by Filippo Rosaschino
On behalf of BSPEC, I would like to thank you for accepting our informal invitation to this “Coffee Break with”. Would you present yourself with a brief overview of your professional and academic background?
Sure. I qualified as an accountant in 1985 and spent 26 years in banking. 10 years with the British merchant bank Morgan Grenfell and then 16 years with Merrill Lynch. I ended up running Merrill Lynch in EMEA with 9,000 employees in 23 countries and half a trillion dollars in gross assets. There were four businesses: Global Markets, Investment Banking, Asset Management, and Private Wealth management. I left ten years ago after the financial crisis. Since then, I have been investing in growth businesses. Academically, I have a degree from Bath University, and I am a Visiting Fellow of Oxford University and Honorary Fellow of Cambridge University.
When you were a student, did you already know that you wanted to pursue a career in Investment Banking? What are the reasons that made you make this choice?
When still in school, I participated in an initiative called “Young enterprise”, which was aimed at fostering enterprise and financial education amongst students across the country. I won the competition and as a result, I went to Downing Street where I met the Prime Minister. She introduced me to some senior businesspeople. One of them was chairman of a bank, and it was visiting his business that inspired me to go into banking.
Throughout your banking career, is there any remarkable deal that you believe contributed to your personal and professional growth?
I do not think there was any particular one. I mean, I was involved in hundreds of deals. I have been there for 25 years, so they were all interesting in a number of ways. The largest-ever was a $32bn merger, which I led, between Hong Kong Telecom and Pacific Century Cyberworks which was at the height of the TMT boom in 2000.
During your tenure at Merrill Lynch, how did you observe the banking industry evolve? How did you steer Merrill Lynch through the dot.com bubble and what goals did you have for the company in Europe?
For the first question, I guess the biggest change over 25 years was the increase in regulation. The effects were dramatic over a 25-year period. I mean, it was largely unregulated when I first started. Global markets regulation developed very substantially over that period, so that constrained the business very significantly.
In terms of how I guided the business in the six years that I ran Merrill Lynch, first of all, we undertook a strategic review comparing us to Morgan Stanley and Goldman Sachs in Europe. We looked at where they had gotten to with their business and what the potential for us to increase ours was. During these six years I ran the business, we took the revenue from $3bn to $6bn and the pre-tax income from $600m to $3bn. The key was to build a much bigger global markets business involving commodities, real estate, derivatives, and then incorporate the asset management, private/wealth management and investment banking business, though more incrementally from a low base. However, the big shift was building a huge global markets business for the firm.
Regarding the dot.com crisis: the dot.com boom was 1998-2000, I was the global head of TMT at that time. We had 2-3 doom years and we had 2-3 bust years, during which time we had to toe our headcount by 60% and write off a lot of loans. But we had been cautious leading up to the end of 2000, when everything blew up. Therefore, we were in a good position: we were doing a lot of IPOs while at the same time not taking on too much debt.
What made you leave banking? If you could go back, would you make the same choices?
I left because I have been doing it for 26 years and the 26th year was not much fun. You know… being a chairman of a bank was not seen in the same way as it had been prior to 2008. I decided to do something different. That is when I started investing in young entrepreneurs and growth businesses.
I would surely make the same choice again. That is where I get the most satisfaction, working closely with entrepreneurs and helping them grow their businesses.
Why did you make the switch to the “public sector” as an advisor to the Government and now with UK Finance?
The short answer is because I was asked to help put together UK Finance. Both the chairmen of Barclays Bank and Lloyds Bank were looking to bring together six trading associations to form one super trade body called UK Finance. So, they wanted to find a chairman who had run a big bank, who understood the industry and could be credible with senior politicians. I thought that especially the Brexit period would be a very interesting time to do this.
As regards to the activity you perform at UK Finance, how would you describe your role as a chairman?
It is two to three things. First, I am the chairman of the board, which comprises CEO’s of 20 of the UK leading financial services firms. Together with the board we are setting the strategy for UK Finance. Additionally, I am constantly liaising with the biggest members. And then finally, it is important to develop a close relationship with the prime minister, and public officials so that we can influence in areas that are important to financial services.
In particular, what are your day-to-day tasks, and which one do you enjoy the most? How much time of the week do you spend working for UK finance compared to the time spent on your companies?
Two days of the week. The rest of the week I spend working with growth companies.
Of the time dedicated to UK Finance, the thing where I spend most of my time on is working closely with the government on a public-private partnership to attack economic crime, so dealing with terrorism, fraud, money laundering, credit card fraud.
Could you tell us a little more about your activities as an entrepreneur and angel investor? What are some of the deals you have executed? What are the characteristics that make a startup successful? What do you look for before you make the decision to invest in it?
I have seven businesses I am working with at the moment. I give them my time, working with them on fundraising, strategy and penetrating their target markets and they give me equity in return.
For me, a successful startup is a combination of a good team of entrepreneurs and a good business model. For the team factor, we look at the skill set needed for the business to be successful, and then go to hire the skills that the team does not already have.
For the business model, we work on the strategy and make sure the business has the potential to be both profitable and scalable. There is no point in investing in a business that does not have the potential to be enormous. It must be a world-changer, or at least a market changer. A real disruptor that can be worth hundreds of millions of pounds. As many startups fail, the ones that succeed have to really do well to make up for the ones that fail. International potential is another strong plus.
Why did you decide to focus your investments in fintech startups? How do you see the fintech industry in the next 10 years?
I do not exclusively invest in fintech’s startups, but have quite a focus on it, as that is my biggest area of knowledge from my banking career. I think we have come from the big banks being suspicious of Fintechs to totally embracing and collaborating with them. This is important because it helps companies get access to large customer bases and scale more quickly. Obviously, big banks have many more resources than small companies, so if they work together, Fintechs can grow much faster. From the big banks’ point of view, that means both serving their customer proposition and reducing costs faster.
How is your relationship with PE funds?
When my company gets to a certain scale, they need capital, so there is the necessity to raise money from your family, friends, and other individuals. If you need a more significant sum of money, you need an investment fund. Then they also put someone on the board and bring their knowledge and scale-up expertise. Thus, the combination of money and support is very useful.
How do you see the future for VC in Europe?
I think it will be bright, since there are a lot of opportunities. The public markets have become so regulated and so complicated that many companies would rather not go public but stay private, using private equity to grow.
What do you look for in an entrepreneur? How has your aim to meet one new entrepreneur every weekday been going so far?
Attitude, focus, and expertise.
I have been following this approach of meeting a new entrepreneur every weekday for two years now and it has been very good; I have met a lot of very interesting people. Everyone is interesting in their own way and sometimes you find very good ideas.
Clearly, you have held several high-ranking positions, what do you think made you successful?
Probably the same three things I look for in entrepreneurs: attitude, expertise, and focus.
Regarding potential entry points for students, what do you think about the career path of going into IB first and then moving to PE/VC?
I do not think it is necessary to be a banker to get into PE or VC. They obviously take some bankers, but they also hire people who have got particular industry expertise or financial expertise. I think it is very important to develop an entrepreneurial skillset to be successful in the industry.
Traditionally we conclude our program “Coffee break with…” with some tips to students who want to enter the industry or who are entering the industry next summer. What advice would you give them?
Do some investing yourself, even if it is on a very small scale before you leave university. Get involved in clubs like the private equity clubs, see if you can get an internship in PE firm. Make sure you have good financial skills, maybe do a financial modeling course. Learn the basics of business valuation. I think these are the main things you can start doing.
The interview was held at the beginning of December 2019.