Simon Baskerville: As an experienced entrepreneur and investment professional, you’ve been involved in various ventures throughout your career. Could you share some of the key challenges you’ve encountered and how you effectively navigated through them?
Simon Hopkins: Well thanks for the opportunity to talk to you and your clients. My career commenced with SG Warburg, one of the pre-eminent City broking houses at the time, on the eve of Big Bang in 1986, which precipitated a revolutionary shake up for The City of London, and proved the beginning of the end of the Cozy Club that dominated the investment business up until that juncture. My second year was marked by the biggest single day crash in US equities in history in October 1987. Many of the senior partners of the City stockbroking firms were attending to the damage to their country estates brought about by the Great Storm, an extraordinarily violent weekend gale that ominously preceded what came to be known as Black Monday. On that day The Dow Jones Industrial Average lost 508 points, or 22.6% of its value alone: $500 billion was wiped out in one trading session, $1.7 trillion estimated total losses. As a foundation experience for a young graduate trainee, it was extraordinary to be part of it. Within a few years most of the venerable old names of The City has been taken over by US and foreign banks like Chase, JP Morgan, Shearson Lehman and Swiss Bank Corp. Warburg did not escape the consolidation, as it was first rolled by SBC which itself was soon acquired by UBS. Perhaps the most notable event post the Crash of 1987, even more significant than the dot com bubble and The Twin Towers attack in September 2001, with wide ramifications for the financial services industry in the UK, came 20 years later almost to the day. The US bear market of 2007–2009, The Global Financial Crisis, was a 17-month bear market that lasted from 9th October 2007 to 6th March 2009. During the Global Financial Crisis once again the S&P 500 lost approximately 54% of its value from peak to trough. It ushered in great bailouts, zero and even negative interest rates, and the global central banks’ experiments with quantitative easing. Helicopter Ben arrived! For me personally, this was undoubtedly a calamity but with only one blessing. Only a few months earlier I had concluded the sale of 50 percent of my business, Fortune Asset Management, which I had founded in the 1990’s to measure the performance of hedge funds (the original business being called Global Fund Analysis), to Close Brothers PLC, a mid sized UK merchant bank listed on the London Stock Exchange. My colleagues and co-shareholders were all keen to take some chips off the table, and how prescient this sale proved to be! Within a year our hedge fund of funds business had been entirely turned on its head in the wake of the failure of Lehman Brothers in particular which precipitated a the collapse in the investment banking industry which had been willing providers of insane levels of leverage to so many of the operators, of which so much has been written and movies made, such as Michael Lewis’ The Big Short. Then in my corner of finance, hedge funds, the industry suffered the cataclysm of the collapse of Bernie Madoff’s house of cards Ponzi scheme, which suddenly came to light in December 2008 costing banks and investors billions and all but destroying a whole industry almost overnight. At Fortune we eschewed any leverage, recognising the risks of an end to the perennial bull market that ultimately precipitated the crisis. Frank Casey, Fortune’s US President had also alerted me to a report he and Harry Markopolos, a forensic accountant, had submitted to the SEC entitled “The World’s Biggest Hedge Fund is a Fraud”. He subsequently co-authored a book entitled “No-One Would Listen” as he had received no reaction from The SEC despite several meetings with them between 2000 and 2007. This uncovering of the willful and systematic deception of virtually every major private bank in the world by one Bernard Madoff, former Chairman of the National Futures Association of the United States of America, was perhaps the most damning indictment of the reckless abandon and inadequate regulation with which the fund of hedge funds industry had evolved. And now the curtain was well and truly about to come down, along with much of the ceiling and a considerable chunk of the sky. Madoff had built a fund management business that was recognised internationally as one of the foremost hedge funds in the world. Unlike most hedge fund managers however, who were typically subject to the ignominious deliberations of junior analysts whose job it was to pour over their process and results prior to allocating capital, Madoff perpetrated a mystique of simplicity yet total secrecy, refusing to allow any of the greedy investors, who coveted his secret sauce, to ever know the recipe. When Fortune sent its Head of Research, Richard Tarvin, a PhD in Neuro Computational Science, to visit the firm in New York in 2005, he was abruptly shown the door for casting doubt on the persistent returns of a strategy that even the portfolio managers couldn’t properly explain. Nonetheless, the aura of mystique and the name dropping of important clients that Madoff had managed to canvas, largely through the affluent Jewish community in New York and Palm Beach, attracted the attention of the fund of funds community. A group of private banks and wealth managers who had quickly seen the appeal of a blend of alternative investment strategies that could weather the storm in any market environment, for them Madoff was the ultimate investment. In fact so infallible was Madoff, and so reliable his fund’s returns, investors, being presented with the opportunity of dispensing with the complex fund of funds like socialites Walter Noel of Fairfield, and Thierry de la Villuchet, a French aristocrat who ran Credit Lyonnais in New York, were keen to invest instead into feeder funds that solely invested into the “split strike conversion strategy” that proved so reliable. They, and many of the private bankers, ultimately provided most of the 50 billion USD of capital that evaporated on the day Madoff was arrested. For months prior to Madoff’s arrest and arraignment, I had a steady stream of clients, private bankers and hedge fund colleagues traipse over to my house in Kensington of a Saturday morning to sit and read the explosive revelations in the now famous dossier. It had first been submitted in 2005, as Markopolos and Casey later lamented in their aforementioned autobiographical account, “No-One Would Listen”. One of the last such Saturday morning visitors was Ron Kleinman, a NY music impresario who had made a small fortune printing prospectuses for hedge funds during the boom. In his other life he had produced “Desperately Seeking Susan”, the Broadway musical featuring the music of Madonna. He had also brought Spring Awakenings to London’s West End. Ron was due to sit down with his father-in-law, a hotshot Swiss private banker, just a few weeks later at their annual Christmas get together in Geneva. The father-in-law was raving about Madoff, and how Ron should join him and flog Madoff to all their friends. Two weeks later Madoff was in custody and Ron’s father-In-law was bankrupt. On June 29th 2009, Madoff was sentenced to 150 years in prison, the maximum allowed at his age, effectively a life sentence. Madoff’s right-hand man and financial chief, Frank DiPascali, pleaded guilty to 10 federal charges in 2009 and testified for the government at the trial of five former colleagues, all of whom were convicted. DiPascali faced a sentence of up to 125 years, but died of lung cancer in May 2015, before he could be sentenced. Both Madoff’s sons, who were partners in the firm, also came to an untimely end. Mark committed suicide in 2010 in the wake of the scandal’s eruption, and Andrew died of cancer in 2014, the cost in other lives through suicides and destitution unfathomable. Ironically, our futile attempts to conduct due diligence on Madoff, and our knowledge of the dossier, kept us out of trouble throughout the crisis but the writing was now on the wall for the hedge fund industry, and as the tide went out with the huge debt crisis of the following year, hedge funds buckled and the industry contracted by about 70 percent. Many of our contemporaries were exposed to the hugely levered one way bets that had delivered such stunning returns for as long as the bull run continued. One arrogant fellow was so full of hubris as to even publicly wager with Warren Buffet, the Sage of Omaha, that his leveraged hedge fund portfolio would far outstrip the equity indices over the next decade. This was the ultimate kiss of death for hedge funds and the ensuing years saw over a trillion dollars evaporate into thin air. So with the hedge fund industry in tatters and my plans to roll up the funds of funds industry brought to an abrupt halt by the intellectual pygmies that had crawled out to take the helm at Close Brothers, I started to make plans for my next endeavour as soon as I could shake off my own shackles, four years of penury, my earn out, dutifully served, and Milltrust International was formed in 2010.
Simon Baskerville: Impact investing and sustainable prosperity have been central themes in your career, particularly through Milltrust International. What are some of the most significant positive outcomes or impacts you’ve witnessed from these initiatives, and how do you measure success in terms of sustainability and social responsibility?
Simon Hopkins: My early career as an investment banker gave me a taste of how important it is to stand up for the rights of shareholders when powerful actors conspire to undermine the rights and interests of less powerful or minority investors. However, our more recent focus on championing the shift to net zero and a decarbonised planet far exceeds all my prior campaigns in terms of the order of magnitude of the threat and indeed the challenge. Part of the role is to be able to effectively communicate to our peers this magnitude, along with our partnership with a cohort of passionate climate warriors such as WWF in Hong Kong, and also to marshal institutional capital in the direction of those companies that are likely to alter the course of the planet’s currently doomed direction. The Climate Impact Asia Fund is managed by my team in Singapore and has demonstrated in its short life that the companies that lead the world in alternative energy, electric vehicles, waste and water management, and battery storage are going through a rapid phase of business expansion and consequent valuation rerating as investors recognise that this is where material change to climate emissions is to be made, as these listed companies have access to capital markets and first mover advantage relative to private equity backed ideas. In recent weeks Gallup published The Hope Index, a poll which today shows that pessimists exceed optimists by the highest margin since polling began in 1999. Yet who could be blamed for the notion that we are heading for some sort of apocalypse when one consumes mainstream media? The BBC for example is forever trumpeting the immigration crisis, when in fact we have a shortage of labour never previously witnessed. The war in Ukraine, and the impact on inflation, felt in particular by households exposed to rises in food and energy prices, is blamed for the economic malaise, and yet most commodity prices including oil and gas have since fallen below levels seen prior to the conflict. Most people seem to believe that global poverty is on the rise, when in fact despite the COVID economic shut down, it is actually on a long term downward trend. Livelihoods are for the most part improving, and so is the shift to alternative energy, with more capacity set to come on stream in the 5 years through to 2027 than the entire power capacity of China today. Much of this change is happening in China from where we have a bird’s eye view. Furthermore, the adoption of new technologies that will have a marked benefit on the health of the planet and its population of both humans and animals is also reason to be cheerful. Most of the news around AI for example has been scaremongering about the likelihood of it taking over from humans. Meanwhile, as an example of its crucial early contributions, it has given new impetus to drug discovery and helping understand the linkages between lifestyle, diet and genetics in congenital disease progression, where lifestyle and dietary changes can in fact allay the onset of disease.
Simon Baskerville: Milltrust Ventures focuses on long-term secular themes like Health, Food, and Planet. How do you identify and prioritise promising investment opportunities within these sectors, and what qualities do you look for in innovative companies or startups seeking funding?
Simon Hopkins: If there is a single objective to what we are trying to do at Milltrust, it is to try and leave the world a better place than the state in which we found it. We call this sustainable prosperity, and at the root of this concept is the health of the planet, our food systems and ultimately the human race – we have labelled this concept – “One Health”. This is the other end of the spectrum to Climate Impact, where the impact of our capital is measurable on global emissions reduced or litres of water saved. Here, these massive challenges can seem dauntingly out of reach for the relatively small sums of money we are investing – the apparent futility of the recycling movement, the unassailable challenge of our dependence on fossil fuels and the powerful lobbies that preserve the status quo, or the profligacy with which the human race consumes and disposes of goods with reckless abandon. We can’t live in healthy co-existence with a broken food system where almost a billion people are on the one hand malnourished, and live on less than a dollar a day, and yet the affluent societies are plagued by obesity and heart disease caused by the wrong sorts of food. Whilst our rivers and oceans are polluted by micro plastics and chemicals, little appears to change and the good intentions of a small number of adopters of more responsible practices are dwarfed by the massive growth in plastic usage which seems inexorable. Ultimately, our health priorities need to be completely turned on their head, with a greater focus on prevention rather than extending life by a few months, and pandering to Big Pharma’s greed driven agenda. Big Pharma has corrupted government policy, and yet government should be there to serve as the checks and balances that prevent any egregious, commercially driven agenda. So, where to date have we sought to invest and to what end?
Polymateria, a truly groundbreaking innovation in plastic biodegradation from Imperial College London, is set to revolutionise our approach to the use of plastics, and end the plastic waste crisis. It’s that simple. The company has already been backed by the founders of Marks & Spencer and AB Inbev, and recently attracted investment from ABC Impact, an affiliate of Temasek in Singapore. The technology is being adopted at pace in Asia where plastic pollution has been up till now an intractable problem, largely due to consumer habits, but also due to the West’s tendency to dump plastic waste in developing countries which ends up in landfill and rivers. With respect to human health, immunisation has perhaps been the single most important medical innovation of the 20th century. We were fortunate to back Vaccitech, the traditional viral vector vaccine company that was born out of the Jenner Institute at Oxford University, and which delivered a COVID vaccine free of charge to over 2.8 billion citizens, mainly in developing countries. It reduced the death rate across the globe and yet was ironically eschewed in the US and Europe, countries that exhibited some of the highest death rates globally. Ultimately some six years after we first invested, the company was listed on NASDAQ at a value 50 times higher, with a value of 650 million USD at its peak, allowing our exit.
More recently, in the fight against cancer, we backed Oncoshot, a company built by a leading oncologist at the National Cancer Centre in Singapore and his colleague who famously programmed the Map of the Internet. The company today provides access to cancer patients in Asian countries with clinical trials across the globe, providing them with hope of successful treatment that might be otherwise be unaffordable and unavailable.
In human health, there are so many phenomenal breakthrough companies, but one of the most compelling platforms we have backed is Fifty Two North, developed at Addenbrookes Hospital at The University of Cambridge. Here, oncologists recognised that more often than not the cause of death for cancer and post operative patients was failure to monitor and treat neutropenic sepsis in a timely fashion. Now, with the help of a revolutionary diagnostic device the team has developed, many of the 48,000 persons a year that die in the UK alone from this insidious condition will be saved.
Two of the most exciting companies to have been unearthed by our early and now longstanding involvement with Roslin Technologies, a company itself now at the cutting edge of stem cell production for the cultivated meat industry, include BugEra and Cody. They both fall squarely into our focus on eliminating waste and better stewardship of our ecosystem.
BugEra is able to produce sustainable bio-fuel derived from fly larvae. Today at the forefront of improving the natural traits of the Black Soldier Fly (BSF) to benefit the creation of bio-products, such as lipids, the company is now backed by a global leader in the production of biofuel, decarbonising transport sectors such as aviation and shipping, and developing the circular economy where the fly larvae turn valueless waste streams into high value commodities. With the aviation industry desperately needing decarbonisation, BugEra is now in late stage discussions with the venture arm of a household name in the airline industry.
Cody Genetics is an animal biotechnology company based at the Roslin Innovation Hub in Edinburgh. It applies gene-editing technology to benefit livestock farming. Today, we live in a world where inefficiencies in animal breeding for our food supply chain, give rise to the elimination of 7 billion day old chicks a year, as they have little use for broilers or eggs. In New Zealand alone, an estimated 2 million week-old old calves in the dairy industry are slaughtered. Cody enables breeders to receive sperm oocytes that not only will have a pre-determined sex, but that in turn will only produce gender-bias through unassisted reproduction. Cody’s ground breaking CRISPR based technology will dramatically reduce food waste and improve animal husbandry techniques. The company is currently in negotiation with Series A lead strategic investors, which will help accelerate Cody’s IP into the commercial arena.
Simon Baskerville: From your diverse roles and board memberships across different organisations, you’ve been involved in supporting breakthrough science, innovation, and social causes. How do you balance your time and commitments between these various endeavours, and what motivates you to engage in such a wide range of activities?
Simon Hopkins: My professional life has taken me around the world with stints in France, Hong Kong, Singapore, Latin America and Africa. In this respect I have been deeply fortunate in that for as long as I can remember I had wanted to travel and explore the planet. This has given me a tremendous vantage point from which to garner a better understanding of how the world works, from grand designs of globalisation to the very parochial world of smaller, less connected nations. Whilst few countries can entirely escape the long reach of the modern world, the contrasts have become starker with many countries slipping back in terms of economic development, simply unable to compete on a global scale. Selling my first asset management endeavour, Fortune Asset Management to London listed Close Brothers in 2006, gave me the freedom to refocus the next decade of my life on the developing world, with stints on the boards of some of the largest investors in Africa and China. The current decade is a new journey, bringing to bear the relationships I have build on several continents to the companies we are backing in the areas outlined above. The rewards associated with being an owner (albeit a minority owner) of these companies is another order of magnitude in personal satisfaction, when one recognises that our own funds have contributed to improving livelihoods in parts of the world that have become part of one‘s personal human experience.
Simon Baskerville: You have experience in seeding and managing hedge funds through Fortune Group. In the ever-changing landscape of financial markets, what strategies do you employ to ensure consistent performance and manage potential risks effectively for your clients?
Simon Hopkins: Investing in hedge funds for more than a decade at Fortune gave me some very fundamental rules that are as relevant today in emerging markets as they were in the arcane strategies that we invested into back then. Once you have ascertained that the manager is capable of delivering alpha in a consistent way, and that the team has depth and credibility, the key is how one structures the investing. There are three elements to this – Transparency, Liquidity and Safety. Safety is guaranteed by a single custodial framework that avoids having to wire money out to third party advisers. Instead the investors’ assets sit under the control of the investor, and the advisors, drawn from talented, boutique asset managers, who buy and sell the stocks, generating alpha, under limited power of attorney. The structure affords the client the transparency that he needs to fully understand the risks associated with the underlying investments, all held by our custodian, and finally the arrangement permits the investor/client to withdraw capital without having to go cap in hand to a third party. This model is central to the way we manage money at Milltrust and across our wealth management activities at East West Private Wealth, our Multi-Family Office affiliate. All of our clients have varying degrees of exposure to skill based strategies, and we are always looking for diversified and uncorrelated sources of alpha to sit in client portfolios alongside traditional investments such as cash, bond and equities.
Simon Baskerville: Is there anything you would like to share with us about your organisation’s current endeavours? As you’re now specialising in emerging market assets – can you provide us with information on how your offer differs from that of any other company? Additionally, why should people consider investing?
Simon Hopkins: Choosing a manager is like choosing a restaurant. The majority will provide services within the minimal acceptable offering for the highest possible price. If you pay peanuts, expect to eat a very average meal. My key observations of emerging markets over 20 years or more investing globally, is that the challenge is weighing up how to generate enough stock market alpha to compensate for the perpetual devaluation of EM currencies against the dollar. I equate this to running up an escalator that is coming down. The task of generating returns can be made doubly hard by this constant impediment. However, a number of other attributes make EM perversely a better place to invest than the developed world. Local colour and flavour is essential. Gone are the days when a single investor based in the US of Europe can be expected to deliver alpha across these markets. It is essential to back local managers who invest in the companies and economy in which they reside. They speak the language and understand the nuances of these markets. Finally, always make sure you have the safety of a custodian of completely unquestioned standing, the transparency that allows you to manage risk, and the liquidity that empowers you to hire and fire your advisor. That’s why at Milltrust we always invest through dedicated managed accounts rather than allocated assets to the control of a third party manager.
Simon Baskerville: Do you have any messages for the family office industry audiences that are reading the blog now?
Simon Hopkins: Yes, always seek out the best alpha generators. They exist in the emerging markets more frequently, so it appears evident from the rankings. This is largely because the market is dominated by a small number of mundane mega managers who distort the picture. Don’t make the mistake of taking the easy course by buying passive or closet index huggers unless you’re convinced there is no alpha source available. Then you may be better seeking higher beta elsewhere. Finally, back the long term secular themes that will attract money over the next decade. Avoid short term fads.
Simon Baskerville: Looking ahead, what are the key growth areas and strategic directions you envision for Milltrust International and Milltrust Ventures? How do you plan to adapt to evolving market trends and continue driving positive impact in the industries in which you operate?
Simon Hopkins: In my experience, there is no substitute to delivering outsized performance other than through hard work. Whether investing with the best alpha generators, whose returns come from cutting edge primary research, or backing companies that play into the long term secular themes such as those we have set out above, there is no such thing as a free lunch. Few if any of the great managers have outpaced the S&P 500 over the last decade, and yet most returns have come from a small number of tech related companies that were all unheard of in the last century. In the public equity world, stocks including Amazon, Alphabet, Tesla and Meta have been the winners in what started out a crowded field. So the benefit of hindsight is a wonderful thing. Investing across the full gamut of early stage tech companies would have included some winners but also a vast array of failures. Whilst there is an academic view that this approach can yield similar outcomes in the private markets, we eschew this approach and manage risk in a very different way, with the objective of deriving outsized returns from a small portfolio of winners:
1. We back incontrovertible science that has come from the leading places of learning and where the IP has been bench tested and protected.
2. We seek companies that address long term secular themes that will continue to attach capital for a decade or more, and are not faddish or frivolous.
Simon Baskerville: Beyond your professional endeavours, what are some of your personal goals and passions that you hope to pursue in the coming years? How do you strike a balance between your personal interests and the demands of your diverse professional responsibilities?
Simon Hopkins: What I have learned, contrary to popular believe is that being in an entrepreneur is not without stress. However, it’s not the type of stress that comes from working for people whose values and motives are at odds with yours, or that you simply don’t like them breathing down your neck. It’s stress associated with the constant involvement that owning and running a business entails. It’s literally impossible to put down for any length of time. Fortunately, I am doing what I love, investing into themes and ideas I am passionate about, and with the support of my trusted team, many are long term colleagues, also with the support of my wife and children, hopefully successfully making the world just a little bit better than how we found it. This is now a proven path since Milltrust was born, we have chosen and developed a clear path that I intend to continue!!
