Money

Eric Lonergan first grabbed my attention when I came across an interview with him in an Irish Sunday newspaper. As somebody who also read philosophy and political economy at University, I’m always intrigued as to how I often look at economic issues through a completely different lens than some of my contemporaries who have studied pure finance or mathematics. Horyou, although not solely profit seeking, is an enterprise like any other with respect to having financial costs, so it is keenly aware that money, whether used for social or personal interest, is a tool of mobilization. In the interview I read, I learned that Eric Lonergan has just written a book on the philosophy of money and society’s relationship with it it. And I found myself nodding along with much of Eric’s hypotheses, so I was delighted when he agreed to sit down for a chat.

Eric Lonergan
Eric Lonergan

1) You did your undergraduate degree in philosophy, politics and economics at Oxford and your masters in economics and philosophy at the London School of Economics. Subsequently, working as a hedge fund manager, do you find yourself reading certain situations or analyzing things differently to your colleagues who might have studied pure finance?

One of the challenges with education in areas like economics and finance is that you have to learn the conventional wisdom before you can identify what’s wrong with it. So I spent a lot of my time studying mainstream economics and finance – much of which has some insight. Even advocates of ‘efficient markets’ like Eugene Fama, have useful observations. That said, the most useful studying I have done, ironically, was philosophy. I learned that virtually all theories are flawed, as is a lot of ‘expert opinion’.  Financial markets are similarly unforgiving. Pure finance typically ignores the most important aspect of markets – human behavior and psychology.  

2) In your recent, highly acclaimed book ‘Money’, you make the point that money as a function should be looked at as a tool to live rather than an ability to accumulate. Was this view formed from your academic study or from seeing money at work in the real world?

Part of the reason I wrote ‘Money’ was to broaden our understanding of money and finance. One of the intellectually fascinating aspects of money is that it underpins human progress, but it is also a source of many problems. I tried to explore this theme more broadly. Finance connects us all at a real human level – pensions are inter-generational transfers, mortgage lending connects depositors and young households etc. And at the other extreme, millions of people are inter-connected through global financial markets. I have seen both sides at work in the real world. At a positive level, global investors can try and set high standards for global governance, encourage long-term thinking in policy-making, and finance international trade and the exchange of technology and ideas. These are all positive forces. The other side of this interdependence is that you can have destructive financial panics – which I witnessed first-hand in the late 1990s, during the Asian crisis, and again in 2008. The challenge for policy-makers is to harness the benefits of trade and finance and mitigate these risks – which primarily means developing policies to prevent or shorten recessions.  

3) There are hundreds of stories of people leaving finance post crises, when the greed of the system was exposed, including Horyou’s own CEO who held director positions at JP Morgan and Bank of China. As someone who still works in the industry, have you seen a definite culture shift/change in priorities? How does conversation within the industry compare to pre-financial crisis?

I do think there has been a cultural shift, encouraged also by a major shift in the regulatory environment, which should be welcomed by the industry. But it would be naive to think that an industry mainly focused on making money will foster a culture of generous, socially-minded, individuals! The main challenge for the regulators, who have a difficult task, is to ensure that the incentives of participants in the industry are aligned with doing the right thing, and ultimately the interests of broader society. 

Money: The Art of Living
Money: The Art of Living

4) Horyou have just launched their global social currency “Spotlight”, which matches investors to social enterprises they want to support. We see that there is a huge appetite for impact investing, green finance etc. What are your views on these areas? Will environmental/social returns ever override profits for investors or as consumers become more discerning and regulations tighten, do you think they even have a choice to ignore more sustainable investment patterns?

My thinking on this has been heavily influenced by knowing and working with Nigel Kershaw from the Big Issue, and one of the UK’s leading social entrepreneurs and thinkers. I think social enterprises will grow in importance. In contrast to many charities, which have to devote considerable resources to fund-raising, social enterprises can be self-sufficient. And they can have an economic advantage – there is little doubt, I think, that consumers will continue to be more discerning in considering the broader effects of their actions and those of the enterprises they interact with.

5) What are the main areas you are seeing investment opportunity in, in the short term?

I try always to think in terms of the ‘long term’ – there is a lot of distracting noise in the short-term. I think one of the most interesting aspects of public markets currently – a huge fad – is what I call ‘volatility aversion’. Investor obsession with recent historic volatility as a measure of risk is causing huge anomalies in pricing. The most straightforward manifestation of this is the equity risk premium – the difference in implied returns from equities compared with government bonds. Global equities are currently priced to deliver far superior returns to government bonds over the next five to 10 years.

6) Finally, Horyou support people making impact on society for good. What impact or contribution do you want to be remembered for/still want to achieve? 

I’m too much of a philosopher to want to be remembered for anything – I’m not sure that’s a helpful ambition! I would be very happy if I could contribute to the development of policies that shorten the duration of recessions.

Eric Longeran has an interesting way of looking at the world. I could be accused of bias, considering we share many of the same views on the concept of money within society, but the more we watch economies evolve each day, the more we realise how we view money and our propensity to spend or save, is actually very much driven by human sentiment and social pressures, be it from our neighbour or the data we see in the markets. There is nothing to say that these views are right or wrong, but it is becoming more apparent that the discipline of economics is moving away from linear models and learning to adapt to the uncertain world we live in today.

Written by Dearbhla Gavin

Finland Finance Minister Alexander Stubbs
Finland Finance Minister Alexander Stubbs

The 46th World Economic Forum kicked off in sub zero temperatures outdoors and equally freezing atmosphere indoors among the delegates as they woke up to news of more turmoil in the stock markets, which set the agenda for quite a pessimistic day all round. On that same note, China managed to infiltrate almost every discussion and opinions were divided as to what extent a stalled economy in the Middle Kingdom would contaminate the rest of the world.

On the optimistic side and in response to the holders of the view that the overreacting markets would ask for subtle policy changes to stabilize, Stephen A Schwarzman, CEO of Blackstone, supported the idea that China with its huge population will continue to both produce and consume, which implies that supply and demand will be maintained and the markets will again reach equilibrium.

Away from the stock markets and onto the environment, I was interested to hear the views of UN Executive Secretary Christiana Figueres, one month after COP 21 in Paris that Horyou covered. Unsurprisingly, Christina stated that getting everyone to agree was the easy part but that what the world is in need for clear goals and even clearer strategy on how to reach them.

Alluding to the importance of citizen participation and ‘solidarity’, one of Horyou’s key values, she said that ‘everyone on the planet needs to rethink how they live their lives; and that goes for big business as well as individual consumers’.

On the subject of geopolitics, it struck me that the entire concept of Davos could well be challenged this year. Rumors of excessive parties and elitism notwithstanding, it has always been a platform where the powerful can gather calmly and on common ground to make decisions. However, this year things look different as the world had never been more split over our priorities and our problems, as well as who or what to blame and, most importantly, the proposed solutions.

There are so many powers coming to Davos with different ideologies regarding the various geopolitical conflicts. When we are supposed to be at a new frontier of global growth and development, are we to see phantoms of times past reemerging? Alexander Stubbs, the Swedish Prime Minister spoke of global stability in the wake of critical shifts. However and thankfully, for all of the worry, there was a lot of reason to be hopeful and believe in Davos.

Chief Operating Officer of Facebook Sheryl Sandberg
Chief Operating Officer of Facebook Sheryl Sandberg

Musician Will I Am and Facebook’s COO Sheryl Sandberg both spoke sincerely on the opportunity that lies in connectivity. On a mission to utilise technology for another ‘education’, yet another Horyou key value,Will I Am believes that a bright future lies in giving kids the opportunity to explore the STEM subjects and in using technology as an aid to learning. Sandberg, meanwhile, passionately alluded to experiences of people in developing countries whose lives were transformed when they were given access to the Internet and how this gave them a stake in society they never even dreamed to have.

There was also a lot of positive vibes from this year’s upbeat Young Global Leaders who were driving conversations on renewable energies, sustainability and the future of science. And a key point I took away from their discussions is that good people doing good need to know each other; they need to connect and work together to make an even bigger impact on society.

So, the night falls leaving in the air a mixture of caution, uncertainty, hope and fear; opinions are divided but the good news is they are voiced. We definitely leave curious.

We look forward to seeing how the rest of the week will unfold.

By Dearbhla Gavin

WorldEconomicForum_1

The 46th World Economic Forum kicks off at altitude in Davos this week. With only the most powerful on stage and the rest of the world wondering whether it is just a networking event for the 1%, the truth is that there has been no better time for the WEF and its platform in a world in vital need for peace, dialogue and solutions to critical economic, social, environmental and technological issues.

Ahead of the main event, The World Economic Forum released a list of what it has found to be the greatest risks to the stability of the world on all the above accounts in the next five years. Although not included in the main agenda, the list’s findings are likely to be central to most discussions over the next few days.

worldeforum_inforgraphic

The top five outlines risks are large-scale involuntary migration mostly from regions at war or suffering severe unrest, extreme weather events, failure of climate change mitigation and adaption, interstate conflict and natural catastrophes. It is worth noting that, for the first time in history, three out of the five risks are related to the environment. Also, one of the main things that unfolded during the environmental crises of the last few years is the role that governance plays in both cause and solution.

The impact of government policy, business strategy and citizen action on the environment is slowly being understood. It is a virtue of our increasingly connected world where nothing can now be treated in isolation, which reinforces the importance of the WEF as a place to communicate as one.

60 million people, the size of the UK population, have been displaced as a result of climate change. When one loses everything, there is an erosion of trust between ruler and ruled, a situations which threatens to undermine the entire social fabric of a society.

wef_table

As these environmental crises and social tensions intensify, the inevitable related policy changes is bound to impact business profit margins which, in turn, can put a blanket drag on the economic activity with increased unemployment that feed social tensions. Which is why the environment, business, society and security will be addressed jointly. it is hoped that through collective discussion among all stakeholders, the much needed consensus can be reached and mitigation of these risks be put into place.

The World Economic Forum refers to this as the ‘resilience imperative. It emphasizes the absolute necessity of cross industry collaboration to contain the risks in the coming year.

In a nutshell, the cooperation of every nation in adapting the terms of the COP21 agreement will be necessary to contain climate change. Also on the agenda, the slowing growth of China will be closely followed. Why? Because it is one of the largest consumers of goods and services and because it is a country that so many economies rely on for trade. What happens in China will reverberate across the world. Another consequence of global connectedness.

Those are the most likely challenges we will face. We will keep a close eye on the World Economic Forum’s proceedings this week hoping for some solutions.

By Dearbhla Gavin

More Stories

O que há em comum entre os grandes navegadores que descobriram novos continentes no século XV e os empreendedores de nossos dias? A inovação...