December 2018 was my first time writing a New Year Letter. I meant to write one going into 2020 before the tick tock of the clock, but vacation got in the way. Now better late than never.
My 2018 letter was spurred by a realization that holiday cards of yore – often with a folded up long-form letter inside – had devolved to simple family images, most without context for what’s behind the smiles and loving embraces. This year, I noticed a new trend. There is a correlation between card stock thickness and net worth! None of this is to say I don’t like receiving Shutterstock cards – keep them coming.
This year, I will look behind and ahead as I did last, through three lenses – Family, Profession and Context (the broader world we live and work in). For most, the interesting part will be “Context”. Feel free to jump there.
Family – reading fuels curiosity, and a year of sweat
Ashley and my two kids Skye (7) and Winter (6), while not quite Irish twins, have reached a whole new level of twinsiness. Especially after a long vacation, Ashley and I find them inseparable and increasingly self-sufficient when together. I certainly never played Monopoly with my sister for three hours – bless their young hearts! They are not without the occasional fight but usually treat each other with care and respect (for their ages). The big change for Skye and Winter in 2019 is a shared acceleration and passion for reading, which serves as both a call and answer in their voracious cycles of curiosity. Skye is now into chapter books, and Winter is into long comics.
Ashley too had a big year. She beat her personal best at the Chicago Marathon, shaving 4 minutes to hit 3:10. Dang. She also went on strike with the Chicago Teachers’ Union – an experiential history lesson in the roots, consequences and realities of collective bargaining for our whole family. I am proud of the impact she has on her students and in awe of her patience with them and everyone she touches – including me. Ashley and I continue to have a lot of fun with each other. Though we’ve been married for nearly 14 years, I still find myself surprised she picked me and am thrilled with the flow of our partnership. We had our first true weekend away together since the kids were born, leaving them with my amazing MIL in VT and driving to Montreal for two days. Mon dieu!
In 2019, I self-indulged in much personal reflection. I turned 39 – close enough to being over the hill that I am realizing the fleetingness of life, while also feeling lucky to register this when there is yet much ahead of me. Oddly, this is not unlike a venture fund where the weight of every marginal decision becomes heavier the further you are through deploying the capital. Not that it should… it’s just that we are only human.
So what do I want to spend my time on personally and professionally? What should I do now that will be harder or impossible later? Ideas continue to swirl, but in 2019 I channeled these questions into endurance athletics. I have never been athletic – more of a drama club, choir guy. But I have a talent that has gone under-appreciated until now… I can eat almost anything any time. It turns out this is pretty helpful for endurance events. So I bought a wetsuit, a road bike and signed up for a full 140.6 mile Ironman in Louisville. The Louisville swim got cancelled, so it became more of a training day, and I become an Ironman* (emphasis on the asterisk). To eschew the asterisk, I signed up for another Ironman three weeks later in Panama City, FL and got it done… with the swim. We’ll see what happens this year.
Profession – a new fund at HPVP
I and the whole Hyde Park Venture Partners team were thrilled to raise our third fund in 2019, totaling $100M. We did this through the hard-earned successes of entrepreneurs we invest in and with the confidence of a tremendous group of investors, many returning and some new. I liken our new fund to a “Series B”. Just like a Series B stage company, we’re doing many of the right things and have hit some nice milestones, but there is yet much to prove.
Our first $25M fund took us about 30 months to raise, our second $65M fund 18 months, and this one 12. This shortening trend is going in the right direction, though I’m reminded each time we do it that raising capital informs our own empathy for entrepreneurs’ fundraising travails. It is also a pleasure to reconnect with existing investors and meeting new ones. We are lucky to have many accomplished entrepreneurs, professional investors and executives among our investor base, and we learn something new from each in every meeting. The more I speak with these people, the more I realize how much I don’t know or haven’t experienced (back to the opportunity cost of life). Would that I had a month to shadow each like an intern!
HPVP also expanded its team by three people in 2019. That’s not a large absolute number, but still the 50% increase brings fresh thought and energy to everything we do. Our expanding team challenges us to break out of the ruts we’re used to driving, though damn we can be stubborn!
Above all, we’ve continued to partner with many top entrepreneurs, investing more with existing partners and backing new teams in 2019. It’s been a particular pleasure for me in 2019 to spend much of my time with several highly experienced founders/executives, whom I mostly try to stay out of the way of, learn from and help when I can!
Context – signs of accountability
In my Dec 2018 letter, though loathe to do so, I crossed the business/politics divide and spoke about Trump’s extreme shortcomings as a leader and the political and business risks that result. I will cross that divide again this year. Unfortunately, the administration’s heliotropic tendencies make Trump such a dominant factor in considering the context of our economic and societal state.
Interestingly, Trump’s special brand of economic protectionism and antagonism is not quite (yet) the undoing of our economy that escalating tariff wars had many, including me, predicting a year ago. Unemployment remains low, and output is still healthy though slowing a bit. Certainly in the venture/startup world hiring remains tight and there is access to capital, though the “flight to quality” that we saw begin in 2017 continues. More capital continues going to larger rounds for the most proven companies.
Perhaps this is indicative of the larger reality of our economy – a stark juxtaposition in position and opportunities between haves and have nots. For example, while the tariffs have not yet dragged the overall economy down, they have caused extreme pain for farmers, commodity producers and the communities that surround them. This is sadly ironic given ag state voting patterns in 2016 and upsetting to see a constituency fleeced by political con jobs and storytelling. More on that below.
As a city dweller, it’s easy to look around and think everything is going well for everyone. Most major cities are late in extended periods of growth in population, housing and wages. As a Midwest investor, however, I spend a lot of time driving through small towns, ones not even large enough for a Walmart. These are multi-generational home-town cultures now being re-cast around Dollar General. With ag down and other opportunities so limited in these places, it’s no wonder why their voters rolled the dice on Trump in 2016. We shouldn’t forget that, especially as we look ahead to 2020.
The point here is that even three years in, it’s easy to be shocked and upset about Trump in lieu of understanding the why behind his rise. Adolescents in the US are primarily taught about the righteousness of our elected democracy, its role in leading other countries to the same and its success in vanquishing the horrors of monarchy, fascism and communism. In this, we often overlook the imperfections of our own founding, but moreover we are misled to believe that representative democracy rooted in a literate citizenry is the human equilibrium. In fact, the equilibrium is probably the reverse: power, money and education in the hands of a very few as lords over the rest – whether this be monarchy, fascism or today’s kleptocratic version of communism in Russian and China. Some version of this was the standard for most of human history.
In Nicholas Wade’s Before the Dawn and Yuval Harari’s Sapiens the correlation between organized society and the development of speech are explored deeply. One causal hypothesis for the correlation is that speech was premise for humans to organize beyond family clans because storytelling was the necessary skill for a leader to unite followers that weren’t kin. In other words, aspiring leaders have to talk their way to the top in one way or another. The word “story” is an innocuous and harmless noun here, but the distance from truth to history to myth to lie is a short one, traveled for millennia by human leaders. Trump simply re-paved the faster lanes of this road, journeying along the dividing lines between haves and have nots. We see this in the business world too. Adam Neumann did something similar at WeWork, taking everyone for a ride.
Fortunately, while we can’t take democracy for granted, there is some robustness. As I said in 2018, “our nation is beginning to reject Trump like the body’s protective sack around a splinter, pushed back through the skin.” This is culminating – almost in a literal sense – with the impeachment process. While Trump is not likely to actually be removed (even I can buy arguments why at this point we should leave it to the election), impeachment proves that there is indeed some accountability for leaders who lie or otherwise pursue their own interests. This is important, not just for our politics but for our society. If for most of human history we were in the pre-truth storytelling era, will the “post-truth era” reign after a short few centuries of more enlightened human experience? I don’t think so. Trump’s impeachment is proof that we can still be grounded, and this political leadership accountability trickles down to broader society.
In fact, there is a good argument that 2019 was ubiquitously the Year of Accountability. In the broader economy, 2019 was a record breaker for public company CEOs stepping down, more leaving than in the financial crisis. While some of these departures were generational cash-outs after a long bull run, many resulted from boards enforcing business or moral accountability, as at Boeing and McDonalds respectively. In the startup world we saw several spectacular events of accountability with the cratering of WeWork and fraud charges at Outcome Health. It’s the sign of a healthy system when specific problems can be rooted out without the tide having to go out completely to bare the naked swimmers at the expense of the modest, as happened in 2008.
There is hope. Have a terrific 2020!
Demand for central London office space sinks as thousands of staff work from home
Demand for office space in central London sank in the third quarter as staff at major occupiers such as banks, insurers and asset managers continued to work from home as a result of the coronavirus pandemic.
A survey from the Royal Institution of Chartered Surveyors showed that 77% of surveyors reported a drop in demand for London office space.
The survey comes as banks such as HSBC confirm they are looking at a hybrid model of remote working and office working that could lead to a steep drop in the amount of prime office space needed by financial-services firms.
Availability for London’s office space grew for the eighteenth successive quarter, the survey showed, with availability growing at the strongest pace since 2009.
Over the next year, prime office rents in the capital are expected to fall by 6.8% as demand shrinks.
Tarrant Parsons, RICS economist, said: “Occupier demand across the office sector remains in decline and may continue to come under pressure going forward as businesses reassess their office-space requirements following the increased prevalence of remote working.”
Deutsche Bank and HSBC are among lenders that have announced that they will embrace the model of workers who opt to spend some days in the office and some days out.
The announcements come as a Morgan Stanley survey found that some 63% of office workers said they believe their employers will allow one or two days working from home in the future.
About one in five, or 18%, in the bank’s survey said they think their bosses will allow even more days than that. More than 90% of London office workers have been working from home during the pandemic — the most of any major European city.
Surveyors who commented on the RICS survey predicted that the coronavirus pandemic could lead to long-lasting changes in the way that companies use offices.
David Apperly of Apperly Estates said: “The biggest impact of coronavirus will probably be long term for office demand; rental growth is likely to be subdued for 10+ years.”
Gregory McGonigal of Ashdown Phillips said: “We are highly unlikely to return to anything like we were all experiencing in 2019 for at least five years and certain sectors will be changed permanently. The pandemic has caused, and will continue to create, a seismic shift in the UK property sector.”
Simon Wood of Downing Intervention simply said: “Winter is coming.”
To contact the author of this story with feedback or news, email James Booth
BlackRock wants global standards for sustainability reporting
Previous demand for firms to follow with existing standards led to a 400% increase in compliance
BlackRock, the world’s largest asset manager, has called for the creation of a single global sustainability standard, claiming existing frameworks are making it difficult to compare companies and leading to confusion for investors.
“BlackRock is calling for convergence of the different private-sector reporting frameworks and standards to establish a globally recognised and adopted approach to sustainability reporting,” the $7.8tn New York-headquartered group said on 29 October.
BlackRock claimed the proliferation of existing disclosure initiatives, many of which are overlapping, has meant companies are reporting the same information more than once and that there is a lack of consistent and comparable data.
“We believe that this could be resolved by aligning and converging to establish a globally recognised sustainability reporting framework and set of standards,” BlackRock said.
“Ideally, these would be developed by those with domain expertise in the private sector and supported by public policymakers as they move to require more comprehensive corporate reporting.”
The call from BlackRock comes after it asked companies in January to publish their climate-related disclosures in line with the Sustainability Accounting Standards Board standards and the Task Force on Climate-related Financial Disclosures framework — two of the world’s major reporting standards.
BlackRock said it would consider voting against company management where sufficient progress had not been made.
Companies appear to have heeded BlackRock’s warning. According to a report by the fund manager’s investment stewardship team, by the end of September, there had been a 400% increase in companies reporting under the SASB standards.
“The uptick is encouraging,” BlackRock said. “However, one of the top challenges to greater adoption we hear from the directors and leadership teams is the confusion caused by the various frameworks or standards.”
Efforts are already under way to develop a common approach for sustainability disclosure.
The IFRS Foundation published a consultation in September to assess demand for global sustainability standards. The IFRS said it would assess to what extent it could help develop such standards if demand proved strong.
Also in September, a group of five sustainability-reporting organisations — the SASB, the Global Reporting Initiative, the International Integrated Reporting Council, the CDP and the Carbon Disclosure Standards Board — said they planned to work together to develop “a comprehensive global corporate reporting system”.
BlackRock has singled out an approach proposed by the IFRS Foundation as the “most practicable and likely to succeed”.
“Progress may take some time,” it said. “BlackRock will continue to advocate for TCFD and SASB-aligned reporting until a global standard is established.”
To contact the author of this story with feedback or news, email David Ricketts
Comment: Don’t overestimate the coronavirus recovery
At this point in the Covid-19 crisis, governments have only one good option: further aggressive fiscal stimulus complemented by coherent virus-containment strategies
The world economy has risen from the depths of the initial Covid-19 plunge. But the recovery has been tepid, uneven and fragile – and is likely to remain so for the foreseeable future.
Start with the good news. World merchandise trade has rebounded strongly, consistent with indications of a revival in household demand for goods in many economies, even as public-health restrictions and consumer concerns continue to hobble demand for services.
Moreover, financial markets have held up surprisingly well, with stock markets in many countries regaining or even exceeding pre-pandemic levels. Despite near-zero interest rates, banking and financial systems seem largely stable. And consumer and industrial demand has buoyed commodity prices, with even oil prices having recovered somewhat.
But as the latest Brookings-Financial Times Tracking Indexes for the Global Economic Recovery update shows, many economies are experiencing essentially no growth, or are even contracting. With private sector confidence depleted, and the struggle to contain the virus far from over, the risks of substantial and long-lasting economic scarring are on the rise.
This is true even in the economies that have returned to growth, such as the United States. In some ways, the US seems to have turned the corner. Industrial activity and the labour market have regained some lost ground. The unemployment rate is falling, and employment levels are up.
But unemployment remains significantly higher, and employment significantly lower, than before the pandemic. The increase in long-term unemployment, together with ongoing service sector disruptions, portends a difficult path to a more robust and sustained recovery.
It doesn’t help that fiscal stimulus measures have largely lapsed, and negotiations on a new relief package have repeatedly broken down. As household disposable income has declined, private consumption growth has weakened. Similarly, business investment continues to contract – a trend that does not augur well for sustained growth.
Even stock markets, which experienced a sharp rebound earlier in the year, seem to be taking a breather. This may reflect concerns about the virus-containment strategy (or lack of) being pursued by US president Donald Trump’s administration. In any case, as next month’s presidential election approaches, heightened political and policy uncertainty is likely to keep consumer and business confidence muted.
The eurozone is in even worse shape. Not only has the pandemic decimated short-term growth; deflation is now setting in, raising the risk of a deep and prolonged contraction. While manufacturing in Germany and elsewhere has rebounded, the positive effects are more than offset by the enduring services slump, reinforced by ongoing public health restrictions.
The United Kingdom’s services sector, by contrast, has experienced a revival. Yet the combination of erratic lockdown policies and far-reaching uncertainties surrounding Brexit are contributing to a continued economic contraction. Meanwhile, on the other side of the world, Japan is also in serious economic peril, though it has so far avoided sliding back into deflation.
Most emerging market economies have not fared well, either. India is experiencing a sharp slowdown in economic activity, which could be exacerbated by a devastating acceleration in Covid-19 cases, fuelled by the easing of lockdown measures. The government has pushed through some agricultural and labour market reforms, but a banking system hobbled by bad loans remains a powerful constraint on growth.
Brazil and Russia have fared little better. Both have experienced substantial economic contractions, and have few policy levers available to revive growth.
The one country experiencing a strong recovery is China, where, thanks largely to the country’s apparent success in bringing the virus under control, both industrial production and services have rebounded. Retail sales and manufacturing sector investment have also bounced back. By many indicators, the country’s economic performance is now even stronger than it was before the pandemic.
Yet, unlike in the wake of the 2008 global financial crisis, China’s strong performance is not likely to do much to buttress the rest of the world economy, not least because of the growing push towards deglobalisation. China’s recently unveiled “dual-circulation strategy” – whereby the country will increasingly depend on the domestic cycle of production, distribution, and consumption for its long-term development – will reinforce this trend.
Making matters worse, central banks now have far less firepower than they did after the 2008 crisis. To be sure, the major central banks have pulled out all the policy stops since the Covid-19 crisis began, pursuing unprecedented monetary expansion in order to support economic activity and, in some cases, to fend off deflation. Some – most notably, the US Federal Reserve – have even adjusted their policy frameworks to signal tolerance of higher inflation. The central banks of some smaller advanced economies, such as Australia and New Zealand, and emerging economies, such as India, have also resorted to unconventional measures.
But the limits of monetary policy for boosting growth are becoming increasingly apparent. Meanwhile, large-scale purchases of corporate and government bonds, together with the direct financing of firms, are generating serious risks – not least to central-bank independence.
Against this background, governments have only one good option: further aggressive fiscal stimulus, ideally in the form of well-targeted government expenditure that could spur private investment. Whatever risks the increase in public debt may generate, they do not compare – especially in today’s low-interest-rate environment – to the long-term economic pain that countries will face without such stimulus.
To be effective, however, fiscal measures must be complemented by coherent virus containment strategies, which credibly enable safe economic reopening. Without such strategies, demand and confidence will remain subdued, and global growth will continue to falter well into the future.
Eswar Prasad is a professor of trade policy at Cornell University’s Dyson School of Applied Economics and Management and a senior fellow at the Brookings Institution. Darren Chang and Ethan Wu, undergraduate students at Cornell, assisted in the writing of this commentary.
Copyright: Project Syndicate
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