Transcript: Neil Dwane, Allianz Global Investors


The transcript from this week’s MIB: Neil Dwane, Allianz Global Investors, is below.

You can stream/download the full conversation, including the podcast extras on iTunesBloombergOvercast, and Stitcher. Our earlier podcasts can all be found at iTunesStitcherOvercast, and Bloomberg.


ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest. His name is Neil Dwane and he is the Global Investment Strategist for Allianz Global Investors, which is the part of an Allianz proper. They own a number of different properties: Allianz Global Investors and PIMCO, being two of the largest.

This is really quite a fascinating conversation. If you are at all interested in what makes the global economy tick, what the impact of central banks has been and will likely be in the future, what’s going to take place with Brexit and why the rise of Asia, in general, and China, in particular, is going to be so important to the world over the next three to five decades, you’ll absolutely find this to be a fascinating conversation.

So with no further ado, my conversation with Allianz’s Neil Dwane.

My special guest this week is Neil Dwane. He is the Global Strategist with Allianz Global Investors. He’s also a portfolio manager. And you’ve been with Allianz since 2001, but your background is that of a portfolio manager. How did you make that journey from actually running money to being more of a global market analyst?

NEIL DWANE, GLOBAL STRATEGIST, ALLIANZ GLOBAL INVESTORS: Well, I suppose the way I looked at it as I’ve always been an investor since — since the late 80’s, and I got a tremendous career opportunity to run the European equity business for Allianz in Frankfurt, so I …

RITHOLTZ: That was 2001. Is that right?

DWANE: 2002, yes.


DWANE: So — so — so I’ve worked for the firm for a year. This is when Allianz merged with Dresdner, and so we started to put together all the asset management businesses.

RITHOLTZ: Man, that’s a lot of giant components at Dresdner …



DWANE: So, you know, we have been a — you know, a set of a — a firm — sorry, a company has been created out of a set of boutiques around the — around the world.

RITHOLTZ: A serial acquirer.

DWANE: Well, yes, I think we haven’t — we — we started like a lot of firms buying teams rather than buying businesses because you often don’t need everything else that comes with the business if you already have the infrastructure.


DWANE: But so for me it was a career opportunity to become a CIO, lead 130 investors. But having done it for 13 years, I needed a new challenge apparently to be honest.

RITHOLTZ: I understand.

DWANE: So I chatted to my boss. I mean, some people say, “If you’re bored of London, you’re bored of life.” Well, after — after 13 years, I can tell you I was bored of Frankfurt. I know that might sound slightly disloyal, but I need a new challenge. And we decided to try and help Allianz get its message out. We needed an investor to stop talking to clients, talking to people like yourself so that we could cross the divide and help our clients understand how to look at the risk in the portfolios and how to think about the returns they were looking. So that’s my job now, and so I travel the world trying to help clients navigate the markets.

RITHOLTZ: So you’re located in London now?


RITHOLTZ: Is that correct?

DWANE: That’s correct.

RITHOLTZ: How does the entire U.K. asset management industry compare to the United States because there are two very distinct styles of doing business?

DWANE: There — there are, although funny enough I would say they’re very similar. You know …


DWANE: … there’s a — there’s a big retail business, which is very domestically bias. So, you know, when you’re in the U.S., all they want to know about is the Nasdaq and the S&P 500 and what’s happening with the muni bonds. The U.K. is the same, about U.K. equities and U.K. property.

RITHOLTZ: And what you’re referring to is universal, the home country bias …


RITHOLTZ: … exists everywhere …

DWANE: It does.

RITHOLTZ: … even in …

DWANE: Yeah.

RITHOLTZ: … even in countries like Australia where there’s such a tiny percentage of the global equity market, and yet when you look at Australian’s portfolios it’s disproportionately Australian. The same with U.S., the same with U.K.


RITHOLTZ: Do you try and dissuade people from that home bias?

DWANE: I suppose I try — I think at a — on the equity side, the — the home bias is — is — is hard to deflect simply because if you own Pfizer, your — you own a global company anyway.

RITHOLTZ: Right, right.

DWANE: In fact, it’s listed in the U.S. is the — is maybe the challenging dynamic. But I think as we think about the world in the next 20 or 30 years, I mean, one of the themes I am talking to clients, right, is the rise of Asia because whatever we think about President Trump and his trade policy, the next 4.5 billion emerging people are going to be out of Asia.


DWANE: They’re not in the U.S. or in Europe. We’ve — we’ve emerged, we’ve overleveraged, we’ve overconsumed. The growth is not going to come from the West.

RITHOLTZ: And if — and if you look at from a valuation perspective, we’re recording this late in 2018, U.S. is let’s be generous and call it fully valued.


RITHOLTZ: Emerging markets tend to be less expensive, and China seems fairly cheap.

DWANE: Yes. And I — I would definitely agree with that. What — going back to your earlier question though, I think the — the challenge I have when I talk to U.K. or U.S. institutions is I tend to feel many of them is now quite, I would say, risk averse. They’re managing their liabilities. They’re not optimizing their returns, whereas I think when you talk to retail clients, you know, they’re in the game to make money. You know, they don’t want to be in the markets when they’re going down. They want to be in the stocks when they’re going up.


DWANE: And so they’re looking for something completely — completely different. So — so the audiences, I think, are now much the same. I think you — you with your 401(k), you’re probably as — as — as institutional as CalPERS would be. You know, you’re looking at how do I get from A to B in the next 10 years before I retire, how much money do I need, what risk can I tolerate, what draw-downs. It’s exactly how I think the big pension funds are thinking about it now.

RITHOLTZ: Now, the only question I have is who trades more frequently, CalPERS or the average 401(k) participant? I honestly can’t answer that question.

DWANE: But you know, I am not sure I — I — I can answer it either. What I — what I would say though is I think the trading has really started to hurt the markets. Even some of our, you know, longest and largest sovereign wealth funds now have a rolling 12-month performance horizon.

RITHOLTZ: So when you say trading, do you mean the high-frequency traders or do you mean just the tendency to trade more than they used to?

DWANE: People just have this tremendous — tremendous tendency to trade. And I think investment, you know, when we think about the decision you and I to make when we were younger to buy a house …


DWANE: … you weren’t sitting there thinking, well, I might flip it in three months’ time.


DWANE: You were saying I’m going to live here. You know, I hope it’s a good investment, I hope it goes up in price and — and there are guys who can value.

RITHOLTZ: But even if it doesn’t, you have some place to live.

DWANE: Exactly.

RITHOLTZ: Can you say the same thing about a — an equity portfolio?

DWANE: Well, I think actually in the end you can, but I — I sense, you know, one of the big journeys that’s changed and it’s accelerated post the financial crisis has been I think we — I took two more and more traders now and fewer and fewer investors. And I think that’s the same with corporate management. Corporate management is not investing for the next 10 years or investing for the next three — you know, three years whilst their incentive plans were at work.

RITHOLTZ: So when you say you speak to more traders than investors, is that because there are more traders out there or are people who were formally investors now have a tendency for shorter colder periods, more turnover, just more activity despite everything we hear about indexing?

DWANE: Yes, I think people’s investment time horizons have really shortened. They don’t want to sort of win by just holding something that goes up and down like a rising tide and eventually travel. They want to get out if it’s going to fall 30 percent and then get back in. And I think that makes us really, really tricky for us as investors because I would say the view of the world that I’m talking to clients about is obvious for the next five or 10 years. But for the next five or 10 weeks, you know, I have as little clear with anybody else you’ll interview about what will drive the markets, and yet client — that’s what clients are looking for. And I — I — I — I suppose I see that it’s pure as accuracy.

RITHOLTZ: Quite, quite fascinating. There was a quote, Neil, in one of your recent research pieces that I found intriguing. And you wrote, quote, “The American dream is still alive just not in America.” Tell us what you meant by that.

DWANE: Well, I think when — when we were sort of tapping into the momentum behind President Trump’s or Candidate Trump’s campaign, you know, it was about making America great again. And — and I think one of the — one of the appeals that he had to many parts of the American electorate was that it felt like the world was passing them by. They were able to watch, you know, what the Kardashians are doing on Twitter and — and — and other things, but they couldn’t live the same lifestyle because the opportunities were not offered — offering themselves inside the U.S. economy.

RITHOLTZ: But — but that’s a opportunity set of two or three.


You know, for the average American, are they really thinking if only I could endorse products? Is that really the appeal or is it something more fundamental?

DWANE: Well, I — I think it’s actually elemental. I think the — that’s why I think politics is under a lot of pressure across the west at this moment in time because people feel they take for granted that fridges are cheap and TVs are cheapen and …


DWANE: … you know, the lifestyle has — since the — since the 1970’s has become more affordable …


DWANE: … but now they’re not getting a pay rise. Some of them are not even getting a job. And so the ability now for, I think, young Americans to earn more than their parents is the lowest …


DWANE: … percentage in — in history.

RITHOLTZ: First generation that’s not going to surpass their …

DWANE: Yes, yes.

RITHOLTZ: … parents in terms of …

DWANE: Whereas, I think, when you go to somewhere and I — I can only — what I normally do is tell clients to travel around Asia and particularly to go to China, but don’t go to Shanghai or Beijing. Go and see the panda bears in Chengdu or …


DWANE: … the terracotta warriors in Xian. The people who take you there, the people who drive you there, they work hard, they want to educate their kids, they want to get rich. That’s what I mean …

RITHOLTZ: They’re all very entrepreneurial.

DWANE: They’re all very, very entrepreneurial. And so I think that’s probably what America felt like around the turn of the century. People had a can-do attitude.

RITHOLTZ: Which century?


And not to be — not to be a wise guy, but turn of the 19th century, turn of the 20th century …

DWANE: I think …

RITHOLTZ: … turn of the 21st century?

DWANE: … turn of the 20th. You know, I just think, you know, when America suddenly really got great, you think about World War I, you know, America barely had a — a Navy. You know, within two years, you built the biggest navy in — you know, the world had ever seen and that’s despite the British being the naval power of — of that time.

And I just think there was that can-do attitude, that can-do spirit, that teamwork. I sense that that’s moved to Asia now.

RITHOLTZ: That’s quite fascinating. When — when we look at — you mentioned a lot of people, a lot of the U.S. electorate might have been left behind, it’s very, very specific when — when we talk about the economic recovery, but it’s not evenly distributed. Depending on where you live, your education level and what industry sector you’re in, you’re either enjoying a robust recovery or no recovery at all. Is the United States the only country that suffers from that sort of bipolar? There are some very, very lucky haves and there are a whole bunch of have nots who are not participating.

DWANE: I think the west suffers across the board with that. I think the one country …

RITHOLTZ: The whole west.

DWANE: … that doesn’t is Japan where society has been much more even. So it’s interesting, Barry, one of the themes I’m talking to our clients about at the moment is inequality.


DWANE: And you might say, well, what’s I got to do with investment and — and an asset management? Well …

RITHOLTZ: It’s got a ton.

DWANE: Well, but the thing is I think we may have been making the world less equal because if I incentivize you against your share price, and that’s the only thing that makes you rich as a manager, then that’s who you care about, that’s the goal you manage, and that makes the world more and more unequal.

RITHOLTZ: Are you a believer in the theory of short-termism that a lot of corporate management is so focused on their stock price, they’re not making longer-term investments?

DWANE: Definitely, because I think not only I think — and it’s clear in the U.S. that I think this — this addiction now to share buybacks, borrowing money from the credit markets, history has always shown management buy their stock at the worst prices. They never buy them when nobody wants it, i.e., really cheap.


DWANE: They buy it right at the top of the market. And I think that’s what we’ve been seeing throughout 2016, ‘17 and ‘18, and it’s a uniquely U.S. phenomenon.

And the other thing just wrapping in the inequality theme just so you can see where I’m trying to go with it is, yes, the share buybacks are incentivizing the CFO to borrow money and leverage the balance sheet …


DWANE: … to potentially underinvest, limiting the longer-term growth prospects of the — of the company going forwards. But who’s the biggest seller of U.S. equities?

RITHOLTZ: It’s got to be insiders, right?

DWANE: Well, it’s — it’s the management. So we’re to blame for this because we have over-incentivized them in one way. And when we do — when we’ve done quite a lot of work on sustainability and this inequality theme, what is interesting and it’s funny I’m here at Bloomberg, family-owned companies do it better. They know they’re passing on the franchise to their children or to their grandchildren. So what do they do? They make sure it’s invested. They make sure all the roof is working. They make sure the central heating is there so that when they pass it onto their children — their children, they’re not running it for their children. They never sit thinking how do I maximize returns from my share option scheme.

RITHOLTZ: Right. The fascinating thing about the share buybacks and I can talk about that forever, A, it’s the result of a 1990’s Clinton era attempts to limit C-suite executives compensation, and they put, you know, a — a hard dollar limit that do as much stock options as you want; didn’t work out the way they expected.

I agree with you about stock options but — and buybacks, but every time I bring it up, all my quant friends say the same thing, “Hey, when we look at the world of companies that do buybacks versus companies that don’t, buybacks outperform the companies that don’t. How do we — how do we justify being negative on buybacks when they actually help performance?

DWANE: Well, I think — I think maybe what we’re going to find is that it helps performance in the short-term, but at the consequence of significant underinvestment, the loss of productivity, you know, when you and I think and may be outside Silicon Valley about all the industries where America has kind of stopped being a world leader …


DWANE: … and I’m thinking traditional manufacturing, some of these — some of these type of areas is because actually there was no R&D. There’s no capital equipment investment.

RITHOLTZ: And — and the pushback I get is Apple spends billions of dollars on R&D as does all these other companies. I couldn’t possibly agree with you more. I think you’re absolutely right. I would much rather than see a company de-IPO, un-IPO. I don’t know if there’s even a word like that. I would rather see the money, if you’re going to return capital to shareholders, give people dividends and let them spend the money on what they want after you’ve exhausted all your R&D options.

Look at General Motors. They poured $10 billion worth of stock, while all their competitors were creating new electronic cars, building infrastructures, filing a whole bunch of patents. To me, it’s unconscionable that a company in as competitive a market as G.M. is would waste a penny buying back stock when they’re technologically behind all — everybody else out there. Let’s talk a little bit about what’s been going on around the world with you mentioned popularism and the political changes that income inequality has wrought. What do you see happening in Brexit? Because from across the ponds, it looks like, wow, I thought we had some issues. That seems to be just completely mayhem from our perspective.

DWANE: Barry, you’re absolutely right. So I mean, there’s no doubt, I think, for the last two years everyone has been very confused about how Brexit that would work out.

RITHOLTZ: Hard Brexit, soft Brexit, no Brexit. It’s like a Dr. Seuss book.

DWANE: It is. A part of the fact, we have always said there can be no soft Brexit. Brexit is hard, you know, whether we crash out or whether we leave with a deal, both of them are hard outcomes. There isn’t any sort of cuddly toy way of getting from A to B.

RITHOLTZ: And we’re already seeing all sorts of negative ramifications for Brexit, especially in London. I don’t know how the rest of the country is feeling it. But when we look at where companies are relocating, when we look at people, especially executives and professionals relocating to — to Paris, relocating to Frankfurt, you’re right there in the thick of it. What — what do you see going on pre-Brexit?

DWANE: Well, I think what I was saying is because there’s this drop dead date of March the 29th 2019, the — the dynamic is we’re getting closer to a point where companies, including Allianz Global Investors have to decide do we need to change anything inside our operating business model to stay legal in France or …

RITHOLTZ: So if you had a headquarters, it’d be a problem.


But since you don’t …

DWANE: Absolutely. And actually, because we’re smaller in the U.K. than we are in Europe, it’s less of a problem for us …


DWANE: … in some of our larger competitors who are based in London.


DWANE: But what I — what — what I would get out, I think this comes to the populist side, you know, that’s in the U.S. …

RITHOLTZ: Well, sure.

DWANE: … is as we’ve seen, you know, with your recent elections including the midterms, America is divided the way the U.K. is divided over Brexit, 52-48 with 84 percent of the population. All I can tell you is two years on it’s still 52-48.

RITHOLTZ: Is that a fact? Because I keep hearing — there’s two interesting things I keep hearing. One is if we have a second referendum, people have learned that they were lied to in the first referendum, that a lot of the — the scare tactics about how much money was being sucked out of national health system, and people realized there was a lot of nonsense they were fed that all you need is one or two or three percent of the population has changed their vote. And they’re talking like five or 10 percent might swing. But then I hear the quote — the data you give and you’re not the first person to say that.

DWANE: No, we’re — we’re convinced that — that the vote would still be …

RITHOLTZ: Identical.

DWANE: … well, all virtually the same.


DWANE: You know, so …

RITHOLTZ: That’s amazing.

DWANE: … so — so the country is still divided. What I would say is the — the dynamic that is — that is at work is that it was a dreadful election that might — might ring a few bells with you here in the U.S. the tone on both sides …

RITHOLTZ: I don’t know what you’re referring to at all.

DWANE: … the tone on both sides was awful.


DWANE: And I think with the Bank of England coming out with a very, very, you know, doomsday scenario of …


DWANE: … of the world post Brexit, we’re back in Project Fear territory, which simply annoys the half of the country who don’t buy …


DWANE: … the Project Fear story.

RITHOLTZ: Now, the other interesting that I read recently was — and — and I know how our court system works, I’m not fully cognizant of how your system works, but an adviser to somebody in the High Court said, “Hey, if the House of Lords decides to vote against Brexit, they’re allowed.” They’re not bound by a non-binding resolution, which is what effectively the referendum was.

DWANE: Yes and no. I mean, basically the Houses of Commons, the — the — the 650 MPs that we vote for get a second chance. So if — if they approve it, the House of Lord says no, it comes back to the Commons. The Commons then have the final vote. So the House …

RITHOLTZ: You know, do they need a super majority on that? No?

DWANE: No, no, just a straight up majority. So I think the scenario …


DWANE: … that we’re facing at the moment is Theresa May’s deal looks great from a European perspective.


DWANE: And that’s why it’s probably not going to pass in the House of Parliament.

RITHOLTZ: Now let me jump in and ask you, are the Europeans going to give anybody anything better than a terrible deal? Otherwise, they’ll encourage other members to leave.

DWANE: Correct. So — so you’ve answered your own question, Barry. They’re not going to offer us a better deal.

RITHOLTZ: So it’s this terrible deal or a hard no deal Brexit?

DWANE: Yes, but the key for me is — is a hard no deal, i.e., going to WTO rules and — and the ability to pick out the phone to President Trump and say, “Hey, can we catch the next B.A. plane to the U.S. and do a deal,” is of much greater upside to the U.K. than this deal with Theresa May, but you need a change of leadership. So I think for international investors like yourselves, the calibration is can the conservative party change leader if Theresa May’s deal is thrown out and not face the general election? Because the way — the way I try to, if I’m honest, answer the Brexit question is Brexit is nothing compared to the election of a Jeremy Corbyn-led labor government.

RITHOLTZ: Let’s talk a little bit about some things going on in technology. I was intrigued, again this comes from something you published recently. You said that a new tech cold war could disrupt the global economy. Explain.

DWANE: Well, I — I believe that whilst trade has all the headlines and the President’s policy on tariffs is clearly disrupting many of the large traded goods areas of the — of the global economy, I think there’s a Washington consensus building that China has been cheating on tech. Bloomberg itself launched a — a huge piece that showed that there were chips on some of the motherboards that are being used.

RITHOLTZ: “Businessweek,” yes.


RITHOLTZ: Absolutely.

DWANE: And that was — you know, but I think that goes to the heart of …

RITHOLTZ: That was Apple and Amazon. No, it’s …


RITHOLTZ: They all did push back and said it wasn’t correct, but I think Bloomberg stood by the “Businessweek” …

DWANE: Yeah, and I think you’re absolutely right to do so because when you look outside the headlines that everyone is focused on on trade, you’re actually seeing Washington virtually across the entire government process is now identifying that you don’t want to have suppliers or Chinese supply parts of the Chinese supply chain in your products.

RITHOLTZ: Especially telecom chips, things like that.

DWANE: Yes. And so I — I think what is happening is that America has decided and the same way as Russia is still the old political warhorse, China is now the new strategic threat in technology. So why does that matter to investors?

Well, the American business model of, you know, many of the famous American technology companies is you design it in Silicon Valley and you make it in Asia.


DWANE: And that’s one of the things that annoys the President, of course. Now, if you suddenly can’t trust your supply chain because they may be cheating on your I.P. or they may be putting stuff in your products …


DWANE: … that allows them to listen and watch and spy, then you have to start readjusting your supply chain. So I think when you think about the fact that say TSMC is the largest supplier of anything to Apple …

RITHOLTZ: Taiwan Semiconductor.

DWANE: Yes. Then can you trust — I’m not saying you can’t, at the moment, trust the — the Taiwanese, but Taiwan is part of China.

RITHOLTZ: Well, the Chinese says so.


The Taiwanese, they not so much.

DWANE: Well, I — I — I mean, for me I think it’s fairly certain China will fight for Taiwan. I’m not too sure if America will fight for Taiwan, but hopefully we don’t have to get there.

But my point is that this — that the — the supply chain of the tech industry is now so complex and it’s so Asian-focused. And a lot of it relies on cheap assembly in Vietnam or China or elsewhere, and that assembly is where your confidence in the network could fail. So I think, under President Trump, the Americans are going to force disruption into the supply chains. You’re either in the American ecosystem or you’re going to be in the Chinese ecosystem.

And just to balance this out, this isn’t just a Washington thing. In the summer you’ll remember that Washington shut down ZTE, the second largest …


DWANE: … tech company in China. Well, what …

RITHOLTZ: They’re a big telecom, right?

DWANE: Yes, but a big tech company as well. What did they — what did Beijing learn about that? Well, they learned they can’t trust American tech because if you pull the American tech out, the company collapses. So from a Chinese strategic perspective, the next 20 or 30 years …

RITHOLTZ: We need our own tech.

DWANE: Are they — are they going to rely on American tech if it can get taken away? Well, the answer clearly is no. And if you don’t look at where President Xi wants to go in the next 20 or 30 years, he wants to become a world leader in many of the industries that the Germans, the Japanese and the Americans still dominate. And the reason he wants to is because he doesn’t want to buy it from America or Germany, he …


DWANE: … wants to make it in China.

RITHOLTZ: … so let me ask you this about ZTE. It wasn’t that America wasn’t going to sell technology to ZTE. They said, “This is on a restricted list. You can’t build ZTE tech into into American tech because we don’t trust its ability to safeguard secrets.”


RITHOLTZ: We think that this is part of the Chinese intelligence agencies.

DWANE: That’s right. So I think in the end, President Xi wants his own Chinese ecosystem and you’re — well, you and I going to have to choose because you can’t swim in …

RITHOLTZ: Do you want it cheap or do you want it good? Those are going to be your choices.

DWANE: Well, I — I — well, I’m a bit more bullish to China than that. You know, I think, you know, creating four million mass grads a year means a lot of what they’re doing in A.I. and everything is going to work …


DWANE: … because they can throw a lot of resources at it.

RITHOLTZ: I don’t doubt that for a second.

DWANE: And — and so — so the way I look at it is there’s going to be a Chinese ecosystem for China and its friends, which I would — when I close my eyes — think most of Asia will inevitably pivot to — to China.

RITHOLTZ: Makes sense.

DWANE: And — and then you have an American ecosystem. Now it’s probably obvious in the short-term that Europe would be part of that system and probably Japan …

RITHOLTZ: Until — until it becomes cheap enough.

DWANE: … or until the — the growth in Asia reaches a point where the world sits and says, “Who cares about …


DWANE: … 370 million rich Americans who are now overleveraged …


DWANE: … let’s go with the five billion people who are still coming up the value chain and still offering growth opportunities.”

RITHOLTZ: That’s quite fascinating. Let me push a little bit back on the whole Chinese intellectual property argument, and — and there are two questions that come up. And really these are two very distinct issues. One is it seems that hackers in China managed to access lots of corporate America’s deepest darkest secrets. We’ve seen how fast after — I don’t remember which company was hacked, but very quickly the Chinese military had a stealth plane that sort of taken them decades to develop. It’s clear that they got access to a lot of military technology from the U.S.

But second and perhaps more important from the corporate sector, if you want to build a plant in China, if you want to make semiconductors, well, you’re signing a — you don’t — you have no obligation to do that, but if you do, well we want you to sign this agreement, says China, where you’re going to assign us the usage of some of your patents and we’re going to share this, we’re going to share that, and the American companies willingly handed that over.

So when people say Chinese are stealing our intellectual property, I understand this is an arm length corporate relationship. The American corporate executives willingly signed; no one was under duress. They said sure, so — so how are they stealing this intellectual property?

DWANE: Barry, you’re absolutely right. I think that’s one of the Chinese responses is that we’ve offered them the prospect of 1.3 billion people to sell to, so bring your stuff and let’s — you know, let’s make money together.

I think the interesting thing you mentioned U.S. corporates, I think the interesting thing if you think about the current commercialization of technology, and I don’t just mean tech in this. You think about Boeing. It goes out, it does amazing things with the DOD and all this other stuff …


DWANE: … you know, spacecraft around the moon and all the — and — and some of that new equipment ends up in a 787.


DWANE: So, what do the Chinese do? They simply buy one.


DWANE: They take it into a warehouse. They drop it.

RITHOLTZ: Right, take it apart.

DWANE: And they go over, these are the glues they’re using, these are the new ceramics there. You know, so — so eventually, the commercialization of — of — of, you know, each …

RITHOLTZ: Innovation.

DWANE: … innovation …

RITHOLTZ: It’s a five-year head start before someone else reverse-engineers it.

DWANE: Yes, yes. And that comes back to the other comment that you and I are having about share buybacks because if you’re going to have to stay ahead of the game, you got to keep investing ahead of the game.

RITHOLTZ: You have to be way ahead of the game.

DWANE: Yes, and you have to keep pushing back on this, you know, that leading edge. And I’m not too sure that we have CEOs now who is sitting there going, “How do I stay where I am for the next 20 years?”


DWANE: And — and my mentality having worked in Germany for 13 years, because if you meet the Volkswagen or BMW, they know they have the best car in the world. Oh my, let’s call it the “Golf.”


DWANE: They know that the Koreans and the Japanese are coming and the Chinese are coming, so they know the next Golf seven years down the line has to be like 20 percent more efficient, half — half as heavy and twice as fast, you know …


DWANE: … whatever the improvement is. And they simply design it to be there in seven years’ time.


DWANE: Then when they launch it, they are still 20 percent better than the competition. And what are they doing the next thing? For the next seven years, they’re getting …


DWANE: … doing the exact same thing again. They’re always engineering the excellence into the next one.

RITHOLTZ: I would argue with you that the Golf is the best car in the world.


But — but the concept is — if fascinating.

So I want to ask you about what you had written recently about central banks. You had said quantitative tightening might mean less growth for the West, for the whole world. Who you’re referring to? Clearly, we have the U.S., Japan and Europe that has been going through different phases of quantitative easing. The U.S. has moved off that. Japan is behind us, Europe behind that. What — what do you see happening with central banks around the world?

DWANE: Well, what I — the first thing I’d say apparently is we don’t see the Bank of Japan or the ECB doing anything to rates in 2019.


DWANE: So with no …

RITHOLTZ: No change?

DWANE: No change.


DWANE: And obviously, in the U. S. as you — as you know recently Chairman Powell started to suggest that maybe we’re closer to neutral than he’d implied in October. And therefore — and therefore the markets took that as a sign that maybe we were reaching peak interest rates in the U.S. So maybe, in 2019, you and I will be chatting about the fact that we’re at the peak now whatever that means for the underlying economy if interest rates are already peaking and that, you know — and — and we — we fear for the economy. But the constant (ph) tightening point that I — that you asked in the — I think is potentially the biggest story of 2019.

RITHOLTZ: We have been speaking with Neil Dwane of Allianz Global Investors. If you enjoyed this conversation, we’ll be sure and come back for the podcast extras where we keep the tape rolling and continue discussing all things global macro.

We love your comments, feedback and suggestions. Write to us at Be sure and check out my daily column. It’s at Follow me on Twitter @ritholtz. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.


Welcome to the podcast, Neil. Thank you so much for doing this. I have been looking forward to having this conversation.

We were previously scheduled and then got snowed out. I don’t remember if it was I got stuck at home or your flight got canceled. I don’t remember which it was, but something crazy happened with the weather.

DWANE: I — I — I think it was just the weather here. I think I was in New York, but I only have to walk here. I think you got in trouble there.

RITHOLTZ: Right. I think — right, I think I got a …

DWANE: It’s called global warming there, Barry. You got to get with the program.

RITHOLTZ: See, I think the big branding mistake that was made many years ago, if they would have called it global weather volatility, nobody can deny that.

DWANE: But no one of us could have spelt it.

RITHOLTZ: That’s true. That’s — that’s the problem.


DWANE: Global weather volatility, it doesn’t sort of ring off the tongue really, does it?

RITHOLTZ: It does not.


So I — the one thing I didn’t get to talk to you during the broadcast portion that I really want to discuss was something you’ve written about quite extensively, which is ESG investing. So let’s — let’s discuss that a little bit, environmental social and governance investing. You’ve written that you think this isn’t a process of being main stream. Is that a fair word?

DWANE: Yeah, definitely. I suppose the way I would look at it particularly from a — an American audience’s lens is, I think, all investment managers have been very conscious of their fiduciary duty. And I think many of us have had a very, for the last 30 years, very narrow definition of what that means. We turn up and vote, and we check how management get paid. We check the audit — audited accounts work. That’s sort of …

RITHOLTZ: But it’s a very minor superficial group of topics. It’s not — it’s not broad.

DWANE: Well, I think it has — it has in the past whereas I think now many, many investors around the world and many governments and therefore regulators around are sitting there saying is it possible to it to help allocate capital in a — a nice way, a geener way, a more friendly way?

So, if you think about the environment, you would remember in the mid-90’s Shell announced they were going to sink one of their new North Sea platforms in the middle of the Atlantic Ocean, you know …


DWANE: … somewhere where it was deep, and everyone was horrified that that’s what the oil industry were up to. And so you and I was sitting again, no, we don’t want, you know, huge bits of iron just rusting at the bottom of the Atlantic Ocean. That’s not environmentally how we want to behave. But …

RITHOLTZ: So cheaper where that …

DWANE: Well, it might have cheaper at that time. That’s a different — different point that the pursue of profit doesn’t necessarily always, I think, get us where we want to go.

If you think about the use of child labor, I think if you were investing in a company that was, you know, by design abusing, you know, children around the world, you and I would sit there and say that’s not how I want to invest.

RITHOLTZ: I — it used to be half of what I was wearing.


It was — I’m not exaggerating.


RITHOLTZ: It was you — you — wasn’t it shocking the first time you learned that your sneakers were made by 10-year-olds in Vietnam?


RITHOLTZ: It was horrifying when you learn that.

DWANE: So — so I think the — so I — I think therefore, and I suppose what we’re also seeing is the arrival of the millennial, the children born after 1995, they are much more conscious of where their food comes from, where their clothes come from. They — they obviously rely on the bank of mom and dad as you and I know …


DWANE: … but they are more conscious of the — the impact they have on — on the environment. And — and therefore, we can see the confluence of the — the government and regulation against the rising fiduciary duties is creating this ESG. This is where my theme of inequalities come from because I think more and more people now want to be seen to be doing what they can to not just make a profit. They want to make a good profit if I can use good in that phrase.

RITHOLTZ: And, you know, you could look at this from a different perspective. I’ve heard a number of people posit variations of the theme that ESG is becoming mainstream because ESG is a good form of risk management. So, for example, if you have good corporate governance and you have a diverse board of directors and you have a lot of women in senior positions, and that there is not a big pay gap between the genders, you basically end up with a company that’s not going to be like Uber with the sort of a frat boy mentality. It’s not going to be, like for me, two companies that are being sued left and right. Because the behavior of executives were so egregious, you basically end up with responsible adult companies, and that’s good risk management. What are your thoughts ono those?

DWANE: No, no, I — I definitely think that is — that is the case. And I — I think the — the — the risk management can come through in — in many other different areas because I think in a world where we’re all having to take some risk on a return, I think we have to then understand how we manage some of those risks. And I think the ESG lens allows an investor to work out what some of those parameters are and whether they want to change their stock picking.

I think where I sit for the American audience though is — is that you’re yet to be convinced that ESG doesn’t affect your returns. So, you know, the mega world …

RITHOLTZ: The general pushback is, well, you know …

DWANE: They underperform.

RITHOLTZ: … if you’re carbon-free …

DWANE: yeah.

RITHOLTZ: … and oil rallies, you’re going to — you’re going to miss some games.

DWANE: Yes, yes. But I think there’s increasing evidence now that you can have a good portfolio of outperforming stocks that doesn’t underperform a good portfolio of, let’s say, weaker ESG stocks. So we think that the onus is — is moving in that direction. But I think the …

RITHOLTZ: Interesting.

DWANE: … the key thing from an institutional perspective, I know there’s some leading institutions in the U.S. as well as in Europe who now believe they have to take the lead in this. And — and I think therefore, to some extent, there’s an element of the herding mentality, you know, where some — some of the leaders like a CalPERS head inevitably a lot of the state — state pension funds or whatever will head in a similar direction.

RITHOLTZ: And what we’ve seen from the corporate side, you have the CEO of BlackRock writing letters to the executives of the S&P 500 lamenting short-termism. You have the Chairman of Vanguard talking about becoming more active in their proxy voting. Those two companies own 10 percent of every …

DWANE: Yeah.

RITHOLTZ: … publicly-traded company in the world.

DWANE: And what I like about the way we’re trying to solve it for clients in ESG is we’re trying — we now have 50 analysts around the world who complement our 85 equity and 45 credit analysts. So we’re trying to build ESG into all the research we do. And the — the key is you, as an American, may have a slightly different set of values from say the client I was with three weeks ago in Kuwait.

RITHOLTZ: Right, sure.

DWANE: Now, they are — they are long oil, so they are thinking about sustainability, climate change and ESG from a lens that’s built on an oil economy like …


DWANE: … let’s say if we were thinking we were in Texas rather than in New York.


DWANE: So, the values for each client can be different. And the beauty of what we’re trying to do is have the debate with the client about what they mean by ESG because obviously some clients are not quite sure what it all means. And then when they understand what it means for their portfolio, we can then implement it as — you know, so that they get what they want.

And the last fun fact I — I just shared with you is if you look at, say, a classic index like the S&P, and despite President Trump not agreeing with it, you know, the Paris Accord two years ago agreed we needed to control …


DWANE: … climate change to only two degrees. Well, the S&P has currently constituted to deliver you with 3.8 percent climate change increase because we’re allocating capital to a lot of the bad industries. So the first thing we’re or one of the easy things we’re trying to do with our clients is talk to them about if you believe this, influence how you allocate your capital, start thinking about being a little more green is my favorite sort of phrase of shorthand for this and don’t just look at an index …

RITHOLTZ: Quite fast.

DWANE: … because you can then — you can allocate your capital — allocate your capital differently, and I think that’s the key. We can start to shake the world by making — making the capital move to where we want it to as — as investors.

RITHOLTZ: And let me push back against you on — on behalf of Texas for a moment. Texas, to their credit, has shifted their economy. They’re a big technology location, a big real estate location also. You look at Dallas, Houston, Austin. Go down the list of — of San Antonio. They have become a very tech-friendly area and the rise and fall of oil doesn’t slaughter Texas the way it did in the 80’s.

DWANE: Yeah, yeah.

RITHOLTZ: The 80’s they lived and died on that, but it’s quite fascinating. All right, I know I only have you for a finite amount of time, and I have a million other questions, but I want to get to my favorite questions I ask all of my guests. So, let’s — let’s jump right into this and feel free to make references to things in the U.K. that American audiences may not be understand or be familiar with.

So tell us what’s the most important thing people don’t know about your background.

DWANE: I would probably say I’m, as of last month November 30, is married with four fantastic kids.

RITHOLTZ: Thirty years, that’s good.

DWANE: And I am — you know, I work to live. I don’t live to work.

RITHOLTZ: That — that’s great. Who are some of your early mentors?

DWANE: Well, it’s very interesting. I would actually say my father-in-law and my father. My father was a self-employed businessman who went bust, and he taught me everything you don’t want to do in the real world. So as I have managed my career, I have thought about not making the mistakes that he did. I know sometimes we want to, as fathers, be remembered positively.


DWANE: I remember my father’s mistakes rather than his successes. They’re still good lessons.

RITHOLTZ: For sure.

DWANE: But my father-in-law actually inspired me to become an investor because otherwise I’m afraid you would’ve been interviewing the world’s most boring chartered accountant.


So I — he — he was one of my mentors because as I moved into investment management, he was already an investor. We chatted over the Sunday dinner table about life, the universe and markets, so he really helped kick off my — my career.

RITHOLTZ: Quite interesting. You mentioned investors. What investors influenced your approach to looking at the world of — of capital?

DWANE: Well, I — I think although I’ve read a lot of books from, you know, many of the famous investors, after my early, I would say, quite U.K.-specific expertise or experiences at — at Flemings and at — and at Kleinwort Benson, I joined JPMorgan in the mid-90s and I really learned about fundamental research, about teamwork, about the global network that you — you could access. So I feel a lot of my colleagues in — in — in the — in what I call the great JPMorgan before it was bought by Chase, I think JPMorgan, by the way, is still probably great. But that was really, you know, a lot of — a lot of my colleagues at the time really helped me to step up my game in terms of how I think about investing.

RITHOLTZ: You mentioned books. Tells about some of your favorite books: finance, non-finance, fiction, non-fiction, whatever you like.

DWANE: Well, let me tell you a funny anecdote. My — my favorite books of all time are still “The Lord of the Rings.”

RITHOLTZ: I used to read that every time I was a kid.


DWANE: And the reason for me was, back in 1973, we had the — the blackouts because of the miners’ strike. And at the school I was at, every evening on the candlelight, our — our — our teacher used to read us “The Lord of the Rings.”


DWANE: And so for me, the first, you know, two and a half books until, you know, the — the — the strike was over, you can imagine sitting in your classroom, it’s dark outside, it’s windy and — and you’ve got a candle, and someone is reading you about, you know, “The Lord of the Rings,” it was just the most memorable. I nearly didn’t go and see the movies because I didn’t want it to destroy what I thought the world that we created in that period.

RITHOLTZ: And — and to give Peter Jackson credit, the movies really stayed true to the vision it was.

DWANE: They were, they were. Yes, they were. So — so what I would say is I — I read a lot of books. I am actually funny enough celebrating my 30th wedding anniversary with my wife by going to the Antarctic next year.

RITHOLTZ: Oh, really?

DWANE: And so I’m reading books about Shackleton and Scott so …

RITHOLTZ: Have you read “Endurance?”

DWANE: I have. That’s the one …

RITHOLTZ: That’s an unbelievable book.

DWANE: It has not been made into a film. That’s what I …

RITHOLTZ: I think it — I think it has to be and they have recently been. By the way, the story of the book is quite fascinating. The book was originally published way early and did nothing and then 20 years later, someone buys the rights to the book, re-issues it and it becomes a big hit.


RITHOLTZ: I — I agree with you, I can’t believe that hasn’t been a movie yet.

DWANE: But because I’m — because I’m not a millennial, but the book I always go to, I think it can be a bit of a hard read and I’m sure you’ve probably interviewed him and — and — and read the book as well, but the book, when I think about where technology may lead us, is the “Singularity is Near” by Ray Kurzweil who works at Alphabet.

RITHOLTZ: I have not interviewed him, but feel free to make an introduction.


I would — I would love to. That — that isn’t an easy read, is it?

DWANE: It isn’t, but the thing is it tells me where the people who understand technology think we can go. Now, what is scary at the end of the book, he actually thinks that we could be immortal.

RITHOLTZ: If you place yourself into a — you know, place some version of your — for lack of a better word — soul …


RITHOLTZ: … into a computer, but really it’s your — your personhood into a piece of technology whether or not that’s actually you, whether or not that is really immortality is debatable, but I guess it’s just a function of how advance the technology is.

DWANE: And — and the reason I find that is my prior life I was a classicist.


DWANE: So when I — when I think about the books I like re-reading, they’re old great myths and legends of Rome and — and …

RITHOLTZ: Give us an example.

DWANE: Well, just even going back to see, you know, Homer’s Iliad. I mean, I can …


DWANE: … read it in Greek still, I can read it in English. I just love it because it’s a — it’s a time of myth. It’s a time of legend and it just inspires — inspired me as a youngster, but even now I love the stories because you just think, you know, this is how mankind was thinking 3,000 or 4,000 years ago.

RITHOLTZ: It’s not all that different from, you know, the Odyssey, the Iliad. And I’m trying to remember who recently recommended Joseph Campbell’s “Man of a Thousand Faces,” all those original Greek stories, they’re no different than Marvel Comics or any superheroes.

DWANE: Right, yes.

RITHOLTZ: Superhero movies from today, it’s the same …


RITHOLTZ: … narrative art. Ray Dalio was the one who recommended that.

DWANE: Oh, okay, okay.

RITHOLTZ: That’s kind of a — a fascinating — so that’s a nice list of — of books from the …

DWANE: Yes, yeah.

RITHOLTZ: … from — from “Lord of the Rings” to something little challenging, back to the classics. I like it.


So what has changed since you’ve joined the industry? What do you think is the single biggest shift we’ve been seeing?

DWANE: Personally, as I alluded to earlier, I think it’s the pressure for performance. I think clients’ tolerance for lost in the short-term has become very, very acute. And — and I feel the — the other thing that concerns me is can you imagine you’ve been in the game as long as I have. Can you imagine what bond investors is going to feel like at the end of this 37 bond bull market when they end up with a 37-year bear market?

RITHOLTZ: And — and here we are in a year that looks like market is going to be flat to marginally up or down with bonds also down.


RITHOLTZ: Nothing really …

DWANE: Has worked.

RITHOLTZ: … is working out as well. Although the day before we recorded this, with dividends, the S&P was up about six percent. By the time of this broadcast that number is not likely to be spot-on. Whether it’s high or low, it’s anybody’s guess.

So, what are you excited most about? You mentioned China earlier.

DWANE: Yeah.

RITHOLTZ: What do you think is the most exciting thing that — that you got to see?

DWANE: Well, I — I think on a 20 or 30-year view, it’s about Asia, the rise of Asia. I’m very excited, the companies you meet there, they’re just getting started in terms of how the markets are going to develop.

I would say right at this moment in time because I — I feel like I want to be slightly edgy, fewer people — I love the U.K. I look at the valuations of the U.K. I look at the valuations of sterling. I think everyone has given up on Brexit including the British and therefore, it’s priced for a disaster which I don’t think is going to happen.

RITHOLTZ: You think it’s sold too — too low already.

DWANE: Yes, yeah.

RITHOLTZ: Quite, quite interesting. Tell us about a time you failed and what you learned from the experience.

DWANE: Well, you know, I — I — I — I actually was going to — when you — when I saw the questions and thinking about there’s two — two ways. When I failed in Germany it was because I thought as a Brit and I didn’t think as a German.


DWANE: So although I was there an agent of change, I didn’t sit on the other side of the table and think how do I sound, how do I get them to thinking a slightly different way.


DWANE: So — so for me, I have learned, I think, in my management style and I’m — I don’t know if I’m now trying to do this with my wife and my children to put myself in their shoes so that I see how they see me. And so that’s the key that I think as I’ve got old I got better thinking or anticipating what the person on the other side of the table is, you know, where they’re coming from, what their issues are. So whether it’s a Frenchman or a Japanese or an American, I sit there trying to work out some empathy with that person so I can — I can learn to be more impactful.

I think when it comes to investing, I’ve always looked to — and by the way, you know, one of your other questions is, you know, what advice would you give people. My advice is you’re always going to make mistakes. You’re always going to have to learn from your mistakes because you and I know you never learn from your winning.

RITHOLTZ: That’s right.

DWANE: You — you just sit there, hey, I’m great and …


DWANE: … you move on to the next win you hope.

RITHOLTZ: In fact, when you win, you don’t even stop and ask yourself am I good or died just get a little lucky?

DWANE: And so what — what — when I look at where I — when — as a portfolio manager, when I — when I failed it’s because actually I have completely over-appreciated the edge I thought I had. I therefore underappreciated maybe things that are not inside the company’s control or inside the market’s control, but more importantly, I don’t build the wrong portfolio because I’ve had too much of it. I had then haven’t right-sized the position.

So another book I’d recommend funny enough is a poker player’s book called — by Annie Duke called “Thinking in Bets” …


DWANE: … because what she says about poker players is you get dealt your hand, you know it’s a — if it’s a losing hand, you just fold. If it’s potentially a winning hand or a winning hand, you then play. But as you play, you’re watching the dynamic of the cards in front of you. And the moment the dynamics change, you stop playing unless, of course, the dynamics don’t change and you know you’ve got the winning hand.

And I think that’s what you and I doing every day in the markets. You have to sit down what is the market telling you because the market is every day always telling you something about your portfolio and you’ve got to filter out all the noise, and you’ve then got to sit there and say, “Have I got a winning hand?” And if you haven’t got a winning hand, you and I know the first cut is always the cheapest.

RITHOLTZ: Interesting point. By the way, today as we’re — we’re recording this, the market is telling us we don’t really believe that there’s much of a trade deal. That’s what’s going on — that’s what’s happening today with — with a lot of red on the screen.

What do you do for fun? What do you outside of the office for giggles?

DWANE: Being a family guy I love to spend time with my — with my wife and family, but I’m a golfer and a skier. That’s what I’ve — you know, that — that’s what I’ve been — I have resorted to.

RITHOLTZ: Huh, okay? And our last two questions, if a millennial came to you and said, “We’re thinking about going into finance as a career,” what sort of advice would you give them?

DWANE: Well, I’m — I’m fairly clear about this because having got four millennials as a father I’ve had to think about how to get them into the real world as quickly as possible and off the bank of mom and dad. But I suppose I — I look back on it and I enjoy what I do. And so I — when I meet a lot of friends children and they come sitting or spends a day with me or a week with me, I have a sense of whether they love the markets.

Now, I think it’s a phenomenal privilege to manage other people’s money, and the thing I love about the markets is it’s as — it’s as close to being professional golfer as I will ever be because every day the golf course is different …


DWANE: … every day the competition is different, every day the weather is different.


DWANE: And there’s always something fascinating going on in the markets. And I think to have a job …

RITHOLTZ: No doubt.

DWANE: … that is just so refreshing is a remarkable privilege. So I would want to know that, you know, my millennial was interested in the markets rather than thinking this is how I get paid because you won’t be any good at it.

RITHOLTZ: And our final question, what is it that you know about the world of investing today you wish you knew 30 years ago?

DWANE: You know, I — I think although there’s not a lot I would want to change about because I do think you have to learn by — by your mistakes. I do sometimes feel that I have been quite stubborn in the type of industries or names that I — I want to own. That has often left me, maybe being a classic European, not understanding the opportunities of an Amazon or, you know …


DWANE: … or — or, you know, some of the new technologies because I don’t — I’m not interested in some of that and I recognize that that’s probably forced me to — to not anticipate how the world can change. And so it’s ironic that I now talk to our clients about how the world is being disrupted by, you know, the mobile phone, the millennial and the Internet. And yet I was sitting there for the last 20 years going, you know, how does that change the stocks I own, and yet it’s changing them every day. And that’s maybe where — where I’ve — I’ve — when I look back and think the power of disruption, if I had mailed that 30 years ago, it’d have helped me think about the type of companies I want to own very differently.

RITHOLTZ: Quite fascinating. We have been speaking to Neil Dwane of Allianz Global Investors. If you enjoyed this conversation, well, be sure and look up an inch or down an inch on Apple iTunes, and you can see any of the other 240 or so such conversations we’ve had previously.

We love your comments, feedback and suggestions. Write to us at You could find any of these podcasts at Overcast, Stitcher, Apple iTunes,, wherever finer podcasts are sold.

I would be remiss if I did not thank our crack staff that helps put together these conversations each week. Madena Parwana is our Producer and Karoline O’Brien is our Recording Engineer. Taylor Riggs is our Booker/Producer. Atika Valbrun is our Project Manager. And Michael Batnick is our Head of Research.

I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.


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