20 Mar Political Commentary, ESG Rants, and Knowing Your Customer
We haven’t done this in a while and, to the best of our recollection, have only done so once before. But today, we’re going to examine the comments left for us as a reader “unsubscribed” from our email list last week. Generally, we don’t share this stuff, but we want to do so today for a few reasons.
First, this was a “longtime” reader who opted out, meaning that his reasons are, at the very least, interesting to us. And note, when we say “longtime,” we mean that it’s probable that this person has been a reader of the essays written by The Political Forum/The Political Forum Institute team since before that “team” even existed, before it was formed, almost 27 years ago.
Second, this reader was the last (or the second-to-last, we’re not sure) active employee on our list from what was once – and not so long ago – our largest institutional client. There were years that this firm’s commission payments made up more than half of our annual revenue. That wasn’t every year, of course, but it was quite a few of them. And the number of readers at the firm was commensurate with the commission paid. It was a good number, not quite half our list, but not too far off either. And now? Poof!…gone.
Third, the comments this now-former-reader left were not especially nice, but nor were they especially surprising. We’re not sure how many people on the “outside” realize this, but the financial services business has undergone some very significant changes over the last 15 years or so. Indeed, it might not be too much of an exaggeration to say that the business undergone more and more severe changes in the last 15 years than it did in all of the 216 years prior, since the May 1792 signing of the Buttonwood Agreement.
We have long wanted to discuss some of these changes – what they mean for us, what they mean for you, what they mean for our civilization more generally – and the comments left for us the other day provide an excellent opportunity for us to do so.
Finally, we don’t know for certain of our commenter wanted a reply, but the tone of his statement and the conditions of his previous long-term relationship with us suggests that he did. And who are we to deny him the answers he appears to want?
And so, without further ado… The comments were brief but biting and read as follows: “I used to love the political commentary but now it’s just a daily rant about ESG so I’m not interested.”
Brief though they may be, these comments say a great deal – about us, about our commenter and the firm he works for, and about the business.
As many of you know – in large part because we documented (whined about) it in these pages – a few years ago, we were faced with a choice. Or rather, given that Mark had been mostly retired for the better part of a decade already anyway, one of us – I, me, Steve – was faced with a choice: I could either find a job in communications, or public relations, or marketing, or something else that could pay the bills for someone whose primary skill is the ability to string a few words together (mostly) coherently; or I could figure out a way to reinvent myself and The Political Forum.
We noted a couple of weeks ago that The Political Forum has been in business for exactly 20 years, which is pretty good for an “independent research provider.” The catch, of course, is that despite its apparent longevity, the endeavor was doomed from the very start. It’s always been just the two of us, two writers, two “analysts,” two guys sitting in their respective basements in their pajamas, writing for an audience that was good, and decent, and dedicated, and, in most cases, almost as old as Mark himself (who turned 83 last month). Our friends/clients/readers retired. Some of them passed on. Others sold their businesses to their employees. And still others moved into positions in which they had no research budgets to spend. It happens. We KNEW it would. Neither one of us knew a thing about marketing ourselves, and our product was too…uhh…”quirky” to attract the interest of any independent institutional salespeople. Our little business was always destined to die…someday.
On January 1, 2018, the nice folks at the European Union, the people whom we had been calling “economic blockheads” for 20 years at that point, decided to take their revenge by sticking a dagger into our hearts – and the heart of independent research more generally. On that date, the EU (plus Norway, Iceland, and Lichtenstein) implemented a regulatory regime upon which it had agreed four years earlier, the Markets in Financial Instruments Directive of 2014, an “investor protection” scheme better known as MifID II.
MiFID II is complicated and boring and messy and, if you ask us, quite economically blockheaded. From our perspective, the important bit was the restriction placed on EU asset managers forbidding them from using “client funds” (i.e. soft dollar commissions) to pay for research, as they had done since time immemorial. Instead, asset managers would either have to pay hard dollars for research, out of their own pockets, or they’d have to get express permission from clients to use commissions. No longer would clients be taken advantage of by having the people they trust to manage their money be informed by a wide variety of research perspectives, including those with no institutional ties to the companies or conditions they analyzed. And the world would be a better place for it.
“Unexpectedly,” a funny thing happened on the way to this financial EUtopia. Financial firms decided that they simply didn’t need research any longer, or at least they didn’t need research they’d have to pay for – especially when the research shops attached to investment banks pressed their natural advantage by just giving it away for (almost) free. And so, they all, nearly uniformly, slashed their research budgets to the proverbial bone.
Meanwhile, back on this side of the Pond, many large, multinational asset management firms decided that they too should comply with the EU’s mandates, assuming that, in time, they would be forced to do so. They do business in the EU, after all, and so…why not?
Needless to say, that hurt, badly. Some independent shops closed. Some made do with less. Some partnered with investment banks. Some survived because they had strong sales teams or other aggressively ambitious employees. And some, like us, got kicked in the teeth.
You see, the firm that was our biggest client and for whom our vaunted commenter works, is also one of the firms that, under a new set of executives, decided to go all-in on the EU’s institutional research agenda. Not only did they slash their research budget and move to all hard-dollar payments, but they also erected a wall between outside vendors/analysts and firm employees. No longer were outsiders permitted to contact firm employees by phone or email. These contacts could be deemed “solicitations,” after all, and we couldn’t have that! All comments, questions, etc. had to be directed to the firm, and all research had to be submitted to a central hub that would process and post all notes on a dedicated research server, accessible by all employees. The days of…well…you know…casually taking to clients about what was going on or what we thought about events or what questions they had were over. That kind of tomfoolery would no longer fly at this firm.
Needless to say, we took a haircut on our annual commission at the firm – of about 90%.
To be clear, I didn’t take this lying down. Despite being thoroughly unskilled in the art of self-promotion, I decided to look around what others in the business were doing to remain viable and attempt to copy it. Among other things, I created this product – The Morning Call – to offer a more frequent, more substantive alternative to our longer, weekly “think-pieces.” The intention – and please don’t laugh at my naivete – was to try to sell this new product to a large firm that could then brand it and distribute it widely, across its multiple investment platforms, giving it a product that differentiated it from almost anyone else in the business. You may be able to guess, by this point, which firm we had in mind as a possible buyer, but we never even got our foot in the door. To say the new management folks were uninterested in what we did and what we had to offer would be a shockingly misleading understatement. We never had a chance.
It was clear to us that “markets” in various forms were our problem – as in “within the markets, there was no longer a market for what he had done for decades.” The secular changes in the business made independent research a nonstarter for all but the best-known, best-respected, and cleverest providers. That’s not to say that no one cared about broad political, social, and economic ideas and also cared about connecting the dots from these ideas to their investment decisions. Quite a few still did – and we were and are eternally grateful for their support, especially when things were leanest. That said, we had no choice but to acknowledge that the “political commentary” our now-former reader once loved wasn’t going to be enough to put food on our family.
As fate would have it, about that same time, we made connections with a handful of people who were looking at financial markets from a different perspective, from the perspective of activists, going toe-to-toe every day with other activists, those who would destroy capital markets by weaponizing them for political purposes.
We’ve mentioned one of these people prominently in these pages and elsewhere several times. We listened to his story and then put him in front of our clients to tell it as well. And all of us – me, Mark, clients, etc. – we’re surprised at how deeply and profoundly politics had infiltrated capital markets. Here, it had been our jobs for most of our adult lives to assess and address the nexus between politics and markets, and yet we were unaware of the significance of this issue. And more to the point, many in the business seemed to be as well. We resolved to change that.
We – along with some of our new friends – decided that what was most desperately needed in the struggle to maintain free and fair capital markets was “consciousness raising.” And so, we did the only thing we’ve ever done; we wrote about it. And we wrote about it. And we wrote about it. In time, we wrote a book about it, a book which became the spearhead in the fight to address the subject in terms of grand ideas. Again, we did what we’ve always done. We looked beyond the narrow interests involved in this issue and we addressed the bigger, civilizational questions that both shaped the issue and that would constitute its most serious ramifications.
In short, we reinvented ourselves, but only on the margins. We took our message – the same message that we’d always preached – to an expanded audience. Today, most market commentators who do broad strategy/big idea work do so outside of the traditional research model. Guys like Ben Hunt and Rusty Guinn at Epsilon Theory and Jesse Felder at The Felder Report do incredible work and have been extremely successful using a publicly available newsletter-subscription model. We chose a different path. We wanted our message to be slightly different and to be educational, in addition to edifying (which is what Ben, Rusty, and Jesse are). So, we formed an “educational” nonprofit arm, The Political Forum Institute.
As a result, this product is now freely available to anyone who wants to read it. We focus on our slightly adjusted core mission “to change the course of discussion in and around capital markets and, especially, at the intersection where markets and politics meet.” And to that end, “Much of the effort will center on themes highlighted in Mr. Soukup’s book, The Dictatorship of Woke Capital, published in February 2021 by Encounter Books.”
Regular readers know full well that what we do here is more than just “a daily rant on ESG.” But they also know that ESG and woke capital and the general infiltration of the cultural Left into business and markets are, nevertheless, a HUGE part of our mission. And they’re a huge part of our mission because they’re a huge part of the bigger story today – not only for us, but also for business and markets more broadly. In many ways, ESG/woke capital is the culmination of all of the trends about which we have been warning for the entirety of our careers. Politics + markets = Bad things, man. I mean BAD things.
There are, we think, a couple of profound ironies in our now-former-reader’s complaint. First, at the firm where he works, each team member is allocated his own research budget, which he is able to allocate any way he sees fit. In the final two quarters before we moved The Morning Call to our non-profit arm and made it a free product, our commissions at the firm were roughly 1% (on an annualized basis) of what they were at their peak (meaning that the aforementioned 90% cut underwent another 90% cut). Or to put it more bluntly: the reader in question had the opportunity to pay for the “political commentary” he used to love but chose not to. We don’t blame him for that. We get it. Still, that in and of itself explains much of the problem, doesn’t it? Lots of people loved it. Only a handful were willing to pay for it. That’s no one’s fault but our own. We failed to maintain a market for our work, and we had no choice but to find another market.
Additionally, the firm in question just happens to be the 4th largest manager of ESG funds (by capitalization) in the world. Good for them, we guess. But is it any surprise that our negative focus on the issue is not especially welcomed there? The first imperative of business is to “know you customer.” We think we know better now than at any point in many years who are customer are – and who they aren’t.
To this end, however, please feel free to share your feedback with me ([email protected]) – on this piece and on our work more generally.
Our deepest thanks to all of you for your ongoing support.