Farewell, Charlie Munger

One scoop to start: The future of Somerset Capital Management, the emerging markets boutique co-founded by Sir Jacob Rees-Mogg, has been called into question after its largest client St James’s Place terminated its relationship. The UK’s largest wealth manager pulled $2.5bn from Somerset, and firm assets have now dropped from $3.5bn to $1bn, down from $10bn in 2018.

‘An uncommon sense’: Charlie Munger, 1924-2023

Charlie Munger, Berkshire Hathaway’s acerbic vice-chair and Warren Buffett’s trusted business partner, died last week, just short of reaching his 100th birthday. He was instrumental in driving the man who eventually became known as the Oracle of Omaha away from the cigar-butt investment style espoused by Ben Graham where he could hope to get one last drag on a low-valued stock.

“The blueprint he gave me was simple: ‘Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices’,” Buffett, 93, said.

Don’t miss this excellent obituary by my colleague Eric Platt of the man whom Buffett referred to as his “abominable no-man”. Here we look at what next for the sprawling conglomerate, Berkshire Hathaway.

Munger was quick witted, straight talking and a pioneer in blending investment and psychology. Eric and I were lucky enough to meet him earlier this year, at Munger’s home in Los Angeles. When we asked him about his imprint on the world, he replied: “I would like my legacy to be a more relentless determination to develop and use what I call an uncommon sense.” With this in mind, here are some of his best “zingers”:

“Take a simple idea and take it seriously.”

“Show me the incentive and I will show you the outcome.”

“Every time you hear ebitda, just substitute it with bullshit.”

“There is more dementia about finance than there is about sex.”

“To say accounting for derivatives in America is a sewer is an insult to sewage.”

“It’s not the adultery I mind. It’s the embezzlement.”

“The worshipping at the altar of diversification, I think that is really crazy.”

“Acquire worldly wisdom and adjust your behaviour accordingly. If your new behaviour gives you a little temporary unpopularity with your peer group . . . then to hell with them.”

“I think when you’re buying jewellery for the woman you love, financial considerations probably shouldn’t enter into it.”

“A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage, etc. Just avoid things like Aids situations, racing trains to the crossing, and doing cocaine. Develop good mental habits.”

“Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things.”

“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time — none, zero. You’d be amazed at how much Warren reads — and at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”

“It’s so simple. You spend less than you earn. Invest shrewdly, and avoid toxic people and toxic activities, and try and keep learning all your life, et cetera et cetera. And do a lot of deferred gratification because you prefer life that way. And if you do all those things you are almost certain to succeed. And if you don’t, you’re going to need a lot of luck.”

“How to find a good spouse? The best single way is to deserve a good spouse . . . To get what you want, you have to deserve what you want.” 

Asked which person, in a long life, he felt most grateful to: “My second wife’s first husband,” Munger said instantly. “I had the ungrudging love of this magnificent woman for 60 years simply by being a somewhat less awful husband than he was.”

“There is only three ways a smart person can go broke: liquor, ladies and leverage.”

“You should never, when facing some unbelievable tragedy, let one tragedy increase into two or three through your failure of will.”

“The best armour of old age is a well spent life preceding it.” 

Postscript: As Munger was signing a copy of ‘Poor Charlie’s Almanack’ for me, I asked him to write some words of wisdom. “Patience and urgency,” he wrote. RIP.

ESG: maximising returns, or saving the world?

In 2020, BlackRock chief executive Larry Fink put the world’s largest money manager squarely behind the cause of purpose-driven investing. 

“Climate change is different” from other financial challenges, he wrote in his closely watched annual letter to corporate chief executives, write Brooke Masters and Patrick Temple-West in this Big Read. Fink promised “a fundamental reshaping of finance” that would put “sustainability at the centre of our investment approach”. 

Corporate America and investors quickly followed suit, scrambling to sign up to net zero carbon plans and launching funds that included environmental, social and governance (ESG) factors in their investment decisions.

Three years later, BlackRock is still betting big on the transition to a lower-carbon economy, but the $9.1tn money manager’s emphasis when it talks about sustainability and social issues has changed. 

Last month, when BlackRock put $550mn into one of the world’s largest carbon capture projects in Texas, Fink focused on money making potential rather than its contribution to the planet’s welfare. Describing it as “an incredible investment opportunity”, he also highlighted BlackRock’s decision to continue to work with big energy companies.

The shift comes after a two-year stretch during which US Republican politicians have relentlessly pounded big banks and investment managers for being “too woke” or “hostile” to fossil fuel. 

Red-state treasurers blacklisted big financial groups including BlackRock, Goldman Sachs, State Street and Wells Fargo. Some state legislatures, including Florida, Kansas and Idaho, have passed laws that ban or limit the consideration of ESG.

The anti-ESG backlash has captured public attention and opened up a transatlantic rift. While EU investors boast of their efforts to reach net zero greenhouse gas emissions as quickly as possible, many of their US counterparts are dodging the subject or saying they must defer to client wishes.

The real-world impact is hard to assess. On the one hand, green infrastructure and transition investment funds continue to rake in cash. Anti-ESG legislation has been beaten back in a number of red-state legislatures, and relatively little money has been moved away from blacklisted institutions. The vast majority of investors and fund managers incorporate climate and social risk factors into their decisions even if they don’t call it ESG.

Read the full story here 

What has been the impact of the ESG backlash? Email me: harriet.agnew@ft.com

Chart of the week

A closely watched gauge of US stock market volatility has plunged close to a four-year low over the past month, sparking concerns that investors are growing complacent in betting that the Federal Reserve can tame inflation without causing an economic downturn, writes George Steer in London.

The Vix — which measures the premiums investors are willing to pay to protect their portfolios against swings in the S&P 500 index and is popularly known as Wall Street’s “fear gauge” — fell to 12.4 this week, down from more than 20 in late October and its lowest level since November 2019. It ended this week slightly higher at 12.6.

The decline came as Wall Street’s benchmark index recorded its best month since July 2022, boosted by US inflation falling more than expected to 3.2 per cent in October, the first drop in four months. 

The slowdown in inflation has left investors increasingly optimistic that the Fede will begin to cut interest rates in the first half of 2024. Crucially, the Fed has so far succeeded in bringing down price growth without triggering an economic downturn that would be painful for stocks.

“It feels like there is building confidence that the Fed can pull off a soft landing,” said Jim Tierney, head of US growth investments at AllianceBernstein. 

Five unmissable stories this week

John Graham, president and chief executive of the Canada Pension Plan Investment Board, has said UK retirement plans should not be told where to invest their money, as the government sets out plans to funnel more cash into unlisted assets and early-stage companies. Britain must look abroad to reform its pensions and can learn from the success stories of Canada, Australia and Denmark, writes contributing editor Toby Nangle.

The United Arab Emirates is preparing to launch a $30bn climate-related investment fund with BlackRock, TPG and Brookfield. The launch comes as the UAE attempts to bolster its credentials as host of COP28. Lunate Capital, a new Abu Dhabi-based asset manager set up with $50bn in assets, will oversee the fund with at least $5bn earmarked for investment in Global South countries.

New members of the global super-rich gained more of their assets through inheritance than through wealth creation this year — the first time that this has been recorded by Swiss bank UBS in its nine years of surveying global billionaires. A total of $141bn was amassed by 84 self-made billionaires around the world in 2023, while $151bn was passed on to 53 heirs, the bank’s research found.

This is a “golden moment” for private credit, with at least 26 traditional asset managers buying or launching new private credit units in the past two years. But just 10 firms account for 40 per cent of private credit fundraising in the last 24 months, according to Preqin. And columnist Huw van Steenis, vice-chair at Oliver Wyman, argues that the growth in private credit could disproportionately play into the hands of these larger firms.

Asset managers in the UK will be banned from using vague references to “sustainability” to market their funds, under new anti-greenwashing rules that could lead to a significant shake-up of the $250bn sector. The Financial Conduct Authority said its regime was intended to make sure products marketed as helping either people or the planet were “clear, fair and not misleading”.

And finally

From economics, politics and history to science, art, food and, of course, fiction — our annual round-up brings you top titles picked by FT writers and critics.