Innovations needed
Impactful innovations needed. Lack of UK listings. Investment plumbing. Talent distributions. Diversity. Carbon Accounting. Modern poems.
Impactful innovations needed
Lack of UK listings
Investment plumbing
Alex Edmans: Diversity Paper
Jason Mitchell: Carbon Accounting, short selling (pay wall)
Links: Rishi Dastidar: new poems | Ausistm | talent distributions
I was ill last week, so skipped a letter. Lying in bed, I did reflect that looking with my Arts hat on, the Arts world really has not “built back better”. Limited change, certainly no radical change.
This observation seems broadly true of most industries. They are under going incremental change, and the pandemic has not radically changed them. One reason why AI related news is notable is that the developments seem to be happening so quickly.
The lack of change - or the incrementalism - is unsurprising. Healthcare CEOs had already commented mid-pandemic that governments and society mostly forget, or priorities change - highlighting previous SARS, or other disasters in poorer nations (famine, war, disease). Step-changes can happen, but are rare.
I thought about what 10 areas could do with serious innovation, with a focus on health and climate.
Impactful innovations needed:
Alzheimers / Dementia
Obesity/Diet/Cardio interventions, maybe antibiotics
Nitrogen-fixing cereals
Better crop yields
Better batteries
Self-cleaning, photovoltaic ‘paint’ - solar paint
“Green” plastic
“Green” concrete: without steel or cement
Better insulation/efficiency - window programme
Better nutrition, sanitation for the world’s poor
I still think investing in “meta” ideas would also be good - so new institutions and new processes to do things better.
As I thought about where innovations are needed, I did reflect that our capital allocation is not overflowing to these areas. There are some areas that are promising. The curves for solar are looking hopeful.
But many other areas are just incremental. Or not going anywhere eg US industrial electrification.
But some areas might be tipping. Eg US heat pump sales seem to have taken over from gas furnace.
I helped host a call with the head of ESG with one of the largest companies in the world. I think in general, while companies try and show their good side and hide their bad sides (dont we all) they are doing more and better than the average person or investor thinks. And, in general, are ahead - or in line - with the median voter, ie they reflect society.
As governments are constrained by their democratic mandates, so companies are constrained by their stakeholders. Progressives want to move faster. Social conservatives wish to cleave in a different direction.
Hence my call to Nick Cave and his raisins in my last letter and to the radical centre ground.
Of note within ESG investment world. Alex Edmans and colleagues have a paper on diversity out:
“This paper measures diversity, equity, and inclusion (DEI) using proprietary data on survey responses used to compile the Best Companies to Work For list. We identify 13 of the 58 questions as being related to DEI, and aggregate the responses to form our DEI measure. This variable has low correlation with gender and ethnic diversity in the boardroom, in senior management, and within the workforce, suggesting that DEI captures additional dimensions missing from traditional measures of demographic diversity. DEI is also unrelated to general workplace policies and practices, suggesting that DEI cannot be improved by generic initiatives. However, DEI is higher in small growth firms and firms with high financial strength. DEI is associated with higher future accounting performance across a range of measures, higher future earnings surprises, and higher valuation ratios, but demographic diversity is not. DEI perceptions among professional workers, such as R&D employees, are significantly correlated with the number and quality of patents. However, DEI exhibits no link with future stock returns.”
Jason Mitchell has a paper out collecting the current views on carbon accounting, particularly with respect to shorts. (Paywall).
Short selling, Carbon accounting.
Jason Mitchell argues “Sustainable finance regulation has largely overlooked alternatives, particularly hedge funds, given the greater complexity of strategies and asset classes. However, regulators are now expanding their scope to recognize the role that hedge funds can play in sustainable finance.
The role of short selling in sustainable finance, especially in a net zero context, has been increasingly discussed and debated among regulators, market participants, investor initiatives, investor trade organizations, and data providers. There is a concern that hedge funds may, intentionally or unintentionally, employ short selling to misrepresent their real-world impact, which is distinct from exposure to financial risk.
Short selling can affect the cost of capital and engagement as channels of influence on corporate behavior. However, there are nuances that should be considered, namely the efficacy of short selling among different asset classes to affect the cost of capital, the time-varying aspect of short selling, and the limitations that short sellers face when engaging corporates.
UK, US, and EU regulators have each signaled their leaning in different manners. The EU, as the regulator with the most mature regulatory framework, appears to establish a compromise that balances safeguards against greenwashing with the mechanics of portfolio management and reporting.”
LI post here. (I would not that whether short selling does impact the cost of cpaital channel is heavily debated still)
I have an essay out on investment plumbing: The famous father of value investing Benjamin Graham wrote in 1946:
“In dealing with undervalued securities, the analyst is likely to become greatly interested in specific corporate developments, and therefore in proper corporate policies. And from being interested in corporate policies, he may pass over into being critical of wrong policies and actively agitating to bring about correct policies – all of which he considers to be in the stockholders’ interests. For it is true that in a fairly large percentage of cases the undervaluation in the market can be removed by proper action by or in the corporation.
Consequently, by insensible stages of reasoning, the specialist in undervalued securities finds himself turning into that abomination of Wall Street known as a disgruntled stockholder.
I want to say a word about disgruntled stockholders. The trouble with stockholders, in my humble opinion, is that not enough of them are disgruntled. And one of the great troubles with Wall Street is that it cannot distinguish between a mere troublemaker or ‘strike-suitor’ in corporation affairs and a stockholder with a legitimate complaint which deserves attention from his management and from his fellow stockholders.”
Graham outlines techniques of “being critical of wrong policies and actively agitating to bring about correct policies – all of which he considers to be in the stockholders’ interests.” His strategy of ‘shareholder activism’ relies on investment plumbing being able to allow participation from shareholders.
Read about my thoughts on investment plumbing and other innovation ideas here:
Essay here https://www.tenentrepreneurs.org/operation-innovation-1#7
I posted a reply to the FT overview on this challenges of UK listings. I do not think it is anything to do with UK pension asset allocations really.
Why are there so few UK listings and what could we do about it?
I found this FT article by Katie Martin and Harriet Agnew as a useful surface initial take on the UK market and its lack of IPOs / technology IPOs but I felt the arguments were slightly conflated and possible root causes were not clearly articulated.
I will suggest:
This is not solely a UK observation, but all non-US countries have this phenomenon e.g. Japan, Germany and Canada.
That Canada has few IPOs (and few tech or biotech IPOs) suggests that the type of Canada asset owners, pension funds is not a strong explanation for this phenomena
This is bad… even when wife is sole earner, she still does all the house work!
Autism awareness and acceptance. From Matt on Isaac. What independence means for Isaac:
Isaac can talk (and talk and talk and talk) for himself. His non-stop, boom-boom delivery conversely grounds him. When his voice levels are up, he’s actually levelling out. Odd yet oddly not in the land of Isaac.
As the words spitfire, he barely remembers to gasp for breath; like a news reader chasing an autocue that’s run away with itself. A chunk of his chat may be commentary on minutiae or much needed repetition; and my blurry eyed mornings are ambushed with angst-fuelled need for confirmations of the day’s proceedings (appeased by a daily morale boosting, any-changes-made and fantastic email from his teacher. Isaac’s waking words so often are urgent dictation-style variations of, “Have you encountered the email yet, father? Keep your eyes peeled for it, please. I’ll accept a screen shot if you’ve departed before it lands in your inbox.”) Every day needs a beginning, middle and end; and will be executed as such.
In arts world, my friend Rishi has a new book of poems out. I haven't fully absorbed the book yet, but if you’d like to try some modern poetry - this is a lovely book to try. I did an early podcast with him, and here he is speaking to Georgina Goodwin.
TLDR: Most conversations about “top talent” assume Pareto distribution; however, a closer examination suggests that different corporate cultures benefit from different types of talent distribution (normal, Pareto, and a third option – bimodal) according to the problem they’re trying to solve. Bimodal talent distribution is rare but more frequently observed in creative industries, including some types of software companies.
While Pareto companies compete for A-players (“high-IQ generalists”), bimodal companies compete for linchpins (those who are uniquely gifted at a task that few others can do). These differences account for variations in management style and corporate cultures.
From Nadia Asparouhova on Top talent . She did a previous podcast with me on philanthropy and other things.
How has digital technology affected two key aspects of daily life, transport and finance? New report by Diane Coyle, Stephanie Diepeveen and Sumedha Deshmukh looks behind the statistics to explore people’s life experiences.
This report explores what fundamental difference digital technologies are and could make to the daily experience of life, and how progress might be measured in the digital economy. It focusses on the domains of transport and FinTech – both of which have experienced significant changes in provision and business models due to the use of data and digital tools, but not everybody has benefitted.
The authors say there needs to be a focus on the benefits of the technology to be widely shared, and for the technologies to enhance people’s opportunities rather than restrict them. This in turn will enable economic and social progress.