The Exchanges

Q What was your early path at Well Then Morgan Guarantee?

A When I graduated and joined full time, I joined the Global Commodity Derivative Group, which consists, I think, of about four people and me. I was the only girl or woman. The bank had been in the business of bullion and related precious metals for many decades, but this was the beginning of our work in providing hedging instruments in things like jet fuel and oil and other energy related products. Over the course of many years, I spent a lot of time in and around the derivative markets, almost all of them for rates, credit, commodities, environmental commodities, and built and ran what became big franchised markets businesses for the firm, the structured credit business in the nineties. And I then moved back into commodities in the 2000 and built out the physical as well as the derivative business in commodities. Then I also did tours of duty in Risk and control functions. I looked after global credit portfolio that manages all of the loans and counterparty exposure from derivatives that the bank retains. In the era after Jamie joined the firm with the combination with bank one, became the CFO of the global investment bank, working for then CEOs, Phil Winters and Steve Black. In the aftermath of the great financial crisis, there was a wave of re-regulation and changed regulation, and I acted as the head of regulatory affairs for The investment bank while doing my day job in com…

AI assessment note: “When I graduated and joined full time, I joined the Global Commodity Derivative Group”

Q But I want to get a chance to ask you a couple of closing questions. What is your favorite hobby or activity outside of work and family?

A I'm a horse person. I've been a avid pony girl since I was growing up in the pony club in England and took a few years off, but I started again after I had my daughter in my twenties and I've been riding ever since I still compete to this day. I don't practice enough. Riding a 1500 pound animal over four foot six pence is not particularly advisable at the best of times, but without practice is definitely not a good idea, but it's a hobby that I'm passionate about. I love my horses and I live here in Florida. And I have a farm in Wellington where I actually have the privilege of living on my own farm with my own horses, so I can get off a zoo and get on a horse and not even have to leave the property. It's great.

AI assessment note: “I'm a horse person. I've been a avid pony girl”

Q in that seat of running that credit business, say even in 2001, and you come in, and you have that idea, want to have a fortress balance sheet, want to do business the first class way, there are a lot of people underneath you, there are traders running risk, there's different exposures, there's different dealers. What do you actually do on a day-to-day basis to oversee that aspect of risk?

A It's a good question. There's the explaining the strategy, and then there's giving people the tools to execute the strategy. Both are equally important. It's very clear to have a strategic orientation in your business, especially if you're not in a steady state. So you're evolving in a direction, which in 2001, JP Morgan absolutely was not a top tier investment bank. It had certain areas of excellence, but it had a long way to go to become what it became through the course of the financial crisis. What we did in terms of giving people the tools, we got a lot more granular and specific in terms of transfer pricing and pricing of risk in particular. So we dropped concepts of revenue targets or growth targets or volume targets or market share targets. You have to pay attention to those, but we introduced the notion of capital consumption, SVA, shareholder value added, and models to estimate What are the resources of the bank that are consumed by any given activity? And then we got very rigorous about evaluating what is the client value proposition. We always know how a client values the business we provide to them, but how does the bank need to value the business a client brings to us? And if a client is very concentrated in a single product line and that being unsecured lending, for example, very hard to achieve the return on equity that is appropriate To not destroy shareholder …

AI assessment note: “we got a lot more granular and specific in terms of transfer pricing and pricing”

Q When you look at the operations, the O piece, and the operating partners you have, what is it about financial services that feels a little bit different from an operating partner in another private equity fund?

A I think it's how we use those skills. My perception, never having been an operating partner elsewhere, is that operating partners tend to be somewhat passive until a specific opportunity comes up, and then they're brought in with that in mind. Our industry partners are responsible for driving industry and sector thesis work, so developing our views on what's going on in asset wealth management, banking payments, and so on. They are responsible for originating transactions through their networks, all the way from venture to later stage opportunities. They're involved in working directly with the investment team and motive create on the due diligence and transaction evaluation process. And then they're part of the team that manages the portfolio company. And in some cases that extends to being placed as a senior executive to run that company or be part of the C-suite somehow. Other cases, they're board members and operating from the outside in, but in all cases, they're very much a part of the company and they're part of the way that we produce our product. Of course, our product being returns for investors. So I would say that we use them much more extensively and intensively than would be customary.

AI assessment note: “we use them much more extensively and intensively than would be customary.”

Q I'd love to break down the I, O, and I, and maybe we'll start with the innovation and tech piece. When you have that many people, and you're deploying across many different stages, how do you differentiate The technical expertise your team has from supporting a company that needs to live on the right?

A Yeah. Good question. The answer is, it's obviously not a one size fits all. And we do have a playbook that is outlined for companies of different stages, but we don't stick entirely narrowly to those playbooks. Quite heavily depends on the nature of the company that you've bought. A microscopic startup very often doesn't have the resources to be paying third parties to do anything for it. There, we tend to provide Much more input around fundraising, go to market, customer acquisition, strategic partnerships with other bigger companies and enterprise customers, many of whom are already in our network or our portfolios. Then if you buy something at the much more evolved end of the spectrum, that is say an unloved, older, non-core, non-strategic asset that we carve out from a bigger company that has potentially a significant body of tech debt. There, the company will typically have its in-house technology capability. You need to be able to evaluate the talent there from the top on down. So we help people source great resources. We supplement that with our own where desired and appropriate. So people actually pay motive to execute for them. And the difference between paying motive to do that versus another consultant or integrator is two things. One is we charge modestly because we love our portfolio companies. More importantly, we have skin in the game. And so that's very appealin…

AI assessment note: “it's obviously not a one size fits all. And we do have a playbook”

Q Among your other theses outside of wealth management, what are you most excited about?

A Capital markets is an arena where the trading and execution end of the capital market space has been radically transformed over the past years. But what's interesting in capital markets is the post-trade is still a mess. And also that just like I described in the asset and wealth space, there aren't that many real platform businesses that are ubiquitous and that are excellent and that are cloud native and that are efficient and that are modular and that can be evolved to fit the needs of diverse and disparate customers. Instead, you find in capital markets, Many businesses that are burdened with legacy technology, often written in languages like cobalt that they don't even teach in schools any longer. Millions of lines of code that are expensive to address. And a lot of these providers are very entrenched. Their clients is very costly to move off these capabilities. But the case for doing that is increasing and increasing because the cost of operating in capital markets, especially in light of a world where capital requirements are going up. And so the imperative of operating efficiently in order to generate an appropriate return on capital deployed is increasing. In a world where money was priced at zero, zero or negative interest rates, it didn't really matter that stuff was slow. It really matters that stuff is slow when there's a time value associated with money. So lots of…

AI assessment note: “Capital markets is an arena where the trading and execution end”

Q And how does that change the market activity? So if you're thinking about running that credit business, the people who are taking risk or have risk on their balance sheet are owning the same instruments that a real money owner will have.

A What's changed very significantly over the last period since the great financial crisis is the amount of capital that is required to be held per unit of risk on a bank's balance sheet. The formulae are complex and there's many of them, but bottom line is that it's boiled down to more capital required for pretty much everything. The result of it is that the bank driven appetite for assets has declined relatively speaking. And what has moved into that space are alternative credit providers. So broadly speaking, it's known as the shadow banking system, but the big private credit and equity funds and hedge funds and insurers and others who are increasingly directly providing capital markets capacity to what was traditionally the world of banking clients. The objective of the bank regulators in doing this is that They wanted to reduce the leverage in the banking system because of the lessons learned from the financial crisis. And they're effectively purposefully pushing that capacity out of the system without having necessarily satisfied themselves or everyone that there's sufficient alternative capacity to make up for that. And there's a concern that this is raising the cost of access to both credit and liquidity. For everyone really remains to be seen whether the overall effect on capacity of the system to provide the engines of growth in capital markets, whether the equilibrium t…

AI assessment note: “The result of it is that the bank driven appetite for assets has declined”

Q If you were to compare a bank of financial services company, the balance sheet, shareholder value added to a simpler asset management structure. Think of an asset manager, a hedge fund who's generating returns. How would someone who's used to the asset management business think about what the rates of return the bank is trying to generate?

A It's interesting that so many of the world's great banks have diversified into asset management and wealth management, which is a similar type of business in terms of return on equity that it can generate. The difference is that in asset management business, you're not deploying leverage in your company typically, or if you are, it's very well prescribed and defined within the parameters of a particular instrument or product or fund. Banks are leveraged institutions and you never forget that. And that's why this concept of fortress balance sheet matters, because if you inject leverage into the equation, And your deposits, for example, can disappear for a reason, as we saw in the regional banking crisis last year, and you have assets that are not short-term and liquid, then you can create a mismatch there, maturity mismatch and liquidity mismatch, that even if the underlying performance of the assets is okay, which was the case during the regional banking crisis, you have a problem with just managing the liquidity there. In an asset management business, you don't have that. It's typically a real money business and very often much less leverage. And obviously certain Parts of the spectrum within us, the hedge fund space do deploy leverage to varying degrees, but it's a very different construct and they typically stay much more liquid. Or they tie the instrument by the investor to…

AI assessment note: “So that's the basic difference. Just one word. It's leverage, really.”

Q Where did they put you with five years experience going out of college?

A What's more interesting is whether they put me with no experience on day one, and the answer to that was the photocopy machine, because remember, this is pre-email, pre-networked computers, and photocopying was a big part of life, so I did that for a while, then they realized that I actually could read the contents of the documents I was photocopying, and I started working on the confirmations of derivatives and the counting for and valuation of derivatives. In 1987, derivatives were very new. The first Swaps, I think were executed maybe 83, something like that. Still a very novel concept and they were accrual accounted for. And so the shift from accrual accounting to mark to market accounting, which sounds pretty arcane, but in banking accounting terms, it was a seismic shift and produced some very large swings on the income statement. So it needed forensic analysis. And so I got taught how to value and structure and mark to market swaps at the age of a teenager. And that's where I first landed.

AI assessment note: “What's more interesting is whether they put me with no experience on day one”

Q There's a lot over that time horizon that we could unpack. One of the most interesting things, whether it's commodities, credit, you've been through a lot of cycles. What did you see about how you go about managing through a cycle in an increasingly large organization?

A Yeah, that's a very interesting question. And to put that in context, when I joined Morgan Guarantee, which was 87, it was still a triple A rated institution. I think it had about 12,000 people globally. So compare that to the behemoth that it is today. It's an extraordinary period of change. And I stayed with the firm for in total, 27 years. So it was unrecognizable by the end. And you're right that during that time, there were many cycles that came and went. There were many crises. Specific individual events, as well as broader market cataclysms, obviously, 2008 being the most significant of those. But interestingly, I think that the first that I was really in a position where I was senior enough to have any perspective to really learn from it was what happened at the time of 2001, which was when the first wave of the dot-com bubble burst. And there was the meltdown in the merchant energy space. Enron And others, significant sell-off in high-yield credit markets and private equity, which until that point had been thought to be diversifying of each other. They proved definitely not to be. JP Morgan did not come out of 2001 covered in glory. JP Morgan came out of 2001 very much at the bottom of the pack. And the reason for that had to do with the extent of the retained credit positions in leverage and high-yield credits and associated Private equity exposures as well. I assumed…

AI assessment note: “lessons that we took from that, which had to do with being much more cautious”

Q What's one fact that most people don't know about you?

A Maybe it's a story about my dad. My dad, who's passed away many years ago now, joined the Royal Air Force in Britain before the Second World War and involved an instructor of fighter pilots and trained countless young pilots who fought in the air war against Germany and others. He was frustrated by the fact that as a instructor, he was prevented from participating in combat throughout the whole Second World War. He also had become aware of the Holocaust and Became a very vocal opponent of the British government's foreign policy towards Palestine, and his view was that, particularly in light of what had happened in the Holocaust, this was an unforgivable act by Britain. And so he volunteered as an unpaid, non-Jewish Gentile, who showed up, approached the Israeli government, who were convinced immediately that he was a spy for the British government, which he wasn't, and they took him anyway, and he became part of the Orchestration of a plan that helped Israel with its first air force defense capabilities, which was created by flying by hook or by crook, illegally, under the cover of darkness, behind the mountain, under the radar, to behind the Iron Curtain, the new emerging Iron Curtain in Europe, to places like Czechoslovakia, where they bought, stole, varted, goodness knows what, pieces of surplus equipment aircraft that had been abandoned by The Nazis and the Russians took th…

AI assessment note: “Maybe it's a story about my dad.”

Q So as you start connecting the dots across your four verticals, across the themes in this one ecosystem, as you look out over three, five years What do you see happening with the investments you're making and the natural technology industry?

A The world is just going to look very different in as little as five years time. You're going to see advisor desktop space, which today is multiple different screens, the ops process and the email and this for public equities and that for fixing home and goodness knows what for the smorgasbord that is alternatives. That's all going to get integrated. The holy grail here is to get vastly greater productivity. If your objective is to deliver Investment opportunity to more of the masses. You've got to find a way to do that at lower cost. So having technology capabilities that allow someone to invest 10 dollars or a hundred dollars or a thousand dollars or even a 100,000 dollars in an instrument that typically has had a 500,000 dollar minimum or a 250,000 dollar minimum is a significant development, but it can't be done the current way. It has to be done with automated education and resource support. So I think that in wealth, you're going to see that for sure. Almost all of the major wealth networks and even the smaller RIA type platforms and their aggregators suffer with fragmented technology estates. And in many cases, aging technology estates and clunky integrations or no integrations, and they're still dealing with faxes and emails and crazy things that they should not have to be dealing with. That will radically change the economics of their doing business. That's happening as…

AI assessment note: “The world is just going to look very different in as little as five years time.”