The shifting sands of capital
Alpha through imagining a future. A talk to Equities Forum (Centre for Institutional Investors) in April 2022
Today, I am going to talk about $4 trillion moving somewhere else — how global forces are requiring humanity to innovate and how technology might profoundly change industries we have taken for granted as enduring.
It might be shocking. And I might be wrong. But I might be right.
In the future, we’ll look back on these times and be horrified at the things we accept as normal today.
Before 1982, insulin was harvested from pig’s pancreas. This hormone, which keeps people with diabetes alive, required 8 tonnes of pancreas to make 1 litre of insulin.
That’s a lot of pigs.
In modern times, when nature-identical human insulin is industrially brewed like beer in massive volumes, this practice from recent memory seems grotesque.
Today the human insulin market is more than $20 billion USD. We found a better way to make something that a massive population needs.
When it became possible, everything rapidly changed.
The sands of capital shifted.
Our ability to build with biology like this is coming-of-age and rapid changes are in play.
We can build food, one molecule or cell at a time which does not have the planetary impact when we don’t need to build an animal first.
We need to feed a cow 40 calories of food — that humans could otherwise eat — to make 1 calorie of beef.
If we could make that calorie directly, doesn’t that make more sense?
Today we are making nature-identical ‘components’ that animals normally produce.
In dairy, we know how we could make so much milk that we could double the world’s milk supply from Australia alone without a single cow.
Which isn’t a bad thing when you think that we have come to this to squeeze out that extra litre of milk from the planetary resources that we have today.
Do we really need to put VR headsets on cows so that they can imagine roaming verdant pasture?
So here is our first future shock. I put to you…
… if you knew that you could buy milk or meat that is nature-identical, with the same nutrition and experience and at a low cost to the pocket and the planet …
… would you still buy food that has been produced by factory farmed animals?
Is it possible that $2 trillion of animal industry will shift?
I say this as a meat lover, will we look at an abattoir in the same way we look at that pile of pig pancreas and wonder why we ever made food this way?
This is all about experience and cost. When non-animal alternatives are identical in experience — including nutrition — and cost less than animal production, the tipping point will come.
And that day is very close.
Our work in venture capital reveals signals which indicate more shifts that could be happening in the sands of capital.
Let’s talk about oil.
Over millions of years, natural systems have sequestered carbon into the earth — sometimes in the form of oil which it locks under the ground.
Today we bring it up and burn it, releasing that carbon into the atmosphere.
And you know where that is getting us.
Today’s $2 trillion USD oil and gas market is in decline as EVs replace petrol vehicles and renewable energy grids weave their way across the planet.
Inside the oil & gas industry they are asking how they will prosper as renewable energy systems take hold. Petrochemicals which are currently about 16% of the industry are expected to be the saviour. The sector imagines that by 2050, the petrochemicals used in pharmaceuticals, fertilizers, pesticides, plastics and solvents will be the largest driver of demand — overtaking the positions once owned by trucks, aviation and shipping.
But perhaps not…
Nature is showing us another way. The solution begins with one use of petrochemicals — plastic.
In a landfill in Japan, an enzyme evolved to ‘eat’ plastic. The PETase deconstructs the polymer into the monomers that were originally extracted from oil.
Scientists today have developed the enzymes further to speed up the process and it is now possible to go from polymer to monomer in10 minutes inside a warm bath of liquid.
To date, humans have produced 9 BILLION tonnes of plastic from fossil fuels and recycled very little.
But now, we can recycle them infinitely.
Which brings us back to oil.
We know that the energy system is transitioning so fuel will be on the decline.
That leaves the petrochemicals. The last hope of growth for what many claim is the largest industry in the world.
I don’t think so.
Not now we can mine the landfills of the planet for plastic and sustainably transform them into more plastic or indeed, any of the other petrochemical products that oil produces today.
As we start to realise there is another way, with no compromise on cost or performance…
When we understand that this has little or no impact on natural capital…
… we will look at the petroleum industry as a relic of an earlier age. A necessary innovation for that time in human history perhaps, but one that we lost control of that can’t hold a position in our future.
I expect we will measure this transition in decades not years because the scale of infrastructure and workforce that may need to shift is large.
But then again, look at the price of oil today.
Now we realize our dependency on countries that we no longer want to depend on, could this happen faster?
The sands of capital are shifting. Small grains on the top of a dune, but the wind is picking up.
These are just two examples of change that will come — driven by technology.
We haven’t talked about what might change if we can see water flows under the earth with quantum sensors, or if we can see disease instantly just looking into the eye.
How might opportunity appear and industries rise if medium size businesses can put a satellite into space? What happens if proteins and other molecules can be designed through simulation instantly in a computer instead of experimental trial and error that might take years?
Is there “opportunity” if scientists create a new way to produce semiconductors so that we rely less on Taiwan? Or if coal fired power stations could be ‘recycled’ into renewable energy sources?
What does this mean for you?
The ability to imagine a near future is your alpha.
The revolution in industry which happened through the digitisation of everything was dramatic.
That disruption is now coming to material things including industries that we take for granted.
These changes are happening at an exponential rate. Perhaps not as fast as people like me talk about or hope, but no doubt faster than this room might imagine.
They are hard to see at first, as the sands begin their shift. But sands will shift and one day the weight of change is impossible to avoid.
How will you prepare? How will the mountain of capital in this room capture the value that is coming?
Urgent problems for the earth are forcing capital into new places.
And some of it will grow inside the revolution that is re-imagining the earth.
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