After various roles as a banking sector analyst, Marc Rubinstein “took the leap” into the hedge fund world in 2004, becoming a partner at one of London’s oldest HF businesses for over 10 years.
The 2007-08 financial crisis was a turning point in the financial services industry – and also Rubinstein’s career. In this episode of The Signal, he shares some of the insights he has gleaned along his journey so far.
Before the crash of 2007-08 the financial sector represented a “very material” part of the stock market, but today this is no longer the case. “What that’s taught me is the importance of cycles, that there’s a transience to market sentiment,” Rubinstein tells us. As an example, one of the key themes of 2022 is that globalisation may have peaked and we are now in an era of deglobalisation.
At the same time, global economic uncertainty and the threat of a recession could trigger a shakeout in financial technology companies, he adds. After a period of low interest rates and a bull market in bonds, the investment landscape is seemingly in a regime shift, Rubinstein says. As liquidity reduces, market “fractures” become exposed and “we’re seeing things break” as stress builds up in the system. “Things are going cold,” Rubinstein says. “Crypto isn’t a major asset class in the grand scheme of asset classes, but the sell off there as well, it’s kind of a microcosm for risk appetite.”
Investors typically talk about return on capital and return of capital – but this has also changed. “I think we’ve flipped from an environment where we’re looking to maximise and optimise return on capital to one where we’re looking to return, return of capital.” For some companies, the harsher economic environment will be an opportunity to emerge stronger, with Rubinstein pointing to Amazon as the “poster child” for the post-2000 tech crunch. Banks are fundamentally more resilient than they were before 2007-08 and higher interest rates could also help them to absorb some downside shock, he adds.
In a highly competitive market, Rubinstein also says he is observing what he calls “regulatory arbitrage” among financial technology players, who “operate between the cracks of regulation”. Apple’s move into the BNPL space is unsurprising, he tells us. What is surprising is that the tech giant is keeping receivables on its own balance sheet rather than using a banking partner. “Are we going to go back to the banking sector having a disproportionate share of the overall stock market? Probably not.” However, it is possible that banking grows to become a disproportionate share of global GDP.
It is certainly an interesting time for the financial services industry. What is Rubinstein’s advice to investment newcomers? Absorption, reading and curiosity. “Pattern recognition is a learned skill through experience living in markets, but also through reading and observing what other investors have done and other investment cases from the past.”
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