I have known Yves Choueifaty for almost 10 years. The acronym of TOBAM, the management company he founded 15 years ago – Think Out Of the Box Asset Management – is not a marketing device. It’s a way of living, thinking and building for Yves. There is no meeting with Yves Choueifaty where you are not invited to think differently, to get out of your usual thinking patterns. He pushes you to your limits. You always come out shaken up and often smarter.
We are in 2040, how do you see the world around us?
I am an optimist, not only by nature but also because I am deeply Darwinian: What survives is what works and that is how the world improves. So by 2040, I think/hope that the respect of human rights in the world should improve because human rights work! It promotes creation, freedom, growth, redistribution, innovation. I think that science and faith in science should improve because it also works. I think, on the contrary, that totalitarian regimes, nationalisms, religious fanaticism, obscurantism, do not work. It has never worked. The renewed vitality of nationalism (not to be confused with patriotism) or the political recuperation of religions that we have witnessed in recent years, reminds me of the last stirrings of a dying corpse. I don’t worry about it because I know that it doesn’t work and being a rational being, I sincerely believe that what doesn’t work, ends up dying. These are the last survival reflexes of an ideology that is not only outdated but has never worked.
In 2040, another battle will have been won: that of reconciling growth and ecology. We will have understood that the battle we cannot lose is that of biodiversity. In 2040, we will have come back from the myth of “degrowth”, which is, for me, fundamentally, and almost by definition, a dead end. I believe that, with the help of science, sustainable growth will prevail.
"I sincerely believe that what doesn't work, ends up dying"
I am sure that this will be achieved through reforestation, which is the necessary condition for maintaining and perhaps developing biodiversity. My hopes for 2040 are also that democracy has found an antidote to the impoverishment of the press. What is not valued properly cannot contribute as it should. Its contribution is essential to democratic debate. I sincerely believe that by 2040 democracy will have progressed.
How will the financial markets have evolved?
This year I am celebrating 30 years of professional life in Asset Management. Being a good skier, I often say that the financial markets are like skiing on a slope in the fog. You only see the deal you made with your counterparty (Lehman Brothers was rated “A” by Standards and Poors), and you know nothing objectively about the rest of the “market”.
"I often say that the financial markets are like skiing on a slope in the fog. You only see the deal you made with your counterparty"
2040 will be another world. Decentralized finance (DeFi) will be a more efficient, more transparent version of financial markets. With Defi, everyone will have access to the same opportunities, 24/7, with the same transparency, regardless of your means, regardless of where you live. Defi solves legal risk issues (thanks to smart contracts), enables immediate settlement/delivery, duration risk is eliminated.
It will revolutionize the world of finance, it will be one more step in disintermediation, and above all a giant step towards economic progress and inclusion. Banks will have reinvented themselves, from processing to expertise.
What role will asset management professionals play in 2040?
In the same way that democracy will have found a solution to the impoverishment of the press, I believe that the industry will have remedied the impoverishment of asset management. The realization of the harmfulness of passive management should make it possible to return to an efficient world where active management plays its price-setting role more effectively. Active managers, through their analysis and their work, will set more sustainable prices for financial instruments. Passive management will no longer be remunerated at all, or even negatively remunerated; it will pay, as it were, to receive the benefit of the main externality of active management: the fair price of assets. And only the tracking error will be rewarded.
The last element that I think will be significant by 2040 is the disappearance of the border between listed and unlisted assets. The secondary market for non-listed assets will have become widespread.
I think we are moving towards more efficient markets. Inefficiencies are due to artificial obstacles, the less obstacles there are, the more efficient the markets are, the less speculation there is.
"The last element that I think will be significant by 2040 is the disappearance of the border between listed and unlisted assets."
Speculation benefits non-rational agents, who disrupt the proper functioning of markets by objectives other than simply setting the right price. Decentralization should make it possible to reduce the role of these irrational agents.
(Yves is referring here without naming them to the central banks and the massive injections of liquidity, to the detriment of the price stability objective and consideration of objectives that are not the mission of central banks).
Looking back, what is the biggest forecasting/anticipation mistake you have made?
I am not a fan of the forecasting exercise; I much prefer diversification (!). This may have saved me from the inevitable mistakes of these forecasting exercises!
I think my mistake is often to think that reason quickly triumphs and that agents are rational. The importance of certain non-rational agents often results in delaying the inevitable efficiency of markets. The return to equilibrium, to efficiency, always happens eventually, but in the meantime the timing was not right. Can we be right with several years of delay?