FT Commodities Global Summit 2019 – View from the Top



you that I get to sit down with someone who I think could reasonably claim to be a legend in a particular industry Annie Hall definitely fits that categories had an extraordinary career starting with BP going through fibrosis City and then he set up his own age fund and he's also a distinguished art collector so we'll have a chance to talk a bit about that and then at the end as usual for those frequent attendees to this commodities summit we have a long short which is particularly opposite for an all trader now Andy you are you I and I have something else in common we both went to Oxford University except you didn't play rugby you rowed did you I did row yeah I wrote to March actually yeah what happened I had a singular distinction of rowing in for Oxford Cambridge Boat races and losing every one of them but you didn't sink well we we got very close to sinking we you know that was the the fourth and final of my boat races and I think we really would have won have we not taken in about 200 gallons of water or whatever so we got very close to sinking so no bailout no good and why did you decide to become or get into the oil industry this is around 1971 actually even earlier I before I went to Oxford I became an employee of BP they had a scheme back then maybe they still do they hired what they called universe university apprentices and I was paid effectively to study at Oxford so you weren't one of those unpaid interns that we have now you actually got some money I I did indeed yeah I became a full-time employee of BP before I went to Oxford tell me about the culture of BP because I was sitting down with Ian Taylor over lunch last summer when we did lunch with the FT and he told me that he had only joined B because he needed the money and then he found the culture rather stifling is that right is that fair Ian you know we can say what we want but yeah it was a long time ago you know so my memories are hazy but what struck me you talk about the culture of BP sitting here in the audience this morning what what I observed was just how many people speaking here today had BP somewhere in their resume so for whatever reason BP has become a you know dominant presence in the oil trading business and did you actually help set it up when you went because he went to the state's I did yeah I went off right and your BP having paid for me to go to Oxford they paid me to go to business school and after that I went to run their trading office in New York except back then there was no trading it was an integrated business but it was falling apart and why was it falling apart because you know we just had the the second oil crisis the Iranian you know revolution and you know BP had been this crude long oil company but the problem was OPEC was nationalizing all these assets and it wasn't just BP you know across the industry you know the trading companies companies like Phillip Brothers mark rich were nibbling around the ankles of this integrated industry and for me the writing was on the wall I mean that this thing was not going to stay an integrated industry and I had a colleague in London persuaded our management that we should actually embrace this and we we started trading with these up to then impossible companies like Philip Brothers and Mark rich and we started buying and selling oil with them why would they impossible because they were just hard asses well I mean they were just not viewed as as this sort of entities that a company like BP should be dealing with I mean we dealt with our equals we dealt with Exxon we dealt with Chevron we didn't deal with oil trading companies it's a grubby well you you choose that adjective but yeah so how old were you when you and your partner in London made that critical insight must have been in my early 30s oh so you were you'd worked a few years then it was oh yeah yeah you were not wet-behind-the-ears no no no not more totally anyway so you set it up okay what were the what were the first things you decided to do when you were setting up a trading unit was it to get the people right or the structure right you know it was just to get the I guess the philosophy that this was an acceptable thing for a company like BP to be doing and you know I don't want to take credit for what subsequently happened I mean I left very early on to join Philip brothers and my opposite number in London us reader shortly thereafter joined Mark rich but you know I think having started this thing I mean BP though there was a spark there and it was fan your BP I then why did you leave so soon afterwards I would I was made an offer I couldn't refuse you know I really basically yeah tell us more I just you know in compared to compare with what I was earning at BP I mean I wasn't I was offered a lot of money by five times more ten times more yeah it doesn't really matter it could be 50 times probably was anyway you got an offer that you were getting their we're getting there turns out it's what years this would have been 1981 I think oh so inflation's taking off well again they had already peaked today peaked it had yeah Volker was beginning to his own and ironically you know commodities were about to enter a like a long down period I mean if you think about it there that's when you know bond yields were I only when in the team's oil was around $40 a barrel and they fell you know bond yields entered a thirty-year bull market or bond prices entered a 30-year bull market and oil anyway went from $40 a barrel to $10 so who hired you at fiber um Tom O'Mally and I actually you know it's kind of funny the the day that Tom called me to say hey come in let's have a meeting about two hours later I got a call from mark rich saying Andy I think we should have dinner tonight and you know the rumor that was an offer you could refuse well actually you know was it was a tough call and you know the funny thing was you know subsequently when I started working for fibro the rumor was that Mark had all the phones at fibroid tapped and and I you know I thought about that now why was it but two hours after I got the call from Tom O'Mally I got the call from mark rich yeah he'd hedged so Tom O'Mally just described him you know big Irish American yeah and funnily enough you know Tom I bumped into him literally literally bumped into him three days ago in in Palm Beach he lives there now and I'm a sometime resident of Palm Beach and Tom is a very talented guy larger than life very opinionated I mean you know I mean he I saw him or you know he was he would come to events like this and he would sit down and look at the audience and say I'm Tom O'Mally I've got an opinion about everything ask me any question you like and that was the kind of guy he was he he you're very strong will very smart but what must have happened is mark rich and Tom O'Mally must have you know thought somebody's just entered them are they're making waves in the market who is this guy Andy Hall I think that was part of it you know there's oh well you did you tell us I mean did you do a couple of big trades that got people's attention no but I remember my best stories you must remember your best trades I mean my story's a bit smaller than yeah well from my best trade we'd have to fast-forward like okay we're coming to that one okay oh no you can tell now go on well no I mean the I mean I guess you know what best trade but I mean the the one that springs to mind was was 1990 when Saddam invaded Kuwait you know for various reasons I mean when that happened we had you know literally backed up the truck and you know it wasn't that complete Ponty it just so happened that the the qat had actually been flooding the market that all that summer and the oil market was an extraordinary contango I mean and back then you know the market wasn't nearly as sophisticated as it is today and you know we you could charter the LCCs fill them up with oil and sell six months forward and and lock in just enormous returns and we we had those trades on and and then you know Saddam did his thing and in the space of just a few days the market went from you know this extraordinary contango to the most extreme backwardation where you know one year forward oil was still around $20 a barrel and spot or was $40 a barrel so in the in the space of a week you know we we just like it was like shooting all the lights out fantastic well they were shooting out the lights in somewhere else as well in downtown Kuwait what about what about Wall Street in the eighties I mean there was some joong-gu Friant you know predators ball yeah well do you hang out with anything no I mean I you know fibro always had a somewhat sort of separate existence when you know the year I or the year before I joined fibro filip brothers and Salomon Brothers merged basically Phillip Brothers was a publicly owned company in it it brought Salomon Brothers which at the time as a private partnership and the joke in the industry was they were going to keep that the best parts of the to come and his names and the new entity would be called brothers brothers but but but actually you know I mean it was it was it was a telling moment because as I said earlier the bond market was about to enter a 30 years in the market and commodities went into a secular bear market and having made this purchase the the management of Phillip brothers were pretty soon thereafter kicked out by the management of Salomon Brothers in particular Tron good friend Tom O'Mally saw the writing on though on the wall and managed to set up fibro energies which had been the oil department of Phillip brothers as a more or less standalone entity and that continued but the rest of Phillip brothers essentially was was liquidated John good friend became the king of Wall Street as is he was dogged on the front cover of Businessweek kiss of death because you know shortly thereafter he he had to resign or rather he was fired essentially because of a bond trading scandal and warren buffett then stepped in as the interim of Salomon and he became my boss for a while what was he like Warren is the smartest person I've ever met and you know he has an incredible intellect and an incredible focus and an incredible ability to drill down to the weakness in any argument he's you know anybody he does all this with extreme good humor you know he has a very kind of shocks and secure but he he has this yeah fearsome intellect and and when you get to know him you know you're not at all surprised that he's become you know as wealthy as he's become because he has this intense focus I mean you know investing business that is what he sleeps breathes thinks about I think 24/7 yeah still going in late eighties yeah fiber obviously became part of that expanded city group you had another big insight which was China yeah so I guess you know fast forward with you know into you know mm something and you know at that point frankly I found the business to become maybe I was a little jaded and you know I you know the business sort of ran itself but then I I just suddenly had this epiphany and I realized that with China growing at the rate it was growing there was no way that supply was going to be able to keep pace with this demand growth at least demand growth that was occurring at $30 a barrel and the weird thing was was that this was around 2003 I guess was that the oil market was back where they did but it was backward aided all the way across the curve and and you could buy three four five years forward you know in the twenty is still and and to me you know the seamy virtually no downside to this trade know those you know when people talk about no-brainer trades you you know you've got to watch out and feel for you you know wallet but but in a way this was a no-brainer trade and because you know we were that point part of Citigroup and and you know risk management was really about staying within some value at risk limit but longer-dated oil has had a third of the volatility of nearby or oil so in terms of risk adjusted terms one could take a much much bigger position so this allowed us to you know have a very substantial position in longer-dated oil and you know well the rest is history I mean ultimately long-dated oil went from you know under $30 a barrel to well over $100 a barrel over the space of three or four years so you clearly did take a very big punt did you clear that with Bob Rubin excuse me did you clear that oh well you know I mean prior to that you know when because he was encouraging absolutely well you know um when Citigroup bought Salomon Sandy Weill you know was not enamored at the commodities business and he wanted to close it down but he also had just recruited Bob Rubin who you know because of his goldman days and involvement with jr. and was familiar with it he was quite objective so well look it makes money you know what's not to like and he also was very much in favor of Citigroup generally taking more risk which as we know had very mixed results because you know you know Citigroup was at the epicenter of the mortgage crisis but as far as I was concerned I mean you know this was this was great and I did discuss with him and Tom Maharis who was you know he was the CEO of cities trading operation and yeah they basically they backed you yeah yeah I had every encouragement but it was it was very compelling I mean when you actually stood back and looked at what was going on in the world you know as I say I hate to use the word sort of a no-brainer trade but it was hard not to feel this was the right thing to do I mean I'm fascinated when you go into a conversation about it taking a really big position whether you're absolutely cool and calm and rational or when you're talking to these people who are essentially compliance or risk evaluation where and they're they're not getting it do you get emotional ah I get ulcers I guess at times yes yeah yeah I get frustrated and what do you do then scream maybe psychologically you screamed yourself because these dummies don't get it and we could be making all this money well yeah but they're they're paid not to get it then you know and it's far be it for me to say that you know far be it for me to say that you know Citigroup had too much risk management you know I mean I mean and and you know that's the problem with risk management tools which based on historical analyses I mean I'm just fascinated whether you would that you know in touch with what's going on because I followed Citigroup a bit and I had several conversations with Sandy well and whatever and whether at some point you just said I mean look at all the risk those guys are doing on mortgage-backed securities know very trying to tell me on the oil trade no absolutely I was part of their you know early on part of their risk management committee and you know they would give me a hard time about some my position I I didn't we haven't discussed this have way there's been no collusion no no but it's absolutely the case know we we there was a two-way dialogue and sounds like a one-way dialogue it was the you know pot calling the kettle black exactly by the way I had the most fascinating one of the most fascinating conversations my career was three hours with John Reid in about 2003 when he talked about how he went for Grasso and he was also talking about the Citigroup merger because always when there's a merger somebody's going to lose right yep travellers City and he thought he was gonna win yep anyway that's another matter let's just talk about the hundred million dollar payday that that's true right did you what that was do it was actually you know it was it was a it was a it was a very painful moment in my life yeah I mean it was I I wasn't seeking this nomenclature I didn't you know I I didn't want the publicity yeah I became a you know now you could understand people's frustration you know this is a difficult time it was a terrible time for the economy this was 0:09 right Oh 809 yeah yeah and Citigroup effectively was bailed out by the government along with a lot of other Wall Street Institute because of stupid bets they've made it became public knowledge that I had received you know huge compensation more than you know most people could comprehend and there seem to be an awful injustice to this but from my perspective I mean I had nothing to do with these losses on mortgage-backed securities and exactly and and rather than losing billions of dollars I you know significantly offset some of those losses by taking you know what I thought were reasonable bets in the oil market that have paid off handsomely and you know and I might add you know you know in terms of asymmetry of risk you know the bets I took you know when you when I always used to say about oil you know when you you know if you're long oil you know what is your downside probably the long-run marginal cost of production well we we knew it it wasn't a whole lot lower than what we were long at but when you buy certain financial securities they can go to zero and if you buy them on margin then you can lose new multiples of your your equity and that's basically what Citigroup did and what you know what a lot of Wall Street did anyway there was a lot of outrage and I became the sort of public enemy number one yeah it wasn't it wasn't a lot of fun fast forward you then set up this hedge fund well you'd launched ahead Iran within city called Austin Beck it became Aston Beck yeah yeah and we had a lot of discussions about you know with Citigroup about starting a hedge fund I really was reluctant to do it and why I mean I well just because I tell you why because your honor it's a different set of dynamics and you have investors you're answerable to and as as I feared and actually what subsequently happened was with asked him back you know might my investor letters became leaked to the press I would have to read about myself once a month as Bloomberg or whomever may be the Financial Times gotta go to hold it one of my letters and you're put in this position of being a you know I became some cheerleader for the oil market you know it's just just a lot of position I wanted to be in I so I I was very hesitant about starting a hedge fund but ultimately I I was approached by Blackstone they came to me and saying hey we'd like you to start a head that was start an oil focused hedge fund and it was sort of presented on a plate and in a way Blackstone made me an offer that I couldn't refuse yeah it's good when you in life keep getting his oh well I mean it was twice in a lifetime yeah okay but of course then you had to run it yeah which is a different skill from being within a big institution very very much so and trader yeah and and you know not many people make that transition no and you know Citigroup you know it had a lot of there were a lot of frustrations which you alluded to dealing with bureaucracy and so on but all said and done they it was pretty painless they they sort of left me alone and you know it was fine but once I was running a hedge fund and writing letters to investors that got distributed you're under a sort of permanent spotlight why did you decide to close it down well we'd had some disappointing results and that made me kind of think long and hard about the business and I have to tell you that you know I had been a not a permanent bull on the oil market but I thought you know you know here you have you know what appears to be a finite resource on the one hand and you have inexorable demand growth on the other hand you know this is not a bad setup you know so and I you know that was a view I shared with many of our investors but then you know starting about five years ago with the advent of shale oil production in the US I think you know the whole supply side of the equation changed you know I think people myself included at the beginning anyway underestimated the potential of shale oil I think people still underestimated at their peril so the the supply side of the equation had changed significantly but not I think even more importantly on the demand side where you're now an environment where you know there is a real push a desire to decarbonize the global economy plus you have I think that the possibility to achieve that technologically in the sense that you have electric vehicles now you have autonomous vehicles there's a new acronym t double-a s transportation as a service and there's a futurologist that I'm Stanford University who espouses the extreme view of this his name's Tony Seba but I'm not saying I necessarily agree with him but it's one view on this spectrum and he believes that by 2030 it's game over for automotive fuels I mean it's all gonna be electric vehicles it's all going to be autonomous cars so on and so forth anyway you know I think that poses a real threat on the demand side and between these two two things or three things decarbonisation much much increased resource base on the supply side and technological advance on the demand side it was hard for me to make a convincing case to myself and my investors that this is a place you should be putting a lot of money into that's not to say you know for a physically oriented commodities trading operation you know the companies like materia and and and VTOL and so on they're not still a lot of opportunities there but if you're if your game is to you know have a focus on the pure commodity and the bet is that over time this will you know prices will appreciate forget it okay so I'm conscious of time I would like you just to tell us a little bit about why you decided to become a serious art collector and what informs your taste oh well we'd need a lot more time than we have to answer that question i-i've always had an interest in art from ever since I was at you know grammar school in England but obviously along the way I acquired the wherewithal to to actually you know buy a castle well yeah that's the least of it but I guess starting about 20 years ago I mean sort of you know roughly when I turned 50 my interest you know I mean do I just want to amass more and more money I mean you know so I I guess the the brief answer is what's that that Latin phrase temple no ARS longa vita brevis you know artists artists forever life is short yeah so you know it sounds sort of but it's interested just to say what did you pick first time when you would you just turn that cusp of 50 no particular pieces of ice my wife and I had been yeah had been buying you know or pieces of art you know the previous I know 20 years but but it was some point around there I think was often 9/11 as well when it you it was like you suddenly I realized that you know it could all be over you know tomorrow so so that was when I became a little more focused on the idea of collecting with a purpose and in the back of my mind was always there I I think I was a frustrated museum curator or director and it wasn't I didn't want to put trophies on my living room wall it was more hey I could actually curate my own art exhibitions and we now do that we you mentioned a castle we Castle it's it's an monastery monastery that was the home for 30 years of a very well-known German artist it was his home and residency we acquired it ten years ago and we have turned it into a public museum which I now have the fun of curating or inviting other people to curate for me or a combination of the two you're being very modest and diplomatic about mentioning any artists names but you must have one or two that you particularly drawn to well I mean the I mean the the artists I mean whose castle we bought all whose home we bought Gale Basel it's the you know it was probably he and Gerhard Richter or the two sort of great living masters of post-war German arts so you know we have a very important collection of his work and for some reason we've tended to gravitate towards German artists we you know we have a very large collection of works by Anselm Kiefer who's another sort of giant of post-war German art but we also have a very large collection of works by Andy Warhol and you know there's a retrospective Warhol retrospective at the Whitney Museum in New York at the moment and we lent quite a few works to that thank you I'm going to now move to long short it does he did occur to me by the way when you said you might have been a frustrated museum director or curator that in one sense museum directors are always long that's true yes it's a joke sorry okay long short young women there's been no collusion just want you to know this so okay I think I know the answer to this but anyway US shale the industry production long means it's keep on rising that was another joke but it got no well we got to put a time horizon on this I mean nothing nothing continues forever but I guess you know long right now good I'm supposed to be quick quick quick it's like a trade Yeah right well you know one of these phone calls where you just anyway Brent crude oil Brent crude oil long no deal brexit long art is an investment I have to say long right Donald Trump 2020 short

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