing. Rent collections still being extraordinarily high, occupancy now getting back up to pre-pandemic levels, not in all cities, but in many of the major ones that have reopened. And certainly, the demand for people to just socialize, that the demand for human connectivity is really high. It’s palpable, right? We see it here too. The smiles on people’s faces, they’re back in the office, conversing together, innovating together. When people were feeling unsafe, unquestionably, I think the question marks around the role of office space was really brought to bear. But as were coming through this, as you’ve seen vaccine rates change, as you’ve seen the infection rates fall, as you’ve seen confidence grow, the return to work is really happening and return to work to office work is really happening, albeit, now with degrees of flexibility. So, going back to the – I do believe in certain areas. You’re seeing a surplus. But in many areas you’re absolutely seeing a deficit and the reason I say that, Barry, is we are seeing occupancy in certain building at such a high level. And frankly, the demand for more space being so high, it’s uneven and this goes back to then where do you invest our client’s capital, making sense of those trends, predicting where you will see resilience versus stress and building that into the portfolio of consequences as you – as you better risk manage and mitigate. RITHOLTZ: Very interesting. And so, we are seeing this transition across a lot of different segments of investing, are you seeing any products that were or – or investing styles that was once thought of as primarily institutional that are sort of working their way towards the retail side of things? Meaning going from institutional to accredited to mom-and-pop investors? CONWAY: Well, certainly, in the past, private equity was really an asset class for institutional investors. And I think that’s – that has changed in a very profound way. I mentioned earlier are the regulation has become a more adaptive, but we also have heard, in many respects, in providing this access. And I think the perception of owning and be part of this illiquid investment opportunity set was hard to stomach because many didn’t understand the attributes and what it could bring and I think we’ve been trying to solve for that and what you’re seeing now with – with regulators, understanding that the difference between if we take it quite simply as DD versus DC, the differences between the options you as a participant in a retirement plan are so vastly different that – and I think there’s a broad recognition now that there needs to be more equity with regard to what happens there. And private equity been a really established part of the alternatives marketplace was once, I think, really believed to be an institutional asset class, but albeit now has become much more accessible to wealth. We’ve seen it by structuring activities in Europe working with the regulators. Now, we’re able to provide private equity exposure to clients across the continent and really getting access to what was historically very much an institutional asset class. And I do think the receptivity is extraordinarily high just throughout people’s careers, they have seen wealth been created as a result of engineering a great outcome with great management teams integrate business. And I do believe the receptivity towards private equity is high as an example. In the U.S., too, working with the various intermediaries and being able to wrap now private equity in a ’40 Act fund, for example, is possible. And by being able to deliver that to the many as opposed to the few, we think has been a very good success story. And I think, obviously, appreciated by our clients as well. So, I would look at that were seeing across private equity as well as private credit and quite frankly infrastructure accuracy. You’re seeing now regulation that’s becoming more appreciative of these asset classes, you’re seeing a more – a greater level of openness and willingness to allow for these assets to be part of many people’s experiences across their investment portfolio. And now, with innovation around structures, as an industry, were able to wrap these investments in a way that our clients can really access them. So, think across the board, it probably speaks the innovation that’s happening but I do think that accessibility has changed in a very significant way. But you’ve really seen it happen in private equity first and now that’s expanding across these various other asset classes. RITHOLTZ: Quite intriguing. I know I only have you for a relatively limited period of time, so let’s jump to our favorite questions that we ask all of our guests. Starting with tell us what you’ve been streaming these days. Give us your favorite Netflix or Amazon Prime shows. CONWAY: That is an interesting question, Barry. I don’t a hell of a lot of TV, I got to tell you. I am – I keep busy with three wonderful children and a beautiful wife and between the sports activities. When I do watch TV, I have to tell you I’m addicted to sports and having – I may have mentioned earlier, growing up playing rugby which is not the most common sport in the U.S., I stream nonstop the Six Nations that happens in Europe where Ireland is one of those six nations that compete against each other on an annual basis. Right now, they’re playing a lot of sites that are touring for the southern hemisphere. And to me, the free times I have is either enjoying golf or really enjoying rugby because I think it’s an extraordinary sport. Obviously, very physical, but very enjoyable to watch. And that, that truly is my passion outside of family. RITHOLTZ: Interesting stuff. Tell us a bit about your mentors, who helped to shape your early career? CONWAY: Well, it even goes back to some of the aspects of sports. Playing on a team and being on a field where you’re working together, there’s a strategy involved with that. Now, I used to really appreciate how we approach playing in the All-Ireland League. How we thought about our opponents, how we thought about the structure, how we thought about each individual with on the rugby field and the team having a role. They’re all different but your role. And actually, even starting from an early age, Barry, thinking about, I don’t know, it’s sports but how to build a great team with those various skills, perspective, that can be a really, really powerful combination when done well. And certainly, from an early age, that allowed me to appreciate that – actually, in the work environment, it’s not too different. You surround yourself with just really great people that have high integrity that are empathetic and have a degree of humility that when working together, good things can happen. And I will say, it really started at sports. But I think of today and even in BlackRock, how Larry Fink thinks about the world and I think Larry, truly, is a visionary. And then Rob Kapito who really helps lead the charge across our various businesses. Speaking and conversing with them on a daily basis, getting their perspectives, trying to get inside your head and thinking about the world from their vantage point. To me, it’s a huge thing about my ongoing personal career and development and I really enjoy those moments because I think what you recognize is independent of how much you think you know, there’s so much more to know. And this journey is an ever evolving one where you have to appreciate that you’ll never know everything and you need to be a student every single day. So, I’d probably cite those, Barry, as certainly the two most important mentors in my life today, professionally and personally quite frankly. RITHOLTZ: Really. Very interesting. Let’s talk about what you’re reading these days. Tell us about some of your favorite books and what you’re reading currently? CONWAY: Barry, what I love to read, I love to read history, believe it or not. From a very small country that seems to have exported many, many people, love to understand the history of Ireland. So, there’s so many books. And having three children that have been born in the U.S. and my wife is a New Yorker, trying to help them understand some of their history and what made them what they are. I love delving into Irish history and how the country had moments of greatness and moments of tremendous struggle. Outside of that, I really don’t enjoy science fiction or any of these books. I love reading, you name any paper and any magazine on a daily basis. Unfortunately, I wake at about 4:30, 5 o’clock every day. I spent my first two hours of the day just consuming as much information as possible. I enjoy it. But it’s all – it’s really investment-related magazines, not books. It’s every paper that you could possibly imagine, Barry, and I just – I have a great appreciation for certainly trying to be a student of the world because that’s what we’re operating in an I find it just a very interesting avenue to get an appreciation to for the, not just the opportunities, but the challenges we’re collectively facing as a society but also as a business. RITHOLTZ: I’m with you on that mass consumption of investing-related news. It sounds like you and I have the same a morning routine. Let’s talk about of what sort of advice you would give to a recent college graduate who was interested in a career of alternative investments? CONWAY: Well, the industry has – it’s just gone through such extraordinary growth and the difference, when I’ve started versus today, the career opportunity set has changed so much. And I think I try to remind anyone of our analysts who come into each one of our annual classes, right, as we bring in the new recruits. I think about how talented they are for us, Barry, and how privileged we all are to be in this industry and work for the clients that we do. It’s just such an honor to do that. But I kind of – I try to remind them of that. At the end of the day, whether you’re supporting an institution, that institution is the face of many people in the background and alternatives has really now become such an important part of their experience and we talked about earlier just this challenge of retirement, if we do a good job, these institutions that support the many, they can have, hopefully, a retirement that involves dignity and they can have an ability to do things they so wanted to do as they work so hard over their lives. Getting that that personal connection and allowing for those newbies to understand that that’s the effect that you can have, an alternatives whether it’s private equity, real estate, infrastructure, private credit, hedge funds, all of these now, with the scale at which they’re operating at can allow for a great career. But my advice to them is always don’t forget your career is supporting other people. And that comes directly to how we intersect with wealth channel, it comes indirectly as a result of the institutions. And it’s such a privilege to do that. I didn’t envision when I grew up, as I mentioned, my first job, milking cows and back in a small town in the middle of Ireland that I would be one day leading an alternatives business within BlackRock. I see that as a great privilege. So, for those who are joining afresh, hopefully, try to remind them that it is for all of us and show up with empathy, dignity, compassion, and do the best you can, and hopefully, these people be sure will serve them well. RITHOLTZ: And our final question, what you know about the world of alternative investing today you wish you knew 25 years or so ago when you were first getting started? CONWAY: I think if we had invested much more heavily as an industry in technology, we would not be in the position we are today. And I say that, Barry, from a number of aspects. I mentioned in this shortfall of information our clients are dealing with today. They’re making choices to divest from one asset class to invest in another. To do that and do that effectively, they need great transparency, they needed real-time in many respects, it can’t be just a quarterly line basis. And if we had been better prepared as an industry to provide the technology and the data to help our clients really appreciate what it is they own, how we’re managing the assets on their behalf, I think they would be so much better served. I think we’re very fortunate at this firm to have built a business on the back of technology for albeit 30 plus years and were investing over $1 billion a year in technology as I’m sure you know. But we need to see more of that in the industry. So, the client experience is so important, stop, let’s demystify alternatives. It’s not that alternative. Let’s provide education and data and it’s become so large relative to other asset classes, the need to support, to educate, and transmit information, not data, information, so our client understand it, is at a paramount now. And I think it certainly as an industry, things have to change there. If I knew how big the growth would have been and how prominent these asset classes were becoming, I would oppose so much harder on that front 30 years ago. RITHOLTZ: Thank you, Edwin, for being so generous with your time. We’ve been speaking with Edwin Conway. He is the head of Blackrock Investor Alternatives Group. If you enjoy this conversation, please check out all of our prior discussions. You can find those at iTunes, Spotify, wherever you get your podcast at. We love your comments, feedback and suggestions. Write to us at MIB You can sign up for my daily reads at Check out my weekly column at Follow me on Twitter, @ritholtz. I would be remiss if I did not thank the crack team that helps put these conversations together each week. Mohammed ph is my audio engineer. Paris Wald is my producer, Michael Batnick is my head of research, Atika Valbrun is our project manager. I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.   ~~~   The post Transcript: Edwin Conway appeared first on The Big Picture......»»

Category: blogSource: TheBigPictureNov 22nd, 2021

Futures Trade Near All Time High As Traders Shrug At Inflation, Covid Concerns

Futures Trade Near All Time High As Traders Shrug At Inflation, Covid Concerns US equity futures and European markets started the Thanksgiving week on an upbeat note as investors set aside fear of surging inflation and focused on a pickup in M&A activity while China signaled possible easing measures. The euphoria which lifted S&P futures up some 0.5% overnight and just shy of all time highs ended abruptly and futures reversed after German Chancellor Angela Merkel said the Covid situation in the country is worse than anything so far and tighter curbs are needed. At 730 a.m. ET, Dow e-minis were up 95 points, or 0.26%. S&P 500 e-minis were up 12.25 points, or 0.26% and Nasdaq 100 e-minis were up 58.75 points, or 0.357%. U.S. stocks trade near record levels, outpacing the rest of the world, as investors see few alternatives amid rising inflation and a persistent pandemic that undermines global recovery. Concerns about high valuations and the potential for the economy to run too hot on the back of loose monetary and fiscal policies have interrupted, but not stopped the rally. In other words, as Bloomberg puts it "bears are winning the argument, bulls are winning in the market" while Nasdaq futures hit another record high as demand for technology stocks remained strong. “Based on historical data, the Thanksgiving week is a strong week for U.S. equities,” Ipek Ozkardeskaya, a senior analyst at Swissquote, wrote in a note. “Black Friday sales will be closely watched. The good news is, people still have money to spend, even though they get less goods and services in exchange of what’s spent.” In premarket moves, heavyweights, including most FAANG majors, rose in premarket trade. Vonage Holdings Corp. jumped 26% in premarket trading after Ericsson agreed to buy it. Telecom Italia SpA jumped as much as 30% in Europe after KKR offered to buy it for $12 billion. Energy stocks recovered slightly from last week's losses, although anticipation of several economic readings this week kept gains in check. Bank stocks rose in premarket trading as the U.S. 10-year Treasury yield climbed for the first time in three sessions to about 1.58%. S&P 500 futures gain as much as 0.5% on Monday morning. Tesla gained 2.8% after Chief Executive Elon Musk tweeted that Model S Plaid will "probably" be coming to China around March. Activision Blizzard (ATVI.O) slipped 1.1% after a media report that the video game publisher's top boss, Bobby Kotick, would consider leaving if he cannot quickly fix culture problems. Travel and energy stocks, which were among the worst performers last week, also marked small gains before the open. Here is a list of the other notable premarket movers: Astra Space (ASTR US) shares surge 33% in premarket trading after the company said its rocket reached orbit. Aurora Innovation (AUR US) falls 8% in premarket, after soaring 71% last week amid a surge in popularity for self-driving technology companies among retail traders. Chinese electric-carmaker Xpeng (XPEV US) rises as much as 2.8% premarket after co. unveils a large sports-utility vehicle pitted more directly against Tesla’s Model Y and Nio’s ES series. Stocks of other EV makers are mixed. Monster Beverage (MNST US)., the maker of energy drinks, is exploring a combination with Corona brewer Constellation Brands (STZ US), according to people familiar with the matter. CASI Pharma (CASI US) jumped 17% in postmarket trading after CEO Wei-Wu He disclosed the purchase of 400,000 shares in a regulatory filing. Along with an eye on the Fed's plans for tightening policy, investors are also watching for an announcement from Joe Biden on his pick for the next Fed chair. Powell was supposed to make his decision by the weekend but has since delayed it repeatedly. Investors expect current chair Jerome Powell to stay on for another term, although Fed Governor Lael Brainard is also seen as a candidate for the position. “Bringing the most dovish of the doves wouldn’t guarantee a longer period of zero rates,” Ozkardeskaya wrote. “If the decisions are based on economic fundamentals, the economy is calling for a rate hike. And it’s calling for it quite soon.” The Stoxx 600 trimmed gains after German Chancellor Angela Merkel called for tighter Covid-19 restrictions. European telecom shares surged after KKR’s offer to buy Telecom Italia for about $12 billion, which boosted sentiment about M&A in the sector. The Stoxx 600 Telecommunications Index gained as much as 1.6%, the best-performing sector gauge for the region: Telefonica +4.8%, Infrastrutture Wireless Italiane +4%, KPN +2.7%. Meanwhile, telecom equipment stock Ericsson underperforms the rest of the SXKP index, falling as much as 4.9% after a deal to buy U.S. cloud communication provider Vonage; Danske Bank says the price is “quite steep”. Earlier in the session, Asian stocks fell as Covid-19 resurgences in Europe triggered risk-off sentiment across markets amid weaker oil prices, a strong U.S. dollar and higher bond yields. The MSCI Asia Pacific Index declined 0.3%, with India’s Sensex measure slumping the most since April as Paytm’s IPO weighed on sentiment. The country’s oil giant Reliance dragged down the Asian index after scrapping a deal with Saudi Aramco, and energy and financials were the biggest sector losers in the region. Asian markets have turned softer after capping their first weekly retreat this month, following lackluster moves from economically sensitive sectors in the U.S., while investors continue to monitor earnings reports of big Chinese technology firms this week. “Some impact from the regulatory risks and dull macroeconomic conditions have shown up in several Chinese big-tech earnings and that may put investors on the sidelines as earnings season continues,” Jun Rong Yeap, a market strategist at IG Asia Pte., wrote in a note. China’s equity gauge posted a second straight day of gains after the central bank’s quarterly report indicated a shift toward easing measures to bolster the economic recovery. South Korea led gains in the region, with the Kospi adding more than 1%, helped by chipmakers Samsung Electronics and SK Hynix. Asia’s chip-related shares rose after comments from Micron Technology CEO Sanjay Mehrotra added to optimism the global shortage of semiconductors is easing. Reports of Japan earmarking $6.8 billion to bolster domestic chipmaking and Samsung planning to announce the location of its new chip plant in the U.S. also aided sentiment. Japanese stocks fluctuated after U.S. shares retreated on Friday following hawkish remarks from Federal Reserve officials. The Topix index was virtually unchanged at 2,044.16 as of 2:21 p.m. Tokyo time, while the Nikkei 225 advanced 0.1% to 29,783.92. Out of 2,180 shares in the index, 1,107 rose and 948 fell, while 125 were unchanged. “There are uncertainties surrounding the direction of U.S. monetary policy,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Institute Co. “The latest comments from FRB members are spurring talk that steps to taper could accelerate.” Australian stocks sunk as banks tumbled to almost a 4-month low. The S&P/ASX 200 index fell 0.6% to close at 7,353.10, weighed down by banks and technology stocks as the measure for financial shares finished at the lowest level since July 30.  Nickel Mines was the top performer after agreeing to expand its strategic partnership with Shanghai Decent. Flight Centre fell for a second session, ending at its lowest close since Sept. 20, as the Covid-19 situation worsens in Europe. In New Zealand, the S&P/NZX 50 index fell 1% to 12,607.64. In FX, the Bloomberg dollar index holds Asia’s narrow range, trading little changed on the day. AUD outperforms G-10 peers, extending Asia’s modest gains. SEK and JPY are the weakest. RUB lags in EMFX, dropping as much as 1% versus the dollar with USD/RUB on a 74-handle. According to Bloomberg, hedge funds’ bullishness toward the dollar is starting to evaporate amid speculation the U.S. currency has risen too much given the Federal Reserve remains adamant it’s in no rush to raise interest rates. Meanwhile, the euro pared modest Asia session losses to trade below $1.13, while European bond yields edged higher, led by bunds and gilts. The pound dipped after comments from Bank of England policy makers raised questions about the certainty of an interest-rate increase in December. Governor Andrew Bailey said that the risks to the U.K. economy are “two-sided” in a weekend interview. Australian dollar advanced against the kiwi on position tweaking ahead of Wednesday’s RBNZ’s rate decision, and after China’s central bank removed sticking with “normal monetary policy” from its policy outlook. Yen declines as speculation China will steer toward more accommodative policy damps the currency’s haven appeal. Hungary’s forint tumbled to a record low against the euro as back-to-back interest rate increases failed to shield it during a rapidly deteriorating pandemic and a flight to safer assets. In commodities, crude futures drifted higher. WTI rises 0.3% near $76.20, Brent regains at $79-handle. Spot gold has a quiet session trading near $1,844/oz. Base metal are mixed: LME copper, tin and zinc post small losses; lead and nickel are in the green Looking at today's calendar, we get the October Chicago Fed national activity index, existing home sales data, and the Euro Area advance November consumer confidence. Zoom is among the companies reporting earnings. Market Snapshot S&P 500 futures up 0.3% to 4,710.75 STOXX Europe 600 up 0.3% to 487.45 German 10Y yield little changed at -0.34% Euro little changed at $1.1283 MXAP down 0.2% to 198.88 MXAPJ down 0.2% to 647.20 Nikkei little changed at 29,774.11 Topix little changed at 2,042.82 Hang Seng Index down 0.4% to 24,951.34 Shanghai Composite up 0.6% to 3,582.08 Sensex down 2.0% to 58,450.84 Australia S&P/ASX 200 down 0.6% to 7,353.08 Kospi up 1.4% to 3,013.25 Brent Futures up 0.4% to $79.22/bbl Gold spot little changed at $1,846.10 U.S. Dollar Index also little changed at 96.08 Top Overnight News from Bloomberg Negotiators hammering out details of a transformative new global corporate tax regime are shaping the deal to maximize its chance of winning acceptance in the U.S., whose companies face the biggest impact from the overhaul The U.S. has shared intelligence including maps with European allies that shows a buildup of Russian troops and artillery to prepare for a rapid, large-scale push into Ukraine from multiple locations if President Vladimir Putin decided to invade, according to people familiar with the conversations. The ruble slid to the weakest since August and the hryvnia fell With investors ramping up expectations for the Federal Reserve and other developed-market central banks to tighten policy, the likes of the Brazilian real and Hungarian forint have been weighed down by inflation and political concerns even as local officials pushed up borrowing costs. The Chinese yuan, Taiwanese dollar and Russian ruble have been among the few to stand their ground An organization formed by key participants in China’s currency market urged banks to limit speculative foreign-exchange trading after the yuan climbed to a six-year high versus peers The Avalanche cryptocurrency has surged in the past several days, taking it briefly into the top 10 by market value and surpassing Dogecoin and Shiba Inu, after a deal related to improvement of U.S. disaster-relief funding A more detailed breakdown of overnight news courtesy of Newsquawk Asia-Pac stocks traded mixed following last Friday's mostly negative performance stateside, where risk appetite was dampened by concerns of a fourth COVID wave in Europe and recent hawkish Fed rhetoric. Weekend newsflow was light and the mood was tentative heading into this week's risk events including FOMC minutes and US GDP data before the Thanksgiving holiday. The ASX 200 (-0.6%) was subdued with declines led by weakness in gold miners and the energy sector. The Nikkei 225 (+0.1%) was lacklustre after last week’s inflows into the JPY but with downside eventually reversed as the currency faded some of the gains and following the recent cabinet approval of the stimulus spending. The KOSPI (+1.4%) outperformed and reclaimed the 3k level with shares in index heavyweight Samsung Electronics rallying as its de facto leader tours the US which spurred hopes the Co. could deploy its USD 100bln cash pile. The Hang Seng (-0.4%) and Shanghai Comp. (+0.6%) diverged with the mainland kept afloat after the PBoC conducted a mild liquidity injection and maintained its Loan Prime Rate for a 19th consecutive month as expected, although Hong Kong was pressured by losses in energy and cautiousness among developers, as well as the recent announcement of increased constituents in the local benchmark. Finally, 10yr JGBs eked marginal gains amid the cautious risk tone in Asia and following firmer demand at the enhanced liquidity auction for 2yr-20yr JGBs, but with upside capped as T-note futures continued to fade Friday’s early gains that were fuelled by the COVID-19 concerns in Europe before the advances were later halted by hawkish Fed rhetoric calling for a discussion on speeding up the tapering at next month’s meeting. Top Asian News China Blocks Peng Shuai News as It Seeks to Reassure World China FX Panel Urges Banks to Cap Speculation as Yuan Surges Paytm Founder Compares Himself to Musk After Historic IPO Flop China Tech Stocks Are Nearing Inflection Point, UBS GWM Says European cash bourses kicked off the new trading week with mild gains (Euro Stoxx 50 +0.3%; Stoxx 600 +0.3%) following a mixed APAC handover. Some have been attributing the mild gains across Europe in the context of the different approaches of the Fed and ECB, with the latter expected to remain dovish as the former moves tighter, while COVID lockdowns will restrict economic activity. News flow in the European morning has however been sparse, as participants look ahead to FOMC Minutes, Flash PMIs and US GDP ahead of the Thanksgiving holiday (full Newsquawk Desk Schedule on the headline feed) alongside the Fed Chair update from President Biden and a speech from him on the economy. US equity futures see modestly more pronounced gains, with the more cyclically-exposed RTY (+0.6%) performing better than then NQ (+0.4%), ES (+0.4%) and YM (+0.4%). Since the European cash open, the initial mildly positive momentum has somewhat waned across European cash and futures, with the region now conforming to a more mixed picture. Spain's IBEX (+0.7%) is the clear regional outperforming, aided by index heavyweight Telefonica (+5.0%), which benefits from the sectorial boost received by a couple of major M&A updates. Firstly, Telecom Italia (+22%) gapped higher at the open after KKR presented a EUR 0.505/shr offer for Telecom Italia. The offer presents a ~45% premium on Friday's close. Second, Ericsson (-3.5%) made a bid to acquire American publicly held business cloud communications provider Vonage in a deal worth USD 6.2bln. As things stand, the Telecom sector is the clear outperformer, closely followed by banks amid a revival in yields. The other end of the spectrum sees Travel & Leisure back at the foot of the bunch as COVID fears in Europe mount. In terms of individual movers, Vestas Wind Systems (-2.0%) was hit as a cyber incident that impacted parts of its internal IT structure and data has been compromised. Looking ahead, it’s worth noting that volume will likely be more muted towards the latter half of the week on account of the Thanksgiving holiday. Top European News Scholz Closer to German Chancellery as Cabinet Takes Shape Austria Back in Lockdown Ahead of Mandatory Vaccine Policy Energy Crunch Drives Carbon to Record as Europe Burns More Coal BP Goes on Hydrogen Hiring Spree in Bid for 10% Market Share In FX, the Antipodean Dollars are outperforming at the start of the new week on specific supportive factors, like a bounce in the price of iron ore and a further re-opening from pandemic restrictions in both Australia and New Zealand, while the REINZ shadow board is ‘overwhelmingly’ behind another RBNZ rate hike this week. Aud/Usd is holding around 0.7250 and Nzd/Usd is hovering circa 0.7000 as the Aud/Nzd cross pivots 1.0350 in the run up to flash Aussie PMIs and NZ retail sales. DXY - Aussie and Kiwi strength aside, the Greenback retains a solid underlying bid on safe haven and increasingly hawkish Fed grounds after a run of recent much better than expected US data. In index terms, a base just above 96.000 provides a platform to retest last week’s peaks at 96.245 and 96.266 vs 96.223 so far, but Monday’s agenda may not give bulls much in the way of encouragement via data with only existing home sales scheduled. Instead, the Buck could derive more impetus from Treasuries given front-loaded supply ahead of Thanksgiving in the form of Usd 58 bn 2 year and Usd 59 bn 5 year notes. CHF/CAD/EUR/GBP/JPY - All narrowly mixed against their US rival, as the Franc keeps its head above 0.9300 and meanders between 1.0485-61 vs the Euro amidst some signs of official intervention from a rise in weekly Swiss sight deposits at domestic banks. Meanwhile, the Loonie has some leverage from a mild rebound in crude prices to pare declines from sub-1.2650 and should glean support into 1.2700 from 1 bn option expiries at 1.2685 on any further risk aversion or fallout in WTI. Conversely, 1 bn option expiry interest from 1.1300-05 could scupper Euro recoveries from Friday’s new y-t-d low around 1.1250 against the backdrop of ongoing COVID-19 contagion and pre-ECB speakers plus preliminary Eurozone consumer confidence. Elsewhere, the Pound is weighing up BoE tightening prospects and the impact of no breakthrough between the UK and EU on NI Protocol as Cable and Eur/Gbp straddle the 1.3435-40 zone and 0.8400 respectively, while the Yen has unwound more of its safe haven premium within a 114.27-113.91 range eyeing UST yields in relation to JGBs alongside overall risk sentiment. SCANDI/EM - The Nok is deriving some traction from Brent back over Usd 79/brl, but geopolitical concerns are preventing the Rub from benefiting and the Mxn is also on a weaker footing along with most EM currencies. However, the Try is striving to draw a line in the sand irrespective of a marked deterioration in Turkish consumer sentiment and the Cnh/Cny are holding up well regardless of a softer PBoC fix for the onshore unit as LPRs were unchanged yet again and China’s FX regulator told banks to limit Yuan spec trades. In CEE, the Pln has plunged on diplomatic strains between Poland and the EU, the Huf has depreciated to all time lows on virus fears and the Czk has been hampered by CNB’s Holub downplaying the chances of more big tightening surprises such as the aggressive hike last time. In commodities, WTI and Brent front month futures see some consolidation following Friday’s slide in prices. In terms of the fundamentals, the demand side of the equations continues to be threatened by the fourth wave of COVID, namely in the European nations that have not had a successful vaccine rollout. As a reminder, Austria is in a 20-day nationwide lockdown as of today, whilst Germany, Belgium and the Netherlands see tighter restrictions, with the latter two also experiencing COVID-related social unrest over the weekend. The European Commission will on Wednesday issue a set of new recommendations to its member states on non-essential travel, a senior EU diplomat said, which will be watched for activity and jet fuel demand. Over to the supply side, There were weekend reports that Japan and the US are planning a joint announcement regarding the SPR release, although a key Japanese official later noted there was no fixed plan yet on releasing reserves. Japanese PM Kishida confirmed that they are considering releasing oil reserves to curb prices. Meanwhile, Iranian nuclear talks are regaining focus as negotiations are poised to resume on the 29th of November – it is likely we’ll see officials telegraph their stances heading into the meeting. Eyes will be on whether the US offers an olive branch as Tehran stands firm. Elsewhere, the next OPEC+ meeting is also looming, but against the backdrop of lower prices, COVID risk and SPR releases, it is difficult to see a scenario where OPEC+ will be more hawkish than dovish. WTI and Brent Jan trade on either side of USD 76/bbl and USD 79/bbl respectively and within relatively narrow bands. Spot gold and silver meanwhile see a mild divergence, with the yellow metal constrained by resistance in the USD 1,850/oz area, whilst spot silver rebounded off support at USD 24.50/oz. Finally, base metals are relatively mixed with no standout performers to point out. LME copper is flat but holds onto USD 9,500+/t status. US Event Calendar 8:30am: Oct. Chicago Fed Nat Activity Index, est. 0.10, prior -0.13 10am: Oct. Existing Home Sales MoM, est. -1.8%, prior 7.0% 10am: Oct. Home Resales with Condos, est. 6.18m, prior 6.29m DB's Jim Reid concludes the overnight wrap This morning we’ve just published our 2022 credit strategy outlook. 2021 has been one of the lowest vol years for credit on record but we think this is unlikely to last and spreads will sell-off at some point in H1 when markets reappraise how far behind the curve the Fed is. Even with covid restrictions mounting again in Europe as we go to print, we think it’s more likely that we’ll be in a “growthflationary” environment for 2022 and think overheating risks are more acute than the stagflation risk, especially in the US. Strong growth and high liquidity should mean that full year 2022 is a reasonable year for credit overall but if we’re correct there’ll be regular pockets of inflationary/interest rate concerns in the market, which we think is more likely to happen in H1. At the H1 wides, we could see spreads widen as much as 30-40bps in IG and 120-160bps in HY which is consistent with typical mid-cycle ranges through history. We do expect this to mostly retrace in H2 as markets recover from the shock and growth remains decent and liquidity still high. However, with the potential for a shift in the narrative to potential late-cycle dynamics, we think spreads will close 2022 slightly wider than they are today. We will be watching the yield curve closely through the year for clues as to how the cycle will evolve into 2023. This has the ability to move our YE 22 forecasts in both directions as the year progresses. This week will be heavily compressed given Thanksgiving on Thursday. The highlight though will be a likely choice of Fed governor before this, assuming the timetable doesn’t slip again. Overnight it’s been announced that Biden will give a speech to the American people tomorrow on the economy and prices. It’s possible the Fed Chair gets announced here and perhaps plans to release oil from the strategic reserve. We will see. Following that, Wednesday is especially busy as a pre-holiday US data dump descends upon us. We’ll see the minutes of the November 3rd FOMC meeting and earlier that day the core PCE deflator (the Fed's preferred inflation metric), Durable Goods, the UoM sentiment index (including latest inflation expectations), new home sales and jobless claims amongst a few other releases. More internationally, covid will be focus, especially in Europe as Austria enters lockdown today after the shock announcement on Friday. Germany is probably the swing factor here for sentiment in Europe so case numbers will be watched closely. Staying with Germany, there’s anticipation that a coalition agreement could be reached in Germany between the SPD, Greens and the FDP, almost two months after their federal election. Otherwise, the flash PMIs for November will be in focus, with the ECB following the Fed and releasing the minutes from their recent meeting on Thursday. As discussed at the top the most important market event this week is likely to be on the future leadership of the Federal Reserve, as it’s been widely reported that President Biden is expected to announce his choice on who’ll be the next Fed Chair by Thanksgiving on Thursday. Previous deadlines have slipped on this announcement, but time is becoming increasingly limited given the need for Senate confirmation ahead of Chair Powell’s current four-year term expiring in early February. The two names that are quite obviously in the frame are incumbent Chair Powell and Governor Brainard, but there are also a number of other positions to fill at the Fed in the coming months, with Vice Chair Clarida’s term as an FOMC governor expiring in January, Randal Quarles set to leave the Board by the end of this year, and another vacant post still unfilled. So a significant opportunity for the Biden administration to reshape the top positions at the Fed. In spite of all the speculation over the position of the Fed Chair, our US economists write in their latest Fed update (link here), that the decision is unlikely to have a material impact on the broad policy trajectory. Inflation in 2022 is likely to remain at levels that make most Fed officials uncomfortable, whilst the regional Fed presidents rotating as voters lean more hawkish next year, so there’ll be constraints to how policy could shift in a dovish direction, even if an incoming chair wanted to move things that way. Another unconfirmed but much anticipated announcement this week could come from Germany, where there’s hope that the centre-left SPD, the Greens and the liberal FDP will finally reach a coalition agreement. The general secretaries of all three parties have recently said that they hope next week will be when a deal is reached, and a deal would pave the way for the SPD’s Olaf Scholz to become chancellor at the head of a 3-party coalition. Nevertheless, there are still some hurdles to clear before then, since an agreement would mark the start of internal party approval processes. The FDP and the SPD are set to hold a party convention, whilst the Greens have announced that their members will vote on the agreement. On the virus, there is no doubt things are getting worse in Europe but it’s worth putting some of the vaccine numbers in some context. Austria (64% of total population) has a double vaccination rate that is somewhat lower than the likes of Spain (79%), Italy (74%), France (69%), the UK (69%) and Germany (68%). The UK for all its pandemic fighting faults is probably as well placed as any due to it being more advanced on the booster campaign due to an earlier vaccine start date and also due to higher natural infections. It was also a conscious decision back in the summer in the UK to flatten the peak to take load off the winter wave. So this is an area where scientists and the government may have made a calculated decision that pays off. Europe is a bit behind on boosters versus the UK but perhaps these will accelerate as more people get 6 months from their second jab, albeit a bit too late to stop some kind of winter wave. There may also be notable divergence within Europe. Countries like Italy and Spain (and to a slightly lesser extent France) that were hit hard in the initial waves have a high vaccination rate so it seems less likely they will suffer the dramatic escalation that Austria has seen. Germany is in the balance as they have had lower infection rates which unfortunately may have encouraged slightly lower vaccination rates. The irony here is that there is some correlation between early success/lower infections and lower subsequent vaccination rates. The opposite is also true - i.e. early bad outcomes but high vaccination rates. The US is another contradiction as it’s vaccination rate of 58% is very low in the developed world but it has had high levels of natural infections and has a higher intolerance for lockdowns. So tough to model all the above. Overall given that last winter we had no vaccines and this year we have very high levels of protection it seems unfathomable that we’ll have an outcome anywhere near as bad. Yes there will be selected countries where the virus will have a more severe impact but most developed countries will likely get by without lockdowns in my opinion even if the headlines aren’t always going to be pleasant. Famous last words but those are my thoughts. In light of the rising caseloads, the November flash PMIs should provide some context for how the global economy has performed into the month. We’ve already seen a deceleration in the composite PMIs for the Euro Area since the summer, so it’ll be interesting to see if that’s maintained. If anything the US data has reaccelerated in Q4 with the Atlanta Fed GDPNow series at 8.2% for the quarter after what will likely be a revised 2.2% print on Wednesday for Q3. Time will tell if Covid temporarily dampens this again. Elsewhere datawise, we’ll also get the Ifo’s latest business climate indicator for Germany on Wednesday, which has experienced a similar deceleration to other European data since the summer. The rest of the week ahead appears as usual in the day-by-day calendar at the end. Overnight in Asia stocks are mixed with the KOSPI (+1.31%) leading the pack followed by the Shanghai Composite (+0.65%) and CSI (+0.53%), while the Nikkei (-0.18%) and Hang Seng (-0.35%) are lower. Stocks in China are being boosted by optimism that the PBOC would be easing its policy stance after its quarterly monetary policy report on Friday dropped a few hints to that effect. Futures are pointing towards a positive start in the US and Europe with S&P 500 futures (+0.31%) and DAX futures (+0.14%) both in the green. Turning to last week now, rising Covid cases prompted renewed lockdown measures to varying degrees and hit risk sentiment. Countries across Europe implemented new lockdown measures and vaccine requirements to combat the latest rise in Covid cases. The standouts included Austria and Germany. Austria will start a nationwide lockdown starting today and will implement a compulsory Covid vaccine mandate from February. Germany will restrict leisure activities and access to public transportation for unvaccinated citizens and announced a plan to improve vaccination efforts. DM ten-year yields decreased following the headline. Treasury, bund, and gilt yields declined -3.8bps, -6.7bps, and -4.6bps on Friday, respectively, bringing the weekly totals to -1.3bps, -8.3bps, and -3.5bps, respectively. The broad dollar appreciated +0.54% Friday, and +0.98% over the week. Brent and WTI futures declined -2.89% and -3.68% on Friday following global demand fears, after drifting -4.27% and -5.79% lower throughout the week as headlines circulated that the US and allies were weighing whether to release strategic reserves. European equity indices declined late in the week as the renewed lockdown measures were publicized. The Stoxx 600, DAX, and CAC 40 declined -0.33%, -0.38%, and -0.42%, respectively on Friday, bringing their weekly totals to -0.14%, +0.41%, and +0.29%. The S&P 500 index was also hit ending the week +0.32% higher after declining -0.14% Friday, though weekly gains were concentrated in big technology and consumer discretionary stocks. U.S. risk markets were likely supported by the U.S. House of Representatives passing the Biden Administration’s climate and social spending bill. The bill will proceed to the Senate, where its fate lays with a few key moderate Democrats. This follows President Biden signing a physical infrastructure bill into law on Monday. On the Fed, communications from officials took a decidedly more hawkish turn on inflation dynamics, especially from dovish members. Whether the Fed decides to accelerate its asset purchase taper at the December FOMC will likely be the key focus in markets heading into the meeting. Ending the weekly wrap up with some positive Covid news: the U.S. Food and Drug Administration cleared Pfizer and Moderna booster shots for all adults. Additionally, the US will order 10 million doses of Pfizer’s Covid pill. Tyler Durden Mon, 11/22/2021 - 07:49.....»»

Category: blogSource: zerohedgeNov 22nd, 2021

American Defense Policy After Twenty Years Of War

American Defense Policy After Twenty Years Of War Authored by Jim Webb via, America has always been a place where the abrasion of continuous debate eventually produces creative solutions. Let’s agree on those solutions, and make the next twenty years a time of clear purpose and affirmative global leadership. The American scorecard for foreign policy achievements over the past twenty years is, frankly, pretty dismal. And without talking our way all around the globe, it’s clear that the most dismal score goes to the stupidest mistakes. We fought one war that we never should have fought and another war whose objectives grew so out of control that no amount of battlefield proficiency could overcome the naïve mission creep of the political and military leadership at the top that was defining what our troops were supposed to do. So, let me start with a couple of quotes from two pieces I wrote, one at the beginning of this twenty-year period and the other at the end.   On September 4, 2002, five months before the Bush administration ordered the invasion of Iraq, I wrote the following as part of a larger editorial for the Washington Post, warning that an invasion would be a strategic blunder: Nations such as China can only view the prospect of an American military consumed for the next generation by the turmoil of the Middle East as a glorious windfall. Indeed, if one gives the Chinese credit for having a long-term strategy — and those who love to quote Sun Tzu might consider his nationality — it lends credence to their insistent cultivation of the Muslim world. An “American war” with the Muslims, occupying the very seat of their civilization, would allow the Chinese to isolate the United States diplomatically as they furthered their own ambitions in South and Southeast Asia. Almost exactly nineteen years later as the military planners serving the Biden Administration executed a shamefully incompetent final withdrawal from Afghanistan, I wrote the following for The National Interest, excerpted in the Wall Street Journal, in a piece entitled “Requiem for an Avoidable Disaster:”  …the war that we began was not the same war that we are finally bringing to an end. When we went into Afghanistan in 2001 our national concern was to eliminate terrorist entities who desired to attack us. The common understanding at the time was that we would operate with maneuver elements capable of attacking and neutralizing terrorist entities. It was never to occupy territory with permanent bases or to attempt to change the societal and governmental structure of the Afghan people. This “mission creep” began after a few years of successful operations and was obvious in 2004 when I was in the country as an embed journalist. The change in mission eventually increased our troop presence tenfold and sent our forces on an impossible political journey that no amount of military success could overcome. Why did all this happen? And how can we rectify the damage that has been done to the institutions that were involved, and to our international credibility? There’s an old saying that “success has a thousand fathers but failure is an orphan.” In this case, there were two entirely different categories of orphans, some of whom were not touched personally or even professionally, and some who gave up lives, limbs, and emotional health. For the policymakers in Washington, these were wars to be remotely managed inside the guide rails of theoretical national strategy and uncontrolled financial planning. As with so many other drawn-out military commitments with vaguely defined and often changing objectives, America’s diplomatic credibility steadily decreased while the price tag rose through the roof, into trillions of dollars and thousands of combat deaths. There is no way around the reality that these hand-selected policymakers, military and civilian alike, failed the country, even as many of them were being lionized in the media and offered lucrative post-retirement positions in the private sector. Their immediate strategic goals, vague as they were from the outset, were not accomplished. The larger necessity of meeting global challenges, and particularly China’s determined expansion, was put on the back burner as our operational and diplomatic capabilities were diverted into a constantly quarreling region with the deserved reputation of being the “Graveyard of Empires.” In the context of history, the human cost on the battlefield as viewed by those at the top was manageably small, and carried out by an all-volunteer military. Indeed, despite the length of twenty years of war and many ferocious engagements, the overall casualty numbers were historically low. DOD reports the total number of American military deaths in Iraq and Afghanistan combined over twenty years as 7,074, of which 5,474 were killed in action. This twenty-year number was about the same as six months of American casualties during any one of the peak years of fighting in Vietnam. Emotionally, although there was much sympathy and respect for our soldiers we were not really a nation in a fully engaged war. As the wars continued, life in America went on without disruption. A very small percentage of the country was at human or even family risk. The wars did not interfere on a national scale with the lives of those who chose not to serve. The economy was largely good. In places like my home state of Virginia it absolutely boomed with tens of billions of dollars going to Virginia-based programs in the departments of Defense and Homeland Security. This societal disconnect gave the policymakers great latitude in the manner in which they ran the wars. It also resulted in very little congressional oversight, either in operational concepts or in much-need scrutiny of DOD and State Department management and budgets. Powerpoint presentations replaced vigorous discussion. Serious introspection by Pentagon staff members gave way to bland reports from Beltway Bandit consultants hired to provide answers to questions asked during committee hearings. An “Overseas Contingency Fund” with billions of unlabeled dollars allowed military leaders to fund programs that were never directly authorized or specifically appropriated by Congress. To be blunt, the Pentagon and the Joint commands were basically making their own rules, and to hell with everybody else. This was not the Congress in which I had worked as a full committee counsel during the Carter Administration. Nor was it the Pentagon in which I had served as an assistant secretary of defense and Secretary of the Navy under Ronald Reagan. At the other end of the pipeline, it was different. For those who did serve, and especially for those who served in ground combat units and in special operations, being thrown into the middle of a region where violence and bitter retribution is the norm was often a life-altering experience. Repetitive combat tours pulled them away from home, from family, and from the normal routines of their peers again and again, creating burnout from unresolved personal issues of stress and readjustment to civilian life. So-called “stop loss” programs kept many soldiers on active duty after their initial terms of service were supposed to end, a policy that brought the not-unreal slogan that stop-loss was, in reality, nothing more than a back-door version of the draft: We have you. And we are going to keep you until we no longer need you. The traditional policy of allowing troops a two-to-one ratio of “dwell time” at home between deployments was repeatedly shortened until, for the Army, the ratio was less than one-to-one, requiring soldiers to return to combat for fifteen months with only twelve months at home to recuperate, refurbish, and retrain. Those who left the military after one enlistment rather than choosing a career were largely ignored by commands that provided little post-military guidance and sent battle-weary young soldiers home without much more than a goodbye. But along the way, as with those who have served our country in uniform in every other war, our young military did the job that they were sent to do, no matter the overall wisdom of the mission itself. With respect to these capable and dedicated young Americans who stepped forward to serve, I feel fortunate to have been able to play a part in making sure that the public was aware of the contributions they made, and to put into place policies that recognized and properly rewarded their service. And as a writer, journalist and later a Senator I was able to use whatever pulpit was available in order to emphasize that our greatest strategic challenges were not in the places where our elites had decided to invest our people and our national treasure, and to call for the country’s leadership to cease its unfortunate obsession with a region that has never needed a permanent American ground presence as a means of mediating, much less resolving, its centuries-old conflicts. You don’t take out a hornet’s nest by sitting on top of it. We’re smarter than that, and also more capable.   In addition to working on strongly felt issues such as economic fairness and criminal justice reform, once I was elected to the Senate I took a two-pronged approach to resolving the mess that had been made in our misadventures in Iraq and Afghanistan. The first involved our larger strategic interests. I immediately gained a seat on the Senate Foreign Relations Committee, and two years later was named Chairman of the Subcommittee on East Asian and Pacific Affairs. From our immediate office, I designed a staff—and a legislative approach—that would energetically re-emphasize our commitment to relations in East Asia, and recruited good people to carry out that approach. My mission to my staff was that we were going to work to invigorate American relations in East Asia, particularly in South Korea, Japan, Vietnam, Thailand, Singapore, and the Philippines, and we were going to open up Burma to the outside world. We did more than talk about this, averaging three intense trips every year where I was able to meet with top leaders in those countries as well as almost every other country in ASEAN. Barack Obama later announced a similar policy after he was elected two years later, calling it the “Pivot to Asia.” Unfortunately, his administration’s approach skirted the largest issue in the region by avoiding any major confrontations with China. The pivot was largely abandoned at a crucial period in 2012 after China claimed sovereignty over a two million square kilometer area of the South China Sea, and began militarizing numerous contested islands claimed by several other countries. The Obama administration declined to criticize China’s actions, saying that the United States would not take a position on sovereignty issues. Quite obviously, not taking a position in this matter was defaulting to China’s aggressive acts. I responded by introducing a Senate resolution condemning any use of military force in the resolution of sovereignty issues in the South China Sea, which passed with a unanimous vote. The second involved the day-to-day manner in which our wars were being fought, and the way that our younger military people were being treated by those at the top. I participated in numerous hearings on all aspects from my seats on the Armed Services and Foreign Relations committees, becoming even more concerned about the lack of serious congressional oversight. During one Foreign Relations Committee hearing on post-invasion reconstruction efforts, an assistant secretary of state testified that the United States had spent 32 billion dollars on different smaller-scale projects.  I asked him to provide me and the committee a complete list of every project, as well as the cost. That was in 2007. I’m still waiting for his answer. This was clearly not the way things worked when I was a counsel in the House, where such requests were often answered within a day or two, from information that had already been compiled. In fact, the lack of an answer, despite follow-up calls from my staff, followed a broader pattern that had evolved after 9/11 when vague answers and delayed responses had become the norm, a deliberate and increasingly routine snub of the Congress by higher-level members of the executive branch. Take your choice. This was either incompetent leadership or deliberate obstruction. If the congressional liaisons from DOD were able to provide specific, complicated data within a day or two in 1977, certainly the computers of 2007 were capable of doing so after thirty years of technological progress. I responded by co-authoring legislation along with Senator Claire McCaskill that created the Wartime Contracts Commission, modeled after the Truman Commission of World War Two. After three years of investigations, the commission’s final report estimated that due to major failures in our contracting system the United States had squandered up to 60 billion dollars through contract waste and fraud in Iraq and Afghanistan. Unfortunately, the commission lacked subpoena power or criminal jurisdiction over actions taken in the past, but it certainly got the attention of would-be fraudsters, led to better record-keeping, improved the oversight process, and put a marker down for contracts from that point forward.   Having grown up in the military, and serving as an infantry Marine in Vietnam, and with a son who had left college to enlist in the Marine Corps infantry and fought in Ramadi, Iraq during one of the worst periods in that war, I seized the opportunity – and undertook the obligation – to properly reward the contributions of those who had stepped forward to serve. Immediately after I won the election to the Senate, and two months before actually being sworn in, I sat down with the Senate legislative counsel and drafted the Post-9/11 GI Bill. Having spent four years as a full committee counsel on the House Veterans Affairs Committee, my legislative model was the GI Bill that had been given to our World War Two veterans, the most generous GI Bill in history up to that time: pay for the veteran’s tuition and fees, buy the books, and provide a monthly living stipend. For every tax dollar that was spent on the World War Two GI bill, our treasury received eight dollars in tax remunerations from veterans who had gone on to successful lives. By contrast, the Vietnam Era GI Bill had provided only a monthly payment that in almost every case was far less than the costs of higher education, beginning in 1966 at a paltry rate of 50 dollars a month and ending in the early 1970s at $340 a month. I introduced the Post-9/11 GI Bill on my first day as a Senator. I put together a bipartisan leadership team—two Republicans, John Warner and Chuck Hagel; two Democrats, Frank Lautenberg and myself; two of them World War Two veterans, and two of them Vietnam veterans. Sixteen months later in a modern-day Congressional miracle, the bill became law, ironically over the strong opposition of the Bush Administration to the very end. The White House and the Pentagon claimed that such a generous bill would affect retention, causing too many people to leave the military. The obvious but implicit message was, Don’t treat them too good; they’ll leave. This position was taken by general officers who were going to receive a couple of hundred thousand dollars every year in military retirement when they themselves decided to leave. Having spent five years in the Pentagon and being intimately familiar with manpower issues, I held a completely different belief, that the generosity of the new GI Bill would enhance enlistments and help broaden the base of our overall military. In a back-handed compliment, at least in my view, I was not invited to the White House for the ceremony when the President signed the bill. But to date, millions of post-9/11 veterans have used this Bill, which is beyond cavil the most generous GI Bill in history. It has created opportunities and empowered the careers of people who are now making their way into positions of leadership and influence throughout the country. Shortly after I introduced the GI Bill, I introduced legislation to mandate a proper ratio for dwell time between overseas deployments. The legislation would have required that military members not be returned to combat unless they had been home for at least the amount of time that they had previously been gone. This was not unreasonable. A two-to-one ratio was a simple formula that reflected traditional rotation cycles. With the continuous deployments to Iraq and Afghanistan it had fallen to less than one-to-one, which meant that for years our soldiers would be gone longer than they were at home, and when they were at home they would be spending much of their time getting ready to go back. This reality was clearly affecting not only morale but also the potential for long-term emotional difficulties such as post-traumatic stress. Predictably, the White House and the Pentagon opposed the legislation. Some claimed that I had designed it with a hidden agenda to slow down the war in Iraq. Others, led by Senator Lindsey Graham, claimed that the legislation was unconstitutional, that Congress could not intervene in the operational tempo of the military since the President was the Commander in Chief. But a precedent was already set. During the Korean War, Congress had ceased the deployment of soldiers who were being sent to the war zone without proper training by mandating that no military members could be deployed overseas unless they had spent 120 days on active duty. If the military leaders weren’t going to take care of their people, it was only right that Congress should set proper boundaries. The Republicans filibustered the legislation, which then required sixty votes for passage. Although the bill twice received a fifty-six vote majority, with several Republican votes for passage, we did not break the filibuster.  But we did put the issue of dwell time firmly before Congress and the public, and the two-to-one deployment cycle eventually became the express goal inside the Department of Defense. All of that is history. I put it before you as something of a template to show the patterns that evolved and have continued over the past twenty years, as well as evidence that strong and informed leadership in Congress can turn things around. In many ways, this dislocation is between those who make policy—including military leaders—and those who carry it out. It continues due to the group mentality of a foreign policy aristocracy seeking common agreement rather than original thought. And it has exacerbated this ever-growing dislocation by freezing out those who are not, basically, in the club because their thinking does not fit the usual mantra and their ideas threaten the prevailing orthodoxy. We need these other voices. There are lessons to be learned and unavoidable questions that need to be answered at every level. Some involve the articulation of our national security objectives and how we define national strategy. Some involve when and how we should use the military for operational missions in harm’s way. And some involve the actual makeup of these military missions, from their remote or covert or overt nature, and if deployed in large numbers how large that footprint should be, and what portion should consist of military contractors along the lines of the past twenty years. And for those who want to repair the damage, it challenges us to find clear ways where we can move forward. Who do we hold accountable for the random and often changing strategic mistakes that have damaged our strength and our reputation? How do we move forward in the way we articulate and implement our national strategy here at home? How do we regain our respect in the international community, both among our friends who need us, and from potential adversaries who pray every day that America will lose its willpower, that we would be so overcome by military failures abroad and turbulence at home that the nation itself will atrophy and descend into the ranks of an also-ran, second-rate power?   We should begin with a vigorous and open discussion about the makeup, power, and influence of America’s massive defense establishment. And here I’m talking about the highest levels of our uniformed military, the civilian government officials, the powerful defense corporations, the numerous think tanks funded heavily by the defense industry, the hugely influential lobbying organizations, and—if not at the bottom, certainly in the bullseye of the efforts of all of these entities—the authorizing and appropriating committees in the Senate and House of Representatives. Couple that with the media of all sorts, particularly the huge growth of the internet and social media, and one can see how complicated the debate over any controversial issue can become. We were warned about this, sixty years ago, by President Dwight D. Eisenhower in his well-remembered speech about the “military / industrial complex.” The speech was the president’s carefully placed farewell message to the American people, made just three days before he left office. His words resonate, symbolic in their timing as his final shot across the bow, and coming as they did from this former five-star general who knew the military with a completeness that no other American president could ever match. After commenting that in the aftermath of World War Two the “conjunction of an immense military establishment and a large arms industry is new in the American experience,” Eisenhower expressed his concern about the “total influence – economic, political, even spiritual” of this new reality “in every city, every State house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications.”   The outgoing, immensely popular President then bluntly called out the members of his own professional culture—the military itself—and the bond its top leaders were increasingly forming with America’s defense corporations. “In the councils of government we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military / industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.” Looking at the decades following his speech and particularly the past twenty years, I believe President Eisenhower would be amazed at how massively this military-industrial complex has grown, how entangled the relationships between the military and the industrial complex have become, and how much it has affected the career paths of civilian “experts,” as well as the positions taken by many senior flag officers facing retirement. Lucrative civilian careers have been made through the “revolving doors” of serving for a few years in appointed posts in the Departments of Defense and State, or by working on committee staffs in the Congress, then rotating over the space of many years in and out of government into the defense-oriented industry and in the ever more influential think tanks, some of them heavily funded by corporations with major financial interests in defense contracts. The number of people involved in such revolving doors and the amount of money flowing back and forth would have stunned the understanding of people in Eisenhower’s era. Likewise, many military officers have made similar career moves, taking advantage of skills and relationships that were developed while on active duty. Those in uniform and others who work in the area of national defense regularly comment about the potential for conflicts of interest among the most senior flag officers as they carry out their final active duty positions before retiring and prepare for their next career in the civilian world. Critical issues ranging from the procurement of weapons systems to carrying out politically sensitive military operations often comprise the way in which potential civilian employers decide on the next chapter in their lives. A hand played well can bring large financial benefits. A hand played poorly can result in media stigma or even being relieved of their duties, and a beach house in Tarpon Springs. As with other areas of public service, it would be useful for Congress to examine the firewalls in place in order to maintain the vitally important separation of the military, on the one side, and the industrial complex on the other, just as President Dwight Eisenhower so prophetically pointed out sixty years ago. Dwight Eisenhower would have liked General Robert Barrow, the twenty-seventh commandant of the Marine Corps. His leadership example personally inspired me, both during and after my service in the Corps. We had many personal discussions over the years, until he passed away in 2008. He was a great combat leader. He mastered guerrilla warfare while fighting Japanese units alongside Chinese soldiers in World War Two. In the Korean War, he received the Navy Cross, our country’s second-highest award, for extraordinary heroism as a company commander during the historic breakout from the Chosin Reservoir. And in Vietnam, he was known as one of the war’s finest regimental commanders. He knew war, he knew loyalty, and he knew his Marines. General Barrow was fond of emphasizing that moral courage was often harder, and more exemplary, than physical courage. On matters of principle, he would not bend. During one difficult period when he was dealing with serious issues in the political process, the four-star Commandant calmly pointed out to me that his obligation was to run the Marine Corps “the same way a good company commander runs his rifle company: I’ll do the best job I know how to do, and if you don’t like what I’m doing, then fire me.” It is rare these days to see such leaders wearing the stars of a general or an admiral. And thinking of President Eisenhower’s prescient warnings about what he termed the “the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals,” I have no doubt that he and General Barrow shared the same concerns. General Barrow held another firm belief. Having served as Commandant of the Marine Corps, he believed it would soil the dignity of that office by trading on its credibility for financial gain through banging on doors in Washington as a lobbyist or serving as a board member giving a defense-related corporation his prized insider’s advice on how to sell their product. The Japanese have a saying that “life is a generation, but reputation is forever.” And General Barrow’s pristine motivation will forever preserve his honor. I grew up in the military. I know the price that families must pay when their fathers or now even their mothers are continuously deployed, because I lived it as a very young boy. My father, a pilot who flew B-17s and B-29s in World War Two and cargo planes in the Berlin Airlift, was continually deployed either overseas or on bases with no family housing, at one point for more than three years. I know the demands and yet the honor of leading infantry Marines in combat and then spending years in and out of the hospital after being wounded. I know what it is like to be a father with a son deployed in a very bad place as an enlisted infantry Marine. And most of all I know the pride that comes from being able to say for the rest of my life that when my country called, I was there, and I took care of my people. My other major point today is that our top leaders in all sectors of national defense need to get going and develop a clearly articulated foreign policy. We have lost twenty years, unfortunately fulfilling the prediction that I made in the Washington Post five months before the invasion of Iraq that “Nations such as China can only view the prospect of an American military consumed for the next generation by the turmoil of the Middle East as a glorious windfall.” And for China, indeed it was. It’s ironic that we are now hearing frantic warnings from our uniformed leaders about China’s determined expansionism, both military and economic, and particularly about how recent reports of Chinese technological leaps might be something of a new “Sputnik” moment where America has been caught off-guard and now must rush to catch up. Too bad they weren’t following this as these policies and technological improvements were developed by the Chinese over at least the past two decades, while our focus remained intently on the never-ending and never-resolved brawls in the Middle East. The very people who now are wringing their hands and calling for a full-fledged effort to counter such threats are the same people who should have been warning the nation of their possibility ten or even twenty years ago. So, ask yourself: If things go wrong, who then shall we blame? Much of the world is now uneasy with China’s unremitting aggression on its home turf in Asia. Over the past decade, China has been calling its own shots, rejecting international law and public opinion while flexing its muscle to signal its view that it will soon replace the United States as the region’s dominant military, diplomatic and economic power. Beijing has taken down Hong Kong’s democracy movement; started military spats with India; disrupted life for tens of millions by damming the headwaters of the Mekong River; conducted what our government now deems a campaign of genocide against Muslim Uighurs; escalated tensions with Japan over the Senkaku Islands; consolidated its illegal occupation and militarization of islands in the South China Sea; and made repeated bellicose gestures designed to test the international community’s resistance to “unifying” the “renegade province” of Taiwan. China’s military is expanding and modernizing and its Navy is becoming not only technological but global. While we expended a huge portion of our human capital, emotional energy, and national treasure on two wars, China’s Belt and Road Initiative (BRI) has had a major economic impact in Asia, Africa, and Latin America and with individual governments on other continents. In Africa, whose population has quadrupled since 1970 and which counts only one of the world’s top thirty countries in Gross National Product, more than forty countries have signed on to China’s BRI. Let’s get going. We have alliances to enhance, and extensive national security interests to protect. We need to address these issues immediately and with clarity. America has always been a place where the abrasion of continuous debate eventually produces creative solutions. Eventually is now. Let’s agree on those solutions, and make the next twenty years a time of clear purpose and affirmative global leadership. Tyler Durden Tue, 11/09/2021 - 00:00.....»»

Category: blogSource: zerohedgeNov 9th, 2021

Gen Z and millennials actually want the same things at work. But Gen Z has the upper hand.

Both Gen Z and millennials crave flexibility and a work-life balance. Millennials paved the path, but pandemic enabled Gen Z to finish the work. Gen Z is ready for flexibility. Su Arslanoglu/Getty Images Millennials and Gen Z want the same things at work: flexibility and wellbeing. While millennials have advocated for these things, the Great Recession made them more risk-averse, prioritizing job security. The pandemic and remote work have led Gen Z to demand more change with more boldness. Gen Z workers have got their millennial bosses shaking in their boots.So declared the The New York Times' Emma Goldberg in an article that caught the Internet's attention last week, which examined the latest in generational workplace culture: Millennials are afraid of Gen Zers, who are confidently and assertively demanding a better work-life balance.The TikTok generation delegates to their bosses, isn't shy about asking for mental health days, works less once accomplishing their daily tasks, and sets their own hours, Goldberg wrote. It's coming as a shock to work-obsessed millennials, whose careers have always seen overworked and structured days. But here's the thing: Although millennials and Gen Z may work differently, they want the same things in the workplace. Both generations experience more anxiety and stress than older generations, and both equally prioritize mental-health benefits and work-life balance.A PwC survey all the way back in 2013 found that millennials wanted to structure their jobs around their daily schedules, exactly the same type of flexibility that Gen Z said they desired in a 2019 study by recruiting platform Yello. According to a 2020 Gallup Poll, millennials and Gen Z both prioritize employers that care about their wellbeing; this was all before The Great Resignation.The difference is in how the generations approach these priorities at work, which has a lot to do with the economic crises each generation ran into after graduation. Millennials, who entered a dismal labor force broken by the Great Recession, were keen for change but risk-averse. Gen Z, on the other hand, saw sharper swings in both directions - which included both an even steeper drop into recession, and the fastest jobs recovery on record. It's so dramatic that job openings and labor shortages are both at historic highs, and they have their pick of work in the most flexible economy in memory.Millennials just wanted job security when they were in Gen Z's positionThe financial crisis of 2008 sent the oldest millennials stumbling across a blighted labor market, hopping from job to job as they searched for a foothold in their career, all while carrying record levels of student debt. As the economy bounced them around the workforce, millennials gained a reputation as disloyal job hoppers.Lauren Stiller Rikleen, president at Rikleen Institute for Strategic Leadership and author of "You Raised Us, Now Work With Us: Millennials, Career Success, and Building Strong Workplace Teams," told Insider millennials were mislabeled."This was about a generation that were having jobs rescinded," she said. "They were the first to be fired. They were the first to have to be moved from a full-time to a part-time position, or they had no benefits."Research has found that entering the workforce during a downturn can harm wage growth, with people who do so earning less for up to 15 years compared with people who graduated during times of prosperity. Instead of springboarding millennials into greater responsibility and higher income potential, early roles launched many into lower-wage trajectories and career uncertainty. The Great Recession shaped millennials' experience in the workforce. Justin Paget/Getty Images Their experience was affected "by different economic conditions and realities" from either boomers or Gen Xers, Ernie Tedeschi, a managing director and policy economist for Evercore ISI, previously told Insider. "This has consequences for individual career prospects and affects their sense of dynamism."It all explains a lot about how the generation grew wary of risk, fearful of losing a job and under pressure to catch up financially. That led to the creation of a work-obsessed "hustle culture" and a widespread sense of burnout. It means that millennials haven't wanted their work lives to turn out quite like this. Work isn't an exclusive priority for most of them, the PwC survey found, with 71% of respondents saying it interferes with their personal lives, and a Deloitte study found they value work-life balance above all other work characteristics.In fact, millennials have been speaking up about work-life balance, Rikleen said, echoing what recruiters told The Washington Post in 2015 about seeing more and more job-seekers request flexibility. These requests fell on deaf ears from a combination of millennials' cautious post-recession mindset and what one recruiter called an empathy gap between them and boomer supervisors.The pandemic and remote work gave Gen Z leverageIt would take a pandemic and an even younger crowd to realize what millennials always wanted in the workplace. The class of 2020 graduated into a paralyzed economy marked by a 14.7% unemployment rate. Younger workers were hit hardest during the coronavirus recession, and 2021 grads had the hardest time finding a job last summer, squeezed by cheaper teen labor on one hand and the millennials with experience to cash in, especially the so-called geriatric millennials who emerged with the most power during the labor shortage.But the era of remote work gave Gen Z the upper hand in amplifying demands for workplace autonomy, Rikleen said. She added that their lives were turned upside down during an impressionable time."They had so much taken away from them in terms of access, you can go on and on with what has been lost," she said. "That reframes your thinking ... you start to think about what's important to you and how to express [that]." The pandemic pushed Gen Z to advocate for a permanently flexible work situation. Maskot/Getty Images And so, as the Times' Goldberg wrote, they began questioning pre-pandemic workplace norms like eight-hour shifts or lack of progressive values, much to the chagrin of the millennial managers who are used to doing things their way (just like every generation)."These younger generations are cracking the code and they're like, 'Hey guys, turns out we don't have to do it like these old people tell us we have to do it,'" Colin Guinn, cofounder of robotics company Hangar Technology, told Goldberg. "'We can actually do whatever we want and be just as successful.' And us old people are like, 'What is going on?'"It's part of what Erika Rodriguez called a "slow-up" in a recent opinion piece for the Guardian, as she advocated for an intentional slowdown in productivity with the aim of greater separation from work. This could be taking unofficial breaks or responding to emails only on select weekdays. If that doesn't fly in a workplace, Gen Z has so far had no qualms about quitting their crappy jobs in favor of a better one, leading the way in what LinkedIn CEO Ryan Roslansky has called a "Great Reshuffle."A generational evolutionMillennials paved the way for a change in better flexibility and wellbeing at work, but Gen Z is turning it from a workplace perk to workplace norm. That's how things go with generations - whenever the youngest cohort emerges in the labor force, and in the world, they always seem more progressive than the last."The quest for a workplace that respects boundaries and needs is baked in generationally," Rikleen said. "That will not change. With each new generation, this will get stronger."As Rikleen points out, boomer or Gen X employers also used to express shock about how outspoken millennials were. It only makes sense that as millennials aged into employers themselves, that they too would be taken aback by the boldness of the generation following them. "It's sort of a natural evolution," Rikleen said.To be sure, both millennials and Gen Z are vast generations. The youngest millennials turn 25 this year, closer in age to Gen Z than the oldest of their generation who turns 40, and unlikely to be in a managerial role. And with the oldest Gen Zer turning 24, most of the generation has yet to enter the workforce. This means, Rikleen explains, that we have to think about data on Gen Z workers as emerging data that represents patterns and trends.But examining workplace transitions as millennials age into more powerful career roles and Gen Z continues to enter the workforce is important in understanding how to build an economy of workers that are happy and productive, especially in a post-pandemic world.Millennials may be the largest generation right now, but with Gen Z set to become the most populous generation, they'll one day dominate a workforce that's going to look a lot different - until Generation C comes along and scares them, too. It's just how generations - and economics - work.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderNov 6th, 2021

Transcript: Soraya Darabi

     The transcript from this week’s, MiB: Soraya Darabi, TMV, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This… Read More The post Transcript: Soraya Darabi appeared first on The Big Picture.      The transcript from this week’s, MiB: Soraya Darabi, TMV, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest. Her name is Soraya Darabi. She is a venture capital and impact investor who has an absolutely fascinating background working for, first with the New York Times Social Media Group then with a startup that eventually gets purchased by OpenTable, and then becoming a venture investor that focuses on women and people of color-led startups which is not merely a way to, quote-unquote, “do good” but it’s a broad area that is wildly underserved by the venture community and therefore is very inefficient. Meaning, there’s a lot of upside in this. You can both do well and do good by investing in these areas. I found this to be absolutely fascinating and I think you will also, if you’re at all interested in entrepreneurship, social media startups, deal flow, how funds identify who they want to invest in, what it’s like to actually experience an exit as an entrepreneur, I think you’ll find this to be quite fascinating. So with no further ado, my conversation with TMV’s Soraya Darabi. VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio. My special guest this week is Soraya Darabi. She is the Co-Founder and General Partner of TMV, a venture capital firm that has had a number of that exits despite being relatively young, 65 percent of TMV’s startups are led by women or people of color. Previously, she was the cofounder of Foodspotting, an app named App of the Year by Apple and Wire that was eventually purchased by OpenTable. Soraya Darabi, welcome to Bloomberg. SORAYA DARABI; GENERAL PARTNER & FOUNDER; TMV: My goodness, Barry, thank you for having me. RITHOLTZ: I’ve been looking forward to this conversation since our previous discussion. We were on a Zoom call with a number of people discussing blockchain and crypto when it was really quite fascinating and I thought you had such an unusual and interesting background, I thought you would make a perfect guest for the show. Let’s start with your Manager of Digital Partnerships and Social Media at the “New York Times” when social media was really just ramping up. Tell us about what that was like. Tell us what you did in the late aughts at The Times. DARABI: Absolutely. I was fresh faced out of a university. I had recently graduated with mostly a journalism concentration from Georgetown and did a small stint in Condé Nast right around the time they acquired Reddit for what will soon be nothing because Reddit’s expecting to IPO at around 15 billion. And that experience at Reddit really offered me a deep understanding of convergence, what was happening to digital media properties as they partnered for the first time when nascent but scaling social media platforms. And so the “New York Times” generously offered me a role that was originally called manager of buzz marketing. I think that’s what they called social media in 2006 and then that eventually evolved into manager of digital partnerships and social media which, in essence, meant that we were aiming to be the first media property in the world to partner with companies that are household names today but back in the they were fairly unbalanced to Facebook and Twitters, of course, but also platforms that really took off for a while and then plateaued potentially. The Tumblers of the world. And it was responsibility to understand how we could effectively generate an understanding of the burgeoning demographics of this platform and how we could potentially bring income into The Times for working with them, but more importantly have a journalist that could authentically represent themselves on new media. And so, that was a really wonderful role to have directly out of University and then introduce me to folks with whom I still work today. DARABI: That’s quite interesting. So when you’re looking at a lot of these companies, you mentioned Facebook and Twitter and Tumbler, how do you know if something’s going to be a Facebook or a MySpace, so Twitter or a Tumbler, what’s going to survive or not, when you’re cutting deals with these companies on behalf of The Times, are you thinking in terms of hey, who’s going to stick around, wasn’t that much earlier that the dot-com implosion took place prior to you starting with The Times? DARABI: It’s true, although I don’t remember the dot-com implosion. So, maybe that naivete helped because all I had was enthusiasm, unbridled enthusiasm for these new companies and I operated then and now still with a beta approach to business. Testing out new platforms and trying to track the data, what’s scaling, what velocity is this platform scaling and can we hitch a ride on the rochet ship if they will so allow. But a lot of our partnerships then and now, as an investor, are predicated upon relationships. And so, as most, I think terrific investors that I listen to, who I listen to in your show, at least, will talk to you about the importance of believing and the founder and the founder’s vision and that was the case back then and remains the case today. RITHOLTZ: So, when you were at The Times, your tenure there very much overlapped the great financial crisis. You’re looking at social media, how did that manifest the world of social media when it looked like the world of finance was imploding at that time? DARABI: Well, it was a very interesting time. I remember having, quite literally, 30-second meetings with Sorkin as he would run upstairs to my floor, in the eighth floor, to talk about a deal book app that we wanted to launch and then he’d ran back down to his desk to do much more important work, I think, and — between the financial crisis to the world. So, 30-second meetings aside, it was considered to be, in some ways, a great awakening for the Web 2.0 era as the economy was bottoming out, like a recession, it also offered a really interesting opportunity for entrepreneurs, many of whom had just been laid off or we’re looking at this as a sizeable moment to begin to work on a side hustle or a life pursuit. And so, there’s — it’s unsettling, of course, any recession or any great awakening, but lemonade-lemons, when the opening door closing, there was a — there was a true opportunity as well for social media founders, founders focusing on convergence in any industry, really, many of which are predicated in New York. But again, tinkering on an idea that could ultimately become quite powerful because if you’re in the earliest stage of the riskiest asset class, big venture, there’s always going to be seed funding for a great founder with a great idea. And so, I think some of the smartest people I’d ever met in my life, I met at the onset of the aftermath of that particular era in time. RITHOLTZ: So you mentioned side hustle. Let’s talk a little bit about Foodspotting which is described as a visual geolocal guide to dishes instead of restaurants which sounds appealing to me. And it was named App of the Year by both Apple and Wired. How do you go from working at a giant organization like The Times to a startup with you and a cofounder and a handful of other coders working with you? DARABI: Well, five to six nights a week after my day job at the “New York Times,” I would go to networking events with technologists and entrepreneurs after hours. I saw that a priority to be able to partner from the earliest infancy with interesting companies for that media entity. I need to at least know who these founders were in New York and Silicon Valley. And so, without a true agenda other than keen curiosity to learn what this business were all about, I would go to New York tech meetup which Scott Heiferman of who’s now in charge LP in my fund would create. And back then, the New York Tech Meetup was fewer than 40 people. I believe it’s been the tens of thousands now. RITHOLTZ: Wow, that’s … DARABI: In New York City alone. And so, it was there that I met some really brilliant people. And in particular, a gentleman my age who’s building a cloud-computing company that was essentially arbitraging AWS to repopulate consumer-facing cloud data services for enterprises, B2B2C play. And we all thought it would be Dropbox. The company ultimately wasn’t, but I will tell you the people with whom I worked with that startup because I left the “New York Times” to join that startup, to this day remain some of the most successful people in Silicon Valley and Alley. And actually, one of those persons is a partner at our firm now, Darshan. He was the cofounder of that particular company which is called but I stayed there very quickly. I was there for about six months. But at that startup, I observed how a young person my age could build a business, raise VC, he was the son of a VC and so he was exceptionally attuned to the changing landscape of venture and how to position the company so that it would be attractive to the RREs of the world and then the DFJs. And I … RITHOLTZ: Define those for us. RREs and BFJs. DARABI: Sorry. Still, today, very relevant and very successful venture capital firms. And in particular, they were backing a lot of the most interesting ideas in Web 2.0 era when I joined this particular startup in 2010. Well, that startup was acquired by Facebook and I often say, no, thanks to me. But the mafia that left that particular startup continues to this day to coinvest with one another and help one another’s ideas to exceed. And it was there that I began to build the confidence, I think, that I really needed to explore my own entrepreneurial ideas or to help accelerate ideas. And Foodspotting was a company that I was advising while at that particular startup, that was really taking off. This was in the early days of when Instagram was still in beta and we observed that the most commonly posted photos on Instagram were of food. And so, by following that lead, we basically built an app as well that activity that continues to take place every single day. I still see food photos on Twitter every time I open up my stream. And decided to match that with an algorithm that showed folks wherever they were in the world, say in Greece, that might want spanakopita or if I’m in Japan, Okinawa, we help people to discover not just the Michelin-rated restaurants or the most popular local hunt in New York but rather what’s the dish that they should be ordering. And then the app was extremely good was populating beautiful photos of that particular dish and then mirroring them with accredited reviews from the Zagats of the world but also popular celebrity shots like Marcus Samuelsson in New York. And that’s why we took off because it was a cult-beloved app of its time back when there were only three geolocation apps in the iTunes apparently store. It was we and Twitter and Foursquare. So, there was a first-mover advantage. Looking back in hindsight, I think we sold that company too soon. OpenTable bought the business. A year and a half later, Priceline bought OpenTable. Both were generous liquidity events for the founders that enabled us to become angel investors. But sometimes I wish that that app still existed today because I could see it being still incredibly handy in my day-to-day life. RITHOLTZ: To say the least. So did you have to raise money for Foodspotting or did you just bootstrapped it and how did that experience compare with what that exit was like? DARABI: We did. We raised from tremendous investors like Aydin Senkut of Felicis Ventures whom I think of as being one of the best angel investors of the world. He was on the board. But we didn’t raise that much capital before the business is ultimately sold and what I learned in some of those early conversations, I would say, that may have ultimately led to LOIs and term sheets was that so much of M&As about wining and dining and as a young person, particularly for me, you and I discussed before the show, Barry, we’re both from New York, I’m not from a business-oriented family to say the least. My mom’s an academic, my father was a cab driver in New York City. And so, there are certain elements of this game, raising venture and ultimately trying to exit your company, that you don’t learn from a business book. And I think navigating that as a young person was complicated if I had to speak economically. RITHOLTZ: Quite fascinating. What is purposeful change? DARABI: Well, the world purpose, I suppose, especially in the VC game could come across as somewhat of a cliché. But we try to be as specific as possible when we allude to the impact that our investment could potentially make. And so, specifically, we invest in five verticals at our early stage New York City-based venture fund. We invest in what we call the care economy, just companies making all forms of care, elder care to pet care to health care, more accessible and equitable. We invest in financial inclusion. So this is a spin on fintech. These are companies enabling wealth creation, education, and most importantly literacy for all, that I think is really important to democratization of finance. We invest in the future of work which are companies creating better outcomes for workers and employees alike. We invest in the future of work which are companies creating better outcomes for workers and employers alike. We invest in purpose as it pertains to transportation. So, not immediately intuitive but companies creating transparency and efficiency around global supply chain and mobility. I’m going to talk about why we pick that category in a bit. And sustainability. So, tech-enabled sustainable solutions. These are companies optimizing for sustainability from process to product. With these five verticals combined, we have a subspecies which is that diverse founders and diverse employee bases and diverse cap table. It is not charity, it’s simply good for business. And so, in addition to being hyper specific about the impact in which we invest, we also make it a priority and a mandate at our firm to invest in the way the world truly look. And when we say that on our website, we link to census data. And so, we invest in man and women equally. We invest in diverse founders, almost all of the time. And we track this with data and precious to make sure that our investments reflect not just one zip code in California but rather America at large. RITHOLTZ: And you have described this as non-obvious founders. Tell us a little bit about that phrase. DARABI: Well, not obvious is a term you hear a lot when you go out to Silicon Valley. And I don’t know, I think it was coined by a well-known early PayPal employee turned billionaire turned investor who actually have a conference centered around non-obvious ideas. And I love the phrase. I love thinking about investment PC that are contrary because we have a contrary point of view, contrarian point of view, you often have outlier results because if you’re right, you’re taking the risk and your capturing the reward. When you’re investing in non-obvious founders, it should be that is the exact same outcome. And so, it almost sort of befuddled me as a person with a hard to pronounce name in Silicon Valley, why it was that we’re an industry that prides itself on investing in innovation and groundbreaking ideas and the next frontier of X, Y, and Z and yet all of those founders in which we were investing, collectively, tended to kind of look the same. They were coming from the same schools and the same types of families. And so, to me, there was nothing innovative at all about backing that Wharton, PSB, HBS guy who is second or third-generation finance. And what really excites me about venture is capturing a moment in time that’s young but also the energy is palpable around not only the idea in which the founder is building but the categories of which they’re tackling and that sounded big. I’ll be a little bit more speficic. And so, at TMV, we tried to see things before they’re even coming around the bend. For instance, we were early investors in a company called Cityblock Health which is offering best in class health care specifically for low income Americans. So they focus on the most vulnerable population which are underserved with health care and they’re offering them best in class health care access at affordable pricing because it’s predominantly covered through a payer relationship. And this company is so powerful to us for three reasons because it’s not simply offering health care to the elite. It’s democratizing access to care which I think is absolutely necessary in term out for success of any kind. We thought this was profoundly interesting because the population which they serve is also incredibly diverse. And so when you look at that investment over, say, a comparable company, I won’t name names, that offers for-profit health care, out-of-pocket, you can see why this is an opportunity that excites us as impact investors but we don’t see the diversity of the team it’s impact. We actually see that as their unfair advantage because they are accessing a population authentically that others might ignore. RITHOLTZ: Let me see if I understand this correctly. When you talk about non-obvious find — founders and spaces like this, what I’m hearing from you is you’re looking at areas where the market has been very inefficient with how it allocates capital … DARABI: Yes. RITHOLTZ: … that these areas are just overlooked and ignored, hey, if you want to go on to silicon valley and compete with everybody else and pay up for what looks like the same old startup, maybe it will successful and maybe it won’t, that’s hypercompetitive and hyper efficient, these are areas that are just overlooked and there is — this is more than just do-goodery for lack of a better word. There are genuine economic opportunities here with lots of potential upside. DARABI: Absolutely. So, my business partner and I, she and I found each other 20 years ago as undergrads at Georgetown but we went in to business after she was successful and being one of the only women in the world to take a shipping business public with her family, and we got together and we said we have a really unique access, she and I. And the first SPV that we collaborated on back in 2016 was a young business at the time, started by two women, that was focused on medical apparel predominantly for nurses. Now it’s nurses and doctors. And they were offering a solution to make medical apparel, so scrubs, more comfortable and more fashionable for nurses. I happen to have nurses and doctors in my family so doing due diligence for this business is relatively simple. I called my aunt who’s a nurse practitioner, a nurse her life, and she said, absolutely. When you’re working in a uniform at the hospital, you want something comfortable with extra pockets that makes you look and feel good. The VCs that they spoke to at the time, and they’ve been very public about this, in the beginning, anyway, were less excited because they correlated this particular business for the fashion company. But if you look back at our original memo which I saved, it says, FIGS, now public on the New York Stock Exchange is a utility business. It’s a uniform company that can verticalize beyond just medical apparel. And so, we helped value that company at 15 million back in 2016. And this year, in 2021, they went public at a $7 billion market cap. RITHOLTZ: Wow. DARABI: And so, what is particularly exciting for us going back to that conversation on non-obvious founders is that particular business, FIGS, was the first company in history to have two female co-founders go public. And when we think of success at TMV, we don’t just think about financial success and IRR and cash on cash return for our LPs, of course we think about that. But we also think who are we cheerleading and with whom do we want to go into business. I went to the story on the other side of the fence that we want to help and we measure non-obvious not just based on gender or race because I think that’s a little too precise in some ways. Sometimes, for us non-obvious, is around geography, I would say. I’m calling you from Athens, as you know, and in Greece, yesterday, I got together with a fund manager. I’m lucky enough to be an LP in her fund and she was talking about the average size of a seed round in Silicon Valley these days, hovering around 30 million. And I was scratching my head because at our fund, TMV, we don’t see that. We’re investing in Baltimore, Maryland, and in Austin, Texas and the average price for us to invest in the seed round is closer to 5 million or 6 million. And so, we actually can capture larger ownership of the pie early on and then develop a very close-knit relationship with these founders but might not be as networked in the Valley where there’s 30 VC funds to everyone that exist in Austin, Texas. RITHOLTZ: Right. DARABI: And so, yes, I think you’re right to say that it’s about inefficiencies in market but also just around — about being persistent and looking where others are not. RITHOLTZ: That’s quite intriguing. Your team is female-led. You have a portfolio of companies that’s about 65 percent women and people of color. Tell us how you go about finding these non-obvious startups? DARABI: It’s a good question. TMV celebrates its five-year anniversary this year. So the way we go about funding companies now is a bit different than the way we began five years ago. Now, it’s systematic. We collectively, as a partnership, there are many of us take over 50 calls a month with Tier 1 venture capital firms that have known us for a while like the work that we do, believe in our value-add because the partnership comprised of four more operators. So, we really roll up our sleeves to help. And when you’ve invested at this firms, enough time, they will write to you and say I found a company that’s a little too early for us, for XYZ reason, but it resonates and I think it might be for you. So we found some of our best deals that way. But other times, we found our deal flow through building our own communities. And so, when I first started visit as an EM, an emerging manager of a VC firm. And roughly 30 percent of LP capital goes to EM each year but that’s sort of an outsized percentage because when you think about the w-fix-solve (ph) addition capital, taking 1.3 billion of that pie, then you recognize the definition of emerging manager might need to change a bit. So, when I was starting as an EM, I recognize that the landscape wasn’t necessarily leveled. If you weren’t, what’s called the spinout, somebody that has spent a few years at a traditional established blue-chip firm, then it’s harder to develop and cultivate relationships with institutional LPs who will give you a shot even though the data absolutely points to there being a real opportunity in capturing lightning in a bottle if you find a right EM with the right idea in the right market conditions which is certainly what we’re in right now. And so, I decided to start a network specifically tailored around helping women fund managers, connecting one another and it began as a WhatsApp group and a weekly Google Meet that has now blown into something that requires a lot of dedicated time. And so we’re hiring an executive director for this group. They’re called Transact Global, 250 women ex-fund managers globally, from Hong Kong, to Luxembourg, to Venezuela, Canada, Nigeria, you name it. There are women fund managers in our group and we have one of the most active deal flow channels in the world. And so two of our TMV deals over the last year, a fintech combatting student debt and helping young Americans save for retirement at the same time, as an example, came from this WhatsApp deal flow channel. So, I think creating the community, being the change, so to speak, has been incredibly effective for us a proprietary deal flow mechanism. And then last but not least, I think that having some sort of media presence really has helped. And so, I’ve hosted a podcast and I’ve worked on building up what I think to be a fairly organic Twitter following over the years and we surprise ourselves by getting some really exceptional founders cold pitching us on LinkedIn and on Twitter because we make ourselves available as next gen EMs. So, that’s a sort of long-winded answer to your question. But it’s not the traditional means by any means. RITHOLTZ: To say the least. Are you — the companies you’re investing in, are they — and I’ll try and keep this simple for people who are not all that well-versed in the world of venture, is it seed stage, is it the A round, the B round? How far into their growth process do you put money in? DARABI: So it is a predominantly seed fund. We call our investments core investments. So, these are checks that average, 1 and 1.5 million. So for about 1.25 million, on average, we’re capturing 10-15% of a cap payable. And in this area, that’s called a seed round. It will probably be called a Series A 10 years ago. RITHOLTZ: Right. DARABI: And then we follow on through the Series A and it max around, I think, our pro rata at the B. So, our goal via Series B is to have, on average, 10% by the cap. And then we give ourselves a little bit of wiggle room with our modeling. We take mars and moonshot investments with smaller checks so we call these initial interest checks. And initial interest means I’m interested but your idea is still audacious, they won’t prove itself out for three or four years or to be very honest, we weren’t the first to get into this cap or you’re picking Sequoia over us, so we understand but let’s see if we can just promise you a bit of value add to edge our way into your business. RITHOLTZ: Right. DARABI: And oftentimes, when you speak as a former founder yourself with a high level of compassion and you promise with integrity that you’re going to work very hard for that company, they will increase the size of their round and they will carve out space for you. And so, we do those types of investments rarely, 10 times, in any given portfolio. But what’s interesting in looking back at some of our outliers from found one, it came from those initial interest checks. So that’s our model in a nutshell. We’re pretty transparent about it. What we like about this model is that it doesn’t make us tigers, we’re off the board by the B, so we’re still owning enough of the cap table to be a meaningful presence in the founder’s lives and in their business and it allows us to feel like we’re not spraying and praying. RITHOLTZ: Spraying and praying is an amusing term but I’m kind of intrigued by the fact that we use to call it smart money but you’re really describing it as value-added capital when a founder takes money from TMV, they’re getting more than just a check, they’re getting the involvement from entrepreneurs who have been through the process from startup to capital raise to exit, tell us a li bit about how that works its way into the deals you end up doing, who you look at, and what the sort of deal flow you see is like. DARABI: Well, years ago, I had the pleasure of meeting a world-class advertiser and I was at his incredibly fancy office down in Wall Street, his ad agency. And he described to me with pride how he basically bartered his marketing services for one percent of a unicorn. And he was sort of showing off of it about how, from very little time and effort, a few months, he walked away with a relatively large portion of a business. And I thought, yes, that’s clever. But for the founder, they gave up too much of their business too soon. RITHOLTZ: Right. DARABI: And I came up with an idea that I floated by Marina back in the day where our original for TMV Fund I began with the slide marketing as the future of venture and venture is the future of marketing. Meaning, it’s a VC fund where the position itself more like an ad agency but rather than charging for its services, it’s go-to-market services. You offer them free of charge but then you were paid in equity and you could quantify the value that you were offering to these businesses. And back then, people laughed us even though all around New York City, ad agencies were really doing incredible work and benefiting from the startups in that ecosystem. And so, we sort of changed the positioning a bit. And now, we say to our LPs and to our founders, your both clients of our firm. So, we do think of ourselves as an agency. But one set of our marketplace, you have LPs and what they want is crystal clear. The value that they derive from us is through a community and connectivity and co-investment and that’s it. It’s pretty kind of dry. Call me up once a year where you have an exceptional opportunity. Let me invest alongside you. Invite me to dinners four times a year, give me some information and a point of view that I can’t get elsewhere. Thank you for your time. And I love that. It’s a great relationship to have with incredibly smart people. It’s cut and dry but it’s so different. What founders want is something more like family. They want a VC on their board that they can turn to during critical moments. Two a.m. on a Saturday is not an uncommon time for me to get a text message from a founder saying what do I do. So what they want is more like 24/7 services for a period of time. And they want to know when that relationship should start and finish. So it’s sort of the Montessori approach to venture. We’re going to tell them what we’re going to tell them. Tell them what they’re telling them. Tell them what we told them. We say to founders with a reverse pitch deck. So we pitch them as they’re pitching us. Here’s what we promise to deliver for you for the first — each of the 24 months of your infancy and then we promise you we’ll mostly get lost. You can come back to use when your business is growing if you want to do it tender and we’ll operate an SPV for you for you or if you simply want advice, we’re never going to ignore you but our specialty, our black belt, if you will, Barry, is in those first 24 months of your business, that go-to-market. And so, we staffed up TMV to include, well, it’s punching above our weight but the cofounder of an exceptionally successful consumer marketing business, a gross marketer, a recruiter who helps one of our portfolio companies hire 40 of their earliest employees. We have a PR woman. You’ve met Viyash (ph), she’s exceptional with whom, I don’t know, how we would function sometimes because she’s constantly writing and re-editing press releases for the founders with which we work. And then Anna, our copywriter who came from IAC and Sean, our creative director, used to be the design director for Rolling Stone, and I can go on and on. So, some firms called us a platform team but we call it the go-to-market team. And then we promise a set number of hours for ever company that we invest into. RITHOLTZ: That’s … DARABI: And then the results — go ahead. RITHOLTZ: No, that’s just — I’m completely fascinated by that. But I have to ask maybe this is an obvious question or maybe it’s not, so you — you sound very much like a non-traditional venture capital firm. DARABI: Yes. RITHOLTZ: Who are your limited partners, who are your clients, and what motivates them to be involved with TMV because it sounds so different than what has been a pretty standard model in the world of venture, one that’s been tremendous successful for the top-tier firms? DARABI: Our LP set is crafted with intention. And so, 50% of our investors are institutional. This concludes institutional-sized family offices and family offices in a multibillions. We work with three major banks, Fortune 500 banks. We work with a couple of corporate Fortune 500 as investors or LPs and a couple of fund to funds. So that’s really run of the mill. But 50 percent of our investors and that’s why I’m in Athens today are family offices, global family offices, that I think are reinventing with ventures like, to look like in the future because wealth has never been greater globally. There’s a trillion dollars of assets that are passing to the hands of one generation to the next and what’s super interesting to me, as a woman, is that historically, a lot of that asset transferred was from father to son, but actually, for the first time in history, over 50 percent, so 51% of those asset inheritors are actually women. And so, as my business partner could tell because she herself is a next gen, in prior generations, women were encouraged to go into the philanthropic or nonprofit side of the family business … RITHOLTZ: Right. DARABI: And the sons were expected to take over the business or the family office and all of that is completely turned around in the last 10 years. And so, my anchor investor is actually a young woman. She’s under the age of 35. There’s a little bit of our firm that’s in the rocks because we’re not playing by the same rules that the establishment has played by. But certainly, we’re posturing ourselves to be able to grow in to a blue-chip firm which is why we want to maintain that balance, so 50 percent institutional and 50 percent, I would call it bespoke capital. And so, the LPs that are bespoke, we work at an Australian family office and Venezuelan family office and the Chilean family office and the Mexican family office and so on. For those family offices, we come to them, we invite them to events in New York City, we give them personalized introductions to our founders and we get on the phone with them. Whenever they’d like, we host Zooms. We call them the future of everything series. They can learn from us. And we get to know them as human beings and I think that there’s a reason why two thirds of our Fund I LPs converted over into Fund II because they like that level of access, it’s what the modern LP is really looking for. RITHOLTZ: Let’s talk a little bit about some of the areas that you find intriguing. What sectors are really capturing your attention these days? What are you most excited about? DARABI: Well, Barry, I’m most excited about five categories for which we’ve been investing for quite some time, but they’re really being accelerated due to the 2020 pandemic and a looming recession. And so, we’re particularly fascinated by not just health care investing as has been called in the past but rather the care economy. I’m not a huge fan of the term femtech, it always sounds like fembot to me. But care as it pertains to women alone is a multitrillion dollar opportunity. And so, when we think of the care economy, we think of health care, pet care, elder care, community care, personal care as it pertains to young people, old people, men, women, children, we bifurcate and we look for interesting opportunities that don’t exist because they’ve been undercapitalized, undervalued for so long. Case in point, we were early investors Kindbody, a reproductive health care company focused on women who want to preserve their fertility because if you look at 2010 census data, you can see that the data has been there for some time that women, in particular, were delaying marriage and childbirth and there are a lot of world-famous economists who will tell you this, the global population will decline because we’re aging and we’re not necessarily having as many children as we would have in the past plus it’s expensive. And so, we saw that as investors as a really interesting opportunity and jumped on the chance to ask Gina Bartasi who’s incredible when she came to us with a way to make fertility preservation plus expenses. So she followed the B2C playbook and she started with the mobile clinic that helps women freeze their eggs extensively. That company has gone on to raise hundreds — pardon me — and that company is now valued in the hundreds of million and for us, it was as simple as following our intuition as women fund managers, we know what our peers are thinking about because we talk to them all the time and I think the fact that we’re bringing a new perspective to venture means that we’re also bringing a new perspective to what has previously been called femtech. We invest in financial inclusion. Everyone in the world that’s investing fintech, the self-directed financial mobile apps are always going to be capitalized especially in a post Robin Hood era but we’re specifically interested in the democratization of access to financial information and we’re specifically interested in student debt and alleviating student debt in America because not only is it going to be one of the greatest challenges our generation will have to overcome, but it’s also prohibiting us from living out the American dream, $1.7 trillion of student debt in America that needs to be alleviated. And then we’re interested in the future of work, and long have been, that certainly was very much accelerated during the pandemic but we’ve been investing in the 1099 and remote work for quite some time. And so, really proud to have been the first check into a company called Bravely which is an HR chatbot that helps employees inside of a company chat a anonymously with HR representatives outside of that company, that’s 1099. That issue is like DEI, an inclusion and upward mobility and culture setting and what to do when you’re all of a sudden working for home. So that’s an example of a future of work business. And then in the tech-enabled sustainable solutions category, it’s a mouthful, let’s call that sustainability, we are proud to have been early investors of a company called Ridwell, out of Seattle Washington, focused on not just private — privatized recycling but upcycling and reconnaissance. Where are our things going when we recycle them? For me, it always been a pretty big question. And so, Ridwell allows you to re and upcycle things that are hard to get rid of out of your home like children’s eyeglasses and paints and battery, single-use plastic. And it shows you where those things are going which I think is super cool and there’s good reason why it has one of the highest NPS scores, Net Promoter Scores, of any company I’ve ever worked with. People are craving this kind of modern solution. And last but not least, we invest in transportation and part because of the unfair advantage my partner, Marina, brings to TMV as she comes from a maritime family. And so, we can pile it, transportation technology, within her own ecosystem. That’s pretty great. But also, because we’re just fascinated by the fact that 90 percent of the world commodities move on ship and the biggest contributor to emissions in the world outside of corporate is coming from transportation. SO, if we can sort of figure out this industry, we can solve a lot of the problems that our generation are inheriting. Now, these categories might sound massive and we do consider ourselves a generalist firm but we stick to five-course sectors that we truly believe in and we give ourselves room to kick out a sector or to add a new one with any given new fund. For the most part, we haven’t needed to because this remain the categories that are not only most appealing to us as investors but I think paramount to our generation. RITHOLTZ: That’s really intriguing. Give us an example of moonshot or what you called earlier, a Mars shot technology or a company that can really be a gamechanger but may not pay off for quite a while. DARABI: We’ve just backed a company that is focusing on food science. Gosh, I can’t give away too much because they haven’t truly launched in the U.S. But maybe I’ll kind of allude to it. They use crushed produce, like, crush potato skins to make plastic but biodegrades. And so, it’s a Mars shot because it’s a materials business and it’s a food science business rolled off into both the CPG business and an enterprise business. This particular material can wrap itself around industrial pellets. Even though it’s audacious, it’s not really a Mars shot when you think about the way the world is headed. Everybody wants to figure out how do we consume less plastic and recycle plastic better. And so, if there are new materials out there that will not only disintegrate but also, in some ways, feed the environment, it will be a no-brainer and then if you add to the equation the fact that it could be maybe not less expensive but of comparable pricing to the alternative, I can’t think of a company in the world that wouldn’t switch to this solution. RITHOLTZ: Right. So this is plastic that you don’t throw away. You just toss in the garden and it becomes compost? DARABI: Yes, exactly. Exactly. It should help your garden grow. So, yes, so that’s what I would call a Mars shot in some ways. But in other ways, it’s just common sense, right? RITHOLTZ: So let’s talk a little bit about your investment vehicles. You guys run, I want to make sure I get this right, two funds and three vehicles, is that right? DARABI: We have two funds. They’re both considered micro funds because they’re both under 100 million and then we operate in parallel for SPVs that are relatively evergreen and they serve as opportunistic investments to continue to double down on our winners. RITHOLTZ: SPV is special purpose investment … DARABI: Vehicles. Yes. RITHOLTZ: Right. DARABI: And the PE world, they’re called sidecars. RITHOLTZ: That’s really interesting. So how do these gets structured? Does everything look very similar when you have a fund? How quickly do you deploy the capital and typically how long you locked for or investors locked up for? DARABI: Well investors are usually in private equity are VC funds locked up for 10 years. That’s not usual. We have shown liquidity faster, certainly, for Fund I. It’s well in the black and it’s only five years old less, four and a half years old. So, how do we make money? We charge standard fees, 2 on 20 is the rubric of it, we operate by. And then lesser fees for sidecars or direct investments. So that’s kind of how we stay on business. When you think about an emerging manager starting their first fund, management fees are certainly not so we can live a lavish rock and roll life on a $10 million fund with a two percent management fee, we’re talking about 200K for the entire business to operate. RITHOLTZ: Wow. DARABI: So Marina and I, not only anchored our first fund with their own capital but we didn’t pay ourselves for four years. It’s not glamorous. I mean, there’s some friends of mine that thing the venture capital life is glam and it is if you’re on Sand Hill Road. But if you’re an EM, it’s a lot more like a startup where you’re burning the midnight oil, you are bartering favors with your friends, and you are begging the smartest people you know to take a chance on you to invite you on to their cap table. But it somehow works out because we do put in that extra effort, I think, the metrics, certainly for Fund I have shown us that we’re in this for the long haul now. RITHOLTZ: So your fund 1 and Fund 2, are there any plans of launching Fund III? DARABI: Yes. I think that given the proof points between Fund I and Fund II and a conversation that my partner and I recently had, five years out, are we in this? Do we love this? We do. OK. This is our life’s work. So you can see larger and more demonstrable sized funds but not in an outsized way, not just because we can raise more capital now but because we want to build out a partnership and the kind of culture that we always dreamed of working for back when we were employees, so we have a very diverse set of colleagues with whom we couldn’t operate and we’ll be adding to the partnership in the next two or three years which is really exciting to say. So, yes, the TMV will be around for a while. RITHOLTZ: That’s really interesting. I want to ask you the question I ask any venture capitalist that I interview. Tell us about your best and worst investments and what did you pass on that perhaps you wish you didn’t? DARABI: Gosh. The FOMO list is so long and so embarrassing. Let me start with what I passed on that I regret. Well, I don’t know she really would have invited me to invest, but certainly, I had a wonderful conversation a peer from high school, Katrina Lake, when she was in beta mode for Stitch Fix. I think she was still at HBS at the time or had just recently graduated from Harvard. When Katrina and I had coffee in Minneapolis were we went to high school and she was telling me about the Netflix for clothing that she was building and certainly I regret not really picking up on the clues that she was offering in that conversation. Stitch Fix had an incredible IPO and I’m a proud shareholder today. And similarly, when my friend for starting Cloudflare which luckily they did bring me in to pre-IPO and I’m grateful for that, but when they were starting Cloudflare, I really should have jumped on that moment or when my buddy Ryan Graves whom I still chat with pretty frequently was starting out Uber in beta with Travis and Garrett, that’s another opportunity that I definitely missed. I was in Ireland when the Series A term sheet assigned. So there’s such a long laundry list of namedropped, namedropped, missed, missed, missed. But in terms of what I’m proud of, I’d say far more. I don’t like Sophie’s Choice. I don’t like to cherry pick the certain investments to just brag about them. But we’ve talked about someone to call today, I’d rather kind of shine a light — look at my track record, right? There’s a large realized IRR that I’m very proud of. But more on the opportunity of the companies that we more recently backed that prevent damages (ph) of CRM for oncology patient that help them navigate through the most strenuous time of their life. And by doing so, get better access to health care. And we get to wrote that check a couple of months ago. But already, it’s becoming a company that I couldn’t be more excited about because if they execute the way I think Shirley and Victor will, that has the power to help so many people in a profound way, not just in the Silicon Valley cliché way of this could change the world but this could actually help people receive better care. So, yes, I’m proud of having been an early investor in the Caspers of the world. Certainly, we’re all getting better sleep. There’s no shame there. But I’m really excited now today at investing in financial inclusion in the care economy and so on. RITHOLTZ: And let’s talk a little bit about impactful companies. Is there any different when you’re making a seed stage investment in a potentially impactful company versus traditional startup investing? DARABI: Well, pre-seed and seed investing isn’t a science and it’s certainly not a science that anyone has perfected. There are people who are incredibly good at it because they have a combination of luck and access. But if you’re a disciplined investor in any asset class and I talk to my friends who run hedge funds and work for hedge funds about 10 bets that they take a day and I think that’s a lot trickier than what I do because our do due diligence process, on average, takes an entire quarter of the year. We’re not making that many investments each year. So even though it sounds sort of fruity, when you look at a Y Combinator Demo Day, Y Comb is the biggest accelerator in Silicon Valley and they produce over 300 companies, three or four times a year. When you look at the outsized valuations coming out of Y Comb, it’s easy to think that starting company is as simple as sort of downloading a company in a Box Excel and running with it. But from where we sit, we’re scorching the earth for really compelling ideas in areas that have yet to converge and we’re looking for businesses that may have never pitched the VC before. Maybe they’re not even seeking capital. Maybe it’s a company that isn’t so interested in raising a penny eventually because they don’t need to. They’re profitable from day one. Those are the companies that we find most exciting because as former operators, we know how to appeal to them and then we also know how to work with them. RITHOLTZ: That’s really interesting. Before I get to my favorite question, let me just throw you’re a curveball, tell me a little bit about Business Schooled, the podcast you hosted for quite a while. DARABI: So, Synchrony, Sync, came to me a few years ago with a very compelling and exciting opportunity to host a podcast with them that allowed me a fortunate opportunity to travel the country and I went to just under a dozen cities to meet with founders who have persevered past their startup phase. And what I loved about the concept of business school is that the cities that I hosted were really focused on founders who didn’t have access to VC capital, they put money on credit card. So I took SBA loans or asked friends and family to give them starter capital and then they made their business work through trying times and when you pass the five-year mark for any business, I’m passing it right now for TMV, there’s a moment of reflection where you can say, wow, I did it. it’s incredibly difficult to be a startup founder, more than 60 percent of companies fail and probably for good reason. And so, yes, I hosted business school, Seasons 2 and 3 and potentially there will be more seasons and I’m very proud of the fact that at one point we cracked the top 20 business podcasts and people seem to be really entertained through these conversations with insightful founders who are vulnerable with me about what it was like to build their business and I like to think they were vulnerable because I have a good amount of compassion for the experience of being founder and also because I’m a New Yorker and I just like to talk. RITHOLTZ: You’re also a founder so there’s going to be some empathy that’s genuine. You went through what they’re going through. DARABI: Exactly. Exactly. And so, what you do, Barry, is quite similar. You’re — you host an exceptionally successful business podcast and you’re also an allocator. You know that it’s interesting to do both because I think that being an investor is a lot like being a journalist. In both professions, you won’t succeed unless you are constantly curious and if you are having conversations to listen more than you speak. DARABI: Well, I’ll let you in on a little secret since it’s so late in the podcast and fewer people will be hearing this, the people I invite on the show are essentially just conversations I want to have. If other people come along and listen, that’s fantastic. But honestly, it’s for an audience of one, namely me, the reason I wanted to have you on is because I’m intrigued by the world of venture and alternatives and impact. I think it’s safe to say that a lot of people have been somewhat disappointed in the results of ESG investing and impact investing that for — it’s captured a lot more mindshare than it has captured capital although we’re seeing signs that’s starting to shift. But then the real question becomes, all right, so I’m investing less in oil companies and more in other companies that just happen to consume fossil fuels, what’s the genuine impact of my ESG investing? It feels like it’s sort of de minimis whereas what you do really feels like it has a major impact for people who are interested in having their capital make a positive difference. DARABI: Thank you for saying that. And I will return the compliment by saying that I really enjoyed getting to know you on our one key economist Zoom and I think that you’re right. I think that ESG investing, certainly in the public markets has had diminished returns historically because the definition has been so bizarre and so all over the place. RITHOLTZ: Right. DARABI: And I read incredible books from people like Antony Bugg-Levine who helps coin the term the Rockefeller Foundation, who originally coined the term you read about, mortgage, IRR and IRS plus measurement and it’s so hard to have just standardization of what it means to be an impact investor and so it can be bothered but we bother. Rather, we kind of come up with our own subjective point of view of the world and we say what does impact mean to us? Certainly, it means not investing in sin stocks but then those sin stocks have to begin somewhere, has to begin with an idea that somebody had once upon a time. And so, whether we are investing in the way the world should look from our perspective. And with that in mind, it doesn’t have to be impact by your grandpa’s VC, it can be impact from modern generation but simply things that behave differently. Some folks with their dollars. People often say, well, my ESG portfolio is underperforming. But then if you dig in to the specifics, are you investing in Tesla? It’s not a pretty good year. Did you back Beyond Meat? Had a great year. And so, when you kind of redefine the public market not by a sleeve and a bank’s version of a portfolio, but rather by company that you think are making demonstrable change in the world, then you can walk away, realizing had I only invested in these companies that are purpose driven, I would have had outsized returns and that’s what we’re trying to deliver on at TMV. That’s the promise. RITHOLTZ: Really, really very, very intriguing. I know I only have you for a few minutes so let’s jump to my favorite questions that I ask all of our guests starting with tell us what you’re streaming these days. Give us your favorite, Netflix, Amazon Prime, or any podcast that are keeping you entertained during the pandemic. DARABI: Well, my family has been binging on 100 Foot Wave on HBO Max which is the story of big wave surfer Garrett McNamara who is constantly surfing the world’s largest waves and I’m fascinated by people who have a mission that’s sort of bigger than success or fame but they’re driven by something and part of that something is curiosity and part of it is insanity. And so not only is it visually stunning to kind of watch these big wave surfers in Portugal, but it’s also a mind trip. What motivates them to get out of bed every day and potentially risk their lives doing something so dangerous and so bananas but also at the same time so brave and heroic. So, highly recommend. I am listening to too many podcasts. I listen to, I don’t know, a stream of things. I’m a Kara Swisher fan, Ezra Klein fan, so they’re both part of the “New York Times” these days. And of course, your podcast, Barry. RITHOLTZ: Well, thank you so much. Well, thank you so much. Let’s talk a little bit about who your early mentors were and who helped shape you career? DARABI: It’s going to sound ungrateful but I don’t think, in like a post lean in definition of the word, I ever truly had a mentor or a sponsor. Now, having said that, I’ve had people who really looked at for me and been incredibly gracious with their time and capital. And so, I would absolutely like to acknowledge that first and foremost. I think about how generous Adam Grant has been with his time and his investments for TMV in Fund I and Fund II and he’s a best-selling author and worked on highest-rated business school professor. So shout out to Adam, if he’s listening or Beth Comstock, the former Vice Chair of GE who has been instrumental in my career for about a decade and a half now. And she is also really leaning in to the TMV portfolio and has become a patient of Parsley Health, an early investment of ours and also an official adviser to the business. So, people like Adam and Beth certainly come to mind. But I don’t know, I just — I’m not sure mentors really exist outside of corporate America anymore and part of the reason why we started Transact Global is to kind of foster the concept of the peer mentor, people who are going through the same thing as you at the same time and allowing that hive mentality with an abundance mentality to catalyze people to kind of go further and faster. RITHOLTZ: Let’s talk about some of your favorite books and what you might reading right now. DARABI: OK, so in the biz book world, because I know your listeners as craving, I’m a big fan of “Negotiation Genius.” I took a crash course with one of the authors, Max Bazerman at the Kennedy School and it was illuminating. I mean, he’s one of the most captivating professors I’ve ever had the pleasure of hearing lecture and this book has really helped me understand the concept of the ZOPA, the Zone of Possible Agreement, and how to really negotiate well. And then for Adam whom I just referenced, of all of his incredible books, my favorite is Give and Take because I try to operate with that approach of business. Give more than you take and maybe in the short term, you’ll feel depleted but in the long term, karma pays off. But mostly, Barry, I read fiction. I think the most interesting people in the world or at least the most entertaining at dinner parties are all avoid readers of fiction and history. So I recently reread, for instance, all of my favorite short stories from college, from Dostoyevsky’s “A Gentle Creature” to “Drown” Junot Diaz. “Passing” by Nella Larsen, “The Diamond as Big as the Ritz” by Fitzgerald. Those are some of my very favorite stories of all time. And my retirement dream is to write a book of short stories. RITHOLTZ: Really, really quite intriguing. Are they all available in a single collection or these just, going back to your favorites and just plowing through them for fun? DARABI: Those are just going back to my favorites. I try to re-read “Passing” every few years which is somehow seems to be more and more relevant as I get older and Junot Diaz has become so incredibly famous when I first read “Drown” about 20 years ago which is an original collection of short stories that broadened my perspective of why it’s important to think about a broader definition of America, I guess. And, yes, no, that’s just — that was just sort of off the top of my head as the offering of a few stories that I really love, no collection. RITHOLTZ: That’s a good collection. And we’re down to our final two questions. What sort of advice would you give to a recent college grad who was interested in a career in either venture capital or entrepreneurship? DARABI: Venture capital or entrepreneurship. Well, I would say, learn as early as possible how to trust your gut. So, this could mean a myriad of things. As an entrepreneur, it could mean under the halo effect of an institution, university or high school or maybe having a comfortable day job, tinker with ideas, get feedback on that idea, don’t be afraid of looking or sounding dumb and build that peer network that I described. People who are rooting you on and are also insatiably curious about wonky things. And I would say that for venture capital, similar play on the same theme, but whether it’s putting small amounts of money into new concept, blockchain investing, or whether it’s meeting with entrepreneurs and saying maybe I only have $3,000 save up but I believe in you enough to bet amongst friends in Brooklyn on your concept if you’ll have me as an investor. So, play with your own money because what it’s really teaching you in return is how to follow instincts and to base pattern recognition off your own judgement. And if you do that early on, overtime, these all become datapoints that you can point to and these are lessons that you can glean while not taking the risk of portfolio management. So, I guess the real advice to your listeners is more action, please. RITHOLTZ: Really very, very intriguing. And our final question, what do you know about the world of venture investing today that you wish you knew 15 or 20 years ago when you first getting started? DARABI: Twenty years ago, I was a bit of a Pollyanna and I thought every wonderful idea that simply is built by smart people and has timed the market correctly will work out. And I will say that I’m slightly more jaded today because of the capital structure that is systematically allowing the biggest firms in the world to kind of eat up a generous portion of, let’s call it the LP pie, which leaves less capital available to the young upstart VC firms, and of course I’m biased because I run one, that are taking outsized risks on those non-obvious ideas that we referenced. And so, what I wish for the future is that institutional capital kind of reprioritizes what it’s looking for. And in addition to having a bottom line of reliable and demonstrable return on any given investment, there are new standards put into play saying we want to make sure that a portion of our portfolio goes to diverse managers. Because in turn, we recognize that they are three times more likely to invest in diverse founders or we believe in impact investing can be broader than the ESG definitely of a decade ago, so we’re coming up with our own way to measure on sustainability or what impact means to us. And if they go through those exercises which I know is hard because, certainly, I’m not trying to add work to anyone’s plate, I do think that the results will more than make up for it. RITHOLTZ: Quite intriguing. Thank you, Soraya, for being so generous with your time. We have been speaking with Soraya Darabi who is the Co-Founder and General Partner at TMV Investments. If you enjoy this conversation, well, be sure and check out any of the prior 376 conversations we’ve had before. You can find those at iTunes or Spotify, wherever you buy your favorite podcast. We love your comments, feedback, and suggestions. Write to us at MIB You can sign up for my daily reads at Check out my weekly column at Follow me on Twitter @ritholtz. I would be remiss if I did not thank the crack team that helps me put these conversations together each week. Tim Harrow is my audio engineer. Paris Walt (ph) is my producer. Atika Valbrun is our project manager, Michael Batnick is my head of research. I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.   ~~~     The post Transcript: Soraya Darabi appeared first on The Big Picture......»»

Category: blogSource: TheBigPictureOct 20th, 2021

Why Whitney Isn’t Persuaded By Facebook’s Defense

Whitney Tilson’s email to investors discusing why he is not persuaded by Facebook, Inc. (NASDAQ:FB)’s defense; responses to his letter to Sheryl Sandberg; other reader feedback and his comments. Q3 2021 hedge fund letters, conferences and more Why I’m Not Persuaded By Facebook’s Defense 1) In yesterday’s e-mail, I shared Facebook’s (FB) defense to the […] Whitney Tilson’s email to investors discusing why he is not persuaded by Facebook, Inc. (NASDAQ:FB)’s defense; responses to his letter to Sheryl Sandberg; other reader feedback and his comments. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Series in PDF Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues. (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more Why I'm Not Persuaded By Facebook's Defense 1) In yesterday's e-mail, I shared Facebook's (FB) defense to the latest charges of bad behavior by whistleblower and former employee Frances Haugen, as articulated by founder and CEO Mark Zuckerberg, as well as a friend who knows the company well. My take: I'm not buying what they're selling... Zuckerberg's post is laughably bad. In the face of Haugen's compelling testimony and her release of thousands of pages of damning internal company documents – which has led to overwhelming, bipartisan criticism – Zuckerberg's 16-paragraph, 1,316-word post doesn't once acknowledge any problem, much less any contrition, much less any indication that he and his company might need to do even a few things differently. His tone deafness is matched only by his arrogance. My friend, on the other hand, at least acknowledges that "there is a huge problem," but says, "I disagree Facebook is blind to it." (Quick correction: I misquoted him yesterday here: "This extends to idiots on Facebook's board as well by the way." Here's what he wrote: "I have no opinion on FB's board – I was referring to board members at other companies who try to tell the CEO how to run a company when they have no idea what is really happening. That is why a board's role is to hire and fire the CEO, not to run the company.") In most of his response, however, he criticizes Haugen, saying that she: ... had no direct reports, never met a senior executive at Facebook, started with extreme bias, and then only found/extracted information that confirmed it. She never worked in the areas she is "so knowledgeable about" – like teens – so has no idea what Facebook is trying to do... ... she is basically as knowledgeable as a tabloid – at best. It's like the janitor telling Zuckerberg how to run Facebook... She's an idiot looking for five minutes of fame. Industry veterans are cringing. I couldn't disagree more. First, Haugen was hardly the "janitor." She's a Harvard Business School graduate with more than 10 years of experience in the social media sector, nearly two years of which was at Facebook (from 2019 to 2021 – see her LinkedIn profile) – plenty of time to see what was going on. As for the argument that she wasn't a C-suite executive and therefore wasn't in the loop for high-level decisions, I'd argue the opposite... She was perfectly positioned to be a whistleblower both because of the group she was in – the Civic Integrity unit, which was responsible for preventing the spread of election misinformation and addressing other bad behavior – as well as her level: as a Product Manager, she was senior enough to see what was really happening, but not so high up that she wouldn't know the details. Moreover, Haugen's testimony, to both 60 Minutes and Congress, was compelling. I've been watching 60 Minutes since I was a kid in the 1970s, and she was one of the most impressive people I've ever seen on the show. And my opinion is widely shared: Senators on both sides of the aisle praised her, as did Mike Isaac of the New York Times, who wrote: We're moving into hour three of Ms. Haugen's testimony and she hasn't shown any signs of flagging. Confident, poised, and accurate, for my money she is one of the most impressive critics of Facebook I've seen appear on Capitol Hill. Lastly, Haugen's testimony is corroborated by: a) thousands of pages of internal company documents she copied... b) the long, sordid history of Zuckerberg and Facebook, dating back to the very founding of this company (for more on this, read this shocking article: How Facebook Was Founded) – also, note that my friend wrote that Haugen "said nothing we all didn't already know"... and c) many other former company insiders. For example, here's an op-ed in yesterday's New York Times by Roddy Lindsay, a former Facebook data scientist: I Designed Algorithms at Facebook. Here's How to Regulate Them. Excerpt: Washington was entranced Tuesday by the revelations from Frances Haugen, the Facebook product manager-turned-whistle-blower. But time and again, the public has seen high-profile congressional hearings into the company followed by inaction. For those of us who work at the intersection of technology and policy, there's little cause for optimism that Washington will turn this latest outrage into legislative action. Even more damning are the comments of Alex Stamos, the director of the Stanford Internet Observatory and a former head of security at Facebook: Brazen Is the Order of the Day at Facebook. Excerpt: I think the overall theme of the leaked documents and the Wall Street Journal series is that since 2016 Facebook has built teams of hundreds of data scientists, social scientists and investigators to study the negative effects of the company's products. Unfortunately, it looks like the motivational structure around how products are built, measured and adjusted has not changed to account for the evidence that some Facebook products can have a negative impact on users' well-being, leading to a restive group of employees who are willing to leak or quit when the problems they work on aren't appropriately addressed. I agree with Stamos' recommendation: I think Zuckerberg is going to need to step down as CEO if these problems are going to be solved. Having a company led by the founder has a lot of benefits, but one of the big problems is that it makes it close to impossible to significantly change the corporate culture. It's not just Zuckerberg; the top ranks of Facebook are full of people who have been there for a dozen years. They were part of making key decisions and supporting key cultural touchstones that might have been appropriate when Facebook was a scrappy upstart but that must be abandoned as a global juggernaut. It is really hard for individuals to recognize when it is time to change their minds, and I think it would be better if the people setting the goals for the company were changed for this new era of the company, starting with Zuckerberg. With new leadership, you could see the company adopting safety countermetrics on the same level as engagement and satisfaction metrics, and building a product management culture where product teams are not only celebrated for their success in the marketplace but held accountable for the downstream effects of their decisions. Zuckerberg is, of course, never going to step down voluntarily, and given that he controls 58% of the voting shares, how could he ever be removed? Here's how: the U.S. Securities and Exchange Commission ("SEC") – which, thanks to Haugen, is now investigating Facebook for misleading investors – could force him out. I don't think it's likely – but it's not impossible. I think there's a 25% chance that Zuckerberg is no longer CEO within two years... Responses To My Letter To Sheryl Sandberg 2) I received huge amounts of feedback in response to my open letter to Facebook COO Sheryl Sandberg. Below is some of it, with my responses in some cases... "Instead of lambasting Sheryl and Mark (unfairly in my eyes), you should have sent your letter to Congress. Congress (and then the courts) has full responsibility for regulating our communication systems. All best (& I love reading your newsletter – I really do & enjoy pics also)." – Paul B. My reply: Thanks for your feedback, Paul. In fact, I sent my letter to a dozen members I know in the House and Senate, one of whom replied: "Wow, wow, wow. Thanks for sharing. I hope it is read." Another replied: "A powerfully written letter. I agree with every word of it, although I doubt that Facebook will find the wisdom to follow your advice. I am going to sign up for your newsletter "I agree with your assessment of Facebook (and your letter to Sheryl Sandberg), but your recommendation for them to rehire Haugen will never happen. She is considered a traitor by Facebook and they will never rehire a traitor. Based on Zuckerberg's reply, I'm skeptical that they are willing to address and fix the issues until the government force them to do so." – Sid My reply: I agree. "I'm so glad you compared them to the Sacklers. I hope this wakes them up." – Alex B. [But another reader disagreed...] "Good email but would recommend not equating people with Sacklers in the future unless they are literally killing people by knowingly promoting something dangerous (like Oxycontin). To me, the Sacklers fall into a group of historical miscreants that can only be used narrowly for an analogy – otherwise, it's overkill and can dilute from your point. Sandberg may read your email and dismiss it, saying to herself, 'We are not the Sacklers.' You could also substitute Hitler for the Sacklers and you can see my point. I'd only use Hitler as an analogy for a leader who is mass killing people, like Pol Pot. My two cents. Always enjoy your daily email!" – Bruce Z. My reply: Hi Bruce, to be clear, I didn't say they currently are equivalent to the Sacklers, but rather they "are on a trajectory to have legacies that rival the Sacklers." To understand why I say this, read the following articles: Facebook Admits It Was Used to Incite Violence in Myanmar Sri Lanka: Facebook apologizes for role in 2018 anti-Muslim riots Hate Speech on Facebook Is Pushing Ethiopia Dangerously Close to a Genocide NGO: Facebook approved ads inciting violence in N Ireland Bangladesh: Fake news on Facebook fuels communal violence When Social Media Fuels Gang Violence Civil rights leaders condemn Zuckerberg, Facebook for fueling racial hatred and violence Domestic violence and Facebook: harassment takes new forms in the social media age "I really do not understand what the fuss is about. If I hear or see something on radio or TV that I find to be dangerous or offensive I turn the channel. Nobody is forced to use Facebook or Instagram, or Snapchat or any of the other social media platforms. Just delete the apps. If you don't want your children to use them, then delete them from their phones. Take some personal or parental responsibility. I truly do not want someone else deciding what I can listen to or watch. Let me decide." – T. H. My reply: Hi T.H., in a perfect, rational world, I'd agree with you. But in the real, messy world, I can't. "I have found it very hard to get anyone who works at Facebook to engage openly about anything at the company, even in a social/casual off the record context. I can't think of another company whose employees are so unwilling to speak off the record. It makes me wonder if they really know deep down how bad what they are doing is." – B.B. "Thank you Whitney for sharing a BIG story of our time. I agree with some of the defensive remarks – the issue of 'bad actors,' misinformation, and hate speech on social media is not unique to FB, but FB is certainly guilty of providing a platform that has allowed all of the above to be promoted on its platform. "It took the World Jewish Congress five years of complaining to FB to finally get them via Sheryl Sandberg to put in more strict algorithms regarding Holocaust denial and misinformation on FB – five years of effort! Now, FB users are directed to factual information when they make up falsehoods about it. But this only pertains to the U.S. and U.K., so the fight continues with FB to get them to implement this in Arabic and other languages and countries. This is incredibly frustrating and hurtful. "Why are the Mullahs in Iran permitted to use Twitter (TWTR) to spread Islamist and hate speech, for example? So as much as I dislike government interference into business practices, I do see a necessity given the extent of damage being done. "Thanks for all you do to share carefully researched information that provide opportunities to empower our lives." – Andrea L. "I spent 15 years in the Valley, much of it in the same orbits as the leadership at Facebook (I'm being vague purposefully). I actually can't say for sure they are well-intentioned." – Matty G. "Thanks Whitney on behalf of the multitudes who have truly mixed feelings about Facebook. We're thrilled about the connections we relish with wonderful people, but deplore the damage it has done to our society and body politic." – Andrew S. "I'm on board with [your] evaluation and solution 100%. Let's hope they both have the courage to right the ship. The country that I love and have fought for is losing its grip. Let's show some respect. Thank you very much." – Ken J., former Ranger "Zuck and the rest knew what they were doing. They were complicit in all of it in order to rake in ad revenue. Wall Street Capitalism only measures 'good' in terms of money. I think you are right: they will do a PR apology tour and that's all." – Grant P. "Isn't Zuck a bit too narcissistic to care? The company was born in betrayal. Ironic that such a complete asocial person is in charge of the way we socialize in this country. I think he'll do anything he can get away with and is too arrogant to think there will be consequences." – Leigh S. "Hello Whitney... I am one of those folks who believes when someone does something good, it should be recognized. You and I are very different in our perspectives about most subjects. I read your letter to Facebook just a few minutes ago. "Your letter to the COO was simply and completely what they needed to hear. Although I still have a FB account, I have not actively used FB in over three years. It seemed the vitriol just got worse and worse, regardless of the subject matter, but especially politically. I decided I would not be a part of that, as it can consume you, if you allow it to take up your time. You have to realize that every person has a viewpoint, and it is not likely you will be successful in changing someone's mind, although it does happen on an infrequent basis. "I commend you for reaching out to them, as I am sure others will do. I have a concern that the size of this organization will make government intervention likely. I am not a fan of big government, big brother, as it were, but this situation, if they do not turn it around on their own, government may be the only answer. All the best." – Larry F. "You said everything I was thinking, but ever so much better. I will hope the letter is taken to heart and sweeping changes made so FB can continue to be the great business that it COULD be but has failed so badly to be." – Stacey G "I think you nailed it, my friend! Well, reasoned and direct, to the point, your letter will hopefully bring the FB team and Ms. Haugen together again to make a better, stronger company that serves our social interactions in an honest and forthright manner." – Chuck M. "After reading Zuckerberg's lengthy response I am more convinced that he and the FB team know exactly what they are doing and the harm they are causing. A CEO that wants to be regulated rather than taking the necessary steps to clean up their business strategies is only creating cover for themselves. Unfortunately FB is not only damaging to young girls but to our society as a whole. Through their technology and algorithms they easily manipulate the masses of uniformed customers to be persuaded in any direction they chose. Unfortunately this is like leading blind sheep to slaughter. Yes FB needs to be regulated but not in a way Zuckerberg would approve of. He knows Congress isn't capable of passing any type of regulation to make FB clean up its act and this gives him plenty of cover to continue their unethical business practices." – David L. Other Reader Feedback 3) Lastly, here is one reader's response to Zuckerberg's post: Here are some questions that came to mind when I read Zuckerberg's message: He wrote: Many of the claims don't make any sense. My reply: Which ones don't make any sense? And which ones do make sense? He wrote: If we wanted to ignore research, why would we create an industry-leading research program to understand these important issues in the first place? My reply: Because you need to do the research to maximize 'engagement.' This is clearly consistent with profit maximization. He wrote: If we didn't care about fighting harmful content, then why would we employ so many more people dedicated to this than any other company in our space – even ones larger than us? My reply: Is this demonstrably true? What companies in your space are larger? He wrote: If we wanted to hide our results, why would we have established an industry-leading standard for transparency and reporting on what we're doing? My reply: What is this "industry-leading standard for transparency and reporting?" Where can I learn more about these standards? If FB transparency standard is so high, then where are the reports of your research? He wrote: And if social media were as responsible for polarizing society as some people claim, then why are we seeing polarization increase in the U.S. while it stays flat or declines in many countries with just as heavy use of social media around the world? My reply: Which countries are not becoming more polarized? Excluding authoritarian regimes, are there any? Just saying things doesn't make them true – though if we've learned anything in recent years, it's that saying things over and over again can convince large numbers of people that they are true. Prime examples – claiming rampant election irregularities when none exist; vaccines are the government's plots to control the population; pizza-gate. – Randy J. Thank you, as always, to my readers for sharing their insightful and provocative thoughts! Best regards, Whitney P.S. I welcome your feedback at P.P.S. My colleague Enrique Abeyta is looking to hire a junior analyst to help him launch his upcoming newsletter, Empire Elite Crypto, later this fall. If you geek out on cryptos and enjoy writing, we'd like to hear from you. Send us your résumé and a one-page write-up of your favorite crypto investment idea right here. Updated on Oct 7, 2021, 2:11 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 7th, 2021

ERA® Real Estate Expands Washington Presence

ERA® Real Estate has announced that Tucker Realty LLC, based in Mount Vernon, Washington, has affiliated with the ERA® brand. The company will now do business as Tucker Realty ERA Powered. The company, established in 2019, is owned by the husband-and-wife team of John and Michelle Combel. It provides real estate services in Skagit, Snohomish […] The post ERA® Real Estate Expands Washington Presence appeared first on RISMedia. ERA® Real Estate has announced that Tucker Realty LLC, based in Mount Vernon, Washington, has affiliated with the ERA® brand. The company will now do business as Tucker Realty ERA Powered. The company, established in 2019, is owned by the husband-and-wife team of John and Michelle Combel. It provides real estate services in Skagit, Snohomish and Whatcom Counties in northern Washington State. “The Combels’ deep experience leading businesses in various industries gives them a unique perspective in running a real estate brokerage that serves today’s connected consumer. They understand that the proper professional development of their affiliated agents would benefit their business growth and reinforce their value to their clients,” said Sherry Chris, president and CEO of ERA® Real Estate, in a statement. “As a result, they looked to align with a partner with innovative tools and programs in place to help the company and agents succeed, which is why they decided to partner with ERA. They understand the value we bring to the table. We are confident that John and Michelle will thrive in the ERA culture and look forward to helping them grow in the future.” “Our company culture has always promoted collaboration and an environment that fosters a family feel. We knew that if we were going to partner with anyone, it needed to be a brand with a mission of collaboration and innovation,” said John Combel, broker/owner Tucker Realty ERA Powered, in a statement. “We found the perfect partner in ERA Real Estate. Now, as a member of the global ERA network, our firm is joining forces with brokers and agents worldwide to share best practices and forward-thinking ideas to help drive success and new growth opportunities. Being ERA Powered will not only give us the ability to leverage our local brand identity but will also enable our agents to tap into the programs, resources and tools they need to provide next-level client service while retaining the brand we have worked so hard to build.” For more information, please visit The post ERA® Real Estate Expands Washington Presence appeared first on RISMedia......»»

Category: realestateSource: rismediaSep 22nd, 2021

3 ways employers can decenter whiteness in the workplace and promote inclusivity

"Too many employees of color in corporate America are held back as they are held against white standards of leadership," says CEO Jean Lee. Jean Lee, president and CEO of the Minority Corporate Counsel Association (MCCA).Jean Lee Jean Lee is president and CEO of the Minority Corporate Counsel Association, an organization focused on improving DEI in the workplace. Decentering white-centric expectations at work is key to improving equity for people of color, Lee says.  Employers should focus on overcoming hiring bias and rethinking talent retention and promotion criteria.    When Brittanie Rice first showed up to interview at the offices of a major aerospace company, she traded her trademark twists for a slicked-back bun. It was safer that way.  Although she wore her hair naturally in her daily life, she knew corporate America operated on a different set of standards — and that she risked judgement if she didn't fit them. As she put it, "I can't really be looked down upon because of how I wear something that is as natural as the hair on top of my head."  This is just one of the ways employees of color often contort themselves to fit the white-centric assumptions and expectations about professionalism that govern our workplaces. These standards dictate everything from the way they speak, to the way they dress, to the work they are given. And the end result is always the same: an environment that makes it harder for people of color to do their best work.  As the President and CEO of the MCCA, I often hear from lawyers of Black, Asian, and Hispanic/Latinx descent who are tired of navigating a corporate America that wasn't designed with them in mind. One lawyer, who regularly fielded questions about her appearance as the only Black woman on her team, recently told me: "I have to work 20 to 30% harder thinking about microaggressions, while others can spend their full energy focused on their work."  What's the cost of a corporate culture that excludes large segments of the workforce?  The answer: Too much. That's why we see investors demanding racial audits of companies they invest in, and policymakers in states like California and Washington mandating greater board diversity. That's why the SEC may require diversity disclosures as part of companies' environmental, social, and governance (ESG) obligations to improve accountability.  But one group hasn't fully embraced this shift: corporate leaders. Since George Floyd's murder, I've seen waning interest on diversity issues — or worse, a quiet dismissal of employees of color and their experiences. Diversity leaders are underfunded, under-supported, and saddled with unrealistic expectations that focus on programmatic window-dressings. Overcoming hiring bias  Time and again, I've seen well-meaning allies across corporate America fail to adopt inclusive recruitment practices.  They'll search for diverse candidates by recruiting from elite schools, where students of color are already underrepresented due to a host of well-studied historical and contemporary factors. These disparities are magnified in areas like the legal field, where many of the largest corporations recruit people who previously worked in elite law firms, and where — surprise — white lawyers are overrepresented, since those firms themselves recruited from the same exclusive, top schools.  And so, the cycle goes. This cycle reinforces the white standard that only graduates of top schools are qualified for top roles, without accounting for the reality that qualified candidates of color may have faced barriers to reaching those schools.  As a leader, you need to step outside your current process to meet qualified candidates. As the MCCA's Bias Interrupters Survey Report shows, this means: Considering candidates from beyond the Ivy League and focusing on schools that cater to people of color and candidates from non-professional backgrounds.Tracking the candidate pool from start to finish and analyzing the data to determine where candidates from underrepresented groups are falling out of the hiring process.Setting tangible targets and insisting on a diverse applicant pool – and, it doesn't yield the results, collect data on the process to understand gaps.Establishing clear grading rubrics and ensuring that all candidates are measured on the same scale.  Retaining talent by being better ourselves  I still remember one white male manager who approached me after one of our Interrupting Bias workshops. Somewhat embarrassed, he said quietly, "I had no idea that women of color faced so many barriers in the office. How can I make sure my white managers understand these issues?"  We all have unconscious biases. And until we recognize that a professional culture centered  around whiteness creates barriers for all who don't fit that mold, we will continue to reinforce those biases — in everything from inequitable job assignments to microaggressions.  Here's my advice. To find solutions, start building awareness of what inequity looks like by:  Auditing your retention policies to ensure, for example, that more glamorous assignments are spread evenly across employees and developmental opportunities are equitable.Implementing processes to ensure managers are distributing assignments equitably. Conducting manager workshops to help mid-level managers recognize bias.Establishing a regular check-in cycle between managers and employees to give employees the space to safely voice concerns. Educating top leaders on systemic barriers that perpetuate inequities so they can find solutions to systemic bias.Revamping a biased promotion structure  "She's not assertive enough in meetings."  That was the feedback given for an Asian American colleague's performance review, and the justification provided for why she was passed over for a promotion — not once, but twice. It was only after she pointed to her body of work and explained that her mindfulness was being confused for meekness — perhaps due to stereotypes related to her ethnicity — that her concerns were heard, and she was promoted  Too many employees of color in corporate America are held back as they are held against white standards of leadership. Are some employees considered "inspired" for speaking passionately, while others are deemed "aggressive"? Are some communication styles valued over others, like sharing an idea during a meeting instead of over email afterwards? These are all signs that a workplace is measuring success within a white corporate mold.  Employers can break this mold by:  Implementing specific and transparent performance criteria for the promotion process.Providing team managers with targeted training to spot bias and involving them in each step of the evaluation process. Holding reviewers accountable for providing evidence to justify their evaluations. Separating personality issues from skillsets to limit bias against women and people of color.Educating and holding top leaders accountable for eliminating or reducing systemic barriers in promotion.  Homogeneity does not exist in a vacuum. A lack of diversity is the result of systems, processes, and standards that benefit white male professionals and exclude so many others. Changing these white standards will take work from all of us — advocates and people from diverse backgrounds. But true systemic change requires the active involvement and leadership of those in positions of power, and only then can we unleash the full potential of our workforce.  Jean Lee is president and chief executive officer of the MCCA, the leading national organization focused on improving diversity, equity, and inclusion in the workplace by providing strategic solutions based on scientific research and data analytics.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderNov 29th, 2021

The Rise And Fall Of Aljazeera

The Rise And Fall Of Aljazeera Authored by As'ad AbuKhalil via Consortium News, The launch of the Aljazeera television network 25 years ago this month in 1996 was a monumental event in the contemporary history of Arab media. One can easily compare it to the rise of Voice of the Arabs, the Egyptian radio broadcast founded by Gamal Abdel Nasser in Egypt in 1953. Voice of the Arabs was available on shortwave radio throughout the Arab world, spreading Nasser’s message. No book on that era is complete without a reference to that radio service. It had a tremendous impact on the formation of Arab public opinion for decades until its demise after 1967, when Egyptian media was caught lying to the Arab people about the reality of defeat during the early days of the Arab-Israeli war. The radio station that articulated the hopes of the Arab nation suddenly stood as a symbol of its incompetence and deception. No media replaced the Voice of the Arabs at the pan-Arab level until the rise of Aljazeera in 1996. Similarity between the two services ends there. Aljazeera came into existence at a time of regional political instability in the Arabian peninsula. The then emir of Qatar, Hamad bin Khalifa Al-Thani, came to power in 1995, having overthrown his father. That family coup so disturbed the Saudi royal family that they tried to overthrow al-Thani a year later. Riyadh felt that any deviation from the established line of succession would amount to a betrayal of centuries-old traditions that have been key to stable political succession. (Of course, Saudi Crown Prince Muhammad bin Salman has violated those norms and the lines of succession to make himself the sole successor to his father, King Salman). Hamad bin Khalifa al-Thani blamed Saudi Arabia for the 1996 counter-coup attempt and began to chart new foreign and defense policies that were directed at the Saudi threat (he justified his invitation to host U.S. troops as a protection against his powerful neighbor). Aljazeera, which is owned by the Qatari government, was launched with a wide parameter of expression not seen in Arab media before. To be sure, there were red lines: not much was said about oil and gas policies, nor about the monopolies of royal families and the internal politics of Qatar. As a guest on Aljazeera many times I can attest that the network does not accommodate views that are critical of the Qatari royal family. (My last appearance a decade ago was after I challenged the network on live TV about its preferential treatment of American officials and its attempt to suppress criticisms of Qatari foreign policy.) No Competitors Aljazeera was a huge success and it had no competitors at the time. There was the Saudi-owned media empire, MBC, which was started in London in 1991 by a brother-in-law of King Fahd as the first Arab satellite channel. It was aimed at drawing Arab audiences with silly entertainment and sports shows and with less emphasis on politics: whatever news that was allowed was strictly within the parameters of Saudi foreign policy. Even TV serials on MBC carry blatant political agendas: either an anti-Shiite message (Al-Faruq, on caliph `Umar Ibn Al-Khattab, for example) or a blatant Zionist message in the serial Um Harun, for example. The latter was the first TV entertainment show to disseminate the Zionist agenda into Arab homes. Aljazeera gave Arab audiences what they had been waiting for for decades: an Arabic chat and news political channel. A debate show, which brought two opposite political views (Al-Ittijah Al-Mu’akis), was an instant hit. The show was 90-minutes long (Arab audiences don’t suffer from American short attention spans). The presenters became instant celebrities. Most Arab homes were tuned in to Aljazeera especially when there was a breaking story; the only alternatives to Aljazeera were regime-owned TV stations that were dogmatically propagandistic. It is not that Aljazeera was not serving a propaganda interest of the Qatari regime; but it also provided a wide margin of expression never seen before by Arab audiences. There was much emphasis in those early years on Saudi Arabia and the channel highlighted human rights abuses there. Not all countries were treated equally, as allies of Qatar received better coverage. But the early managers and editors of the network were secular Arab nationalists and that appealed to many Arabs throughout the world. Even Arab-Americans subscribed to the Dish Network in order to receive Aljazeera broadcasts. My first appearance on the network in 2001 was to speak about Saudi Arabia. The channel mixed political talk shows and very serious round-ups of news. Experienced and talented correspondents were hired and offices were established around the world. The Arab media scene had never experienced something similar, and themes about Arab unity and nationalism galvanized the audience. But many Arabs had complaints about the coverage: the network hosted a weekly religious show with Yusuf Qardawi, a former Muslim Brotherhood preacher with very conservative views. His version of Islam was appealing to conservative Arab regimes who opposed Nasser—the man who successfully marginalized the Muslim Brotherhood around the Arab world; the network was the first to host Israeli guests; officials of the Israeli government and military were regulars on political shows (they did receive tough treatment—unlike on Western shows—but the precedent was appalling to many Arabs whose sensibilities were offended in the extreme); the network was increasingly getting defensive about the U.S. government and it gave ample platforms for U.S. officials to spew their propaganda. But the network’s championing of the Palestinian cause and its critical coverage of the U.S. invasion of Iraq in 2003 pleased Arab audiences (although the U.S. military responded by simply bombing Aljazeera’s office in Baghdad, which killed their chief correspondent). US bombing of Aljazeera‘s Baghdad office. (Aljazeera footage in the film Control Room) The U.S. government and Arab regimes became alarmed over the increasingly important role of Aljazeera. Offices were banned, but the channel’s broadcasts were hard to censor. Saudi Arabia was most concerned because Saudi dissidents (like Sa`d Al-Faqih) would appear on the channel and call for protests on certain days (surprisingly, there were people who responded to such calls under the repressive regime). The U.S. (in Congress and the media) became more vocal in their attacks on Aljazeera with journalists and politicians calling for its ban from US cable carriers (the U.S. government routinely bans “undesirable” channels from the U.S. without much opposition from U.S. media). Saudis Respond The Saudi government quickly scrambled to produce its own political propaganda news channel and in March 2003 – just in time to provide favorable coverage of the U.S. invasion of Iraq — Al-Arabiya TV channel was launched to serve Saudi and U.S. interests. The network had a much narrower margin of coverage and only hosted opposition figures form countries that were not aligned with the U.S. and Saudi Arabia. Aljazeera remained the leading channel although Al-Arabiya gained ground. The U.S. government was very pleased with the new Saudi channel and senior U.S. officials (including president George W. Bush) were made available for interviews, while many U.S. officials boycotted Aljazeera outright. It was in 2011 that the story of the decline of Aljazeera began. Prior to that in 2008, the Qatari and Saudi governments reconciled and that resulted in much tamer coverage of Saudi Arabia by the network. The Saudi government requested that Saudi opposition figures not be allowed on the network (The Emir of Qatar in 2010 informed me that the Saudi king asked him to ban me from the network). But the biggest change in the network’s coverage occurred in 2011, when the channel fell under the control of the Muslim Brotherhood and their affiliates. All secular Arab nationalists were pushed out of the station and new religious-oriented staff was brought in. With the beginning of the Arab uprising that year the network dropped all professional pretenses and adopted a more overtly propaganda line in calling for the overthrow of governments where change was favorable to the Muslim Brotherhood (such as in Egypt and Tunisia). The channel passionately urged the toppling of Egyptian President Hosni Mubarak, but refrained from advocating the overthrow of the King of Bahrain next door. If anything, the network supported the Saudi invasion of Bahrain to crush its rebellion. Aljazeera English coverage of Saudi forces crossing the causeway into Bahrain in 2011. Reasons for Decline It was around that time that Arabs started to abandon the channel in droves. There are no reliable figures to document the decline of Aljazeera and the channel still claims to have a leading position among Arab media. But many factors have brought about the decline of Aljazeera: the control by the Muslim Brotherhood of the network drastically undermined its professionalism; U.S. pressure on Qatar softened the coverage of the U.S. The director-general of Aljazeera told me how the U.S. embassy in Doha submitted regular critical reports about the coverage of Aljazeera demanding that changes be made. In 2009, Haim Saban, the Israeli-American media mogul, tried to purchase the channel. the use of Aljazeera either to first offend and then appease Saudi Arabia turned the network away from journalism and towards propaganda. the rise of local channels in Arab countries damaged the ratings of all pan-Arab channels, like Al-Arabiya, Aljazeera and MBC. the resort to sectarian agitation by some personalities on Aljazeera, and the pro-Taliban, pro-al-Qa'ida sympathies of some Aljazeera correspondents (like Ahmad Zaidan), hurt the image of the network with the larger Arab audience and narrowed the appeal and audience share of the channel. Aljazeera was one of the most interesting cases of a new Arab media in the 21st century; it promised a break from traditional stale and rigid Arab news broadcasts but eventually failed in its mission. The early years of the network showed more professionalism in news than is seen on U.S. TV networks. But the Qatari government’s control of the channel would inevitably cause a conflict between its professional mission and its propaganda role. Propaganda won and the Arab public is the worse for it. Tyler Durden Sat, 11/27/2021 - 19:45.....»»

Category: blogSource: zerohedgeNov 27th, 2021

GreenWood Investors 3Q21 Commentary: Defense, Offense & Conviction

GreenWood Investors commentary for the third quarter ended September 2021, titled, “Defense, Offense & Conviction.” Q3 2021 hedge fund letters, conferences and more When Defense Misfires “Offense wins games. Defense wins championships.” This past quarter, much of my curiosity has been focused on the differences between offense and defense. Given I’ve spent little time watching […] GreenWood Investors commentary for the third quarter ended September 2021, titled, “Defense, Offense & Conviction.” if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Series in PDF Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues. (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more When Defense Misfires “Offense wins games. Defense wins championships.” This past quarter, much of my curiosity has been focused on the differences between offense and defense. Given I’ve spent little time watching team sports, it’s been an interesting exploration. As my mind was occupied by defining an offensive playbook for our two coinvestments, we took our eyes off the ball of our protective, defense-oriented portfolio activities. The performance in the quarter was impacted by a 4% headwind generated by one particular short, which was the primary reason our fund underperformed indices in the quarter. While it was a painful lesson, we immediately evolved our short process in order to prevent our defensive measures from ever hurting our performance to such an extent going forward. Cutting to the chase, the performance in the quarter for the Global Micro Fund was -7.7% net (+30.5% YTD), and this compares to our benchmark MSCI ACWI index returning -1.1% in the quarter (+11.5% YTD). Without any FX headwinds, euro-denominated Luxembourg fund returned -3.3% net (+39.4% YTD). Separate account composites had similar returns, as Global Micro strategy returned -8.1% net (+15.0% YTD) and our longest-running and long-only Traditional accounts returned -6.8% net (16.5% YTD). The Builders Fund I returned -5.2% net in the quarter (+84.5% YTD) driven partially by foreign exchange. Builders Fund II, which was launched in the quarter, returned +3.0% net (+3.0% YTD). Aside from the one short mentioned, our returns were also impacted by corrections at Superdry PLC (LON:SDRY) and Peloton Interactive Inc (NASDAQ:PTON), each taking away roughly 2% from our performance in the quarter. They are both experiencing very different situations right now in the aftermath of Covid, but both are pressing their offense strategies with increased vigor. We remain undeterred with Superdry despite popular skepticism on the brand’s turnaround. Such perspectives look mismatched with a reinvigorated influencer strategy targeting a whole new generation, which have just driven same-store-sales to positive territory on a two-year stack. This is ahead of a pivotal autumn-winter season, when its jackets, coats and sweaters have traditionally shined. Having missed last winter due to Covid, we are excited to see the new product resonate with an entirely new base of consumers. We recently followed the Chairman and CEO’s insider buys, and purchased more shares on weakness. We continue to be encouraged by the progress made; and for a slightly longer discussion on where our thoughts are on Superdry, click here to see a tweet thread. Peloton has experienced a round trip of home workout demand back to pre-covid levels. Thus, while it is launching new products and new geographies, and retains an industry-leading engaged base of 6.2 million exercisers with low monthly subscription churn, this position will have to return to old fashioned marketing to continue on its path towards its incredibly ambitious goal of impacting 100 million users’s fitness routines every month.. With its customer satisfaction, as measured by the Net Promotor Score, remaining one of the highest, if not the highest, in the world, we would not bet against this heavily engaged cult of growing endorphin-filled users. We believe the company still has a very significant market opportunity to both attack and define. Revisiting The Defense Playbook “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” Warren Buffett Stretching the offense and defense analogies over to investing, this past year has rewarded risk-taking (offensive) strategies, particularly those that are furthest out on the risk curve. But over the long-term, value-oriented investing wins the championship. That means taking a conservative underwriting approach to investment opportunities and maintaining a defensive posture when everyone else is doing the opposite. In our opinion, that also means running a short book, which allow us to remain opportunistic in periods of greater stress. It is not a good time to be reducing a defensive posture, in our opinion. Over the first 11 years of GreenWood’s existence, we have almost never been idea-constrained. Rather, we have been only constrained by the capacity we have to analyze the large opportunity set. That has typically meant, aside from the earliest years, we have had minimal cash left over. Given we have gravitated towards misunderstood assets and areas neglected by robotic index funds, not only does this portfolio tend to not carry a large cash balance, but it has exhibited more volatility than an index. Accordingly, carrying a short book is essential for us to be able to remain opportunistic in periods of stress. And quite frankly, our defense track record could use some improvement. While this defensive posture paid off in 2008, 2011, and 2018, we had few opportunistic shorts going into 2016 and 2020, right when we needed them. I’m personally committed to improving on that 3-2 market defense track record. I’m also committed to lowering any significant portfolio tilt towards specific factors, as our fundamental research capabilities are not able to be matched on a macroeconomic scale. There are too many factors and estimates to know anything on a large scale with any degree of certainty. For us, conviction is the most important function of an asset manager. It was with that intention we have been carrying a full short book ever since late 2020. And that short book largely paid off over the first half of this year, as the current environment has proved to be fertile in finding over-valued, value-less businesses. In fact, most of these shorts underperformed the market so quickly and so dramatically, that short book turnover caused Chris and I to run on a faster and faster treadmill throughout this year. When we found the short that ended up causing us so much pain in the quarter, it sounded too good to be true. It was a perfect offset to some of our chunkier portfolio factor exposures, but even more, it became clear this was not only a terrible business model, but it was likely a fraud. As Chris and I dug further into the business, there was a never-ending string of yarn that we kept pulling, and the more we pulled, the more damning the evidence was on the founder, company and target markets. In that excited process, we failed to appreciate the risk posed by the meme-trading phenomenon, in the assumption that an Italian company was unlikely to get caught up in the retail trading frenzy that has generated so many distortions elsewhere. Bypassing that debate proved to be our mistake, as the less liquid nature of the stock meant that it was more easily manipulated higher for a few months. As it was getting squeezed, I took action to eliminate that portfolio risk, even knowing that the stock would eventually go to zero. And in the wake of that experience, we also exited other shorts that had largely run their course, but that posed some possible retail trading risk. In our post-mortems, that are published on our investors-only research area, we identified one of the problems we were trying to solve for was the treadmill we found ourselves on. Because each piece of incremental evidence made it more and more compelling, we actually didn’t pause to have a proper bull-bear debate, which is what we have done for every other position. We had put too much pressure on ourselves to maintain a timely short book, and in many ways that papered over the obvious truth that the borrow was hard to obtain and liquidity was not accommodative. We revised our ranking framework to ensure there is a significantly higher bar for less liquid shorts in the future. Furthermore, we decided that any “gaps” in needed short exposure would more easily be filled immediately with index funds that could directly help offset some of the chunkier factor risks to our portfolio, namely European value stocks. We don’t intend to hold these index hedges forever, but believe it will help take pressure off of us to prematurely add new shorts to the portfolio. We have a lot of candidates in the backlog, but we are determined to ensure that we get the timing right as opposed to just the company thesis and factor exposure. At their core, our defensive moves should first do no harm. This analogy mirrors perhaps the most quoted Buffett lesson about rule number one, noted above. In that vein, our current short portfolio is comprised of large, liquid index constituents with very low short interests, cheap borrows, and are largely well-loved. Similar to most of our short positions in the past, they also have mounting liabilities as decades of unconscious behaviors or corruption have eroded the core values of the businesses. We recently published our research on two newer positions on our investor-only research site. These shorts have multiple catalysts over the next few quarters, that we believe, will cause both a material impact to their financials while also possibly downgrading the market’s behavioral narrative. More Conscious Than ESG “Sustainability is built into our business model. If we are focused on the long term, there is no conflict between profitability and the interests of stakeholders. If you are focused on the short term, there is. It’s that simple!” Sir Martin Sorrell Most importantly, these two businesses that we are short have some deeply unconscious features. While each case is different, this means that we’ve found evidence of corruption or deliberate sales of defective or toxic products for decades prior to being discontinued. All of these behaviors are only now catching up to these companies and present material downside risks to these businesses that have historically been run for short-term profit maximization as opposed to long-term value creation or innovation. These are the kinds of companies that are causing the ESG movement to gain major traction around the world. But while we applaud action being taken on protecting the environment, the ESG movement is not solving the root of the problem. The movement is addressing the symptoms rather than the causes. In a white paper that I can’t wait to publish, we’ll show evidence that the fundamental issue facing business today is one of unaccountable agents seeking immediate gratification. There’s a lack of ownership and accountability in a market that continues to outsource much of the “ratings” to agents. Large funds managed by agents with no skin in the game are relying on ratings agencies, also with no skin in the game, to dictate qualitative criteria that often don’t tie to value creation, but rather liability minimization. And that is important, but not sufficient on its own. It is defense without the offense. Or sometimes, it’s all marketing covering up flimsy foundations. Owners or founders exhibit more long-term, conscious capitalist behavior. They generally don’t give quarterly profit guidance, and instead prefer to focus on their customer satisfaction and employee morale. They invest more in their own businesses rather than paying that capital out to shareholders or to acquisition targets. Great shareholder returns are the result of a highly conscious business model, not the goal in and of itself. Exhibit 1: Builders Have Happier Customers & More Engaged Employees Source: GreenWood Investors, OO = owner operators, DC = dual share class structures, S&P = S&P 1200 Global Index But what does it mean actually to be conscious? That’s the subject that Anil Seth seeks to answer in his latest work, Being You. In seeking to demystify the mystery of consciousness, he discusses the most robust model that has been put forward for understanding and measuring how conscious an organism is. Integration information theory (IIT) postulates that consciousness is measured by the degree to which information is integrated into a system or action. Seth explains, “This underpins the main claim of the theory, which is that a system is conscious to the extent that its whole generates more information than its parts.” This concept struck me, as it has many direct parallels to well-worn concepts in investing. Of course it makes sense that the more conscious an organization is, the better it is at integrating information into action. But what really struck me here is that using this IIT framework- an organization is only conscious if the whole is greater than the sum of its parts. To me this infers that if the parts of a business don’t come together to produce something more powerful or valuable than the sum of those individual units, segments or components, the business is not a conscious business. Seth later explained how conscious perceptions are largely built from best guesses and confidence. A key insight of Bayesian inference is that perception is largely a function of updating beliefs about the world based on the precision and reliability of new information. Our minds seek to eliminate prediction errors everywhere and all the time, and we do so by converging our beliefs to the level of conviction we have in the information. In this age of ubiquitous and free information, we differentiate ourselves by the level of conviction we have in the quality and reliability of the insights we have. Conviction is the key. And as Seth later demonstrated, such insights are virtually worthless if not paired with action. This echoes the sentiment that Warren Buffett expressed in talking about getting fat pitches in one’s career, and that one must “swing big,” as they don’t happen very often. This is indeed why we are “swinging big” with Coinvestment II, as this is one of the fattest pitches we’ve ever been thrown. Moving From Defense to Offense “High expectations are the key to everything.” -Sam Walton As my mind was more occupied with offensive capital allocation strategies in the quarter, this pairing of action with insight particularly spoke to me, highly conscious offense playbook strategies are rare. Instead the norm is that most offensive actions are typically made from a defensive motive, and are not based on novel insights. As I wrote in last year’s fourth quarter letter, we endeavor to only get involved in turnaround situations where we either have a board presence, or where a founder or owner operates the business. In our view, these managers have been more resilient in defending their businesses from adversity. Simply put, they cannot just give up and move on. As Covid ripped through the world and economies, far too many managers decided to give up. In the depths of the Covid crisis, at the Presidential inauguration ceremony, National Youth Poet Laureate Amanda Gorman articulated rather eloquently that, “Your optimism will never be as powerful as it is in that exact moment when you want to give it up.” Founders are inherently optimistic, and they don’t give up. In exploring the differences between defense and offense, I’ve come to realize that it is even more important to have an owner-oriented management culture when moving from defense to offense. Defense is inherently reactive, reacting to “known knowns” or “known unknowns.” Reactions are easier than proaction. Traditional boards are typically very good at liability minimization. But as important as liability reduction is, these actions do not create value. New business and invention is inherently venturing into the unknown, seeing what others don’t, and pursuing the path untravelled. It comes naturally to a founder or owner, whose authorship imbues the business with the optimistic, entrepreneurial impulse that often started it in the first place. As my friend Bill Carey has articulated, most managers compensated via stock options act more like stock brokers as opposed to owners. Similar to brokers, their time horizons have shrunk considerably. They are simply rent-seeking for a short period of time. And as my friend Chris Mayer likes to say, “no one washes a rental.” Our research on the differences in the behaviors of owner operators and these renters, shows these renters are not very good at offense strategies either. They are very good at competitive reactions, cost cutting and margin optimization. These are important, just as any defense strategy is, but they typically fail to create any lasting value. The value that is captured from these tools generally only lasts as long as the brief period in which the manager’s stock options vest. Given 70-90% of mergers and acquisitions fail, and stock repurchases have taken a notably pro-cyclical, buy-high, sell-low, history, these renters have a typically poor track record in value-creating initiatives and capital deployment. This short-term rental behavior often results in mediocre outcomes. As the late great Sergio Marchionne regularly reminded, “mediocrity is not worth the trip.” Marchionne acted like an owner even before he was one. And he created so much value that his net worth neared $1 billion when he shuffled off this mortal coil. While much of that was indeed generated by options that he exercised, such options were struck at twice and three times the level at which he came in to rescue Fiat in 2004. His package inspired the design of CTT’s options package for top and first level managers. Sergio was very good at seeing things others didn’t. He and his venerable team of managers, to whom he dedicated so much of his energy, were very good at transforming ignored products and assets into gold. Of particular note, Jeep grew from just over 2%of the market in the US to just under 6% when he passed- and it became a truly global brand. He invented Ferrari’s Icona series, which made the irregular limited edition profits part of the regular P&L of the brand without diluting the exclusivity of such models. He and parent holding company Exor have continued to provide much of the inspiration behind our activities with both coinvestments. We endeavor to replicate their divide & conquer strategy, which allowed the Fiat Group to become stronger as stand-alone Fiat-Chrysler (now Stellantis), Ferrari, CNH, and soon to be Iveco Group. Just as Sergio advised the few believers throughout his career, investors will be “owning multiple pieces of paper” as the journey unfolds. In hindsight, we can all agree on the value creation prowess of him and his team. But we easily forget that for most of his career, he was faced mostly by skeptics and doubters. He was not afraid to look dumb. In his own words, “A lot of what I do is challenge assumptions . . . which often looks like you are asking stupid questions.” Being entrepreneurial, by definition, means taking the path untraveled, and heading into the unknown with daring boldness. Offense playbooks, by design, must take competition by surprise. Coming from a humble place with brands and companies that were ridiculed by competitors, when Sergio put medium-term plans out to the market, they were not timid. He would always aim higher than anyone, especially his competitors, believed he and his team could reach. And while not every target was always achieved, the formidable results speak for themselves. This past earnings season, as Twitter was the only social media company to deliver on guidance while also confirming the quarter ahead to be at least as good, the stock sold off materially as its monetizable daily active user (MDAU) targets in the medium-term were called into question. While founder Jack Dorsey is clearly unafraid to look foolish to the public, or even in front of congress, he also manages multiple businesses at the same time. Competitors openly make fun of him. But his team is exceptionally loyal to him, and they have set out very ambitious targets for themselves over the next few years. The recent sell-off in Twitter shares was like deja vu all over again, as I reminisced about the Fiat capital markets day in 2014, fittingly on Twitter in this tweet thread. With its product and revenue servers rebuilt, it can now innovate and launch new ad formats faster than ever before. We look forward to the Twitter team pressing its offense strategy as a major peer loses focus on its core business. Into The Unknown “Action is inseparable from perception. Perception and action are so tightly coupled that they determined and define each other. Every action alters perception by changing the incoming sensory data, and every perception is the way it is in order to help guide action. There is simply no point to perception in the absence of action.” Anil Seth, Being You What does it mean to move into offense? One thing very clear to us, is that it has to be a dynamic and reflexive approach. It cannot be built into a three or five year plan and remain fixed over that duration. As Anil Seth’s work on consciousness explains, a highly conscious being is constantly ingesting and integrating information, evolving actions based on reliability, precision and conviction. As capital-markets focused investors, we believe one of the highest values we can provide to our companies is information that can be integrated into their offense and defense playbooks. Thanks to our collaborative approach, we get nearly daily recommendations and thoughts from our investors with new information, new case studies, and new suggestions on how to continue iterating. One of the biggest differentiations between good and great investments, that is often overlooked, is the value added by good capital allocation- be it with a very well-done merger, opportunistic buyback or even more, venture-style investments that are almost in no one’s “model” or perception. Small acquisitions that bring new tools and managers can often upgrade the business model. As Clayton Christensen suggested in The Big Idea: The New M&A Playbook, these are often the most overlooked investments. But during the quarter, when posed with the question of how to best allocate capital over the long term, I found myself tongue tied. For it’s a dynamic and reflexive question to ask. It’s easy to see what to do right now, and where to build in the next few years. But sound capital allocation is a function of the opportunities that present themselves. It is also about creating new possibilities, particular ones that competitors don’t see. At CTT, with defensive, problem-solving actions becoming less of a focus, attention can now turn to offense. What that looks like in the near term, at least to me, should be continued progress and convergence on the strategy to become the Shopify of Iberia. With Portugal e-commerce order frequency at very small fractions of neighboring Spain, we believe it is CTT’s responsibility to make itself the most convenient and most cost effective way of conducting commerce. Through more parcel lockers, better digital tools, while maintaining or improving on best-in-class quality of service, we believe much of the responsibility to make online the most convenient commerce channel in Portugal will fall on CTT’s shoulders. Going further with online shop enabling, more cost effective payments tools, and an integrated fulfillment offer, that continues through to returns and customer service, it has every tool it needs to enable this digital transition. This convergence is happening at the same time EU recovery stimulus dollars will be directed towards digitalizing the economy. Case studies like Kaspi, which started as a bank, evolved into a payments company, then launched an e-commerce marketplace and then further expanded into logistics, provide more inspiration than any company in the logistics industry. This reminds me of Google’s earliest days, when its managers encouraged their teams to ignore the traditional competitors and instead go where other competitors hadn’t dared to venture- into the unknown. We believe CTT has greater competitive advantages than some “new economy” companies playing throughout the same e-commerce value chain, often trading at significantly higher valuation multiples. Whether we’re talking about fulfillment services, parcel lockers, or alternative purchase financing, it’s the customer relationship that differentiates and builds competitive advantages. That is why one of the first priorities of the new management was to improve customer satisfaction. And while some analysts that cover the company still use traditional methods to frame the opportunity, the shareholder base has largely transitioned away from income-oriented investors. More like-minded shareholders, aligned with management, can enable the team to build something truly great. Building Great Companies “The urgency of doing. Knowing is not enough; we must apply. Being willing is not enough; we must do.” DaVinci What started for us as an approach to separate the bank from the industrial company, and achieve a sum of parts valuation, has been upgraded to that of building a great compound machine. As Exor articulated in 2019, its purpose to “build great companies,” is an aspirational philosophy for us. While we certainly aren’t doing the building here, perhaps through setting the right strategic priorities, incentives, and providing timely and right information, we can assist in the build underway. Exor has provided an exemplary model of how to enable its teams to build greater value by dividing, conquering, and then often later combining with more synergistic peers. Just like Anil Seth described, the whole must be greater than the sum of the parts in a highly conscious organization. When a company’s sum of the parts is greater than the total, the organization is not conscious, and therefor not capable of adding material value. Just as Exor has executed masterfully in its portfolio companies over the past decade, the path forward is one of both dividing and one of conquering. Extending the business and commerce services that CTT provides is a natural offense-oriented positioning that further reinforces the strength of the whole. But there are other parts of this organization that aren’t adding as much to the sum total- those can, and should be separated to pursue their own offense playbooks in a more focused and agile manner. Such an approach goes well beyond ESG, and it goes well beyond most other broker-oriented management teams. It is a highly conscious capitalist approach, aligned with long term value creation and sustainability. And that process should result in considerable returns as an effect, not as a goal. As owner operators’ short, medium, and long term benchmark outperformance demonstrates, this strong alignment between management and ownership is a championship-winning combination. Exhibit 2: Owner Operators’ Stock Index Outperformance Source: GreenWood Investors In the months ahead, we anticipate thoroughly engaging with the management and board of the target at the Builders Fund II. This company is mirroring CTT’s current posture, in that it is in the process of finishing nearly a decade of defense-oriented actions. After years of strategic actions focused on fixing problematic areas, contracts or business dynamics, most of these reactive or defensive actions are increasingly passing into the rearview mirror. It is entering a new phase of life in a position to also divide and conquer, and it has exceptional assets. With both coinvestments representing a substantial portion of our net exposure, we move forward with conviction. While this quarter was a lesson that we, nor our companies, can lose sight of a strong defense strategy, we are increasingly looking forward to our portfolio pressing offense strategies moving forward. Committed to deliver, Steven Wood, CFA GreenWood Investors Updated on Nov 24, 2021, 4:37 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkNov 24th, 2021

Audacious Reports Fiscal Q2 2022 Financial Results

Q2 Revenue Increased 2,068% Year-over-Year to $2.3 Million Pro Forma 2,702% YoY Growth (vs Reported) Solidifies Entry into New Markets, including California and MassachusettsWorking towards Operationalizing Missouri Asset Expands Brand Portfolio – Continued Growth Initiatives in Nevada ALPS Continues to Expand with Cannabis and Non-Cannabis Contracts  Strengthens Leadership in Environment, Sustainability and Governance Driven Horticulture Projects Earnings Conference Call Tuesday 23 November 2021 at 11am EST LAS VEGAS, Nov. 22, 2021 /CNW/ - Australis Capital Inc. (CSE:AUSA) (OTC:AUSAF) ("AUSA", "AUDACIOUS", or the "Company"), today announced that the Company has filed its financials and management discussion and analysis for its fiscal second quarter of fiscal 2022 (the year ending March 31, 2022), the period ending September 30, 2021. The Company's results are filled on Terry Booth, CEO of Australis, commented, "In the second quarter of fiscal 2022, the AUDACIOUS team continued to execute. On a pro forma basis, we continue to record stellar growth with revenues increasing 2,700% year-over-year, and further strengthened our gross margins through the successful integration of our ALPS subsidiary. Our financial results are a direct result of the strength of our unique and differentiated business model, which centers on partnering with leading cannabis brands and building our portfolio of integrated cannabis operations to strategically expand our US and global footprint. Our ability to form synergies across cannabis operations under the leadership of an experience C-suite, supported by a team of seasoned cannabis and CPG executives, crop consultants, engineers and genetics experts, continues to drive our success and we are well positioned to explore opportunities that will further our position as a leading multi-state operator. We remain focused on our capital-light business model and following a proven path to success by scaling our operations and streamlining costs while entering new high-growth cannabis markets."  Income Statement 3 months ended 30-Sep-21 3 months ended 30-Jun-21 Change (sequential) 3 months ended 30-Sep-20 $ $ % $ Revenue 2,271,830 1,728,363 31.4% 104,800 Gross profit (loss) 1,233,766 1,064,539 15.9% -116,120 Operating expenses 5,637,907 4,479,937 25.8% 2,645,516 Loss from operations -4,404,141 -3,415,398 28.9% -2,761,636 Financial Highlights Q2 Fiscal 2022 Outlook Going forward, the Company anticipates continued strong growth with anticipated Q3 revenues north of $3 million. In the months ahead, AUDACIOUS will continue to execute on its strategy with further growth in its current markets and anticipates entering into new jurisdictions, including New York state, New Jersey and others, as well as further expansion of its product line portfolio. Additionally, the Company will be pursuing multiple initiatives to increase production volume, further driving growth. 2Q 2022 Financial Highlights Total revenues of $2.3 million, an increase of 2,068% year over year from $104,800 in the second fiscal quarter of 2021 and increased 31% from $1.73 million in the first fiscal quarter of 2021. Revenue for the six-month period ended September 30, 2021 increased 2,287% to $4.0 million from $167,602 in the comparable period of 2021. Fiscal year 2022 includes revenue from ALPS and management fees related to Green Therapeutics, which were both key drivers of the Company's revenue growth for both the three months and six months ended September 30, 2021. Gross profit for the fiscal second quarter of 2022 was $1.23 million compared to a gross profit loss of $(116,120) in the comparable period of 2021 and increased 16% from gross profit of $1,064,539 in the first fiscal quarter of 2022. Gross profit for the six-month period was $2.3 million compared to $(60,506) in the comparable period of fiscal 2021. The increase in gross profit for both periods is predominantly from the Company's high-margin ALPS business and management fees from Green Therapeutics, which was offset by slightly lower utilization rates on projects. The Company reported a net loss of $(4.32) million, or $(0.02) per share, compared to a net loss of $(5.82) million, or $(0.03) per share, in the second quarter of 2021, and a net loss of $(9.67) million, or $(0.04) per share in the first quarter of 2022. The prior year net loss was higher due to settlement costs and the net loss for the first fiscal quarter of 2022 was higher due to a decline in investment values. Working capital as of September 30, 2021 was $7.40 million as compared to $16.42 million as at March 31, 2021. The Company believes it will have sufficient cash and resources to fund its business objectives for the next twelve months. Pro-Forma Results – Continued Stellar Growth The table below provides an overview of the Company's pro-forma results (had the Green Therapeutics ("GT") business been fully consolidated. Quarter ended Pro-forma statement 30-Sep-21 30-Sep-20 Change $ $ % Company without ALPS 231,567 104,800 121.0% ALPS 1,740,263 398,083 337.2% Green Therapeutics 964,137 905,960 6.4% Pro-Forma Revenues 2,935,967 1,408,843 108.4% Pro-Forma vs Reported 2,701.5% Pro-Forma Statements Corporate Operational Update, Q2 Highlights and Subsequent Events ALPS - New Contracts and Business Opportunities Drive Audacious Geographic Expansion, Product Expansion & High-Margin Revenue Growth ALPS signs facility contract with Little Leaf Farms, North America's largest grower of baby leaves, for an approximately 450,000 sq. ft. facility in Pennsylvania for the cultivation of baby leaves. This new facility is expected to set the industry standard for output per square foot, while delivering the highest quality produce at low operational costs per unit produced. The Company anticipates collaborating with Little Leaf Farms on multiple future projects currently being conceived. ALPS completed comprehensive paid-for feasibility study for a large investment fund in the United Arab Emirates for the establishment of a 20 hectare (50 acre) greenhouse facility, to be operated by Pure Harvest. Pure Harvest is a leading technology innovator and operator in the horticulture space in the Middle East, Northern African and Asian regions. The Company anticipates the investment decision to be made shortly. ALPS partners with Priva to jointly market its APIS solution, ALPS' advanced compliance and maintenance service solution, across the global horticulture industry. Priva is a leading technology company in the development and sales of hardware, software and data-services in the field of climate control, energy saving and optimal reuse of water with over 12,500 existing projects globally. ALPS signs contract with Pure Harvest Smart Farms to drive expansion in the Middle East through the development of a 1 million+ square foot, high-tech, fully-integrated facility to achieve year-round cultivation of high-quality, fresh fruits and vegetables in Kuwait. ALPS launches GROWQUICK and ACHIEVE series of facility offerings, a new service offering, powered by ALPS, for cannabis companies looking to build new facilities or expand existing ones. Standardized customized design across the series facilitates a quick-to-market approach that enables clients to start generating revenue through the sale of high-quality, high-margin product well ahead of any fully customized project. Green Therapeutics – Expands Provisions cannabis brand with edibles line – Successful Launch of Provisions products in California AUSA's wholly owned business subsidiary, Green Therapeutics, is rapidly growing its Provisions cannabis brand, which is well-known for its premium distillate cartridges and cutting-edge sublingual sprays. The Company is focused on releasing its new edibles product line under its Provision brand, which was launched in Nevada in November 2021 with other markets in which the Company operates to follow. A curated selection of Provision products is now available in California on the EAZE menu. EAZE is the largest legal cannabis delivery service in the U.S. with nearly 8 million cannabis deliveries to date and 2 million registered customers. In addition, the Company is close to securing additional manufacturing space in Nevada to expand its extraction capacity in order to produce its new line of edibles, among other new product categories, and to develop its solventless line. These new lines are anticipated further to accelerate revenue growth upon transfer of the GT licenses. Provisions successfully introduced its 1-gram disposable cartridges in California through the EAZE delivery menu. The first production run in Nevada (2,000 units) sold out in short order. The Company is working on scaling up production. Green Therapeutics is working on further growth initiatives in Nevada to further accelerate growth. The Company is also working on operationalizing its asset in Missouri. LOOS – Successful Launch of Cannabinoid-infused Shot Beverage Brand across California LOOS currently is available in 17 retailers. With the LOOS products also available on the EAZE menu in San Jose and throughout California, the 5,000 units of the first limited production run were sold despite limited promotion. Since commencing production, each EAZE Hub has re-ordered at least four times, with some locations as many as nine 9 times to replenish inventory, with purchase orders increasing month over month. Within the first weeks on EAZE, LOOS became one of the best-selling beverages on the EAZE menu. Despite limited promotional activities and a relatively small first production run, the LOOS products continue to increase market share, trending higher week after week, currently ranking in the top five of the most successful beverage products in California. Based on the successful launch and growing demand for the LOOS products, the Company is now working with its partners to scale up production through licensing agreements. Belle Fleur - AUSA Signs LOI to Acquire 51% Stake in Belle Fleur manufacturing facility  Belle Fleur production facility construction progressing according to timeline AUSA is expanding its partnership (subject to appropriate regulatory approvals) with Belle Fleur by entering into an LOI to acquire a 51% stake in Belle Fleur's planned manufacturing facility in Massachusetts. Belle Fleur, founded by the team behind the iconic Rapper Weed brand, are well-known music industry entrepreneurs with strong resonance with the culture. Belle Fleur holds a Tier 11 license in ...Full story available on»»

Category: earningsSource: benzingaNov 23rd, 2021

Casinos made Macau one of the wealthiest places in the world — but they also brought heightened inequality and crime. Now, China is cracking down.

Macau's gaming liberalization in 2002 was meant to make the city a world center for tourism. That didn't exactly happen. "Gaming is 70-80% of Macau's GDP. It's shockingly high," said Alidad Tash, who runs a consultancy firm called 2NT8 Macau.Nikada / Getty ImagesThe entire infrastructure of Macau's success has been built on casinos. But under Beijing's regulatory crackdowns, gaming operators will have to abide by new rules — or risk losing their licenses.At 32 square kilometers, Macau is just 5% of Singapore's size. It's about half the size of Manhattan. Yet it has more than 35,000 hotel rooms, 30 Michelin-star restaurants, and 25 UNESCO World Heritage Sites. And it clocks gaming revenues that are six times that of the Las Vegas Strip.It's also one of the wealthiest places in the world.Alidad Tash is an expert in gaming operation and strategy who worked for 10 years in Vegas and Macau with the Sands organization. He said Macau's gaming revenue was $36 billion in pre-pandemic 2019, while Vegas raked in just $6 billion."Gaming is 70-80% of Macau's GDP. It's shockingly high," said Tash, who now runs his own consultancy firm, 2NT8 Macau.But the wealth rests in the hands of a few — and that, in turn, is at odds with the government's "common prosperity" messaging. In September, officials announced a regulatory overhaul. Gaming licenses in Macau expire in June 2022.The timing of the announcement is in line with Beijing's regulatory crackdowns, and it means gaming operators will have to abide by new rules or risk losing their licenses. There were also hints of Chinese officials supervising the world's largest gambling hub. All this caused shares of casino companies, particularly American operators Sands China and Wynn Macau, to plunge.Getting Macau to amp up the non-gaming elements of the island will be a challenge, according to casino development strategists and hospitality consultants Insider spoke to. For one, Macau is tiny. But mainly, it's a victim of its own success for focusing on gaming as its sole cash cow.Macau is a victim of its own success for focusing on gaming as its sole cash cow.Tibor Bognar / Getty ImagesMore money, but not for everyoneVictoria Fuh is the vice president of Macau Meetings, Incentives and Special Events Association. Fuh told Insider that when she arrived in Macau 16 years ago, most meeting planners didn't know where Macau was. Today, it's on the list of venue options for international conferences that rotate globally."Year after year, Macau adds new hotels and attractions, so it's always fresh for our clients," said Fuh.Since 1962, Stanley Ho — the late "King of Macau" — and his family held a monopoly over Macau's gambling industry as the only licensee for casinos. When Macau broke the monopoly in 2002, five more casino operators entered: Sands China, Wynn Macau, Galaxy Entertainment, Melco Entertainment, and MGM China. Collectively, they now operate 41 casinos.With the casinos came a lot of money. Macau is the only place in China where gambling is legal, and casinos have had a strong 20-year run."Macau's GDP per capita shot up from a low of $12,352 in 1992 to $71,974 in 2020," said Ben Lee, managing partner of IGamiX Management & Consulting. "However, most of that wealth is concentrated in the hands of a few."There's a lot of money in Macau, but there's also extreme wealth inequality.polybutmono / Getty ImagesThe government started a one-off annual cash handout to residents in 2008. In 2020, the amount allocated to residents was 15,000 patacas ($1,870).Lee, who has lived in Macau for 16 years, told Insider the annual lump sum is "nominal.""China sees how this creates social problems in Hong Kong and probably wants to avoid the same outcome in Macau," Lee added.Were it not for subsidies and welfare benefits like these, Macau's Gini coefficient — which is used to measure inequality — would have been 0.4% in 2017-2018, hitting the high inequality mark, according to the 2020 Statistics and Census Bureau survey as reported by Macau Business.And while the government reports a low poverty rate — 2.3% in 2017 — the percentage is based solely on income and ignores the growing cost of living that accompanied the casino boom.Wealth inequality isn't the only issue in Macau. For one, there's crime: According to a paper from the Macao Institute for Tourism Studies, since the liberalization of casino licensing in 2002, crime has "increased drastically."There are other social problems, such as a whole generation of young people dropping out of studies to work in the gaming industry because of its financial rewards, according to Robbert van der Mass, director of APAC Hospitality Services Macau. This in turn affects small retail shops and restaurants, many of which have disappeared as they couldn't compete with salaries offered at casino resorts."When casinos make money, no supplier gets rich," said Tash.leungchopan / Getty ImagesOne-trick ponyMacau is well positioned for tourism: At its feet is the massive mainland market and neighboring Hong Kong, which together accounted for 90% of Macau's 39 million arrivals in pre-pandemic 2019, Macau Statistics & Census Service, locally known as DSEC, shows.In 2019, there were 60 times more tourists than locals in Macau, per DSEC figures. But the average length of stay in Macau is just 1.2 days, compared with 2.7 days in Singapore and 3.3 days in Hong Kong. That's partly due to a high number of day-trippers, which accounted for 53% of arrivals in 2019, DSEC data shows.Macau's gaming liberalization in 2002 was meant to make the city a world center for tourism, while Hong Kong became an international financial center, said Lee. That didn't exactly happen."Instead, Macau became China's center for gambling," Lee said. "And despite the anti-corruption campaign [in 2012] and a series of anti-gambling edicts subsequently, casinos' non-gaming revenue never really got off to any significant volume, staying at about 5% of their gross revenue on average."This compares with 50% in Vegas and 30% in Singapore, experts interviewed said.However, non-gaming creates more jobs than gaming does — and it benefits small- and medium-sized suppliers more, said some of the experts."When casinos make money, no supplier gets rich," said Tash. "If I spend money in a hotel room, there is a lot more labor involved. Non-gaming supplies wealth for the overall community far more than gaming."Macau is facing increased competition for Asian customers as the gaming industry develops elsewhere in countries such as Japan, South Korea, and the Philippines.Jui-Chi Chan / Getty ImagesKeeping Macau relevantWith its gaming licenses expiring in eight months, Macau now has a chance to reframe its gaming history."This isn't a renewal, it's a new open tender and anyone can bid for a new concession," said Lee. He said the government will likely offer prescriptive terms and demand clear non-gaming plans that extend beyond restaurants and retail."They want to see real non-gaming, such as the development of meetings and conventions, entertainment, art, and other attractions that go towards building a healthy tourism industry," Lee said of the government's approach to Macau 2.0.A shift to more non-gaming could be beneficial for Macau tourism, said some of the tourism experts Insider spoke to. Some even see it as a chance for the city to redefine itself in line with newer travel trends.Van der Mass of APAC Hospitality Services opened the MGM Grand Macau in 2007. He said that over the years, he has noticed a "huge shift" in Chinese travelers' behavior towards culture and experiences in food, retail, and entertainment."Integrated resorts are under pressure to adapt their offerings here in Asia, because these customers are increasingly exposed to leading trends in the world. To build more retail and meeting facilities without evolving these segments is no longer acceptable," said van der Mass.Macau is facing increased competition for Asian customers as the gaming industry develops elsewhere in countries such as Japan, South Korea, and the Philippines, he said.The demographics of gaming travelers are also changing. "Younger travelers are inclined towards gaming online, and the pandemic only drives more of this behavior. I think we'll see a transition in Asia towards more non-gaming," said Ian Wilson, who worked six years at Marina Bay Sands in Singapore and now runs Wilson Innovation Lab.Attempts at moving beyond gamingCasino operators in Macau appear to be heeding the push for more non-gaming.Sands runs two casino resorts in Macau: The Venetian and The Parisian. The Venetian is the largest casino floor in Asia. Sands also tries to attract leisure visitors with attractions like Venice's canals and a replica of the Eiffel Tower. It's now remodeling the former Sands Cotai Central into a new resort called The Londoner, which will include replicas of London landmarks like the Houses of Parliament, Big Ben, and London-themed suites by David Beckham at one of the four hotel towers.Sands is remodeling the former Sands Cotai Central into a new resort called The Londoner, which will include replicas of London landmarks.Courtesy of Sheraton Macao Hotel MarketingThe project, opening in phases this year, has 351,000 square feet of gaming space and 369,000 square feet of meeting space. That's in addition to a 1,700-seat theater and enough retail space to fit 130 stores and 40 restaurants.While the move does reflect a diversification out of gaming, it does not address another missing element in the island's development: Macau's Euro-Asia history and heritage. "Gaming has overshadowed the development of other potential attractions and eclipsed some of the original character of Macau, such as its Euro-Asian heritage, in both tangible and intangible forms," said Leonardo Dioko, a professor at Macao Institute for Tourism Studies and a director of a tourism research center in Macau.A thinly veiled power playSome skeptics believe the regulatory overhaul is a thinly veiled power play for China to gain more control over the yuan's outflow and to strong-arm Macau — and the casinos — into adopting a digital currency, which is traceable."It's no coincidence that the target date for the implementation of the PRC digital yuan is 2024. China just wants to make sure that Macau is ready for the conversion when China wants it to be," said Ben Hirasawa, founder of BH21, a firm that advises hospitality and real-estate clients on project development in Asia.While the review's timing may be opportune for China, it's a setback for Macau tourism, which has been battered by the pandemic. In the first nine months of 2021, Macau had six million arrivals, a fraction of its 39 million visitors in 2019, according to DSEC."Although there have been times throughout the year where we can see a glimmer of hope and travel recovering, it swiftly changes when there is an outbreak somewhere close by or locally," said Janet McNab, who heads Sheraton Grand and St Regis in Macau.Ultimately, what's at stake is the entire infrastructure upon which Macau's success, unequal though it is, has been built. What's also in question is whether the niche it carved out for itself 20 years ago as Asia's gambling haven will still exist."Macau kind of exists for gaming," Wilson said. "But with gaming options continuing to increase around the world, Chinese nationals might even rather gamble in Vietnam, Cambodia, Singapore, or the Philippines, where they won't have quite the same level of scrutiny as they would in Macau."Read the original article on Business Insider.....»»

Category: worldSource: nytNov 18th, 2021

StoneCo Reports Third Quarter of 2021 Financial Results

GEORGE TOWN, Grand Cayman, Nov. 16, 2021 (GLOBE NEWSWIRE) -- StoneCo Ltd. (NASDAQ:STNE) ("Stone" or the "Company"), a leading provider of financial technology and software solutions that empowers merchants to conduct commerce seamlessly across multiple channels, today reports its financial results for its third quarter ended September 30, 2021. "Dear Investor, It has been three years since StoneCo became a public company. This milestone causes us to reflect on the progress we've made in such a short time, as well as the learnings we have accumulated since our foundation. Since our IPO in 2018, we have built on our strengths to scale the business – growing our client base 5.9 times, increasing our revenue by 3.5 times and TPV by 3.4 times, and evolving our solutions beyond payments – reaching over 422,000 banking clients and over 200,000 software clients. We continue to attract great talent and sustain the best levels of customer service. But much more than talking about numbers, we believe what makes Stone unique is our purpose, our people, and our culture. Our purpose is to serve Brazilian Entrepreneurs, transforming their dreams into results. From our point of view, any merchant who wakes up every morning to build a dream is an entrepreneur. As entrepreneurs ourselves, we are proud to serve them and help turn their aspirations and objectives into business results. Serving our clients always comes first. They bring us together and are the main reason for everything we do. We aim to improve Brazilian society by supporting its entrepreneurs. We do this by serving them with excellence, promoting fairer financial relationships, enhancing business productivity, and providing more sales options. We aspire to be a positive force in transforming the retail and financial industries through more balanced relationships. We, at Stone, are bound together not only by this common purpose but also by our culture and our values. They guide the way we do things, bringing like-minded people together and driving behavior at every level of our company. It is foremost through our culture that we aspire to serve all clients with equal respect, in every sector and region of the country. We operate with an ownership mentality, both in attitude and in our hearts. We make a conscious effort to learn every single day, cultivating a healthy discomfort in who we are today because we strive to be a better version tomorrow. We believe in meritocracy as the best way to be fair with each other. In Stone, the best argument always wins. Extreme honesty, with respect, is what builds a stronger company, one day after the other. We remind ourselves to leave our egos at the door. And no matter the circumstance, we always fight for what is right. We also believe that our team is stronger than each individual – no one achieves great things alone. Strong and trusting relationships are the foundation of a lasting business. Hence, we cultivate a genuine interest in others and hold high standards because they attract high-quality people. As entrepreneurs, we take great pleasure in building things. We have a passion for excellence. No effort is too small when we are serving our clients. We are ambitious and pursue results relentlessly. To fulfill our purpose and live by our values, we took on the challenge of building the best financial platform on top of the payments solution that brought us here, taking our relationship with our clients to the next level. From our early beginnings, we have always built our business around the merchant. This has motivated us to establish the hyper-local distribution that enables us to be closer to our clients. Our proprietary technology provides cost efficiencies and reliability that our clients need, and we provide the best customer service in our industry. With the acquisition of Linx and our current breadth of solutions for multiple retail verticals, we seek to build the best workflow tools that provide efficiency to our merchants and helps them sell more through multiple channels. We are just at the beginning of our journey to combine software and financial services that will bring even more tangible results to our clients, and we are really excited about the opportunities we are seeing. Looking ahead, we will intensify our focus on developing products that improve the everyday lives of our merchants and propel their success. We will allocate time, energy and capital toward improving the integration and user experience on all of our financial services and software products as well as new product development. We firmly believe we can help businesses that run on Stone to be more successful. Even though we have evolved and grown our business significantly since our IPO, our heritage values remain strong as ever and will not change: our commitment to serving our clients, our passion to find and develop the best young talents in our country, and our ambition to be a positive force in the evolution of our industry and our country. Thank you for supporting us. We look forward to the years to come." Thiago Piau, CEO Operating and Financial Summary Table 1: Operating and Financial Metrics Main Operating and Financial Metrics 3Q21   3Q20     Δ     9M21   9M20     Δ   Consolidated Operating Metrics                               TPV (R$ billions)1 75.0   69.7     7.6 %   186.4   145.4     28.1 % TPV ex-Coronavoucher (R$ billions)1 73.9   48.1     53.6 %   183.3   121.8     50.5 % Total Active Payment Clients (thousands)2 1,388.4   655.5     111.8 %   1,388.4   655.5     111.8 % Total Period Net Additions2 293.8   94.1     212.2 %   613.9   149.5     310.5 % Active Payment Clients (ex-micromerchants) (thousands)3 846.8   591.7     43.1 %   846.8   591.7     43.1 % Period Net Additions (ex-micromerchants) (thousands)3 80.3   64.6     24.3 %   184.7   106.1     74.0 % Micromerchants Active Clients4 545.1   65.0     738.8 %   545.1   65.0     738.8 % Consolidated Financial Metrics                               Total Revenue and Income (R$ millions) 1,469.6   934.3     57.3 %   2,950.7   2,318.4     27.3 % Total Revenue and Income ex-credit (R$ millions) 1,472.3   777.9     89.3 %   3,325.1   2,077.5     60.1 % Adjusted Pre-Tax Income (R$ millions) 128.7   422.7     (69.6 %)   178.6   855.9     (79.1 %) Adjusted Pre-Tax Income ex-credit (R$ millions)5 156.0   270.4     (42.3 %)   608.4   623.9     (2.5 %) Adjusted Net Income (R$ millions) 132.7   287.9     (53.9 %)   169.6   600.4     (71.8 %) Adjusted diluted EPS 0.46   0.99     (53.7 %)   0.59   2.12     (72.3 %)                                 Financial Operating System for Micro + SMB (MSMBs)6                               Payments                               TPV (R$ billions)7 51.6   28.5     81.3 %   123.6   70.4     75.6 % Active Payment Clients (thousands)2 1,336.1   606.7     120.2 %   1,336.1   606.7     120.2 % Period Net Additions (thousands)2 290.3   89.4     224.8 %   616.3   145.0     325.2 % Digital Banking                               Digital Active Banking Account (thousands)8 422.5   105.6     299.9 %   422.5   105.6     299.9 % Total Accounts Balance (R$ millions) 1,287.1   370.9     247.0 %   1,287.1   370.9     247.0 % Stone Card TPV (R$ millions) 415.8   144.4     188.0 %   928.3   256.0     262.7 % Credit                               Credit Portfolio (R$ millions)9 1,591.4   1,090.7     45.9 %   1,591.4   1,090.7     45.9 % Credit Clients (thousands) 102.4   73.0     40.3 %   102.4   73.0     40.3 % Take Rate                               Take Rate10 1.66 % 2.36 %   (0.69 p.p.)     1.45 % 2.30 %   (0.86 p.p.)   Take Rate ex-credit10 1.67 % 1.81 %   (0.14 p.p.)     1.75 % 1.96 %   (0.21 p.p.)                                   Key Accounts                               TPV (R$ billions)11 23.4   41.3     (43.4 %)   62.7   75.1     (16.4 %) TPV ex-Coronavoucher (R$ billions)11 22.4   20.3     10.5 %   60.0   52.1     15.2 % Active Payment Clients (thousands) 56.1   50.5     11.1 %   56.1   50.5     11.1 % Take Rate12 0.62 % 0.50 %   0.12 p.p.     0.72 % 0.72 %   0.01 p.p.                                   Software                               Consolidated Software Revenue13 315   19     1571.2 %   408   41     897.3 %                                     3Q21 Operational and Strategic Evolution Overall Performance and Strategic Highlights The third quarter of 2021 was marked by strong evolution towards our two main strategic goals: (i) to be the best financial operating system for Brazilian merchants and (ii) to be the best workflow tool for Brazilian merchants and help them sell more through multiple channels. Total annualized revenue in the quarter was R$5.9 billion, of which financial services represent approximately 72%14 while software solutions represent approximately 21%. In financial services, net addition of clients was 293,800 in the quarter, reaching a total of nearly 1.4 million active payment clients, led by a strong performance in our Micro+SMB ("MSMB") business, which grew TPV by 81.3% year over year. Our consolidated TPV reached R$75.0 billion15, or R$73.9 billion excluding Coronavoucher16, a 53.6% year over year growth, with record TPV addition (ex- Coronavoucher), both on a year over year and quarter over quarter basis. Within the MSMB client base, we balanced accelerated growth (81.3% TPV growth in the third quarter of 2021 vs. 43.5% in the third quarter of 2020) with healthy monetization, with a monthly ARPU17 of R$287 per MSMB client (R$365 in SMBs and R$117 in Micro) in the quarter while reducing client acquisition costs ("CAC") (-28% year over year). While the operational cost to serve MSMBs was roughly stable, funding costs increased 252% year over year as a result of the higher CDI rate in Brazil. As a net result, payback periods for new cohorts have ranged between 11 and 15 months. Consolidated software revenue increased from R$18.8 million in the third quarter of 2020 to R$314.8 million in the third quarter of 2021, mainly driven by the consolidation of Linx and a 182% growth in consolidated revenue from our existing software portfolio (excluding Linx). On a proforma basis for Linx acquisition, consolidated revenue grew 27.5% year over year. The number of clients using a software solution reached over 200,000 in the quarter. Within Linx, we executed the following steps during the quarter: (i) re-organization of leadership; (ii) integration of main back-office functions, especially Finance; (iii) migration of half of Linx Pay subacquiring clients to Stone, with approximately 80% having already opted-in (we plan to conclude this process by year-end); (iv) a better understanding of key client segments, initial investments to improve customer service and technology investments in core and digital solutions. We are now shifting focus to capturing the growth opportunities we see ahead. As we indicated in the beginning of the year, we significantly increased the level of investments in our operation this quarter when compared to the third quarter of 2020, with incremental investments of approximately R$120 million in the growth of our operation and in new businesses. These investments include hub expansion, investments in new solutions (banking, insurance, credit, software), marketing, technology, TAG (our registry business), among others. Such investments, combined with a higher base rate (CDI) in Brazil, which increased our Financial Expenses, had a negative impact in our bottom line. Our Adjusted Pre-Tax Income was R$128.7 million in the quarter, compared with R$422.7 million in the third quarter of 2020. Looking ahead, we see several avenues of growth that reinforce each other to create more value to clients with good unit economics: We still see a big room to expand our MSMB client base, given that we estimate there are over 8 million SMBs and over 20 million Micro clients in Brazil; Our ability to grow active base compounds with the potential to increase revenue per merchant over time by offering additional solutions to our clients; In credit, we envision three products to attend to different client needs: our current credit product that we are turning around, credit card, and overdraft. We continue to focus on engineering, improvement of our operation and strengthening of the team. We'll start testing our credit product in a small scale shortly; We see the software opportunity in SMBs at the very beginning: our footprint and distribution, combined with vertical knowledge and integration capabilities provide the building blocks to our vision of software and integrated financial services in the SMB space; When we look at Linx' clients, they have approximately R$350 billion in annualized GMV and we monetize only 0.3% of such value. Also, those clients have approximately R$200 billion in annual TPV and mid-single digits penetration with our payments solutions. We see plenty of room to grow organically in current verticals, expand vertical coverage through new investments, further help our clients with integrated financial services offers and with products to help them sell more through multiple channels. Financial Services MSMB Financial Operating Platform The MSMB business showed record net addition of clients and a TPV growth of 81.3% year over year in the quarter. The 2-year TPV CAGR was 61%, accelerating from 48% in the second quarter of 2021 and 42% in the first quarter of 2021. Chart 1: MSMB TPV (R$bn) - (See PDF) Chart 2: MSMB TPV 2-year CAGR - (See PDF) TPV growth was driven by both SMBs and micromerchant segments, with SMBs18 growing 70.3% over the prior-year period and micromerchants growing their TPV 22.8x year over year or 2.3x quarter over quarter. MSMB client base reached a record of over 1.3 million clients in the quarter, with a net addition of 290,300, or 54.4% higher than the 188,000 clients added in the prior quarter and 3.2x more year over year. From the 1.3 million MSMB clients, SMBs reached a client base of 794,400, delivering a net addition of clients of 76,700, 62.2% higher than the previous quarter. Meanwhile, micromerchants reached 545,100 clients, with net addition of 214,700, 53.4% higher than the previous quarter. Chart 3: MSMB Active Clients (‘000) - (See PDF) Chart 4: MSMB Net Adds (‘000) - (See PDF) The acceleration of our MSMB business stems from continued investments in our operation. Take rate (ex-credit) in our MSMB business has decreased from 1.81% in the third quarter of 2020 to 1.67% in the third quarter of 2021. However, due to higher average TPV per client both in SMBs and in micromerchants, average revenue per client has increased in both segments on a year-over-year basis. In addition to the growth in MSMB payments offerings, we are evolving our financial operating system, with more clients using multiple financial solutions beyond payments. Currently, 53% of our Stone SMB acquiring clients already use additional financial solutions provided by us, compared with 48% one quarter ago and 27% in the prior-year period. The number of active banking accounts reached 422,500, compared with 340,100 in the second quarter of 2021 and 4.0x higher than in the third quarter of 2020. The number of clients settling their sales directly in their Stone account was 319,600 in the quarter, 17.2% growth quarter over quarter or 3.6x year over year. Chart 5: Stone SMB Active Banking Clients (‘000) - (See PDF) Banking money-in volumes, which do not include our payments TPV, grew 3.6x year over year or 1.5x quarter over quarter, reaching R$7.3 billion. Total accounts balance was R$1.3 billion, a growth of 3.5x compared with the third quarter of 2020. Banking money-out volumes increased 4.5x year over year and reached R$22.3 billion, and prepaid cards TPV grew 2.9x over the same period to R$415.8 million. We have accelerated TPV growth and net addition of clients in the MSMB segment while keeping healthy levels of monetization. ARPU in our MSMB business is at approximately R$287 on a monthly basis, with R$365 per month for SMBs and R$117 per month for micromerchants, growing 3% and 247% year over year, respectively. In the meantime, our average customer acquisition cost decreased 28% year over year, with a 1% increase in SMBs and a 17% decrease in micromerchants. Cost to serve, including funding costs, increased 55% year over year as a result of 252% higher funding costs, mostly related to the higher base rate in Brazil, and partially offset by other costs which decreased 4% over the same period. As a net result, the payback periods for new cohorts have ranged between 11 and 15 months. Due to the increase in the Brazilian base rate experienced throughout past quarters, we have started to adjust our commercial policies to the new interest rate environment. ARPU of financial solutions beyond payments has also increased, with banking transactional revenue per client increasing by 34% year over year to R$17.0 per month. Also, we have recently started to offer insurance solutions to some of our clients, through an origination fee model, under which we do not take any insurance risk. Although still in pilot mode, we believe trends are encouraging. Number of active contracts of insurance solutions increased from less than 500 in the first quarter of 2021 to 14,50019 in the third quarter of 2021, while monthly ARPU increased from R$6.7 to R$10.7 over the same period.                   Chart 6: Transactional Banking Clients and ARPU(Average Revenue Per Merchant) - (See PDF) Chart 7: Insurance Active Contracts20 and ARPU(Average Revenue Per Contract) - (See PDF) Key Accounts – Fintech-as-a-service ("FaaS") Excluding Coronavoucher, Key Accounts TPV grew 10.5% year over year, explained by a 55.2% growth from platform clients, partially offset by 2.3% decline in subacquirers' TPV, which continues to decrease share in overall volumes and revenue. Reported Key Accounts TPV was R$23.4 billion in the third quarter of 2021, declining 43.4% year over year as a result of R$21.0 billion contribution from Coronavoucher volumes in the third quarter of 2020, compared with only R$1.0 billion in the current quarter. With the slower performance in subacquirers, we have continued to see decreasing concentration of our client base, with subacquirers representing 21% of total TPV ex-Coronavoucher in the third quarter of 2021 compared with 33% in the prior-year period. In terms of revenue, subacquirers are much less relevant, with our top 2 subacquirers representing only 1% of StoneCo's revenue net of funding costs. In our platform services business, we enable third party software providers and platforms to embed payments and financial services through API integrations. Revenue from platform services currently represent around 60% of Key Accounts' revenue, up from 48% in the previous quarter. We have seen a decrease in Key Accounts take rate from 0.76% in the second quarter of 2021 to 0.62% in the third quarter. This decrease is mainly explained by lower (i) MDRs, (ii) credit vs debit mix, (iii) duration, and (iv) prepaid volumes in subacquirers. Those effects were partially offset by higher prepayment prices as a result of the increase in the base rate in the country. Update on Legacy Credit Portfolio Legacy credit portfolio is performing according to our expectations. Net cash inflow from our credit product in the third quarter of 2021 was R$483.3 million, approximately R$9 million higher than we previously expected. Due to the amortization of contracts, our portfolio is currently at R$1.6 billion, compared with approximately R$2.0 billion in the previous quarter. Our NPL ratio (clients with 60 days without reducing principal) increased from 35% in the second quarter of 2021 to 48% in the third quarter of 2021, in line with our expectations. Our legacy portfolio is becoming naturally skewed towards non-performing loans, given that no additional disbursements were made and performing clients are settling their contracts. We took the decision to split the portfolio in multiple samples and we are trying different approaches and comparing results, which we believe will teach us valuable lessons on the long term. The coverage ratio decreased from 112% in the second quarter of 2021 to 102% in the third quarter of 2021. The provisions made in the second quarter of 2021, recognized in our fair value methodology, accounted for potential future delinquency, including clients that were still performing in the second quarter of 2021 and that our model predicted that would become non-performing in the future. Therefore, no further adjustment to our fair value due to higher delinquency was needed in the third quarter of 2021. Table 2: Credit Metrics Credit Metrics 2Q21 3Q21 Outstanding balance 1,998   1,591   Provisions for losses 781   775         NPL (Portfolio without any payments) 373   466   % of portfolio 19 % 29 % Coverage Ratio 209 % 166 %       NPL (Portfolio without principal payments) 700   757   % of portfolio 35 % 48 % Coverage Ratio 112 % 102 %             Software Solutions With the closing of the Linx deal on July 1st, our software business has gained significant scale and reached leadership in the retail software market in Brazil. Together, Linx and Stone have a software client base of over 200,00021 clients across different verticals and value-added solutions. Our consolidated software revenue in the third quarter of 2021 was R$314.822 million, with Linx contributing R$261.7 million. With that, software solutions already account for 21%23 of our Total Revenue and Income. Our software business, on a proforma basis for Linx acquisition, grew 27.5%24 year over year. Besides, consolidated software revenue from our portfolio ex-Linx grew 182% year over year to R$53.1 million. We estimate that Linx clients' GMV is approximately R$35025 billion and given Linx's annualized recurring revenue of R$1 billion, we monetize 0.3% of that volume. We also estimate Linx clients' TPV to be around R$200 billion, with mid-single digits penetration within Linx's clients. We believe that we can do more for Linx's clients, improving their service level and offering them solutions that combine efficient workflow tools, omnichannel experience, and financial services. Looking at our software business on a consolidated basis, we highlight the representation from different client tiers. Of the total consolidated software revenue: Key Accounts currently represent 9% of total software revenues. For this client segment, our execution is geared towards a high level of customization of large retailers' workflows. We see value in this segment coming from the level of data regarding consumer purchase behavior and the digital/omni maturity of our clients. Mid/large clients account for 80% of software revenues and it is in this segment that we believe vertical expertise is key and we will drive focus towards organic growth within current verticals and inorganic growth through retail vertical expansion. We see further value to mid/large clients by upselling solutions that help them digitize and by creating integrated financial services offerings specific to each vertical's needs. SMBs account for 11% of overall software revenues and are where we see the biggest opportunity ahead: today we have over 120,000 SMB clients using software and 1.4 million payments clients and will work to leverage on our distribution capabilities to drive organic growth of software in this client segment. Linx Update In the third quarter of 2021, Linx's recurring revenue26 grew 15.5%, with core POS/ERP solutions growing by 21.2%, driven both by an increase in average ticket and an increase in the number of stores served (approximately 106,000 stores in the third quarter of 2021). The number of omnichannel stores reached 5,200, with 52.4% year-over-year growth in OMS recurring revenue. E-commerce platform's GMV reached R$0.5 billion in the quarter, representing a 2-year CAGR of 30%. As we previously said, we are going to invest significantly in technology over the first 5 years following the closing of the transaction to improve Linx's solutions further and develop the products that our clients need. Subsequent events As stated in the last quarter, we are monitoring closely the global microchip crisis and its evolution. Although we do not foresee impacts to our ability to grow, if the situation gets worse the industry could face some POS shortages. Also, due to the recent news flow, we would also like to highlight that we currently count on six POS hardware suppliers to enable our offline clients to accept electronic payments, with PAX being one of them. The PAX POS used in our operation runs on our proprietary software applications for payments, which are homologated by the main card schemes in Brazil. Besides, all POS hardware used in our operations are PCI certified.Additionally, StoneCo counts with a dedicated cybersecurity team to ensure the well-functioning of our operation and the data privacy of our clients and during the deep diligence made by our team, we did not find any indication of security breaches in the terminals. In addition, we have recently invested in Gyra+, a credit fintech platform for SMBs. Gyra+ has a great team of entrepreneurs, with expertise in the industry and we believe that this investment will help us improve our data, technology, and product expertise in credit. Expected to close in 4Q21, this investment will also increase our ability to integrate into additional platforms with a fee business model, with no balance sheet risk. Table 3: Quarterly Statement of Profit or Loss Statement of Profit or Loss (R$mm) 3Q21 % Rev. 3Q20 % Rev.   Δ % Δ p.p. Net revenue from transaction activities and other services 436.7   29.7 % 354.1   37.9 %   23.3 % (8.2 p.p.) Net revenue from subscription services and equipment rental 371.0   25.2 % 92.5   9.9 %   301.0 % 15.3 p.p. Financial income 607.7   41.4 % 460.1   49.2 %   32.1 % (7.9 p.p.) Other financial income 54.3   3.7 % 27.6   3.0 %   96.7 % 0.7 p.p. Total revenue and income 1,469.6   100.0 % 934.3   100.0 %   57.3 % 0.0 p.p. Cost of services (525.6 ) (35.8 %) (208.1 ) (22.3 %)   152.6 % (13.5 p.p.) Administrative expenses (359.8 ) (24.5 %) (106.2 ) (11.4 %)   238.9 % (13.1 p.p.) Selling expenses (308.2 ) (21.0 %) (139.5 ) (14.9 %)   120.9 % (6.0 p.p.) Financial expenses, net (330.7 ) (22.5 %) (64.7 ) (6.9 %)   411.3 % (15.6 p.p.) Fair value adjustment on equity securities designated at FVPL (1,341.2 ) (91.3 %) 0.0   0.0 %   n.a.   (91.3 p.p.) Other income (expenses), net (29.1 ) (2.0 %) (43.3 ) (4.6 %)   (32.8 %) 2.7 p.p. Loss on investment in associates (2.8 ) (0.2 %) (1.1 ) (0.1 %)   155.1 % (0.1 p.p.) Profit before income taxes (1,427.8 ) (97.2 %) 371.5   39.8 %   n.m   (136.9 p.p.) Income tax and social contribution 167.6   11.4 % (122.4 ) (13.1 %)   n.m   24.5 p.p. Net income for the period (1,260.2 ) (85.7 %) 249.1   26.7 %   n.m   (112.4 p.p.)                 Adjusted Net Income 132.7   9.0 % 287.9   30.8 %   (53.9 %) (21.8 p.p.)                   Table 4: Accumulated Statement of Profit or Loss Statement of Profit or Loss (R$mm) 9M21 % Rev. 9M20 % Rev.   Δ % Δ p.p. Net revenue from transaction activities and other services 1,114.2  .....»»

Category: earningsSource: benzingaNov 16th, 2021

Taibbi: As America Braces For The Rittenhouse-Verdict Unrest, Profits Soar

Taibbi: As America Braces For The Rittenhouse-Verdict Unrest, Profits Soar By Matt Taibbi, published via SubStack The Mayhem Watch is on. Closing arguments in the trial of “Kenosha Shooter” Kyle Rittenhouse are expected Monday, and after weeks of hype, the country is primed to explode again. Wisconsin governor Tony Evers announced 500 National Guard troops will be on hand for potential post-verdict “unrest,” which seems almost guaranteed, no matter the result. As with all major news stories lately, the Rittenhouse case saw idiosyncrasies wash away as coverage accumulated, with pundits pounding the trial into yet another generalized referendum on American culture war. Prestige media made Rittenhouse a stand-in for the Proud Boys, January 6th, school board protests, anti-mask protests, QAnon, Blue Lives Matter, Trump, “Domestic Terrorism,” fascism, school shooters, and every other naughty thing, with everyone from then-candidate Joe Biden to The Intercept blithely declaring him a white supremacist. The efforts to cast Rittenhouse as a symbol of racism and white rage have been awesome in quantity and transparently, intentionally provoking, with even leading papers like the New York Times standardizing a practice of underscoring Rittenhouse’s race (“white teenager”) while leaving the identities of those shot out of coverage. Glenn Greenwald pointed out that his old outlet, The Intercept, noted Rittenhouse’s race 20 times in one piece while keeping schtum about the color of those shot. This has gone on for so long, we’ve seen a foreign newspaper misreport that the two people killed in the case were black. In the public consciousness, they might as well have been. Because Rittenhouse from the day of the shooting was made a symbol of Fox-watching, Trump-loving conservatives, he was also quickly adopted in red media as a hero, which “he surely wasn’t,” as Andrew Sullivan put it. This turbo-charged the freakout even more, as Rittenhouse’s defenders turned his case into a referendum on everything from media coverage of last summer’s protests of Black Lives Matter to the performance (or non-performance, as it were) of police during the George Floyd/Jacob Blake demonstrations, to a dozen other things that made public passions rise in the last year. Rittenhouse in other words became a symbol of so many things to so many people that the specifics of his legal case have ceased to be relevant. There seems to be no such thing as an editorialist who has negative feelings about, say, Rittenhouse posing with Proud Boys, yet also believes that incident can’t be evidence since it happened after the shooting. Everyone picks a side and stays there. Pundits are telling us that any opinion on how the jury should rule can only be understood as a reflection of racial attitudes. “If you’re defending Kyle Rittenhouse, you might be a white supremacist. Just sayin,” is how Tweeter-with-beard and sometimes-journalist David Leavitt puts it. Meanwhile: On the day the Rittenhouse trial began, the financial data firm FactSet released an eyebrow-raising report about the Covid-19 economy. The firm noted that companies in the S&P 500 were set to post a net 12.9% profit in the third quarter of 2021. They pointed out this was the second-highest result since the firm began tracking the number in 2008. The only better result? The previous quarter, i.e. Q2 2021, when net profits sat at 13.1% overall. These results track with the true great story of the pandemic era, which not-so-mysteriously hasn’t made the news much, while Americans have been tearing each other’s faces off over issues like race and vaccination policy: the massive widening of our already-obscene wealth gap. Remember last year’s long summer of riots, that period that saw the whole world arguing over the definition of “mostly peaceful,” and saw Rittenhouse go charging into the streets of Kenosha? During that long stretch of unrest, corporate America, which had been headed for a depression in March of 2020, was soaring above the fray on an apparently endless, and endlessly escalating, ride to record profits. Take a look at this graph from the St. Louis Federal Reserve, and focus on the Jeff-Bezos-rocket-like ascent beginning in the second quarter of 2020: Corporate profits in the second quarter of 2020 sat at $1.58 trillion. One year later, that number was $2.69 trillion, a roughly 71% increase. How many stories have you read in the last year telling you about how well the top end of the income distribution has been doing, while the rest of the country seemed to be falling apart? Compared with how often you heard pundits rage about the “insurrection,” how regularly did you hear that billionaire wealth has risen 70% or $2.1 trillion since the pandemic began? How much did you hear about last year’s accelerated payments to defense contractors, who immediately poured the “rescue” cash into a buyback orgy, or about the record underwriting revenues for banks in 2020, or the “embarrassment of profits” for health carriers in the same year, or the huge rises in revenue for pharmaceutical companies like Pfizer and Johnson & Johnson, all during a period of massive net job losses? The economic news at the top hasn’t just been good, it’s been record-setting good, during a time of severe cultural crisis. Twenty or thirty years ago, the Big Lie was usually a patriotic fairy tale designed to cast America in a glow of beneficence. Nurtured in think-tanks, stumped by politicians, and amplified by Hollywood producers and media talking heads, these whoppers were everywhere: America would have won in Vietnam if not for the media, poverty didn’t exist (or at least, wasn’t shown on television), only the Soviets cuddled with dictators or toppled legitimate governments, etc. The concept wasn’t hard to understand: leaders were promoting unifying myths to keep the population satiated, dumb, and focused on their primary roles as workers and shoppers. In the Trump era, all this has been turned upside down. There’s actually more depraved, dishonest propaganda than before, but the new legends are explicitly anti-unifying and anti-patriotic. The people who run this country seem less invested than ever in maintaining anything like social cohesion, maybe because they mostly live in wealth archipelagoes that might as well be separate nations (if they even live in America at all). All sense of noblesse oblige is gone. The logic of our kleptocratic economy has gone beyond even the “Greed is Good” mantra of the fictional Gordon Gekko, who preached that pure self-interest would make America more efficient, better-run, less corrupt. Even on Wall Street, nobody believes that anymore. America is a sinking ship, and its CEO class is trying to salvage the wreck in advance, extracting every last dime before Battlefield Earth breaks out. It’s only in this context that these endless cycles of hyper-divisive propaganda make sense. It’s time to start wondering if maybe it’s not a coincidence that politicians and pundits alike are pushing us closer and closer to actual civil war at exactly the moment when corporate wealth extraction is reaching its highest-ever levels of efficiency. Keeping the volk at each other’s throats instead of pitchforking the aristocrats is an old game, one that’s now gone digital and works better than ever. That might be worth remembering after the coming verdict, and ahead of whatever other hyper-publicized panic comes down the pipeline next. Tyler Durden Sat, 11/13/2021 - 21:30.....»»

Category: smallbizSource: nytNov 13th, 2021

World"s Most Bearish Hedge Fund Shuts Down: Here Is Russell Clark"s Farewell Letter

World's Most Bearish Hedge Fund Shuts Down: Here Is Russell Clark's Farewell Letter It was about four or five years ago that we dubbed Russell Clark (formerly of Horseman Global and more recently of Russell Clark Investment Management) the world's most bearish hedge fund, and for a good reason: roughly a decade ago, Clark decided to take his fund net short - an unheard of event in an industry where despite the name, the average net exposure is well north of 100% - and while his market bias ebbed and flowed, it remained short for much of the past ten years. What is more remarkable is that despite his extremely bearish positioning, Clark managed to eek out consistent monthly gains and with the exception of 2016 he was profitable virtually every year in the past decade... and then 2019 happened and things started falling apart when his hedge fund lost a staggering 35%. He never really recovered. This was the beginning of the end for Clark - sensing what was coming, two years ago we wrote that the "World's Most Bearish Hedge Fund" Loses 75% Of Its Assets After Worst Year On Record." Back then we wrote the following: Every trader has heard the age-old saying "don't fight the Fed". Everyone, perhaps with one exception: Horseman Global's CIO, and recently owner, Russell Clark, who has been upping his bearish bets in the face of a relentless liquidity onslaught by the Fed, ECB and PBOC, which now also includes the Fed's "NOT QE." In fact, in his ambition to on up the central banks, Clark may have overdone it, because according to his latest investor letter, the fund's equity net short position is now the highest it has been in history, at a whopping -110.87%, offset by a 60.59% net long in bonds. Alas, while we admire Clark's courage, we have less empathy for the fund's performance, which has seen better days, and after slumping 6% in October, and losing money on 4 of the past 5 months, is now on pace for its worst year on record, down 27.05% YTD, surpassing the -24.72% return posted in 2009, and reversing all the goodwill the fund created with its 7.5% return last year when most of its peers lost money alongside the S&P500. In light of the above, we have been fascinated how long Horseman can remain solvent as the Fed remains irrationally bullish and liquid, and unfortunately for Clark - who recently put his personal money where his mouth is and bought a controlling interest in Horseman where he was the main portfolio manager for years - the answer appears to be "not much longer" - as the fund reports, as of October 31, the AUM for the Horseman Global Fund was down to just $150 million... Two years later, despite the crash in early 2020 which helped boost the fund's fortune for a few months, the slow and steady death by a thousand redemption letters continued, and this morning our prediction has finally come true: the man who for the past decade valiantly fought the Fed, and all other central banks, has finally thrown in the towel. And with capital in his core RCIM Global Fund dropping to just $119 million from as much as $1.7 billion in 2015, Clark writes in what is his last letter to investors that "after a couple of years of turbulent markets and the increasing influence of politics rather than economics on the markets, I have come to the decision that the best way forward is for the Fund Directors to wind up the fund and return capital." The fund shuts down after dropping 5.3% for the month of October and down 2.6% in 2021. While Clark touches on various things in his last letter, what is most notable is the justification for his shutdown. To regular readers of Zero Hedge, nothing he says will be a surprise: the Fed has taken over the "market" which has now become a political tool to shape and mold public opinion, while the core role of markets - discounting the future and price discovery - no longer exists, to wit: This is why I am returning capital. Markets have now become a political choice. US markets are essentially a bet on the Fed unable to raise rates, and congress unable to regulate big tech or raise corporate tax rates. Commodity markets have now become a bet on Chinese policy objectives, and currencies have become a bet on what Chinese policy objectives are too. Give me an economic problem, then I can properly gauge risk. Give me a Chinese political problem – I am taking a guess as much as the next person. Did I think Alibaba was going to fall 50% this year? No, not until the Chinese government told me to think that way. Is Alibaba a good short now? I have no idea, and like everyone else will have to wait to see what the Chinese government says. So, I think it time to step back, have a think about where we are going, and then come back when I can see an opportunity for my skill set. Perhaps that’s never, but I doubt it. The only constant in life is change. As always, we admire Clark's honesty and courage to say it how it is, even if it means we may not hear from him ever again. Meanwhile, in a fitting epitaph for his fund, Bloomberg writes that "the closure marks an end to yet another bearish hedge fund manager’s fund as stocks continue to march ahead. Clark, who uses macro economic analysis to bet on stocks, is among a series of long-short equity hedge fund managers who have fallen way behind surging markets and have suffered investors exodus." The end of Clark’s fund is a contrasting echo to how his investing career began more than two decades ago. As a graduate trainee at UBS Group AG in Sydney, he followed friends getting rich by day-trading tech stocks in 2000 and spent his first few paychecks on five dot-com shares. Four crashed to zero, and the fifth lost half its value as the tech bubble burst. This time, a short wager on tech stocks was his latest contrarian bet. Clark told clients earlier this year that he was betting against technology shares as regulators from the U.S. to China crack down on the industry. Tech stocks as measured by NASDAQ Composite Index have been on a tear ever since. Clark had been net short equities for the vast majority of the last nine years. He has faced a difficult period of performance and capital raising, and his firm -- previously named Horseman Capital Management -- shuttered two funds. Born and raised in Canberra, Australia, Clark bought the controlling interest in Horseman in 2019. He had joined Horseman in 2006 and started running the firm’s flagship fund in 2010 when John Horseman, a highly successful global stock fund manager in the 1990s, retired. Clark, who runs his investment firm from his office inside a small house in a quiet mews near Buckingham Palace Gardens in London, had said in 2019 that he was convinced that a stock market crash was near. Or, he told Bloomberg in rare public remarks, “this could be my farewell interview.” Ironically, he was right: the March 2020 crash - the biggest market crisis since the Great Depression - indeed happened just a few months later but in turn it produced the biggest and most coordinated market bailout by central banks and "helicopter money" in history. And that, for the world's most bearish hedge fund, was the final straw. Clark's final message to investors is below: The fund lost 5.30% this month, mainly from the short book. After a couple of years of turbulent markets and the increasing influence of politics rather than economics on the markets, I have come to the decision that the best way forward is for the Fund Directors to wind up the fund and return capital. The success I enjoyed from 2011 through to beginning of 2016 largely stemmed from asking the question that no one seemed to ask – why does the Yen and Japanese Government Bonds rally whenever there is a crisis? The obvious answer was capital flows from Japan would create a bull market in the area they flowed to, and then when the Japanese pulled capital back, it would create a bear market, often with significant currency volatility. Armed with that observation, and combined with analysis of the commodity markets, we build a portfolio that was largely short emerging market and long bonds. Since 2016, using the same analysis as above, Japanese capital flows have almost exclusively been to the US, and are an order of magnitude larger than anything seen before. And yet, US equities still power ahead, Yen remains weak, and currency volatility has been consigned to the history books. Of course, I asked myself why this is. Why did a model that worked so well, for the best part of 25 years, stop working? The obvious answer is that central banks led Quantitative Easing (QE). But that answer alone seems insufficient to me. Japan has had low interest rates for years and was still racked by bouts of extreme equity and currency volatility. The other problem with that answer is that the big inflation spike seen this year should then lead to greater volatility in equities, especially as central banks dial back QE programs. The answer for me comes from China. China wants a strong currency, and to keep consumption strong. It seems to me that the Chinese government uses it extraordinary control of the economy to control activity and the currency through the commodity markets. To elaborate, I expected China to post a weak trade surplus in October, and for currency devaluation fears to spike (particularly after the recent Evergrande selloff). Chinese trade surplus was actually very strong. And it was strong because Chinese imports of oil and iron ore were down significantly. Chinese steel production was down a stunning 20% year on year, a number you would typically only see in a bad recession. China has effectively taken control of key commodities, and now adjusts volumes to suit its own needs. Taking all this volatility through physical markets, has essentially collapsed financial market volatility, and also led to commodity currencies being significantly weaker than commodity prices – which has been a problem for me this year. Now I understand this, non-obvious trades at the beginning of the year such as long oil, short iron ore now seem obvious. The surprising weakness of gold and other precious metals can make sense in this analysis. It also explains why the extraordinary fiscal and monetary policies of the US have not been met with greater commodity or bond turbulence. It is very hard for me to get bearish US treasuries when I see Chinese steel production down 20% year on year. The big question then is whether this Chinese policy of absorbing financial risk in the physical economy sustainable? History suggests not, as most countries prefer to devalue than slow economic growth. However, I can see reasons why China may continue with this policy. The most powerful is that with US policymakers seemingly unable to raise interest rates, or balance budgets there is a gap in the market for a credible currency. Is China making a play for reserve currency status? And this is why I am returning capital. Markets have now become a political choice. US markets are essentially a bet on the Fed unable to raise rates, and congress unable to regulate big tech or raise corporate tax rates. Commodity markets have now become a bet on Chinese policy objectives, and currencies have become a bet on what Chinese policy objectives are too. Give me an economic problem, then I can properly gauge risk. Give me a Chinese political problem – I am taking a guess as much as the next person. Did I think Alibaba was going to fall 50% this year? No, not until the Chinese government told me to think that way. Is Alibaba a good short now? I have no idea, and like everyone else will have to wait to see what the Chinese government says. So, I think it time to step back, have a think about where we are going, and then come back when I can see an opportunity for my skill set. Perhaps that’s never, but I doubt it. The only constant in life is change. This will be my final newsletter and it just leaves me to thank you for your support and wish you all the success in the future. From a personal perspective I plan to keep producing research, so keep an eye out for my future notes. Russell. As usual, the full letter is available to professional subs in the usual place. Tyler Durden Thu, 11/11/2021 - 10:34.....»»

Category: blogSource: zerohedgeNov 11th, 2021

AutoCanada Reports Record Third Quarter Results - Record Revenue of $1.2 Billion - Adjusted EBITDA of $68.3 Million Ahead of Prior Year by 12% and by 25% on a Normalized Basis

Revenue was $1,206.8 million as compared to $1,017.1 million in the prior year, an increase of 19% and the highest third quarter revenue reported in the Company's history Net income for the period was $38.8 million versus $36.0 million in 2020 Adjusted EBITDA was $68.3 million versus $61.1 million in the prior year, an increase of 12%; normalizing for non-recurring government assistance of $6.3 million in the prior year, results were ahead of prior year by 25% Net indebtedness of $29.8 million at the end of Q3 2021 compares to $21.6 million at the end of Q2 2021; net debt leverage on a pre-IFRS 16 basis was 0.2x EDMONTON, AB, Nov. 9, 2021 /CNW/ - AutoCanada Inc. ("AutoCanada" or the "Company") (TSX:ACQ), a multi-location North American automobile dealership group, today reported its financial results for the three month period ended September 30, 2021. "Our team's focus on operational excellence once again delivered record-setting results in Q3 2021, highlighting the strength and resiliency of our business model," said Paul Antony, Executive Chairman of AutoCanada. "We continue to make great progress on almost every key measure, particularly driven by strong performance in our used vehicle, F&I and U.S. operations, along with an overall improvement in market outlook and demand. "This strong performance reflects the sustainability of our business model and demonstrates that we're successfully managing through the current market environment of global supply chain challenges impacting OEM production. We believe these OEM production capacity issues will normalize over the coming quarters and expect the market to return to pre-pandemic levels in late 2022 or early 2023. In the meantime, we will continue to build on our positive momentum and focus on strategic growth initiatives to drive industry-leading performance regardless of changing market conditions. "We remain well positioned to execute on our acquisition strategy in the coming quarters with a robust pipeline of dealerships and collision centres representing over $400 million in annual revenue currently being evaluated." Third Quarter Key Highlights and Recent Developments The Company reported another record-setting performance as revenue for the third quarter of 2021 reached $1,206.8 million compared to prior year third quarter revenue of $1,017.1 million, an increase of 18.6%. In particular, the record Q3 2021 was driven by the continued strong performance of our used vehicle and finance and insurance ("F&I") business operations, and our U.S. Operations. Net income for the period was $38.8 million, as compared to $36.0 million in Q3 2020. Fully diluted earnings per share was $1.27, an increase of $0.04 from $1.23 in the prior year. Adjusted EBITDA for the period was $68.3 million as compared to $61.1 million reported in Q3 2020. Normalizing for the typically non-recurring Canada Emergency Wage Subsidy ("CEWS") income of $6.3 million in the prior year, Adjusted EBITDA margin was 5.7% as compared to a normalized 5.4% in the prior year, an increase of 0.3 percentage points ("ppts"). Total gross profit increased by 22.7% to $220.2 million, attributable to the Company's continued focus on the used vehicle market and strong F&I outperformance. Canadian used retail unit sales increased by 43.8% and U.S. used retail unit sales increased by 178%, respectively, over the prior year; consolidated used retail unit sales of 13,831 exceeded the 8,836 reported in the prior year, an increase of 56.5%. Strong used retail sales resulted in our consolidated used to new retail unit ratio improving to 1.49 from 0.82, and to 1.22 on a trailing twelve month ("TTM") basis, moving beyond the targeted annual 1.0 ratio. Consolidated used vehicle gross profit increased by 45.1% to $43.3 million as compared to the prior year. Same store F&I gross profit per retail unit average increased to $3,139 per unit, an increase of $650 per unit, the twelfth consecutive quarter of year-over-year growth. Q3 2021 was another strong quarter for U.S. Operations, with Adjusted EBITDA setting a third quarter U.S. record at $7.4 million, an improvement of $2.7 million or 57.7%, against $4.7 million reported in Q3 2020. The strong performance, while capitalizing on favourable market conditions, was a result of the successful fundamental shift in the operating and sales culture. Specifically, gross profit increased by $14.5 million to $32.5 million, an improvement of 80.7%. Proactive inventory management for both new and used vehicles continued to be a key driver to the Company's success in delivering both strong revenue and retail margin growth across all our business operations in the third quarter. Normalizing for CEWS income in the prior year, operating expenses as a percentage of gross profit improves by 1.0 ppts to 72.6% in the current year as compared to a normalized 73.6% in the prior year, and is well below the five-year third quarter historical average of 81.5%. The Company's ability to control and rationalize costs underscores the effectiveness of the actions taken during 2020 to streamline the Company's cost structure while optimizing operating leverage. Net indebtedness increased by $8.2 million from June 30, 2021 to $29.8 million. Acquisition expenditures in the quarter were $18.2 million. Free cash flow for the quarter was $12.4 million at Q3 2021 as compared to $53.4 million in Q3 2020, and on a TTM basis was $118.8 million at Q3 2021 as compared to $178.0 million in Q3 2020. Additionally, our net indebtedness leverage ratio remained well below our target range at 0.2x at the end of Q3 2021, as compared to 0.1x in Q2 2021. The Company remains well-positioned to execute on its acquisition strategy in the coming quarters. We have established a substantial transaction pipeline with a number of dealerships currently being evaluated. We currently have $400 million in annual revenue under signed letters of intent ("LOI's") and purchase agreements. LOI's, subject to due diligence, represent $100 million in annual revenue. Signed purchase agreements for dealerships located in Ontario, subject to OEM approvals and other standard closing conditions, represent $300 million in annual revenue – inclusive of brands we do not currently operate today. Our performance, both in Canada and U.S. Operations, continues our trend of sustainable improvement and demonstrates the efficacy of our complete business model and strategic initiatives. We remain aware that uncertainty continues to exist in the macroeconomic environment given the ongoing challenges associated with the global pandemic. Uncertainties may include potential economic recessions or downturns, continued disruptions to the global automotive manufacturing supply chain, and other general economic conditions resulting in reduced demand for vehicle sales and service. We will continue to remain proactive and vigilant in assessing how COVID-19 may impact our organization and remain committed to optimizing and building stability and resiliency into our business model to ensure we are able to drive industry-leading performance regardless of changing market conditions. Consolidated AutoCanada Highlights RECORD SETTING THIRD QUARTER Owing to execution against its complete business model strategy, AutoCanada delivered a record setting third quarter and continues to experience strong performance. For the three-month period ended September 30, 2021: Revenue was $1,206.8 million, an increase of $189.7 million or 18.6% and the highest third quarter revenue reported in the Company's history Total vehicles sold were 23,444, an increase of 3,276 units or 16.2% Used retail vehicles sold increased by 4,995 or 56.5% Net income for the period was $38.8 million (or $1.37 per basic share) versus $36.0 million (or $1.29 per basic share) in 2020 Adjusted EBITDA increased by 11.8% to $68.3 million, an increase of $7.2 million Adjusting for CEWS income of $6.3 million in Q3 2020, Adjusted EBITDA was $68.3 million, ahead of normalized prior year Adjusted EBITDA by $13.5 million or 24.6% Pre-IFRS 16 Adjusted EBITDA was $57.4 million, as compared to normalized $43.9 million in the prior year, an improvement of 30.7% Ending net indebtedness of $29.8 million reflected an increase of $8.2 million from Q2 2021. Canadian Operations Highlights USED RETAIL UNIT SALES GROWTH OF 44% Used vehicle and F&I segments were key drivers of improved earnings in Q3 2021. Total gross profit percentage increased to 18.4% as compared to 17.7% in the prior year. Used vehicle gross profit increased by 32.2% to $35.0 million as compared to the prior year. For the twelfth consecutive quarter of year-over-year growth, same store F&I gross profit per retail unit average increased to $3,139, up 26.1% or $650 per unit from prior year. Current period results include the acquisitions of Auto Bugatti collision centre and Haldimand Motors which occurred in Q4 2020, PG Klassic Autobody collision centre on April 1, 2021, Mark Wilson's Better Used Cars on August 9, 2021, and Autolux MB Collision on September 9, 2021. Unless stated otherwise, all results for acquired businesses are included in all Canadian references in the MD&A. For the three-month period ended September 30, 2021: Revenue was $1,018.4 million, an increase of 11.7%; the highest third quarter Canadian revenue reported in the Company's history Total retail vehicles sold were 19,264, an increase of 2,000 units or 11.6% Used retail unit sales increased by 3,499 or 43.8% Average TTM Canadian used retail unit sales per dealership per month, ...Full story available on»»

Category: earningsSource: benzingaNov 9th, 2021

How Rivian - which is getting ready for a blockbuster IPO - became the hottest name in the electric startup game

The buzz around Rivian has been building for years. One investor said CEO RJ Scaringe reminds him of Amazon founder Jeff Bezos. Rivian Rivian started delivering its debut vehicle, the R1T electric pickup truck, in September. The startup is also getting ready for an IPO. Experts consider Rivian the most promising contender among today's EV startups. See more stories on Insider's business page. A new generation of electric-vehicle startups has started to give US consumers their first new automotive brands to choose from since Tesla debuted in 2008. The first one to arrive was Rivian, which started delivering its R1T pickup truck in September.The vehicle has generated positive first impressions, including from Insider's Tim Levin, who wrote that the R1T "completely flips the script on what a pickup can be" after driving it. Whether customers have a similar impression remains to be seen, but the company has put itself in a strong position to take on the many challenges that come with starting an automaker.Rivian has raised more money than any of its rivals, landed an investment and delivery-van order from Amazon, and is preparing for an IPO next week. The company is aiming for a valuation of around $55 billion, many times larger than the $2 billion valuation Tesla received during its 2010 IPO.Read on to learn more about the R1T, why investors and experts think Rivian's the top contender among today's generation of EV startups, and what you can do to position yourself to land a job there. CEO RJ Scaringe has been compared to Jeff Bezos Carlos Delgado/Associated Press Rivian CEO RJ Scaringe founded the startup in 2009 when he was 26. He first intended to build an electric sports car to take on Tesla's Roadster, but changed his mind a few years later. After spending most of the 2010s revamping the company, Scaringe reintroduced Rivian in 2018. Now, Scaringe is a billionaire who's been compared to Jeff Bezos and legendary General Motors CEO Alfred Sloan. The coming years will determine whether he can become a serious challenger to Tesla CEO Elon Musk.Read more:Meet Rivian CEO RJ Scaringe, who's been called the next Jeff Bezos as he electrifies Amazon's delivery vansAn Amazon and Rivian investor says the way CEO RJ Scaringe sees the future reminds him of Jeff Bezos in 1994The CEO of EV startup Rivian explains why he thinks it will beat Audi, Mercedes-Benz, and BMW with its first 2 electric vehicles  Investors have poured $11 billion into the company Rivian R1S. Rivian Rivian has so far raised $11 billion, according to Pitchbook, a sum no other EV startup has matched. Last year, Insider surveyed some of Rivian's investors to learn why they decided to back the company. They explained what made Rivian stand out from its competitors.Read more:Early Rivian investors explain the 3 factors that could make the Amazon-backed startup the next TeslaNo burnouts, no alien dreadnoughts: How Rivian's culture and simple manufacturing strategy could help it avoid Tesla's growing pains  Experts think Rivian is the real deal Phillip Faraone/Getty Images for Rivian Tesla's success and government regulations aimed at reducing carbon emissions have put EVs, which accounted for just 2% of US auto sales in 2020, on the path to mainstream adoption. Entrepreneurs have taken notice, and a new group of EV startups is attempting to break into the intensely competitive US auto industry in the coming years. A consensus has developed among EV experts that Rivian is in the best position to succeed.Read more:Rivian's 'beautiful' cars, $6 billion war chest, and deals with Amazon and Ford put it at the front of the pack of startups vying to be the next Tesla, VCs sayExperts say many electric car startups are doomed to fail — but these 5 are built to lastRivian-rival Lucid's CEO thinks the EV industry is due for a brutal shakeout because startups are missing one key ingredient Rivian hiring execs share their advice to applicants hoping for a job offer Rivian The hype around Rivian has made the company an appealing destination for those who want to work in the EV industry. Insider interviewed Rivian's top hiring executives in 2020 about what they look for in job candidates. They shared their advice for applicants and the red flags that will hurt your chances of landing an offer.Read more:The complete guide to getting a job at Rivian, according to two execs who head up hiring for the surging Tesla rivalWhy Rivian uses one of Elon Musk's favorite job-interview techniques to determine which candidates stand outA Rivian VP reveals the 5 key traits the Amazon-backed startup looks for in job candidatesRivian execs reveal the interview red flags that turn them against job candidates Growing pains Rivian Launching a new vehicle is hard, particularly if it's your first attempt. Rivian, like some of its competitors, is beginning to experience some of those challenges firsthand. This summer, the company delayed the launch of the R1T, citing "the cascading impacts of the pandemic." From navigating supply-chain disruptions to convincing state governments to revise laws that prevent automakers from selling directly to consumers, Rivian has its work cut out for it in the coming months and years.Read more:Hot EV startups like Rivian were already struggling to get cars to market — then the chip shortage hit. 4 top execs and industry experts tell us how they're tackling the crisis.Rivian's policy chief breaks down how he's lobbying lawmakers to free EV startups from dealerships2 of Tesla's most promising rivals keep getting delayed  Early praise for the R1T Rivian R1T. Jeff Johnson/Rivian Rivian started producing the R1T in September, and early impressions of the vehicle have been positive. Insider's Tim Levin drove the R1T for a few days in September and called the vehicle "groundbreaking." You can read more about his impressions below.Read more:Rivian built an electric truck before Tesla. We got to drive it.Rivian's first truck puts off-roading in easy modeAre you a current or former Rivian employee? Do you have a news tip or opinion you'd like to share? Contact this reporter at, on Signal at 646-768-4712, or via his encrypted email address  Read the original article on Business Insider.....»»

Category: topSource: businessinsiderNov 6th, 2021

The Great Resignation is just the beginning. We have to prepare ourselves for a post-work world.

With workers realizing their worth, and automated jobs on the rise, we'll have to reinvent our relationship with employment. Susumu Yoshioka/Getty Images A record number of jobs have become remote. This may be the first step into a post-work era of society. It's time we start preparing for this inevitability. Marie-Christine Nizzi is a Research Associate in the Cognitive Science Program at Dartmouth College. This is an opinion column. The thoughts expressed are those of the author. Over 70% of workers want remote work options to continue. Close to 8 million Americans left their jobs in April and June alone, seeking more fulfilling positions. Anthony Klotz, professor at Texas A&M University, calls it the "Great Resignation."The place of work in our lives is rapidly changing, but don't let the current "help wanted" signs fool you: this is only the tremor before a much bigger quake to come.Fueled by stay-at-home orders during the COVID-19 pandemic, a record number of jobs have turned remote or contactless, revealing just how much could be done outside of the office. For many of us, moving out of the city to work from home or being replaced by contactless options is just the beginning. We may look back at this moment as the first slide into the post-work age.Within a few decades of automation, many of us might be pushed into an abrupt early retirement. And we better prepare for it. The prognosis for those who do not prepare for retirement stands as a stark warning for our mental and physical health. In 2014, economists found that a 1-point increase in unemployment lowers our national well-being more than five times more than the same increase in inflation.The future of work won't just change our schedules or where we live: it will challenge us to redefine the very core of what gives us meaning. I have helped many successful senior executives, veterans, and athletes faced with the sudden transition into post-work life. Here are four keys to better prepare.First, is time. Increasing your time agency is the first key to preparing yourself and your loved ones for post-work life. Rather than letting work structure your time, plan periods of slow time in your day; first 10 minutes, then an hour, during which you do not jump on every email notification.Can you give yourself this time to journal or take a walk? Whatever you choose, be present in the moment. Feel your ability to suspend the rush of tasks, build your agency in deciding when to run and when to simply wander. You may discover that you are enjoying your slow time to yourself or by sharing it with a friend. If remote work gives you more flexibility, capitalize on this opportunity to grow your time agency. Second, is success. Executives often worry that redefining success means lowering their standards. The corporate ladder, promotions, and bonuses act as markers of success in a work-centric world. We expect them to fulfill us through a sense of belonging, purpose, and achievement. But these are externally derived.Once work no longer provides a horizon to strive for, where will your sense of accomplishment and purpose come from? True success is living a life you will feel satisfied with on your deathbed. To authentically redefine your success, find what you truly care about and dedicate more time to it. Third, we have identity. Major life transitions shake our identity. Returning to civilian life after military service, retiring from a career as a pro athlete, losing an important job, all challenge us to reinvent ourselves. Building self resilience is a process that few people anticipate. If you do only one thing: take a piece of paper and write down 20 statements describing what makes you who you are.Now see if you can add statements for each of the eight following facets: what you like and dislike, your psychological characteristics, your physical traits, your social and group identities, your demographics, your activities, what you possess or have accomplished, your memories and hopes for the future. Your self is dynamic: embrace the challenge to explore new facets. The fourth key is meaning. In a work-centric view, value is indexed on productivity and time spent with loved-ones or relaxing is referred to as "down" time. We can operate a key shift in mindset by learning from cultures where elders act as the glue that ties generations together, the center of social networks, rather than perishing at the margins of "productive" society. In these cultures, personal growth, grounding, and a sense of purpose are derived from our place in our community and time spent together. To build meaning outside of work, try prioritizing connection and service to others.The great resignation is but a tremor announcing a much larger change in our relationship with work. The quake of post-work life is coming sooner than we prepared for and it will shake work-centric societies to their core, challenging us to rethink our culture and practices to invest in values that are not measured on a 9-to-5 scale.As rapidly aging societies, where most of us will soon not be able to rely on work to provide a sense of who we are and how we contribute to our community, it's high time we started preparing.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderNov 5th, 2021