The following is the unofficial transcript of a CNBC interview with Man Group CEO Luke Ellis from the CNBC Evolve Global Summit, which took place today, Wednesday, June 16th.
Video from the interview will be available at cnbc.com/evolve.
All references must be sourced to the CNBC Evolve Global Summit.
Geoff Cutmore: Luke Ellis is the CEO of Man Group, a hedge fund with over $127 billion under management. He joins me now to discuss investment opportunities in a post-pandemic world, and how innovation in technology is shaping the future of putting money to work. Luke, thanks so much for being here with us today. Look, if there's one thing I can tell our audience that they may not know about you, it's you have an academic background in economics and maths, so you're the perfect person. If I can ask you an easy one first, are we getting inflation? Are we going to have inflation? Is inflation here to stay? Do financial markets need to begin reckoning with inflation in all of the maths that they do going forward?
Luke Ellis: I like the idea that's your easy question. Look, I think it was very predictable, early this year, that as we got the opening, we were going to see some really quite scary inflation prints over the early summer, and sure enough that's what we're seeing, today the UK, last week the US. You know, I think we have some more scary prints to come. I would say, personally, my economic background leads me to think that actually we're going to go back to low inflation post all of this, but it's very clear that clients are worried… and, you know, the bond market agrees with that, clearly, at the moment. Clients are very worried about whether this inflation is going to be transitory. The Fed seems confident… you know, economists always seem confident, they discover afterwards. It's very interesting, we produced an academic paper about what strategies can you actually invest in if there is inflation, and that's now one of the most downloaded papers on SSRN, where academic papers get looked at, which gives you a sense that clients are really worried about whether we're getting inflation.
Geoff Cutmore: Yeah, as we look at other market trends, and I'll just park that inflation question for a moment, but our audience may want to come back to it, if they have views of their own which they'd like to put to you, but as we just look at some of the issues that the industry is having to face, before we move on and talk about technology, I'd be very interested to hear what your assessment is of the whole 'meme stock' AMC GameStop saga that we've seen unfold. Is this sort of retail pack hunt mentality here to stay?
Luke Ellis: Well, they've had a lot of fun with it, so it's probably here for a while. Look, for us, we use technological screening, and, you know, you can obviously have a look, using technology, using, sort of, natural language processing things, at all the stock tickers which are being talked about on the sort of WallStreetBets, and the other Reddit sites, and yes, you can read what they're doing with emojis and so on, and basically use it to avoid trading the names that they're super excited about, because they're mostly creating false markets. I think it becomes really interesting when companies then take advantage of what are otherwise false share prices, and issue stock, and, you know, I think we're going to see a radical shift in the cinema industry because, you know, one of the cinema chains has been able to use the pumping of the stocks on WallStreetBets, in order to then go and raise capital, and that's going to put them at a significant competitive advantage with other people in their industry. So you have to observe it, you have to deal with it, but as a… as a sort of institutional investor, frankly, we just use… avoid those stocks, and move on to other things. The good news is, you know, there are, sort of, six, eight, ten thousand stocks out there in the world that we're interested in trading, so it's easy to avoid the ones where we think it's a false market.
Geoff Cutmore: And clearly, as we focus on intrinsic or fundamental price discovery, rather than maybe, some of the ramping around some of these stocks, just a quick question on what a new global tax regime would mean for the kind of tech stocks, that obviously go into many of your portfolios, do you think this… I mean, we don't know how it's going to come into being at this stage, but this talk of a new global minimum tax of 15%, do you think it changes the landscape for tech investing?
Luke Ellis: I think that it changes the landscape for a number of stocks. The interesting thing is, if you look at the tech stocks which have been leading the market, it's mostly names that don't make a profit, and, frankly, are some years – in some cases maybe decades – away from making a profit. And none of these tax rules are supposed to tax you if you don't make a profit. So to move their tax base around the world to minimize the taxes. You know? But at 15%, I'm not sure it really changes anything; I mean, it'll be good to see, but 15% just sets a floor. If it starts pushing to minimum tax rates of 20 or 20-something-percent, then you are starting to see things which make a real difference to, you know, how you would look at the Apple share price.
Geoff Cutmore: Luke, obviously, the pandemic has hastened a number of trends that were already unfolding in your industry, and I think one of those is just the embracing of technology as both a disruptor, but also a way of building new models. We've had, over recent years, what seemed like Game of Thrones in the asset management industry, with companies taking out other companies, or being pushed into mergers. Is that a direct consequence of some companies just not keeping up to speed with where the technology is taking us?
Luke Ellis: With all due deference to some of my peers out there, yes, I think it is. Look, a lot of the mergers that we've seen out there have been about trying to create scale in order to… to deal with cost problems, which are basically about how can they invest in technology to deliver the asset manager of… well, I was going to say the future, but really the asset manager of today. You know? It's… it's… we have been leading with technology investment for a long time now, I mean decades, and what it means is, you know, we can do thousands of trades a day that are executed by computers, settled by computers back into the portfolio to be done again the next day, you know, with essentially totally straight-through processing, which means the cost of production is much lower. You know? And that is, you know, the answer in any industry in the world, and asset management is definitely one of those, where investing in technology can let you make smarter decisions, but it also pushes down your cost of production. And, sort of, merging two businesses, and not dealing with the technology, not dealing with the back-office cost, not dealing with the systems process, as you can see from the way a number of those mergers have gone, doesn't really solve anything. You need to invest in high-quality technology, and you need to keep investing, to keep in front of the… you know, what is an ever-competitive world.
Geoff Cutmore: We've had an interesting question from Brad, and it's around your thoughts on cryptocurrencies. Obviously, you have to be very sensitive to industry shifts, and the demands that you get from customers to offer certain products. Where do you stand on cryptocurrencies, and will you, like some of the other asset management companies, ultimately craft products that are appropriate for those who want to invest in cryptocurrencies?
Luke Ellis: Well, look, we're an alpha shop, rather than a beta shop, so if you want to buy a passive S&P 500 portfolio, we're not the place to go; go to Blackrock, or one of the other big providers of passive. What we do is to try to do things which are all about value add. So when it comes to cryptocurrencies, if you just want to be long on cryptocurrencies, there are other ways to do it. We regard it as a tradable instrument, and we trade it, and, you know, when it's going up, we want to be long, and when it's going down, we want to be short, we might trade relative value between different things. I don't see us having a crypto-only product, because it's… it's just… well, one, maybe there are half a dozen realistic cryptos you could trade today, relative to each other, but that's not a diversified portfolio, from an alpha point of view. So we trade it within a portfolio that trades 700, 800 other things, and so we're not reliant on any one thing to make money, it's really the breadth of assets that we can trade, and the movements amongst them. And so, you know, for us, it's an interesting thing to trade, but it's not a sort of view as to whether it is or isn't the future of money.
Geoff Cutmore: And as we look at new trends emerging, obviously there is a lot of noise around ESG investing, but as you look at the size of flow into that particular market at the moment, how critical is it going to become? How important do you think it is at the moment?
LE: Yeah, I would say we've moved well past the point where it's noise, to the point where it's really action. It's not true for clients everywhere in the world, and we can all imagine the parts where people are more or less excited, and obviously here in Europe, ESG is very much at the top of mind, but today, the ability to deliver ESG compliant, and then also ESG embracing portfolios is a must-have for an asset manager. You can't ignore it. Different clients have different views of what they're interested in, what they're worried about. I would say any asset manager should always have been worrying about the G, about governance. The point as… you know, if you own equities, if you own credit, you are an owner of a company, and you ought to have a view about the governance of the company, and you ought to get involved in the way the company is governed. That, to me, has always been there. Really, what we've seen is a significant increase in the E, over the last few years, and maybe, in the last 18 months, with what's gone on with the COVID crisis, the S part, and for us what we're seeing is clients, more and more, focusing on, rather than, sort of, ESG as a general concept, but thinking about climate, and really thinking about how do we stop the world getting to 2 degrees warmer, you know, and in a world where we're going towards carbon neutrality in some time window that looks like 2050, 2060, you know, what are the companies that are going to benefit from that? What are the assets that are going to benefit? And which are the ones where it's going to be a problem? And so, you know, I think we've moved through the process of ESG as a pretty title to, "Okay, so show me some substance around that; show me why this portfolio is going to benefit from government action to stop climate change of more than 1%, or 1.5%, and what is the portfolio doing to help that?" And that is a really interesting technical challenge for asset managers. It requires a lot of analysis, and it's a lot of data… you know, in some of the bits in ESG, it's frankly still all a bit fluffy, but when it comes to climate, there is real data out there. It takes hard work to collate the data, and to manage the data, but you can actually have a scientific view about which companies will benefit. You know, what does changes in temperature in different places do to the worker productivity? What does that do to company performance? And, you know, it starts to become a really interesting area, where, you know, you can scientifically add value, which for us is, I think, a really exciting opportunity, and is something, over the next 10 or 20 years, that is going to become very much the mainstream of asset management.
Geoff Cutmore: Luke, it's been a real pleasure catching up, and thanks so much for joining us for the event. Luke Ellis, the CEO of Man Group.
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About the Evolve Global Summit:
As technology and innovation are redefining expectations for corporations to achieve success and growth in an era of disruption, business leaders are embracing change and transforming their organizations for the future. Most recently, unprecedented and unforeseen challenges due to the global pandemic forced companies to rapidly adapt operations, policies and products to survive—and in some cases, thrive.
The CNBC Evolve Global Summit will gather leaders and innovators from around the world for provocative conversations and to share strategies and tactics necessary for adapting, innovating and transforming in this new era of business.
Leveraging the power of CNBC Business News Worldwide with its global roster of anchors and reporters to lead conversations, the virtual summit will feature programming across multiple time
zones originating from each of the following key regions for the first time ever – APAC, EMEA and the Americas – to reflect the borderless nature of business today. The virtual summit will examine the driving forces, both through the lens specific to each region as well as the global economy, creating opportunities for change.
For more information, visit www.cnbcevents.com/evolveglobalsummit