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An Exclusive Interview with Simon Hopkins, Milltrust Intl CEO - Pioneering Impact Investing, Confronting Challenges, and Charting a Bold Future
16 August 2023
An Exclusive Interview with Simon Hopkins, Milltrust Intl CEO - Pioneering Impact Investing, Confronting Challenges, and Charting a Bold Future
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From his beginnings at esteemed financial institutions to his current roles as CEO of Milltrust International Group, Chairman of Swallowcourt Holdings Ltd, and CEO of Milltrust Ventures Pte Ltd, Simon's journey weaves a story of perseverance and impact.
Our exclusive interview delves into Simon's path from his early days at S.G. Warburg to his pioneering creation of Global Fund Analysis – a revolutionary research and investment consulting enterprise. Simon's role in nurturing European hedge funds and shaping multi-asset advisory firms showcases his remarkable foresight. Simon's diverse roles as an adviser, technology investor, and mentor for breakthrough science highlight his commitment to driving positive change. His story exemplifies purpose-driven leadership, echoing through his contributions to the NUS Medicine International Council and beyond.
We extend our warm appreciation to Simon Hopkins for generously sharing his transformative journey, a strong testament to crafting a more sustainable and prosperous global landscape.
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?
My career commenced with SG Warburg, one of the pre-eminent City merchant banks at the time, on the eve of the Big Bang in 1986, which precipitated a revolutionary shake-up for The City of London. 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 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 an early experience for a young graduate trainee, it was extraordinary to witness the “Great Crash”. And, 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 1997, to Close Brothers PLC, a 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 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.
In my corner of finance, hedge funds, the industry suffered the cataclysmic collapse of Bernie Madoff’s house of cards Ponzi scheme, which came to light in December 2008 costing banks and investors billions and all but destroying a whole industry almost overnight. Fortunately, our clients have no exposure to Madoff but the damage to the whole industry was catastrophic. As the hedge fund industry crumbled, my plans at Close Brothers were halted, but I forged ahead and founded Milltrust International in 2010.
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?
My early career as an investment banker taught me the importance of defending shareholders' rights against powerful actors conspiring to undermine minority investors. Our recent focus on driving the shift to net zero and a decarbonized planet surpasses all prior campaigns in terms of magnitude and challenge. Part of my role involves effectively communicating this magnitude and our partnership with passionate climate advocates like WWF in Hong Kong. I also work to direct institutional capital toward companies that can alter the planet's current trajectory. The Climate Impact Asia Fund, managed by my Singapore team, shows that leaders in alternative energy, electric vehicles, waste and water management, and battery storage are rapidly expanding and reshaping valuations, driving significant climate emission change.
Recently, Gallup's Hope Index revealed pessimists now exceed optimists by the highest margin since 1999. This perception is fueled by media, like the BBC's constant coverage of an immigration crisis, despite an unprecedented labor shortage. Although the war in Ukraine impacted inflation and food prices, most commodity prices, including oil and gas, have fallen below pre-conflict levels. Contrary to popular belief, global poverty is decreasing despite the COVID economic shutdown. Alternative energy and capacity growth, mainly in China, are positive trends. Furthermore, new technologies offer benefits for planetary and human health. Despite AI scaremongering, it's aiding drug discovery and understanding links between lifestyle, diet, genetics, and congenital diseases, helping mitigate disease onset.
Milltrust Ventures focuses on long-term secular themes like Health, Food, and Planet. How do you identify and prioritize promising investment opportunities within these sectors, and what qualities do you look for in innovative companies or startups seeking funding?
At Milltrust, our core objective is to leave the world better than we found it. This vision, known as sustainable prosperity, centers around the health of the planet, our food systems, and humanity itself – a concept we term "One Health." Unlike Climate Impact, which focuses on measurable reductions in global emissions or saved water, these monumental challenges can seem daunting given the relatively modest funds we invest. Yet, we remain committed to fostering change. We invest in Polymateria, a pioneering solution from Imperial College London that addresses plastic biodegradation and aims to end the plastic waste crisis. Already supported by industry leaders, this innovation is gaining traction in Asia, where plastic pollution has been a persistent issue. Immunization, a cornerstone of 20th-century medicine, has saved countless lives. We backed Vaccitech, a viral vector vaccine company born from Oxford University, which provided a free COVID vaccine to over 2.8 billion people in developing countries, significantly reducing global mortality rates.
In the fight against cancer, we supported Oncoshot, enabling access to global clinical trials for cancer patients across Asia who might otherwise lack affordable treatment options. Fifty-Two North, a groundbreaking platform developed at Addenbrookes Hospital and the University of Cambridge, offers a revolutionary diagnostic device that addresses neutropenic sepsis, saving lives through timely intervention.
Our partnership with Roslin Technologies led us to BugEra, which produces sustainable biofuel from fly larvae, contributing to the decarbonization of transport sectors. Cody Genetics, another Roslin-based company, uses gene-editing technology to enhance livestock breeding, reducing food waste and transforming animal husbandry. While the challenges may appear insurmountable, we remain committed to driving meaningful change through strategic investments.
From your diverse roles and board memberships across different organizations, you've been involved in supporting breakthrough science, innovation, and social causes. How do you balance your time and commitments between these various endeavors, and what motivates you to engage in such a wide range of activities?
My professional journey has led me across the globe, encompassing roles in France, Hong Kong, Singapore, Latin America, and Africa. In this regard, I consider myself deeply fortunate, as my lifelong aspiration to explore the world has granted me a unique vantage point. This perspective has facilitated a comprehensive comprehension of global dynamics, from the grand tapestry of globalization to the intricacies of less interconnected nations.
While few countries remain untouched by the forces of modernization, the disparities have grown more pronounced, with certain nations regressing in terms of economic advancement, and struggling to compete on the global stage. The sale of my inaugural asset management venture, Fortune Asset Management, to London-listed Close Brothers in 2006, provided the opportunity to redirect the subsequent decade of my career toward emerging markets. Serving on the boards of major investors in Africa and China allowed me to contribute to the developing world. The current decade ushers in a fresh chapter, leveraging the relationships cultivated across various continents to support the companies outlined above. The gratification stemming from being an owner (albeit a minority one) of these enterprises amplifies personal satisfaction, recognizing that our own investments have played a role in enhancing livelihoods in regions that have become integral to one's individual human experience.
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?
Investing in hedge funds for over a decade at Fortune has provided me with fundamental principles that remain as pertinent today in emerging markets as they were in the intricate strategies of the past. Once it's established that the manager can consistently deliver alpha and possesses a credible, capable team, the crux lies in how one structure the investment.
This structure revolves around three elements: Transparency, Liquidity, and Safety.
Safety is ensured through a unified custodial framework that eliminates the need to send funds to third-party advisers. Instead, investors' assets are held under their control, managed by advisors selected from accomplished boutique asset managers who execute stock transactions, generating alpha, under a limited power of attorney. This setup grants clients the transparency required to comprehend the inherent risks of underlying investments, all managed by our custodian. Additionally, this arrangement enables investors to withdraw capital without relying on external parties. This model is integral to our approach at Milltrust, spanning our wealth management endeavors at East West Private Wealth, our Multi-Family Office affiliate.
All our clients exhibit varying degrees of exposure to skill-based strategies, and we are consistently seeking diversified and uncorrelated sources of alpha to complement traditional investments like cash, bonds, and equities in client portfolios.
Is there anything you would like to share with us about your organization's current endeavors? As you're now specializing 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?
Choosing a manager is akin to selecting a restaurant. The majority will offer services at the bare minimum acceptable level while charging the highest possible price. If you pay peanuts, you should expect a rather average meal. Drawing from my insights gained from over 20 years of global investing, particularly in emerging markets, I've found that the challenge lies in striking a balance between generating sufficient stock market alpha to counteract the constant devaluation of EM currencies against the dollar.
I analogize this struggle to running up a descending escalator. The pursuit of returns can be significantly hindered by this ongoing obstacle. Nonetheless, several other factors render EM an unexpectedly favorable investment ground compared to the developed world.
A distinct local flavor is imperative. The era when a solitary investor from the US or Europe could be relied upon to deliver alpha across these markets is long gone. It's crucial to support local managers who invest in the companies and economies of their own region. They possess linguistic skills and comprehend the subtleties unique to these markets. Lastly, ensure that you have the security of a custodian with an unblemished reputation, the transparency to effectively manage risk, and the liquidity to enable you to engage or disengage your advisor. This is why at Milltrust, we consistently invest through dedicated managed accounts rather than entrusting assets to the control of a third-party manager.
Do you have any messages for the family office industry audiences that are reading the blog now?
Yes, always seek out the best alpha generators. They exist in emerging markets more frequently, so it appears evident from the rankings. This is 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 off seeking a higher beta elsewhere. Finally, back the long-term secular themes that will attract money over the next decade. Avoid short-term fads.
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?
In my experience, there is no substitute for 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.
Beyond your professional endeavors, 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?
What I have learned, contrary to popular belief is that being 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 in themes and ideas I am passionate about, and with the support of my trusted team, many of my long-term colleagues, also 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.