Peter Yordan, Managing Director of J.C. Flowers & Co, focused on investments in Europe and Asia, spoke with Samee Zafar (Director, London). JCF is a financial services specialist that has deployed $16 billion into over 50 deals in the last two decades.
1. Can you give us an overview of JCF – its investment approach and major investments in financial services and related industries? Why is it different?
JCF is a financial services specialist. All of our investing happens within that world, which means we spend a lot of time focused on an ecosystem that includes banks and insurance companies but also areas like payments and fintech and wealth management where there is, of course, tremendous ferment.
We all live within this complicated sector strangely labelled “FIG” by industry participants, but it is what we love, and in the 21 years since it was founded by Chris Flowers, we’ve deployed $16 billion into over 50 deals all over the world. We invest across the growth cycle but we’re known mostly for being value-focused investors. That’s a fair enough label, though I think the reason we tend to be very focused on understanding value is that we generally think financial services have some fundamental laws that you have to respect – it is always a commodity industry, often a capital intensive industry, usually a regulated industry, and almost never a winner-take-all industry. It is dangerous to try to ignore those rules.
Understanding how businesses in our industry scale is difficult, and it often can only be fully understood across cycles, not within them. That appreciation is what we try to bring to every investment, and we think it makes us good owners of these tricky assets but often careful buyers of them. I think it is a tremendously interesting job, to be honest.
2. How do you think the current COVID-19 situation is impacting the global economy?
So many people of course are thinking carefully about what COVID is doing to impact and reshape the economy, so my viewpoint on a macro level is just one more, but we have seen a few items of note in our part of the world that may not be as widely appreciated. One example is that this crisis is having a tremendously different impact on banks and lenders than what happened in 2008. Generally speaking, lenders' balance sheets have been very resilient so far. Part of that is due to the fact that following the last crisis, banks were obliged to increase their capital requirements substantially. Part of that has been due to the immediate efforts of regulators to flood liquidity into the banking system (and even into the non-bank system) to avoid panic moves. But what has been most interesting for us to observe is the incredible strength of repayment behavior by retail borrowers so far.
All over our portfolio, we see people defaulting at low levels, often extremely low levels, and declining to take up repayment moratoria on offer. What is going on is interesting: even though unemployment or underemployment is spiking, the speed of government action to push monetary relief has mixed with the fact that normal consumption choice has been dramatically curtailed by lockdowns. People are feeling fragile and have few outlets to spend their money, and they are using cash to repay debt. That translates into lower levels of losses than many might have thought.
So unlike the last crisis, when banks had a capital problem and a liquidity problem, they currently are more likely to have an earnings slowdown in the years ahead, and that probably means some of them will wish they hadn’t lost good capital-light transaction and payments businesses that they divested for capital creation purposes.
3. What are your personal interests? What do you in your spare time?
My lunchtime squash sneak-outs are on indefinite hiatus with COVID, which is frustrating. My wife and I have been movie theatre dates every month for 15 years and now that’s gone too.
But the warm silver lining of lockdown has been the chance to catch hold of so many small special moments with my kids. Many of us in this industry work long hours and travel a lot and feel like family plans have to be splashy. But my kids are 7 and 5, and mostly what they want is to try to catch caterpillars in the back garden. That’s a day’s worth of adventure right there, and you don’t have to buy a ticket to do it. They’re just the right age to have been thrilled that I’ve been home so much, and so we’ve sat in the grass and read through half the Roald Dahl books and How To Train Your Dragon and about 12 Boxcar Children.
We can identify all the trees and birds in Kennington Park now, and we’ve named the kits of the foxes that live somewhere behind our house. We philosophize about which of the Disney Princesses are best at archery on our daily walks to the coffee stand down the street. It’s magic offset to the storms of the wider world to be able to shrink down to this golden core, and although I’m a little wistful about it reversing away when the world finds its footing again, it has also been a kind of hard-won wisdom to have had the crisis teach me lessons about how kids want to spend their time with you.
4. Any personal goals? Bucket list?
I’d like to have a stage of my life where I can live near mountains and play ice hockey again. Not that I was ever all that great at ice hockey, but it was always the most fun thing to play when I was growing up, and I haven’t played since grad school and it just seems like the height of luxury to me now to have time, ice and a group of friends to play with.
5. What book(s) are you reading?
I finished Steve Brusatte’s “The Rise and Fall of the Dinosaurs”, which I really enjoyed. It is literally about what we currently know about Dinosaurs, how they rose out of one extinction event and fell in another, and what happened in between. It is definitely a pop-science book about geological time, which isn’t everyone’s thing, but Brusatte is both a great scientist and writer, and I found it fascinating to see how paleontologists go about their detective work to relentlessly peel back pre-history bit by bit, out of the most meagre clues.
Next on my list is Zadie Smith’s new book of essays on life in the COVID crisis called “Intimations”; that’s coming out this month. She is such a tremendous essayist as well as a novelist, and I can’t wait to read it.
The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).