practical men with practical spreadsheets

the rishi sunak I knew (I did not know rishi sunak)

I’m busy at the moment, which paradoxically means longer pieces on the ‘stack, as I rummage through the bottom drawer for old stuff that got chopped out of other projects. Here’s a sort of profile/memoir I wrote, during a short period when it looked like Rishi was a certainty to beat Liz Truss in the leadership election of 2022, which got dropped when it turned out that he wasn’t.

“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” – JM Keynes, The General Theory of Employment, Interest and Money, 1936

Rishi Sunak, the UK’s Chancellor of the Exchequer and current [for about five minutes - DD, 2023] front-running candidate to succeed Boris Johnson, graduated in 2001 from Oxford University with a first-class degree in Philosophy, Politics and Economics.  It is hard for anyone familiar with British public life to read that sentence without a weary sigh of inevitability; of course he did.  The ubiquitous presence of graduates of the “PPE” course in the top ranks of British politics is so well-known as to be a cliché; it’s received wisdom that the flaws of the Westminster system – glibness, shallow understanding of science, arrogance and lack of rigour – are merely reproducing the flaws in the degree course which so many of its elites took.

But it would be a mistake to dismiss Sunak as simply another smooth-talking PPEist like David Cameron; unlike many who went straight from student politics to thinktanks to Special Advisor posts and onward to political office, he has had a significantly more formative experience, having spent three years on the Goldman Sachs graduate program and then ten years in the hedge fund industry.

I should declare a personal interest at this point; I had a career in the City of London at the same time Rishi was there. (I did the PPE degree too, a few years earlier, if that matters).  The brokerage firms I worked for had the funds he worked for as clients.  I never spoke directly to him, but if the balls had bounced a different way I might have done.  Thanks to the efforts of some good salespeople, I spent a lot of time in the 2000s and early 2010s talking to people in Sunak’s particular niche of the hedge fund industry.  It has a very specific and strong culture, which can’t have failed to shape a bright young man in his twenties on the way to making a lot of money.

There are good and bad people in hedge funds, just like anywhere else.  They are by no means all libertarian right-wingers – Chris Hohn, Rishi’s first boss at TCI, is one of the financial backers of Extinction Rebellion.  But, as this example itself illustrates, they are full of people with strong opinions who aren’t scared of expressing them.  Both Hohn and Patrick Degorce – Sunak’s boss at Theleme Partners, for whom I think I may have left over two hundred unanswered voicemails – are famous for “activist investing”.  This is an investment strategy which is literally based on walking into the office of a CEO and telling them how to do their job.  It’s not for weak personalities, and people who make it their trade tend to develop a style of argumentation with two really noticeable characteristics.

The first is detail.  Some of them are dicks about it, some wear their knowledge lightly, but hedge fund equity guys tend to invest a lot of their personality in knowing more about a company than you do.  I have never met one that wasn’t happiest in reeling off a long list of facts and demonstrating the depth of their research.  To a certain extent it’s a parlour trick – if you’re allowed to keep going until you find something the other party doesn’t know, and they’re not able to quiz you in return, you can always look like the smartest guy in the room.  But it’s the only way to earn respect in these circles, and people who weren’t able to play the game tended to get dropped quickly.  It is interesting to surmise what might be going on inside Rishi Sunak’s head when in meetings with Boris Johnson.

But the second trope might be a lot more significant; a distaste for anything macro.  In the world of activist investment, macroeconomics is always an excuse, something that weak CEOs talk about when describing poor performance.  Hedge funds are sold to investors as “market neutral” – they own some stocks and short-sell others, so their returns ought to be unrelated to the broader market climate.  And funds of the kind that Rishi Sunak worked for aim to generate returns by stock selection, not by anticipating the movements of broad markets.  Seeing the wood for the trees is often actively discouraged; I often received complaints from clients for being “a bit too macro”.  The very greatest contempt is reserved for “Davos types”, who pontificate about the global economy in speeches while unable to answer questions about why their Asia-Pacific subsidiary saw its operating income fall by two percentage points last year.

Of course, these days many of these hedge funds have changed their approach, realising that even if you ignore the macro picture it may not ignore you.  But this is how we were in the 2000s.  And as Napoleon apocryphally said, if you want to understand someone’s approach, you have to look at what the world was like when they were in their twenties.

The early years of Rishi Sunak’s career were those of the Great Moderation, when it was thought that macroeconomic policy was a solved problem.  When he went to Stanford Business School in 2006, he would have been taught that the business cycle had been abolished by central bank independence and inflation targeting, and the only remaining big questions related to long term growth.  But he wouldn’t really have had to be taught that macro was for losers – by that point, it had been his lived experience for years.  The “defunct economist” of the Keynes quote in this case is someone like Edward Prescott, who won the Nobel Prize in the year Sunak left Goldman Sachs, and who famously analysed the Great Depression as probably a decade-long decision on the part of workers to enjoy some more leisure.

This background would suggest that he may be a character with less of the intellectual laziness and inability to resist a cleverly worded analogy that we’ve come to expect from the modern Conservative Party, but with a few blind spots of his own.  The pandemic has, ironically, meant that the beginning of his period as Chancellor coincided with the most undeniably valid “macro excuse” of the last hundred years, and has made it hard to know what his real instincts are.  But London hedge fund bros are a type.  They’re not the same type as New York hedge fund bros – Sunak isn’t a libertarian or an Ayn Rand reader, but they’re not wholly dissimilar.  Unlike Boris Johnson, the world that shaped Rishi Sunak will have left him with a broadly libertarian outlook, a distaste for supporting failures and above all, an overarching sense that the best policy is to concentrate on solving specific problems and letting the big picture take care of itself.