Transcription
The markets, it's different, you know, different or difficult to understand exactly how they're positioned. Because if you look at traders in fixed income, it's different to equities.
Where do you see the biggest market dislocation?
Right. Well, the strange thing is that we, in my mind, haven't got a very big dislocation because if you had told me, you know, laid out the events, I would have thought the market should be down a lot. And indeed, it's actually up on the air. I think that's quite surprising. It's up. It's down. I mean, does this angst not come to fruition? I mean, we look at inflation, even the latest figures from Europe, inflation could be a worry. And yet actually equities choose not to see that.
Yeah, no, I think it's remarkable because based on what's going on in the Middle East, you would expect this to feed through, you know, higher energy prices, higher food prices, fertilizer prices and so on. It is to a certain extent starting to hit Asia. We should expect it to hit Europe and the US through higher prices. And typically that is bad for the markets. But the market is really taking it in stride.
Do you worry about inflation, inflation expectations and the fact that there could be some kind of policy mistake from central banks?
Yeah, inflation is what typically gets the markets. And so that's something we really have to really have to watch. On the other side, we have artificial intelligence and the what we think is a deflationary effect. And I think that is what the market is kind of pencilling in just now.
Do you have question marks about artificial intelligence?
Again, there's so much CapEx going on there that as soon as there is a little bit of a wobble like we saw with OpenAI, the market is very concerned. Oh, absolutely. Lots of capital going in there. Now. We are basing our view on how we are using it ourselves and the effect that we are seeing on our business. We think we have taken out nearly 20% productivity gain just over the last year. We are we are using it to help us reduce trading costs. So it's a huge benefit for us and we are putting it in every way we can. Now whether that's now more than reflected in share prices of these companies, I think is very, very difficult to say. If it's a bubble, I think it's a pretty good one.
How do you say what I mean? I guess the the bubble is fine as long as you know, until the point it bursts.
Well, that's true. But he's also putting in a lot of capital into infrastructure projects, data centres and so on, and building capacity that we do need to implement in society.
I mean, you sit on a massive fund raise, 2.2 trillion. Is that an asset or is sometimes a disadvantage?
Now I would say what's the first of all that that's my money is for sure an asset. You know, when a fund is that big, you need to just think a bit differently about how it's positioned and you need to have a very strict mandate. And we have a very good one from the Ministry of Finance, which basically explains to us how we should be invested, pretty accurate guidelines for what we should be doing. And I actually think in this environment it's easier to invest in the market to be part of the market than actually picking individual companies and sectors.
But do you sometimes feel I mean, you can't really move as quickly? And again, is that is that a good thing or a bad thing?
Well, it's fine. So big like the Middle East. So it depends. Sometimes it's good to be able to move. Sometimes it's good not to be able to move. And if you look at the volatility we've had so far this year, well, I mean, the fund is is, you know, up several percentage points this year. I think if you had been able to move as much as you want to do, perhaps you would have made some some stupid decisions.
I mean, does that go to, you know, I guess investors' anxiousness that people maybe sometimes move too quickly?
I don't know. How do you perceive risk and risk-taking people? Well, normally people move too much. There is something called an inertia analysis. And that means that you basically look at your results, what they would have been like if you had just kept your portfolio from the beginning of the year and not done anything. And then you look at your actual results, very many people subtract performance by moving things around too much. So sitting still is sometimes the most difficult thing to do, especially in volatile periods.
Absolutely. How how volatile do you think this period is and will stay low?
I would say it's not. I would say it's kind of medium volatile. It moves on policy decisions. It moves on geopolitics, it moves on, you know, uncertainty. It moves on wars, it moves on energy prices, it moves it moves a lot, basically.
I mean, do you have to take a view on what happens in the Middle East? Because, again, it's very difficult. And a lot of the market positioning was towards something optimistic where actually, if you look at the geopolitics, there was no real end in sight or even a way to go down a notch.
Yeah, it's a very complex situation we have in the Middle East now and I think the outcome there is very uncertain.
Nick, talk to me a little bit about, you know, this idea that is disinflationary.
Well, we are seeing the productivity gains from this you can do things with. A few people, you can automate more things. I think there are a lot of jobs which are going to disappear. Do we need as many lawyers going forward? Probably not. Do we need as many accountants? Probably not. We need as many consultants. Probably not. How is that going to make the world a worse place or a better place? Perhaps even a better place? And I think also we can stop doing things which are repetitive, which are boring, and we could just spend more time thinking.
But does that show up? And at what point does it actually show in the inflation numbers? Because we're just at the cusp on maybe in certain points in inflation seeing it, but it's not widespread enough?
It's not. No, it's not widespread, because we have the offsetting effect, which is from the energy market on the back of what's going on in the media. So we have these two intersections and two events coming together.
I mean, is that why it's hard? It's because you actually have two opposing things and central purpose and also have to make a decision on that.
Yeah. So so again, as an investor, how do you have to how do these two tensions play out? Well, the way we deal with it as an investor is to be broadly diversified and very long term in our thinking. And I think that's a pretty, pretty good place to be just now.
What's your take on on private markets, on the private market?
So we are we are actually not in the private market, and that's in the statute. I mean, you can't we cannot be in the private market, but we do observe the private market. We look at it. We are seeing some signs of worry there, some early signs of stress. I think if it waits is rates went up a lot and we had an economic downturn that probably would crystallise more of it. But I think it remains to be seen.
Is there a worry that something systemic, is there something in the private markets that makes you worry about your investments?
No, we don't have any reason to believe that there was anything systemic. But for sure, they could be losses that people have not expected.
Such as?
Well, we'll see when rates go up. If rates go up and we have an economic downturn, that's typically when you see whether people have the right types of credit. So it's the what's the next 4 to 5 months that are particularly if all stays at this level. While I don't know when we potentially will see these type of effects, but when they happen, we for sure will see who has written good credit.
How do you see ESG going forward?
Well, we think it's important that companies continue to be sustainable in the way they do business. And the reason why we argue that is because it's it makes sense from a financial standpoint. And if you don't have a sustainable business, it's going to be a bad investment. If you don't have a sustainable business, you're not going to get people working there, you're not going to get bank loans, insurance or anything like that. So we are we are consistent in our view, but we always make sure that it boils down to financial considerations. It's important because those type of risks are financial of nature.
Where do you think we are worldwide on this? Does the energy crisis in the Middle East make it more likely that there is more investment money being poured into ESG as we find other sources? Or is that actually just securing the old way of, you know, finding energy?
Well, I think we are seeing it in several different ways. One, of course, would be a continuation of fossil fuel and exploration. We are seeing some reversion back to coal. We are seeing an acceleration potentially in nuclear. But we are also seeing a rally in renewable infrastructure, which is a very positive development. And I think we think some of the investments in that field look and look really interesting.
Anything on real estate that you worry about or actually you're excited about?
Well, we have big real estate investments around the world. We have nearly a thousand properties. The real estate market has been not great over the last few years, starting with, you know, COVID, you know, some banking issues, rates and so on. We think it looks more attractive now than in the past.
I'm a big fan of your podcast and it actually you talk what you mean you speak to incredible people and you talk a lot about, you know, optimism and pessimism and the fact that psychology kind of also changes the investment attitude. Where are you in 2026? Because we had COVID, we had, you know, the war in Ukraine, Then you have the terror of Liberation Day and I have the Middle Eastern people broken.
No, I don't think they have broken. And I think it depends very much from from person to person. I think we are probably medium to negative on the sentiment scale. We probably should be more positive because there are a lot of positive factors going on in the world in particular, you know, AI and so on. But of course people are worried when they see policy decisions which they don't understand when when they see war, when they see geopolitical events, which they haven't expected. You know, it's a tough it's a tough landscape to navigate.
I think, you know, I think it's interesting because. I think you needed to look through the world, either through a microscope or a telescope. Now, I think you need to look through a kaleidoscope. Because, you know, one of these things you had when you were little and you turn this thing and suddenly all the shapes changed. That's the way the world is like now. And also many things are being turned upside down using shapes, new colours every day. And you need to look at the world in a much more broader fashion than you did before.
But for that, that means more risks, doesn't it? For for investors, but also for consumers. Do you worry that consumers may stop consuming as much as they did even.
Oh, I don't think you can. I don't think you'll ever get consumers to stop consuming. They may change their habits for a little while, but, you know, we need things and we will want to buy things.
But if you look through a kaleidoscope and what change changes fundamentally is not CapEx, is it M&A?
Well, I think if you look through the kaleidoscope, everything is changing, right? I mean, just over the last few years, you have a difference in geopolitical tension between the superpowers. You've had the new aspect of technology. You have China becoming much more competitive in many more different industries. Now, we are coming out with a forecast in a couple of weeks with Pfizer, and they talk about, you know, the cancer research in China being very, very strong and all some of these factors on you. You see the development on the battery front coming out of Chinese companies. Incredible. You see. Show me. We did a podcast with them. Wow. They go from a mobile telephone to super car in three years, you know, And so the type of speed and development and innovation coming out of coming out of China is unreal.
How will that impact your portfolio going forward? Like much longer term, though?
I think you'll see the impact on I mean, we are invested in China. It's not a very big market for us. But, you know, we have investments in these companies. Of course, it's going to be problematic for some of the European competitors. It's it's a tough landscape to navigate. But for the moment, you're committed to Asia in the US.
There's not I mean, we don't really know if China takes over the air race.
Well, the way we read it and what we hear from the companies is that they are very good at applying it. So may be slightly behind in terms of developing the models, but in terms of applying it and using it in everyday life, they are doing really, really well. And I kind of think that's Europe's opportunity as well. We don't have the big language models here, but we could become really good at applying it because we are educated and we are very digital.