What we're seeing today is more of a liquidity crisis that has been triggered by the sharp and probably sharper than expected rise in interest rates. The fintech space is pretty resilient to the kind of volatility and uncertainty that has impacted the financial services space. The risk of a severe hard landing is diminishing relative to where we were maybe six or nine months ago. Life Masters is considered one of the most influential leaders in finance, but her path to Wall Street was purely coincidental.
I was a penniless student and I needed a job and I ended up working for a company that is the predecessor of what is today JP Morgan. Thank goodness I did land there because that translated into the beginning of a really fascinating career. She graduated from Cambridge and spent nearly three decades at JP Morgan, where she quickly rose to become one of the youngest managing directors in the company's history and earned a reputation as an innovator. In fact, she is credited with inventing
the credit default swap, the widely traded derivative that's similar to insurance. It's an acclaim she is quick to deny. It's not actually true, although the Internet says it's true and therefore it's hard to debug. And it is certainly fair that I was part of a group of people that helped turn that concept from an idea into a business tool that became widely used in financial services. In 2015, Masters left JP Morgan to run the startup Digital Asset Holdings, becoming one of the earliest high profile bank executives to wade into the New World a block chain. I've always been of the belief that distributed ledger technology or block chain technology has applications in the financial services world that as yet are still under exploited. And these days, Masters is leading Motive Partners, a private equity firm with a singular focus fintech. The last 10 years of financial services
has seen an extraordinary change. The next 10 years is going to take that technology impact and expand it exponentially. Notably, as fintech has the potential to grow into a nine point six trillion dollar market by 2030. And Masters wants her firm to capture at
first. As we talked today, there are people who think that the United States and maybe Europe might go into a recession in the latter part of this year or next year. What are your views on that? Well, I think it's obviously a risk. My view is actually that the risk of a severe hard landing is diminishing relative to where we were maybe six or nine months ago. There are certainly signs that the active policy stance that's been taken by governments around the world, at least on the monetary side of things, has taken effect.
High inflation is still persistent, particularly in Europe, which is more than proportionately affected by both the inflation and food prices added energy. But here in the US, things have begun to moderate a little. So my sense is that we if we see a recession, it will be not a hard landing. So you were involved in the banking sector during the Great Recession? I was 7 0 8. How does the environment now feel to you compared to 0 7 0 8? That was a terrible situation.
You don't see anything like that happening again, the near future? No. I think the lessons of 2008, 7 and 8 were well learned. A lot of the decisions have been taken in the aftermath of 0 7 0 8 have made it much harder for a repeat of that type of a crisis. What we're seeing today is more of a liquidity crisis that has been triggered by the sharp and probably sharper than expected rise in interest rates. And I think the contagion associated with that for now has been relatively well contained by quite proactive actions of regulators. Now, the banking world has been in the
news lately, in part because Silicon Valley Bank failed another bank and United States failed signature bank. And there's concern that maybe other banks might fail. Is your view that other banks are subject to failure or we basically have dealt with the problem adequately in the United States? It's very interesting challenge that the banking sector is facing presently. And unlike the events of the great financial crisis, which really was an asset quality problem caused by unwise lending in particular, as well as related activities. This has been more of a liquidity situation where the impact of raising rates has affected the mismatch between assets and liabilities.
Now we're in New York at your offices now, but you don't seem to have a New York accent. So you were from England? I am from England. Yes. But you were born in Oxford. But you went to school at Cambridge. Cambridge. So the other place I've been. I don't know what Oxford were thinking. All right. So you went to Cambridge and you say when you went to Cambridge, I want to be a financial service superstar. Did you say that?
No. I went to Cambridge to study economics. And actually, before I went to Cambridge, I had a gap year. And I was a penniless student and I needed a job. And I ended up working for a company that is the predecessor of what is today. JP Morgan back in the day known as Morgan Guaranty Limited in London. So if you graduated from Cambridge, did
you go to the predecessor of JP Morgan? I did. I did a number of summer internships. And then by the time I graduated in 91, I joined the bank full time in London. In London. And you mostly spent your career in London with. No, actually. So I graduated in 91 and I relocated to
New York would have been early 94. And I did that initially on a six month assignment for a very specific project. But one thing led to another and here I am all these years later and where there are a lot of women and JP Morgan in that time are Morgan Guaranty very few years later.
How did the commodities unit. Is that right? Yeah. JP Morgan now in the commodities world, it's a rough and tumble world generally thought to be. And generally that's an area where you don't see that many women historically.
Was that a fair assessment or when you were involved in that having the commodities unit, did you deal with women all the time in that business? Actually, funnily enough, during the era when I ran the global built and ran the global commodities business at JP Morgan, my counterpart at Goldman was a woman and at Morgan Stanley for a period. So it wasn't totally unheard of. All right. So you were at JP Morgan for how many years before you left? Twenty seven. Twenty seven. And then when you left, you became the CEO of a fintech company. Digital Assets Holding. Yes.
What was digital asset holding? Well, that was a very early mover in the enterprise block chain space. So this was a company that was focused on ways to deploy the technology that underlies Bitcoin for use in other contexts by enterprise. Now, cryptocurrency has had its critics. Still has many critics block Shery Ahn. Nobody seems to be against that as a concept pending whether you use it properly or not. So you are still a fairly bullish on block Shery Ahn technology. Yeah, I I've been a bit of a skeptic on crypto currencies themselves since since inception and in some ways proven wrong regularly as they have gained in interest and activity. But I've always been of the belief that
distributed ledger technology or block chain technology has applications in the financial services world that as yet are still under exploited. You have a view on whether a digital currency authorized by a government is a good thing or not. And you think the United States is going to be at the leadership of that or following other countries? It depends. So that the benefits of a digital
currency backed by a government are potentially greater ease of execution of transactions and greater visibility. If you use the central bank digital currency to intrude upon the privacy of the individual citizen or to eliminate the role of the retail or high street bank from the financial system. Then there are very potentially very significant implications that could be a consequence of a central bank digital currency. As we look forward at the potential for artificial intelligence, as we as we see it today, I don't think any of us is in any doubt about the profound threat and opportunity that that represents.
It's been a roller coaster ride for fintech the last couple of years. According to CB Insights, global fintech funding was over 75 billion dollars last year. That was a 46 percent drop from 2020 one's record amount. Still, it was up 52 percent from 2020.
FinTech refers to computer programs and other technology that supports banking and financial services for venture capitalists. It's one of the fastest growing sectors. KPMG called 2020 to a tale of two fintech markets in the first half of the year. There were a number of billion dollar plus deals, including eight mergers and acquisitions. In the second half, though, there were
just three emanate deals over a billion dollars. High inflation and rising interest rates get part of the blame. Now there's a new problem for fintech seeking private funding. The collapse of Silicon Valley Bank. According to Bloomberg Intelligence, large banks appetite for this category has largely been low, even in good times. Silicon Valley banks failure will likely
lead to tighter credit. What is motive partners? What does it do? So we're a private equity investment firm. We are a specialized firm. We only invest in fintech. So infrastructure like software businesses and business services that provide the technology that is driving the financial services business. So when people use the word fintech, what are they actually referring to? What is a fintech company? Well, it's a good question because that has evolved it. It literally means the technology that powers financial services or the businesses that provide that technology.
But interestingly, a lot of technology that is serving, providing financial services, nature today is actually embedded in businesses that are not themselves financial services firms. So the scope or the opportunity in fintech investing is is much bigger than just the money spent by financial services firms on that technology. It's now all those firms who provide financial services as a byproduct of the other things that they do not. In other words, known as embedded finance with Silicon Valley Bank and I think with First Republic Bank, when there was a run on those banks, it used to be that you had when you had runs on banks, you had people standing in line. Yes. And you will look at the lines now.
People were just pushing their own and moving money around. Plus, an example of fintech, I suppose, where you're moving money just by pushing your iPhone. Yeah. Combine that with social media. So the information transmission at the speed of light through social media, the fear mongering that that comes with that with the ability to engage in digital transfers was what produced a 42 billion dollar outflow in a single day, which was unfortunately enough to bring about the end of of Silicon Valley Bank. Since the Silicon Valley bank problems have financial service valuations gone down a bit? Not much. Actually, I would say that the fintech space is pretty resilient to the kind of volatility and uncertainty that has impacted the financial services space. Why?
Because the need for the technology that is mission critical to those businesses doesn't change when the pieces on the playing board move. What's been the impact on Motors portfolio? Is under stress or is doing okay? Exactly. To that point, we've had very little exposure either as a first order or a second order matter, and we've been super focused on ensuring that the revenue, the cost, the deposit activity of both ourselves, but our portfolio companies has has been carefully managed and very little impact at all. So let's suppose I am interested in investing in fintech related companies and maybe I'd invest in your company or or something like that. What big surprises or big innovations are most likely to see in the next five years from fintech? What's going to transform the Fin Financial Service world is something like what we just talked about, which is payment services or pushing your iPhone to get money moved. The last 10 years of financial services
has seen an extraordinary change. The advent of digital banking, mobile banking and all of the technology enabled services that we have now come to consider to be table stakes. The next 10 years is going to take that technology impact and expand it exponentially. There are enablers to that, but the primary driver is going to be related to the deployment of artificial intelligence. It's very interesting if you look back in the beginning of the Internet era. 2000 2001, of course, there was a bubble, there was all sorts of excessive exuberance. And we know that there was a there there
because what came after that delivered real change and real value. But people were very unsure back in 2000, 2001, what did the Internet really mean? Would anyone ever really trust the worldwide web as a place to do business, let alone financial services business? As we look forward at the potential for artificial intelligence, as we as we see it today, I don't think any of us is in any doubt about the profound threat and opportunity that that represents. It is it is intuitively obvious and now in a very real way, we as individuals get to interact with artificial intelligence through things like chat, G.P.S., which has taken the world by storm and can can see with our own eyes and feel and become enamored with the way in which the ISE, these ingenious programs are able to interact with us. And I think that will really profoundly change that not just the financial services landscape, but pretty much everything we do.
So I have the view that sometimes the easiest way to sell your company to an investor is the but a behind it. I will judge yes. Company A I had a guy all of a sudden people think it's good. It's pretty great now. Everything is a guy, right?
But do you think people are getting so enamored with the concept that their people are gonna put money into things that really aren't a ISE or not? Very good. I. It's possible. I mean, we we certainly experience that same thing with block chain. A few years ago, you plug the block
chain into a press release and the impact was it was 10x. So I think it's possible. I think the other risk with A.I. is that it is it grows too quickly, too fast is unregulated and all of the inherent biases and abuses of the technology are unchecked. And that would be a devastating loss if that's not addressed. I is largely unregulated, as you just know today.
Ronald Reagan used to famously say that the most dangerous words in the English language are, I'm from the federal government. I'm here to help you. And so do you think the federal government can be helping people who want to invest in a I or the best thing is for the federal government to keep its hands off of it? Well, I think it's notable and interesting that some of the loudest voices calling for regulation of the space are not coming from the federal government here or anywhere else. They're coming from within the industry itself. So from the big tech industry, from academia and many others that are involved in this work, who are sufficiently familiar with the power of the technology and its potential to realize that if it goes unchecked and we are not concerned for the adverse implications, then it will destroy the industry because it will invite unwise or excessive federal intervention. But after the fact and so I'm glad to hear that the industry is actually calling for regulation in its own capacity. So you're at the cutting edge of
financial technology. So let me ask you, do you carry a credit card around you when you want to buy something or do you just push some buttons? It's there, but I mostly push buttons and you carry cash increasingly infrequently. And do you think cash will be gone in 10 years or 20 years because it will be no cash anymore? It's a very good question. And if you look at those countries that have gone down that path, this the Scandinavian countries would probably be the most obvious example. The one thing that differentiates them from, for example, the United States is the extent of the social safety net. The cash based economy in the United
States exists and has to continue to exist because there isn't an equivalent social safety net to the one that you find in the Scandinavian countries. So the key question is, you know, those people that are unbanked under bank don't have access to the financial system in the way that would be necessary for cash to be eliminated, need to be served. And until you solve that problem, you can't eradicate cash from the system. Focus on the technology and in particular the financial technology opportunities because they're going to change the landscape in financial services over the next few years. So let's say young women that she was a role model and they want to go into the financial service world. What would you suggest they do other than go to Cambridge? Be born in Oxford and Ultimate come to the United States? What would you suggest they do that? What should they study? Where should they get mentorship? Well, I have one good example of a of a young woman that I think has ended up in the financial services space. Somewhat to my surprise, and I'm quite
proud of, which is my almost 30 year old daughter who has is pretty smart and has done very well and has achieved that by mostly ignoring everything I ever said to her over the years, but has ended up in financial services and is loving it. It's an area where you have to develop interpersonal skills and relationship management that still matters, even though life is being conducted over zoom. The personal touch is really critical and it's a field in which women are able to compete with men have in the right firms have the opportunity to do that and where the rewards can still be significant. So I think it's a phenomenal destination for a career, but it's a challenging place to operate as a as a woman.
And one of the key pieces of advice is to cherish and seek out those relationships that can be truly helpful to you in your career. And don't be fooled into thinking that just because the successful 40 and 50 year olds are conducting their business over zoom and the cell phone, that that's what it takes. It's it's a it's a challenging time, especially in this post Covid era, to realize how important the personal touch in our business still is, the need to create and maintain relationships and trust. Notwithstanding the fact that the way that we interact is changing.
And I think that's one area that requires and deserves a lot of attention, certainly from people like us who who grew up in a different environment. Do you have a view that an MBA is necessary any longer for a woman who will rise up in financial services? You don't have one. I don't. I never I never went back for a second degree after my my undergraduate degree. My daughter, by contrast, does have an MBA. She she completed her MBA at Columbia year or so ago.
I think it really depends on what you're doing up to the point at which taking an MBA makes sense. And that can either be foundational for a career in which you don't necessarily have to continue on the same track. Or it can be a point at which you might want to make a change and go in a new direction. So I think it really depends on the circumstances. So what is the best investment advice
you've ever been given? Do your homework. Do your homework. And where should somebody not invest their money today? Probably some combination of fossil fuels or crypto currencies. And it also depends whether it's money you can afford to lose or money that's you need to have them for the long run. So in your observation, what is the biggest mistake that people make? Generally, it's herd behavior. Herd behavior. You saw that with the mean stocks in a couple of years ago.
You see that in crypto currencies. It's it's doing things just because you hear everybody else is doing things, but you don't really understand why. What would you recommend to somebody who has one hundred thousand dollars and they ask you for investment advice? You know, you asked me that question two years ago, 18 months ago, would have been a lot harder to answer than it is today. You can get a great yield on something as simple as as a well-designed money market product today.
You know, even the banks are beginning to pay decent ish returns on deposits. You know, for small investments, sometimes the cost of diversification can exceed the benefit generally. You know, generally good advice is to be diversified, to have a certain amount in fixed income, a certain amount in a, you know, very low risking a product and a small amount in higher risking areas. And that's that advice as a job. There's nothing special about it.
It still applies. What would you say in 30 seconds or 60 seconds about your advice about where the world of financial service is going? And what would you recommend people do to take advantage of that opportunity? Focus on the technology and in particular the financial technology opportunities because they're going to change the landscape in financial services over the next few years, it still astonishes me. We have cars driving themselves on the streets and yet we don't have the opportunity for TI plus one settlement yet.
So instantaneous settlement. Focus on trends that are about personalization of services. Democratization of access, so opening up of new products and capabilities to a wider audience. Also pay attention to the risk about of people being left behind. As technology is driving change, it turns out that there are the same gaps in access to technology that we observe elsewhere in life by gender and by socio economic group and another other strata as well.
And that's that's concerning because this area of great opportunity is also one in which people may be left behind.
2023-05-18