The tragedy of the decade is that the US financial sector plowed capital towards consumption, while the biggest story of all–energy–started to play loudly in the background. The trend can be explained culturally, as the current generation of men and women who have come to Finance over the past twenty years were schooled and educated to see few other possibilities. For sure, there were exceptions. Goldman, Morgan Stanley, and Lehman all dipped their toes intelligently into Solar, Wind, and Carbon markets. And, there has always been some help for the smaller Oil and Gas companies. Still, the US Financial sector showed a stunning lack of imagination the past 8 years. The sector has now paid a very high price for its herding behavior.
What’s needed now is a flowering of smaller investment banks and private equity, to fund the next wave. The financial landscape should become 6 inches high, and 3000 miles wide. We are going to have to cut in the opposite direction, from the current consolidation in US banking. And it will take time. But I think what the country needs is to see a lively investment community in all major cities. Not just New York, and Silicon Valley.
To build this new investment community, I would suggest that many of those who are running money in hedge funds should step into a new role. For, what we have also seen this decade is that it was no longer conducive to change, or investment, in energy to have trillions in capital managed in equities. The capital in hedge funds did little more than move in, and out, of the energy sector this decade. The problem remained that scrip never carried a premium, giving little inducement to consolidation.
I’d suggest that all parties need to break free, of older models. The CEO’s of the large Oil and Gas companies need to face up to cost inflation, and a world of energy depletion. The large institutional managers of capital need to face that oil and gas is no longer cyclical. Or at least the parameters of the cycle have changed drastically. Talented hedge fund managers need to face the idea that a society managing trillions of savings no longer equates to needed investment in the real world. There is an irony here, in that gargantuan OECD pools of savings are now possibly a feature of economic stagnation, rather than a force for industrial growth and innovation. Meanwhile, the OECD is starved for new investment in light rail, commuter rail, new sources of electricity, and upgrades to the power grid.
We invested in the wrong things. We invested in the wrong infrastructure. We invested in things that are now paying us little, in the way of return. I’m certain a new era dawns for energy and finance. The investment failures of this decade have likely made the ground fertile, to make it happen.
-Gregor