Weekend Reading #35

This is the thirty-fifth edition of our weekly newsletter, Weekend Reading, sent out on Saturday 21st September 2019. To  receive a copy each week directly into your inbox, you can sign up here.

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Once upon a time in Camden.

Why Camden?'

It’s a question we’re asked by investors, clients and partners whenever we tell them we’re based in north-west London. 

If you happen to be launching a hedge fund in this fair town, people expect you to have an office in Mayfair, or The City, or perhaps even the dark side of the moon itself, Canary Wharf. Camden isn’t even an option on the menu, let alone a place to set up shop.

We didn’t choose Camden to make a statement, but when we stop to think about it, our decision to build a business here is significant. Where you choose to spend your time says a lot about you.

Some people enjoy the safety of crowds. Others like to be on their own, carving out their identity in a place where the usual rules don’t apply. Hence, our decision to set up shop in a place that’s more associated with music, art, multiculturalism and old fashioned commerce than conspicuous wealth, industry convention and rent-seeking behaviour.

But to elucidate the finer details of why we chose to base Three Body Capital HQ in a side road in Camden, we need to go back to the beginning.

The power of smallness.

When building a new business, there is an almost irresistible temptation to overstate your size, to pretend to be bigger than you are. There is safety in scale, since it implies success. 

Of course, this is a fallacy – some of the largest companies in the world are deeply unsuccessful and drifting inevitably to their doom. 

We believe our smallness is a significant asset. 

It means we are more nimble and able to react to opportunities (and threats). We have a low cost base, elongating our runaway and increasing our chances of achieving product-market fit. We have visibility over output, resulting in higher productivity. We have a strong culture and identity, since everyone is fully invested and aligned with our mission. We can be authentic – large businesses find this almost impossible, which is why they need to hire marketing agencies to tell them how to be themselves.

Our size has also conditioned us to make sensible choices, stick to a budget and invest wisely in things that will drive the long term sustainability of the business. And ironically, being small in an industry that’s obsessed with scale can help you to stand out. 

Cities within cities.

We like being little. But smallness does limit your choices when it comes to office space.

Three Body Capital is certainly not in the same league as some other hedge funds when it comes to shelling out on plush digs, but you have to ask, don’t mega-funds feel a little embarrassed admitting to their investors that they’ve shelled out £250 per sq foot for luxury office space, or a little anxious when they see the fee compression that’s coming for their margins?

Speaking frankly, we chose Camden because we could actually afford a decent space here, an office that felt spacious, positive and conducive to taking on the world together and delivering on the original promise of the hedge fund. But now we come to think about it, there are other, less obvious reasons why we’re attracted to this part of town.

Paul Graham, co-founder the influential startup accelerator and seed capital firm Y Combinator, has written about the link between cities and ambition. He argues that cities whisper their messages subliminally, through a variety of means – from overheard conversations, to architecture, to how people decorate their living rooms.

There are cities, and there are cities within cities. Camden is like no other part of London. This is a place that doesn’t so much whisper, as shout. It has a unique (and admittedly somewhat grimy) identity which has somehow remained resistant to the widespread gentrification that has irradiated our nation’s capital over the past thirty years. 

The streets here are mean, dirty, and full of life in all its wondrous variety – good, bad and at times, downright weird! But we wouldn’t have it any other way.

We identify with the people and entrepreneurs who live and work in our neighbourhood. Whether it’s stall owners selling their wares to locals and tourists alike at the world famous Camden Market, musicians gigging at The Roundhouse, or restaurateurs making an honest crust the old fashioned way at cheap and cheerful eateries like Woody Grill and Waka. Our team has strategised in the York & Albany, celebrated in The Earl Of Camden, entertained clients in The Spread Eagle and yes, avoided The Dublin Castle at all costs!

In our careers as investment managers we’ve been lucky enough to see the world or at least, its major cities. Every great capital has distinct quarters to which artists and entrepreneurs gravitate, whether it’s NYC’s Lower East Side, or the Left Bank in Paris. Forget Soho, which was gentrified, packaged up and sold to commercial real estate investors long ago – Camden is the home of creativity and counterculture in the UK. And that’s precisely how we see our business as it relates to the wider financial services industry. 

We are creative. We’re not the same as other hedge funds and fintech platforms. We believe that things need to change and we’re taking action to make it happen.

Of course, we could just grab some desks at a nearby WeWork – it would be a bit cheaper than renting our own office, and the coffee would be better. But we want our own place, a home from which we can write our own unique story.

And we’ve found that in Camden.

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What we're doing.

This week our developers delivered a 'staging' version of our online investment platform. Our desktop and mobile-responsive web app will connect professional investors with a broad range of unique investment opportunities in private markets all over the world. 

From UK clean energy companies, to Polish tech companies, to crypto infrastructure providers in Africa, to blue chip Silicon Valley giants, the mix of potential opportunities that we’ll be hosting on our platform and offering to our global network is really exciting. Our product underlines our broader commitment to improving access to private markets for emerging market investors, so please hit us up if you’d like to request beta access.

As with all product development, v1 needs a good polish, but it’s amazing to see our planning and ideation come to life. Product design and software development can do that – they turn mad, blue-sky ideas into reality. 3 short months ago, our idea was a mere 20-page product spec in a Google Doc. It’s now a beautiful platform with logins, newsfeeds, slick design and robust functionality. We can’t wait to see it live.

We also spent time this week with partners from Nigeria, Indonesia and further afield, deepening our discussions on the various ways we can work together. With each touchpoint the possibilities emerge, the bonds of friendship solidify and our excitement grows.

What we're reading.

In other fintech news, it was interesting to read this week that Jack Dorsey’s Square plans to launch a free stock trading app. 

The stock trading service will launch via Square’s Cash App, which has been allowing users to buy and sell Bitcoin since 2017. Bloomberg had few details about how the service would actually work, but it’s clear that this is an attempt to bite off a chunk of a market that Robinhood has been dominating for some time. In its favour is the fact that Square already has 15 million active users, compared to Robinhood’s 6 million, and all users get instant access to the product. The success of Bitcoin trading on their app could be a positive precursor, with Square’s revenue largely driven by revenue from their crypto activity over the last few years. 

All this got us thinking about fee compression in the retail trading space, which is becoming increasingly crowded. The slow death of fees and commissions will continue to drive users towards products and platforms that offer quality services at rock bottom prices.

As we wrote in our white paper – There Will Be Blood: The Future Of Asset Management – the market is changing faster than anybody could have predicted in the heyday of bumper commissions. This isn’t limited to passive funds. Active managers are not immune either, and we’re structuring our business accordingly.

What we're listening to.

Are you one of those people who can’t get down to any deep work unless there’s a little light music or some sort of ambient noise going on in the background? Office chat or (even worse), total silence just doesn’t do it and you need a certain amount of noise to get the creative and productive juices flowing?

If that applies to you and you’re sick of being forced to listen to an office playlist that shuffles violently between Ariana Grande, Beethoven and the Bee Gees, plug in your headphones and sign up to Flow State, a subscription service that sends two hours of music to your inbox each morning that’s perfectly designed to work to. Our only request is that you get in touch to thank us when your productivity soars!

What we're watching.

Our newsletter title this week is a nod to Quentin Tarantino’s latest film, Once Upon a Time in Hollywood, which we watched this week. It's based around the infamous Tate murders at the hands of members of the Charles Manson cult, which took place in August 1969.

It's a masterpiece – meticulously constructed and immensely gratifying. We won’t spoil the movie for those who haven’t seen it, but in our view it’s Tarantino at his absolute best. The only pity is that we have to wait a few years till the next one. Another lesson that true quality is something that people will wait for.

Weekend ReadingEdward Playfair