The Global Market for Talent | Portico Advisers

One thought has been lodged in my brain since I spoke with Karim Hussein on the Portico Podcast.

It was Karim’s comment about the quality of Egypt’s technical talent, which not only contributes to a vibrant startup ecosystem, but also carries the potential for homegrown, deep-tech innovation.

The thought has two dimensions. First, it’s genuinely exciting for local growth and dynamism. Second, if the secret’s out, then there could be a vicious competition for talent that stymies startups’ odds for success.

This tension prompted a Twitter chat with Eliot Pence about whether — and how much — technical talent across Africa, Latin America, etc. might jump ship to the Tech Giants or to U.S. startups with deep pockets.

This phenomenon is happening so quickly that startups in Latin America are referring to the poaching of talent as “a bloodbath.”

The McKinsey Global Institute chronicled the declining role of globalization in goods-producing value chains over the last decade, a period during which merchandise trade grew at a paltry 1.4% CAGR.

In its place came the globalization of digital / data / information flows, and the international trade in services. Between 2010 and 2020, international trade in digitally delivered services expanded at a 5.4% CAGR — growing from 47% to 64% of the global trade in services.

This shift in the composition of global trade flows appears to be reaching escape velocity, such that we may be on the cusp of seeing broad-based wage compression for high-skilled workers in developed markets.

Elite labor benefited disproportionately from the prior two decades of globalization. But with the rise of remote work, a growing number of these jobs will become tradable.

If and as these fortunate few begin to lose from the trade in services, the political backlash could get explosive.

The flipside, though, is the massive wage growth for elite labor in Africa, Latin America, etc.

Chris Bakke shared an anecdote in the tweet above about LatAm salaries doubling to US$80,000 when a developer jumps from a local firm to a U.S. company.

But here are some data from CodersLink / Rest of World:

The average developer in LatAm is earning between ~2x and ~7x the average local salary.

This is tectonic.

So much so that it should tilt the way one thinks about investment opportunities in global markets.

For much of the last decade, investors spoke about the rise of a global consumer class, and they put their money behind the thesis.

EMPEA statistics show deals in consumer discretionary companies drew $213B in capital between 2010-19 — 27% of the total dollars invested — with consumer staples attracting an incremental $47B (6%).

One in three dollars went directly to consumer plays, with many firms pursuing mass-market opportunities in discrete geographies. By comparison, financials drew 13% and technology 10% of the capital.

The chart above suggests there could be an entrenched stratification between a broad underclass and an extremely well-off elite across all markets.

Rather than pursuing mass-market opportunities in a given geography (e.g., hard discounters), I think there will be a rich vein of horizontal opportunities — businesses catering to a geographically dispersed, high-end cohort that shares largely uniform consumer preferences.

Of course, this already describes much of the world we live in, but the motif is less WeWork, more Wander.

Luxury’s a piece of it, but it’s broader than Veblen goods.

I must confess, as a parent to two young kids navigating an antiquated education system, there is a palpable sense that ladders are being retracted everywhere.

It is hard to escape the conclusion (highlighted by Viktor Shvets) that we may need to liberate humanity from wages and the labor theory of value to stave off a descent into calamity.

The good news is that new technologies are enabling us to reconfigure the creation and exchange of value, and incredibly smart and talented people all over the world are tinkering with ways to do so.

Mike

In the latest episode of the Portico Podcast, I interview Karim Hussein of Algebra Ventures, Egypt’s leading institutional-quality venture capital firm.

It’s quite timely as Egypt’s venture landscape has been hitting its stride, with more than 80 investments inked last year, and the market in general appears to be approaching another inflection point of growth.

KKR’s management fees go vertical

I don’t want to dwell on this, as I’m a broken record and the commentary has not proven to be constructive.

However, KKR raised $121 billion in new capital last year, and grew its management fees by 44% to exceed $2 billion.

Institutional LPs talk a big game about alignment of interests, track record, etc.

But the revealed preference is as plain as day.

You can see the performance of KKR’s funds beginning on slide 20 here.

Allocating to KKR seems like a job that’s ripe for automation. If pensions can’t reduce outflows going to management fees, then maybe they can save on their investment team salaries and overhead?

Web3 investment clubs

A few months ago, I wrote about DAOs and the prospects that crypto could enable new ways for businesses to raise risk capital.

Lo and behold, Syndicate just launched web3 investment clubs. While individuals can create DAOs to invest in web3-native projects, the real magic (in my view) is that Syndicate is also providing enabling infrastructure for off-chain (i.e., real-world) investments.

The future is coming fast.

From the Bookshelf

… Blacks have played a leading role in supplying energy, creativity, and moral urgency to the American project from the very outset. It has been their struggle, more than any other, that has cemented the association of the idea that Americans sustain of themselves — and of their country — with the fundamental value of universal freedom.
Howard French, Born in Blackness: Africa, Africans, and the Making of the Modern World, 1471 to the Second World War
(Liveright: 2021)

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