Transcription
We are in Abu Dhabi. You come here pretty often. We were just talking about the weather in Abu Dhabi and how it is like. And so, you know, since you're on the ground and you have a presence in this emirate and you come here pretty often, what do you think it would take for the UAE, whether it's Abu Dhabi or Dubai, to establish themselves as global asset management hubs? Or where do you think they are in their cycles right now?
I think, as you say, I've been coming here for 32 years, so I've watched it evolve from the founder, Sheikh Zayed, to his children. And I think it is the closest thing we get to a paradise in a world that's increasingly in trouble. And they have a great investment management expertise because they have lots of money that they manage for themselves. But when it's coming to money management, that creates a community in which other investment managers come here and it creates this vibe like a Silicon Valley of investing. So this statement of capital of capital is not just a buzzword. You know or slogan, it is that if you want to be in almost the Silicon Valley of investment management, there's an excitement to being here, and it's particularly enhanced by the combination with AI. You know, I would say these are the two biggest commitments. We think of Abu Dhabi as being oil. And of course it is. But we're really now asset management because of the amount of assets they have and how they're doing it. And also AI because of the commitment that they made earlier and now is creating that kind of vibe and that's bringing together very interesting people to create a happening environment. And we'll get to AI in a second. I want to hear your thoughts a little bit more about that. But we have been covering the cap at you say capital of capital is and that's definitely been the motto that Abu Dhabi has been trying to push over the past few years. We see a lot of people coming in here, especially in the AGGM where we are today. But what do you think it would take for Abu Dhabi to become a place where people like you and others come here to invest, as opposed to come here to invest from into other places in the world?
Well, it starts it starts with the investor who's knowledgeable and then it creates exposure to good investments. So there's a lot of interest in good investments that are being made that have been made by those who are here. And so the partnership and the sharing of that, the ability to co-invest or invest in that, you know, if you have people who are doing it and they're in the neighborhood and then there's good things to invest in, it'll happen.
So let's turn a little bit more global. You've spoken recently about a big historic shift being underway, whether it is fueled by AI disruption, whether it's fueled by mounting debt levels globally. What do you think the consequences of such a crisis are in the short term, especially on global macro markets?
Well, since I'm a practical investor, I've done this for 50 years. But in order to understand today, I had to understand things that happened before my lifetime, the big cycles, what causes breakdowns in monetary system. So I studied the last 500 years and there are five big factors, three of which operate in a big cycle. There is the debt cycle, the debt money cycle, and I'll touch on that in a minute. There is connected to the money and debt cycle is the political cycle within countries, the left and the right. Gaps in wealth and and values cause populism of the left and the right, which means that there are irreconcilable differences. So we have problems along those lines. And number three, there's the geopolitical cycle, the world order. When rising powers challenge existing powers and the existing systems. Those three are interrelated cycles, money, debt, the domestic economy and the international economy. The fourth is through nature, acts of nature, droughts, floods and pandemics have been a big factor. They've killed more people than wars and they can play a role. Certainly it's playing a role. And then always throughout history is man's inventiveness, particularly of new technologies. And the inventiveness that we're seeing of the new technologies with AI particularly is clearly a force.
So now how does that play out? The first force is that we are having too much debt. Now, this is not just the United States. You're seeing this in England, you're seeing this in France, you're seeing this in China. You're seeing that dynamic so that they can't increase the debt the way they did before. And then related to that is the politics. But when you have these large wealth gap differences, who has the money? And when there's the accumulation of a lot of wealth that then isn't taxed. There's a tendency to want to tax that wealth and that creates bubbles. In other words, when wealth is very different from money, in order to spend money, you have to sell wealth to get money. And when there's a lot of wealth that needs to be sold. So quite often interest rates play that role. But you could see wealth taxes play that same role, meaning the need to sell that, and that creates a bubble. So we have a debt bubble going on. We have that other kind of a bubble going on in the economy and related to politics. And then, of course, geopolitics. Capital flows and trade flows are different because we have a world in conflict. And in that world in conflict, no country can be secure. So that's why the United States wants to build self-sufficiency in these areas. Or China, which is that model where China would export to the United States and earn money and then invest in bonds, is no longer a viable path because the Chinese worry that they won't get paid on their bonds like the Russians don't get paid on the bonds. So that dynamic is what is behind, not what's happening. And it's becoming more precarious as we go forward. Like if we go into the 2026 elections, 2026 elections. It's likely that the Democrats will take the House. Significant possibility. If that happens, the political conflict will continue to be more difficult and so on, and that's creating this risky environment. Particularly also debts are maturing. So you have to roll over your debt at a higher interest rate. This confluence of factors is making the environment more risky as we're going ahead.
And I want to talk a little bit about what sort of concern investors globally are underplaying. But before that, you know, you talk a lot about AI. And wouldn't be a financial journalist if I don't ask you a question specifically targeted to AI, especially in Abu Dhabi right now. Bloomberg reported a couple of months ago that a venture that your family office had with G42 did not pan out. Are there any other partnerships in the city we should be on the lookout for?
Oh, I'm very active in doing AI partnerships and in areas of common thinking. AI in investing. And other words, I guess I would say there we are in this environment where there's a networking, how different people have different expertise. And I think as we're dealing with how to be the best investor, you have to have the ability through AI to do that. And the partnerships are thought partnerships of how everybody can, you know, teach each other and do things together. So yeah, there are a number of things that are interesting and going on and I'll keep you posted as things develop.
So let's go back to the risk that global investors are underplaying out of the five forces that you had mentioned. What do you think is the biggest one that investors are not paying enough attention to?
I think it is the debt service. Particularly the government position and the supply demand of that debt combined with the politics. What's happening in all of these governments is that they can't increase their spending because they can't increase their debt. And at the same time they have the needs, more military spending and so on, and at the same time they can't cut taxes. And so you're seeing a lot of political turnover. In the UK, they've had four prime ministers in the last five years. Same has been true in France because there's not the ability to deliver on the economic promises that they're making. So I think it's the conflict, the confluence of that economics, that situation and the politics, the debt dynamics, working with the politics, working then with this technology, adding into to it in a bit of a technology bubble so far. So that's that concerns me the most. And I would say particularly post 2026.
Does that mean that you said recently that 50% allocation in gold and Bitcoin, do you still stand by that line?
I think that everybody should realize that gold is a type of money. It's not something to speculate in, just as you would hold cash, but it's other caches of fiat money. And when you have debt, then the government needs to print money and make money easier, which lowers the value of that money. And so also to recognize that gold is a diversifier when the other parts of the portfolio do badly because of some of the things we're talking about, gold will do better as a diversifier. So it has the effect in such times of raising the returns and diversifying the portfolio, it should. A normal allocation would be between five and 15%. If you just went into a portfolio optimizer.