Recent Forum: IF Webinar
On 19th May 2020, Des Harney of Grant Pearson Brown Consulting Ltd (GBP) chaired the second of Intelligence Forums’ video conference webinars. Nearly thirty members joined to listen and pose questions to our three speakers.
Des first summarised GPB’s business as being is to help those who need, to communicate effectively and persuasively. Founded as Grant Pearson & Co in 1993 the company evolved through Grant Pearson Brown & Co to become GPB in 2003, and was focussed principally on coaching and advising on presentation skills, media training and negotiation skills. The business has since developed to include the coaching of individuals and groups to become effective communicators. GPB’s expertise covers areas such as: Pitching ; Business development; Negotiations; Media interviews; Telephone; Business writing; Voice analysis; Visual analysis; Content analysis and it advises many significant clients on major and often confidential projects. These have included the successful London 2012 Olympic Bid (working with Lord Coe’s team), and the bid for ‘London 2017’ - the World Athletics Championships.
Responding to the changing world of work and video conferencing from home, GPB has recently published a free online guide to Online Spoken Communication which offers a useful list of Top Ten Tips for a successful online event.
Our first speaker was Alastair Winter, Economic Adviser Global Alliance Partners, and former director of Daniel Stewart and Company. He set out to build more controversially on the themes surrounding the UK economy which have been aired in recent meetings and kindly shared his economic insights in a paper dated 18 May titled “COVID-19; the end of the beginning”.
Firstly, he said, we need to stop fretting about COVID-19 itself. While people are concerned that they or their loved ones might succumb, they are equally concerned about the state of the economy, their livelihoods and savings.
Personal consumption accounts for almost two thirds of world output and is the largest component of GDP in advanced economies. There is a symbiotic relationship between spending and the health of our economy, he said, so less spending clearly means less consumption and fewer jobs. Unsurprisingly today many people, faced with a cut in income and/or losing their jobs, are reining back both the spending and borrowing that has driven the UK and US economies for years.Because of this, he believes that even the resilient US economy will need at least a year to recover and the UK in a new isolation from Europe, even longer.
That said, global and national economies will ultimately recover and he will be interested to see how governments respond to the social and political changes that have derived from the crisis. The practices of working from home, commuting by bicycle and the abandonment of international business trips seem likely to endure. As more people are empowered to work from home, demand for housing and office space in the cities, will decline. Although he does not see a collapse in residential property prices he cautioned that buyers will simply not have the income to pay the current high house prices. However, he foresees considerable challenges for commercial property as businesses reassess the need for expensive central office space.
The design of transport systems, whether high speed rail links or airport expansion will surely need review and he asked whether, having seen the environmental and public health benefits of reduced travel, climate change will now get the attention that it urgently needs?
He believes that the crisis has highlighted the value and the scope of our essential workers and that their remuneration will at last be properly addressed. The time has now come too, to re-evaluate the role of schools and universities and that of apprenticeships, he said. Such issues will all impact public spending, taxation and welfare and lead to a greater demand for social solidarity and - state intervention. Classic monetary policy and the role of central banks in boosting asset prices (but not much else, he suggested) will also have to be judged, as will the concept of maximisation of shareholders profits being the sole purpose for businesses.
Leaders will be judged too on pandemic preparedness; speed of initial response to COVID-19; Clarity of ongoing communications, and the death toll. In his view the “best” leaders in this crisis have been who have been the “best” communicators, and have won the trust of the people. In his top ten, seven have been women (South Korea, Vietnam, Taiwan, Germany, Denmark, Finland and New Zealand) .
In contrast, the self-styled ‘strong men’ have struggled (notably Trump, Xi, Putin, Bolsonaro, Obrador, Abe, Modi and our own Boris Johnson), but even the leaders who have emerged with some credit are living under the shadow of further waves of infection.
Alastair commented on the widening divergence between underlying political, economic and especially corporate fundamentals and ever rising equity prices. Since 2019 the PEG ( price-earnings growth rate) of S&P 500 shares has spiked at 2.1 having ranged between 0.8 and 1.5 over the past 30 years ( less than 1.0 can indicate an undervalued stock, greater than 1.0 can indicate overvalue).
This divergence is all the more surprising given that it has coincided with lock-downs, plunging consumer and business sentiment, soaring unemployment and contracting GDP.
As a partial explanation he told us that while Institutional, Risk Taker ( Hedge Funds etc) and Individual investors, generally have differing investment strategies, in the current situation they have all adopted a similar approach to equity investment , emphasising ‘survivor stocks’ (over ‘winners’) and corporate cash flow, which has resulted in high demand for:
· Technology companies, which should still remain standing, even thrive, through recession; and
· Pharmaceutical/Healthcare and Consumer Staples stocks, which are both having a ‘good pandemic’.
It is no surprise therefore that the prices of such shares have soared – for example, the NYSE FAANG index (Facebook, Amazon, Apple, Netflix Google) whose constituents make up over 15% of the S&P 500 has almost doubled over the past year.
On the question of inflation he believes that although the government might well like some, we are in a cyclical downturn so he does not see significant inflationary pressure over the next three years.
And now for the forecast - Alistair predicted that it will be 2022 before the UK reaches the level of economic activity it had at the end of 2019 - remember, you heard it here first!
Our next speaker was Robert Drysdale, Director of Henwick Park Distribution (HPD). HPD was established in 2013,primarily to assist fund management groups to build additional assets under management. The company has extensive experience in sales and marketing of investment funds, and its knowledge of the intermediary market extends beyond the UK to a number of overseas markets.
Robert highlighted the time needed for fund managers to raise assets. Funds and products can often be set up with money initially raised through family and friends, but distribution may almost be an afterthought, so traction is slow when put out to the wider market. Whatever its merits, the fund/product must still be promoted and explained to advisers and managers, who will also need time to carry out their own research and, if convinced, replace their existing advice to their clients.
HPD’s clients range from small boutique operations to more established groups looking for additional distribution channels. They often lack internal sales and marketing capability outside their home country and need help with distribution in the UK and other territories. HPD offers feasibility studies to potential clients, which, says Robert, is a great way to test a proposition in the market. Tough conversations may ensue if the product won’t sell, but more often these result in the right changes being made to improve the chances of success. Either way a lot of money can be saved.
Although pure distribution accounts for the main part of its business, HPD also offers a hands on bespoke service to clients at different stages of their product development. Its own strengths are complemented through strategic alliances with Limestone, a Financial Service Provider (FSP), and Hardman which provides independent investment research and advice that helps companies communicate with investors.
HPD is the UK representative for Limestone which offers a wide range of services to asset management companies. Based in Luxembourg, Limestone sets up and administers SICAVs, UCITS and RAIFs either on a standalone basis or through a sub-fund.
Hardman and Co provides research, analysis and valuations for both private and public companies, regardless of size or sector. Through Harman, HPD can provide truly independent due diligence reports on fund managers and their funds/products to give investors and advisers a higher level of comfort when considering a new manager.
Hardman also provides HPD with valuations. Demand for these has intensified with the sudden interruption of business activity due to COVID-19, which has caused fund managers, administrators and companies to become disoriented, and investor confidence in all asset classes to diminish.
In summary Robert emphasized that HPD’s main aim is to bring interested parties together to help them grow those business relationships. It has an extensive onshore and offshore mailing list but where it really adds value is through the many personal contacts of the business directors which they have won through an aggregate of over 110 years of working in the financial industry.
Elisabeth Braw, Senior Research Fellow, at The Royal United Services Institute for Defence and Security Studies (RUSI)was our final speaker. RUSI is the world's oldest think tank on international defence and security and provides independent advice on how to deter threats which are new and for which conventional weapons do not provide a deterrent. It is a UK registered charity and as such follows the Charity Commission’s guidance on public benefit and political independence. Founded in 1831 by the Duke of Wellington, RUSI embodies nearly two centuries of forward thinking, free discussion and careful reflection on defence and security matters, and has sustained its independence by drawing income from its membership subscriptions, the sale of its various outputs and from research contracts, donations, and from events funded by a wide range of sources, private and governmental, UK-based and international.
Elisabeth directs RUSI's Modern Deterrence project, which focuses on how governments, business and civil society can work together to strengthen countries' defence against existing and emerging threats. She set out how we live in an age of hybrid (threshold or grey zone) warfare, where political warfare is blended with conventional warfare, irregular warfare and cyberwarfare and with other influencing methods, such as fake news, diplomacy, lawfare and foreign electoral intervention. Our defence cannot comprise solely armed forces, she said. Governments, business and civil society need to work together to strengthen their resilience against existing and emerging threats.
Elisabeth believes that while this is principally the responsibility of government, the private sector must also take its own share. The companies which need to respond need to be identified and the scope of their responsibility, defined. The scope of citizens’ responsibility must also be defined. An infrastructure to deter adversaries must be established and we need to signal to them that we have it. Importantly we need to decide whether simply to signal that we will deter, or that we will strike back.
This is not just a UK challenge, she said. It is one faced by all liberal democracies, and Western societies are dangerously exposed to non-military aggression. She reminded us that countries in Europe and North America have, over generations, developed impressive military deterrence. However, the emergence of hybrid warfare, where threats and attacks are directed at the private sector and civil society at large, means that deterrence by military punishment is not enough.
NATO and the EU, have been increasingly targeted over time. Few of us need reminding of the hacking attacks on utilities, telecom providers, the US Democratic National Committee, Maersk, and Britain’s National Health Service; or of disinformation campaigns – 'fake news' – about Western elections and certain candidates, spread with the intent of weakening the targeted country. As those events have shown, liberal democracies are not set up to defend themselves against attacks, which target specific parts of civil society. No single part of society can fully defend the entire country, and only by building seamless defence to counter the equally seamless aggression, can a country deter adversaries from attacking them.
What is needed, Elisabeth said, is modern deterrence: a combination of traditional military deterrence by military punishment and deterrence by societal resilience. The Modern Deterrence project’s research -- informed by practitioners – aims to generate a new body of knowledge that will be vital to governments, the private sector and civil society, in this regard.
Elisabeth was asked whether the UK should use Huawei to provide parts of the country’s 5G network. She replied that in assessing a country’s vulnerabilities there are some that you can address and others that you can do nothing about. Huawei is one that the UK can do something about. She suggested that China is not a dependable partner with which to do critical business, and her view was that it would, as a result, be unwise to proceed with Huawei.