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What We Do

The word consulting has become something of a catch-all phrase in today’s business landscape. Almost every industry and every firm has their own idea of what it is to be a consultant. For this reason, and to better understand the ecosystem in which we operate, it is perhaps worthwhile explaining the different conceptions of consulting that exist today, and to clarify exactly how Monocle positions itself in this environment.


The first conception, or perhaps misconception, of consulting involves the idea of contract work. Contractors – often calling themselves consultants – hire out their services by the hour and forego the security of a full-time employment contract to pursue remuneration for their work on an ad hoc basis. But the time-based remuneration structure of contracting carries with it a potentially significant conflict of interest, in that the successful completion of a project is not necessarily in the best interests of the contractor. At Monocle, we do not believe that consultants merely sell their time. Consultants solve problems.


The second understanding of consulting stems from the business model exercised by multinational audit firms, which often run large advisory divisions alongside their main auditing function. These audit-centric consultants work across a broad range of industries and their success often relies on two factors: the perceived power of their brand and these audit firms’ sheer size. Yet, the scope of their services can often be constrained by their audit-focused mindset. At Monocle, we are not auditors, and this allows us the freedom and flexibility to implement change wherever and however it is needed.


A third type of consulting involves the work performed by large systems integration firms. These firms focus specifically on integrating new system infrastructure into a client organisation. These multinational IT-centric firms often partner with large software companies to ensure the successful implementation of complex application software into client system architectures. At Monocle, our consultants are experts in many software applications, but we are not an IT implementation company, we are business subject matter experts.


The fourth kind of consulting practiced today is general management and strategy consulting. These consulting firms believe – at their core – that the conduct of management and the strategic objectives of large organisations can be altered through the intervention of strategy consulting. Such consultants usually deliver a management or strategy plan as an end product, whilst the actual physical change to be executed is often left for the client organisation to implement themselves. At Monocle, we engage in management and strategy consulting but importantly, we also deliver tangible system-level solutions to solve our clients’ unique business challenges.


In the context of these various definitions of consulting, it is important for us as Monocle to amplify the fact that we are different in a number of ways. We do not sell time and we do not sell products. We are not contractors, we are not an IT firm, nor are we auditors. We are an independent management consulting firm with deep technical skills and subject matter knowledge, focused on the financial services industry. At Monocle, we are consultants pure and simple.


What We Do

For many, the image of a consultant is entangled with the idea of a free-roaming agent, employed by a company or acting alone, selling their products or services to any willing buyer. Such work is very important in many companies and in many contexts, often yielding good returns in the form of commissions and sales target bonuses, as the harder you sell, the more you earn, and the quicker you get recognition. It is a concept used by thousands of companies which rely on pushing their product to as many buyers as possible – often unconcerned whether it will ever solve their problem.


In the purest sense, this is not the work of a consultant. In the financial services industry, there are indeed many management consulting firms and large system integration firms that remunerate their consultants based on their sales performance and the revenue they generate, but we at Monocle do not believe in such a paradigm. At Monocle, our consultants are not salespeople. In fact, we do not want our people to sell. Talented consultants should not have to compromise their image of themselves by doing something that is not truly consulting. At Monocle, we are consultants, pure and simple.


We recognise that we live in a commercial world, and that we need to be properly remunerated for our work, but we do not believe that our consultants should take direct responsibility for this part of our business. Sales and work proposition at Monocle takes place through very particular channels – only the most senior directors are responsible for sourcing future projects and creating new business, thereby alleviating any sales target pressure on consultants. Not only are our consultants not expected to sell, they are not actually allowed to approach clients to garner work.


It would be highly concerning if a doctor were to give every patient a certain pill, because the doctor stood to profit personally from the sale of that medication. In the same way, our consultants cannot be expected to sell a pre-packaged product to our clients. A consultant, like a doctor, consults with a client to identify areas of concern, to diagnose the problem and to treat the ailment. By eliminating the need for our consultants to sell, we ensure the client’s challenge is at the very centre of our business.


Some may then ask, “But how do you know if your consultants are being efficient, if there are no individual revenue indicators?” To this we say, as a consulting firm in the purest sense, we are focused on implementing tailor-made projects built from the ground up, to the specification of our clients to meet their unique business challenges. Ultimately, then, the efficiency of our consultants is measured in a far more nuanced and three-dimensional manner than a simple win-or-lose revenue target. Such a crude measure of value is at its core sales-centric rather than client-centric.


The success of a consultant at Monocle therefore has nothing to do with achieving a sales target, but everything to do with the successful completion of projects and the extent to which these solutions ultimately add value to our clients’ businesses.


What We Do

We are not an audit firm. It is not common to define oneself by saying what one is not, but in a world where the distinction between auditing and consulting has become somewhat blurred, this is an important point to make. The conflation of the two has occurred because most consulting work conducted in advanced economies worldwide is actually performed by people who work for firms that, at their core, are audit or assurance firms.


It is a requirement in South Africa that all banks undergo both a statutory audit and a regulatory audit to ensure that the multitude of reports submitted to the South African Reserve Bank – in accordance with the Banks Act – are accurate and true. This work is performed by audit and assurance firms, and it is extremely important. It provides the general public, as well as shareholders, investors and other stakeholders in both publicly-traded companies and private firms, some sense of security and assurance that the facts being presented to them are reliable. This work is absolutely critical, not only to the confidence that investors and other stakeholders have in any particular company, but to the confidence they have in the very idea of the free market system itself. Without these checks and balances, the idea of the liberal free market system would rapidly become substantially eroded.


In general, however, these assurance activities only account for about half the revenue generated by auditing firms, with the other half generated through separate departments that offer advisory services. Audit firms are, thus, also the dominant providers of consulting services to the financial services industry, although to enhance the independence of their auditing activities, these firms cannot simultaneously provide auditing and advisory services to the same bank.


From the outset, we at Monocle made a deliberate decision not to venture into the world of auditing. We do not do assurance work of any kind. We are consultants pure and simple.


The decision to specialise in consulting has provided the advantage of flexibility in our work. Because we are not restricted from working with any client, we have the freedom to propose work anywhere, and at any time, as well as the ability to pursue any work that we believe will add value to the fields in which we have expertise. As a result, our consultants engage with a wide range of customers and are exposed to problems that are generally change-orientated, rather than of a business-as-usual nature.


The work we do is pure consulting. We endeavour to radically change and advance the manner in which our clients operate, whilst providing our employees with vital experience through the wealth of intellectual property and corporate memory we have developed through years of international and local project experience. There is essentially only one thing we are restricted from doing: we cannot mark anyone else’s homework. But this is how we prefer it, for it ensures our focus remains fixed on our true area of expertise: the business of innovative problem-solving.


What We Do

At Monocle, our consultants are trained experts in various software and programming languages, such as Microsoft Access, SQL, Excel, VBA and Power BI. In fact, the skills development which is provided to all consultants at Monocle has a strong focus on teaching hard technical skills, delivered through our in-house training programme. In this sense, we invest in our people to make sure they have every tool available at their disposal to do the best work possible for our clients – no matter how technical the task at hand. But even though we are strongly focused on equipping our consultants with these technical skills – in order for them to be effective agents of change and to give our clients a commercial edge in an extremely competitive market – we do not consider ourselves to be an IT company.


Whilst a key part of our business is helping our clients to implement systems and processes – often of a digital nature and involving the automation of many of the inefficient manual processes still in place in these organisations – we do not in any way or form sell IT products or install hardware or software. There is no doubt that the many different software applications our consultants use are critical to their roles, but these applications are merely the tools required as the most useful means to analyse, build and improve upon the systems existing at our clients.


In the rapidly evolving world of technology, there has been an exponential increase in the amount of data available to organisations of all sizes and industries, and perhaps even more so in the financial services space. To effectively analyse and garner insights from this rushing flood of data, and to ultimately create added value for shareholders, we believe our consultants need to be proficient in the best-of-breed software and applications that allow them to be at the cutting-edge of data and business analysis.


This intricate system and software knowledge is doubly important in the world of banking and insurance, as the large financial institutions with which we consult are beholden to deeply complex compliance and regulatory requirements. To assist in the goal of becoming compliant with these ever-changing regulations, as well as in extracting as much value as possible from the markets, it is essential for our consultants to understand both the technical as well as the business landscape of our clients. Not only do we understand the unique landscape of complex products and markets in which our clients operate, we are also able to translate and execute our clients’ regulatory and business requirements into the precise code-level specifications needed to build the state-of-the-art systems that can achieve these objectives.


At Monocle, we pride ourselves on the specialised nature of our consulting work. What we do is to consult with our clients to design and deliver fit-for-purpose, full-lifecycle solutions, by analysing and translating business and regulatory challenges into tangible IT- and data-driven specifications.


What We Do

When you choose to work for a company, it is useful to see the decision as a significant life choice, rather than merely as a job choice.  Work is, after all, where you spend the majority of your time and often where you invest most of your effort.


In the past, professionals may have been advised to always put the company’s objectives above their own to secure their professional positions. But, a new generation of employees is proposing an entirely different understanding of the employment relationship, unashamed of their desire to achieve something greater than financial prosperity through their work. In the modern world of work, if a company wishes to attract and retain a talented and ambitious workforce, it is crucial that it articulates a clear value proposition that balances the objectives of the business with the desires of its employees to learn, to grow and to do work that is meaningful.


At Monocle, we are deeply invested in the growth of our employees, both as professionals and as people. We believe that there is a minimum set of skills, experiences, insights and, in fact, epiphanies that a person should encounter in their working life. We believe that it is not enough to simply train our employees with the skills necessary to meet the requirements of their immediate job specification. We believe, in fact, that it is our duty to enhance the human experience of our employees overall.


We have therefore constructed a unique five-year personal development plan for each and every consultant in our firm, which is tracked continuously on an individual consultant level. This comprehensive programme integrates all aspects of a person’s development through four key dimensions.


Firstly, our employees receive training in a wide range of hard skills that are underpinned by internationally-recognised certifications. This includes not only Microsoft Excel and Access training, but also certification in VBA, SQL, a range of BI tools and programming. Secondly, our consultants are provided on-site experience in world-class banks and other financial institutions, working on a range of critical issues in the areas of finance, risk, treasury and compliance. Thirdly, we focus great attention on the development of extensive subject matter knowledge, with extensive formal training delivered by senior executives at Monocle, some of the most experienced consultants in the industry.


Fourthly, we teach our consultants the art of engagement, both with colleagues and clients, and more generally with the world. This is achieved through training in soft skills – including communication, negotiation and collaboration skills – and ongoing executive mentorship. Perhaps most uniquely, we also place a strong emphasis on developing critical thinking skills. Through this special dimension of our development programme we challenge our employees to view the world and themselves in a different way – to calmly distance themselves from emotional preconceptions and the archetypes that make us, as human beings, less than we could potentially be. We believe that by challenging our preconceptions of the world, and of ourselves, we can become more fulfilled and enlightened in our work.


Monocle’s approach to career development is an holistic one. We motivate our employees to believe they can achieve anything. And it is this confidence, backed by training, expertise and strong consistent mentorship that ensures that we remain the best consultants in the business.


What We Do

When choosing to work for a company, there are many aspects to consider. One of the lesser-mentioned, but highly important, of these is the attitude the company takes towards the social element of work. Humans are, after all, social beings. So, when we think of our work, we think not only of the objects that occupy our physical space or the tasks that fill our day, but also of the culture that exists in a company.


There are many people who believe that work is an isolated component of their lives, and that activities such as sport and engagements that lead to friendships should be kept strictly separate from what they do professionally. At Monocle, we seek to integrate all these aspects and ensure that our employees are well-rounded individuals, capable of making meaningful contributions to both our business, and to society as a whole. We believe in working hard and producing exceptional results. But we also believe in becoming better humans through avenues that are not directly related to our work – in exercising the body, in enjoying life and in forming meaningful connections with people.


It is through these connections with like-minded individuals that a sense of belonging is forged within our company. And at Monocle, we ensure that there are ample opportunities to build these bonds. We believe strongly in the power of sport to bring people together and sponsor several teams that compete in both amateur leagues and major events, such as cycling events and triathlons. We host monthly gatherings, which bring our consultants – often spread across several different client sites – under one roof to take stock of the company’s progress, to meet people outside of their direct work teams, and to catch up with friends. We also hold annual events – such as our Family Day – which enable our employees to interact outside of work in a relaxed environment.


We believe that a sense of connection is crucial for increasing motivation and dedication among our employees and it is for this reason that we have placed such a great emphasis on developing a strong company culture. We choose to be a company at which work and the endeavour of being human are indelibly intertwined. As such, we value the social and sporting events and interactions that naturally spawn from our ever-changing culture. Each and every one of our employees contributes to our company culture and each of them has the opportunity to change that culture in a positive way by including their personal aspirations in the make-up of what we collectively call our firm.


We are passionate about our work, but we also believe that this is not just about work.


Opinion Pieces

The most infamous management consultant of all time will most likely forever remain Edward Snowden, who leaked probably the largest volume of US secrets ever whilst working at the National Security Agency (NSA). Recall that it was the Edward Snowden leaks in 2013 that led to the public realisation that the US was unofficially spying not only on individuals under suspicion, but on everyone they could through various surveillance programs.


Few people outside of the business of management consulting realise that Edward Snowden was not, in fact, an NSA employee – but was a Booz Allen Hamilton consultant (Booz Allen Hamilton being a management consulting firm known particularly for its government services work). It is somewhat surprising that even the most secretive of official spy organisations in modern history would use external consultants. Yet, it is even more astounding that an external consultant to the NSA would have access and be privy to America’s most tightly-held secrets.


ContractingIrrespective of what one thinks of Edward Snow­den, and irrespective of whether one agrees that the behaviour of the US government in spying wantonly and relentlessly on its own people, as well as on foreign leaders, warranted Snowden’s enormous and embar­rassing information leak; his ability to do so – to access such confidential information – as a contractor, is telling. It is imperative to understand this, for it is the perpetuation of a new way of working globally, rather than an idiosyncratic case, that enabled Snowden to steal so much high-security information.


Quoting at length from the Vanity Fair article on Snowden from their May 2014 issue, another disgruntled NSA official who turned on the agency, Thomas Drake, had this to say: “The culture of contractors is one of huge elephants in the room. Because 9/11 just opened up the floodgates. We have always had contractors in the government. We’ve even had contractors in intelligence, but historically it tended to be much more circumscribed. What were historically considered government functions only are essentially being outsourced, contracted, to private industry, who are focused on how much money they can make, on shares, on revenue streams. It’s a profit centre.”


Whilst this may sound like an indictment on the use of consultants in government, and in the intelligence community in particular, one needs to remember that the complexity in the systems – software and hardware – required to gather information on the scale demanded after 9/11, was gargantuan. Companies like Booz Allen Hamilton, Dell, IBM, Boeing and Raytheon, all contributed to the effort and were amply rewarded for their work. In fact, the US military even outsourced some of their on-the-ground work in Iraq and Afghanistan to military contracting firms in order to appear to reduce their troop numbers, as well as to perform tasks that they did not wish to perform officially themselves.


The military community and the intelligence com­mu­nity in the US are no different from the Fortune 500 companies in the US, or for that matter anywhere in the world. Large institutions often need assistance in, as the Vanity Fair article so befittingly puts it, “everything an agency could need, from security guards and maintenance staff to satellites and supercomputers”. This new structural work environment, in which significantly important pieces of the overall mission are outsourced to consulting firms, is no longer unusual at all. In the UK banking environment, for example, an enormous proportion of those working on Basel projects or on Anti-Money Laundering (AML) projects, or on other mission-critical pieces of regulatory work, are contractors. This means that they are not formally employed by the banking institution, they can be fired at any time, and they are remunerated on an hourly or daily basis. They do not receive sick leave, there is no company culture to speak of, and there certainly is no Christmas party.


The firms that do employ contractors do so for low margins and they do so in volumes. Whilst this way of acquiring key skills at a moment’s notice does offer efficiency rewards and does allow banks to apparently run leaner, the agency problem rears its head. It is not illogical, for example, to contemplate that a project manager contracted to implement a Basel III liquidity risk measurement and reporting system at a bank – who is employed under a contract arrangement remunerated on a daily basis – would not be overly stressed, should a time extension eventuate out of some kind of technical delay. In fact, purely on a commercial basis, this would suit the project manager in question.


The agency problem is defined as the conflict of interest that is inherent in any relationship where one party is expected to act in another’s best interest. The greater the degree to which the firm separates itself from its own workers, the greater the risk of the agency problem arising. In the new world order, in which technology has made it possible for work to be performed remotely, in which teams can be made up of people who never meet, and in which actual meetings take place on behalf of an organisation in which only contractors and consultants are present, the agency problem can become detrimental not only to organisational efficiency, but also to the people doing the work.


It is important to consider the effects of the agency problem on efficiency within an organisation. But, in observing the Edward Snowden case, it is also worth considering the effects of the agency problem on individual ethical behaviour, especially in making the distinction between employees of an organisation, contractors to the organisation, and consultants brought in to complete a specific piece of work. To many, this distinction between consulting and contracting must seem like splitting hairs. After all, if one works for Booz Allen Hamilton – which calls itself a management consulting firm – then one must be a consultant. But the pasting on of a veneer of company culture will not for a moment distract from the fact that Edward Snowden was contracted to the NSA, for a substantial stretch of time, and was part and parcel of the NSA infrastructure. In fact, his security clearance was specifically high because he was responsible for network security. And, irrespective of how he was remunerated, he believed that he was an NSA man. In fact, it was his conviction that he was working for an unethical organisation that led him to expose what the NSA was doing, that drove him to divulge its most cherished secrets.


But, there is a distinction to be made. For, in a consulting firm, consultants are clearly remunerated on their ability to deliver, rather than on their ability to burn hours. Consultants are trained together to work under pressure in team environments, rather than working alone in disjointed open-plan offices with no connection to their employing firm. There exists a sense of responsibility to the project, in a consulting environment, and to one’s peers, rather than to a timesheet. These are the characteristics that can distinguish consulting from contracting, and in so doing, limit to some degree the agency problem within the target organisation.


It is imperative to realise that whilst there will always exist the agency problem in the world of consulting, the agency problem in the world of contracting is at its most severe. Had Edward Snowden been a member of a Booz Allen Hamilton team, and had that team been managed to deliver, rather than simply provide a stand-in set of skills, then he may have gone to his consulting peers, or to his consulting partner, to confess his moral urge to expose America’s desire to spy on people on a mass basis. Nevertheless, irrespective of what Edward Snowden would have done, his firm Booz Allen Hamilton was ultimately not held responsible for his actions. And this is really the most significant difference between consulting and contracting. A consulting firm will take responsibility for the actions of its consultants; and a contracting firm, profiting from hours on a timesheet alone, will not.



The liquidity and credit crisis of 2007 and 2008 left the global financial community concerned over liquidity risk. Suddenly, multi-national banking groups realised they had to broaden their understanding and measurement of risk beyond market, credit, and operational risk. They needed to be able to anticipate liquidity strains in the markets – and strategise contingent funding.


While Basel II guidelines had not adequately addressed liquidity risk, Basel III proposals aimed to address this, with what are viewed by many as onerous liquidity ratios that were introduced in 2015. The ratios present a conundrum for banks; they need to comply with them, while still maintaining a competitive funding structure. But it’s not the ratios themselves that bring value, it’s the data accuracy and precision they demand.


The validation required for liquidity risk models will actually mean banks can get both an holistic and granular view of their risks. For example, the proposals imply that banks will need to distinguish between different behavioural aspects of diverse customers within a particular product. That means enhanced risk management capability, as well as pricing and customer selection.


If banks want to achieve the ambitions of the Basel regulations – and create a single, integrated platform for liquidity risk management, pricing, capital management, and strategic customer selection, they’ll need to implement a data-centric, market-factor driven, liquidity risk management framework. A framework that integrates credit, market, interest rate, and liquidity risk into a consistent set of metrics. And, in order to get that integrated risk view, and look precisely at the contribution of different risks to the liquidity risk solution, banks need granular data differentiation.


For Monocle, that means a comprehensive measurement and manage­ment approach for deeper understanding of liquidity risk and its potential interaction with other risks. It’s an integrated way to treat Liquidity-at-Risk (LaR). The process enables stress and scenario testing under market crises, leading to quantification of levels of contingent funding. It also helps to find more optimal loan-to-deposit ratios by investigating reliance on the wholesale funding markets.


LaR is a framework that includes simulation of a large number of future cash flow profiles, by replicating the entire cash flow process under each circumstance of contractual cash flows, behavioural cash flows, growth in asset and liability sizes, and interest rate re-pricing of each position. Each simulation offers a picture of how the balance sheet and, ultimately, the cash inflows and outflows, may evolve under different scenarios. Ultimately, it assists banks in anticipating strains, and managing liquidity risk.


Liquidity Risk

When we talk Liquidity Risk, we talk, simply, about “the ability to fund increases in assets and meet obligations as they come due, without incurring unacceptable losses”. When we drill down, liquidity risk encompasses both market liquidity risk; the risk that a position cannot be offset or eliminated without economic loss – and funding liquidity risk; the risk that cash flow and collateral needs cannot be met in the normal course of business.


Conventionally, liquidity risk has been managed and measured within the Asset and Liability Management (ALM) function. But then the strains in the wholesale funding markets in August 2007 and September 2008 highlighted the interrelationships between funding and market liquidity risk, funding liquidity risk and credit risks, funding concentration and liquidity risk, and the effects of reputation on liquidity risk. We now know that liquidity risk is consequential – and cannot be viewed in isolation. So, today, banks veer towards an integrated risk management approach, in which all risk types are measured inclusively.


Monocle’s LaR model quantifies credit, market, liquidity, and interest rate risk using a single set of underlying risk factors, allowing a bank to view various ‘future states of the world’ from an integrated risk perspective. It also allows the risk management function in a bank to isolate the impact of these risk types on the liquidity shortfall for a particular tenor, with a particular confidence level. The goal? A stable, robust metric for the measurement of a liquidity gap, which includes the impact of credit, market, and interest rate risk.


Why LaR Measurement is Crucial

When wholesale funding markets seized up, existing liquidity models failed. Why? Because they were predominantly based on point estimates, rather than LaR distributions. Point estimates cannot accommodate the scenario tests and stress testing necessary to assess a bank’s liquidity position under market extremes, except in an overly simplified manner. The result was that many organisations didn’t fully understand the speed and severity with which their liquidity position would deteriorate in these extreme markets. And banks were not prepared for deleveraging debt markets, in which there were more sellers of debt securities than buyers. The desperate need for liquidity forced many banks to issue debt at previously unthinkable spreads, and liquidate assets at previously unthinkable prices. But if they’d been able to anticipate or predict liquidity strains in the markets – and the contingent funding requirements – that desperation could have been halted.


A contingent funding requirement measure needs to look at the inter-relatedness between different risk types, and give a response on funding requirements with different levels of confidence. Of course, banks are not only funded via wholesale markets, but also by deposits; reflected in the bank’s overall loan-to-deposit ratio.


LaR is a more distribution-based approach to the measurement of liquidity risk, under a range of different market rate scenarios. It looks at the effect that these scenarios may have, not only on the wholesale funding markets, but also on the behavioural aspects of the overnight core to non-core deposit base, and gives banks substantially greater insight.


Who will particularly benefit from this approach? Banks that, in the past, relied too heavily on wholesale market funding, rather than retail and commercial deposit funding. Rapid liquidity deterioration was particularly severe at these organisations, with high loan-to-deposit ratios.


These banks will be able to focus on creating deposit products that have longer periods of limited redemptions, by analysing the differential behaviour of different client types. This will reduce reliance on the wholesale market, identify more ‘ideal’ loan-to-deposit ratios, and may well provide cheaper funding for the bank, affording them the ability to improve pricing.


All that is needed is a commitment to carefully monitoring the metrics, to enhance their understanding of funding volatility and the specific circumstances that could result in a sudden funding requirement. The bank will also be able to continuously monitor access to money markets as a function of evolving macroeconomic conditions.


This increased awareness will provide the breathing space needed to strategise alternative funding mechanisms – before any seizing up of liquidity markets. Ideally, it can also offer real-time identification of the order in which assets should be liquidated and made available for liquidation, depending on the expected duration and severity of liquidity strains.


So how does it work under each circumstance of contractual cash flows, behavioural cash flows, growth in asset and liability sizes, and interest rate re-pricing of each position?


Behavioural Modelling of Product Cash Flows

The LaR Model is derived from a distribution of simulated economic factors, which drive simulations of the bank’s balance sheet and results in simulated net cumulative cash flow (NCCF) profiles over the funding horizon. Distributions of the bank’s NCCF at different times are generated as the outcome of factors impacting the behaviouralisation of product cash flows over defined intervals.


The framework simulates many versions (say, 100 000) of future cash flow profiles by replicating the entire cash flow process under each circumstance of contractual cash flows, behavioural cash flows, growth in asset / liability sizes, and interest rate re-pricing of each position. Asset Liability Management (ALM) is generally responsible for predicting the value and timing of daily cash inflows and outflows – both on a contractual and a behavioural basis.


Contractually, the cash flows of assets, liabilities, and off-balance sheet items are known with relative certainty. Term loans, which follow standard amortising schedules, stipulate a monthly payment from the term loan customer. These cash flows can be disaggregated into interest and principal components for simulations of Net Interest Income (NII) and other measures of bank profitability.


There is, however, no world-wide standard on the contractual terms or conditions which may be imposed on a bank’s products. Cash flow functions must be customised to cater for the unique product types and payment structures a bank offers its customers.


The risk, across many product types, is that the cash flows expected under the contractual profile are different from actual, experienced cash flows. This is because of the options customers have to deviate from the initial terms and conditions of their account; Pre-Payment Risk (the risk that a customer will repay an asset before the contractual maturity date); Early-Redemption Risk (the risk that a client will withdraw a deposit before the contractual maturity date); or Rollover Risk (the risk that a liability will reach a maturity date, and a higher funding cost is demanded by the depositor to roll it over). But it could also be because of behavioural market impacts, such as credit risk, resulting in the cessation of a particular set of cash flows.


Behavioural modelling, using econometric techniques and statistical methods, can estimate future client behaviour, and transform the results of these models into predicted cash flows. It also includes statistical techniques used to predict the behaviouralised cash flows of portfolios of fluctuating products, such as savings and current accounts. Simply, it adjusts contractual cash flow calculations to reflect the most likely client behaviour in the future.


As a rule, behavioural models used by banks have typically been long-run averages of past behaviour, so they’re not sensitive to the prevailing economic environment, or potential future economic developments. But it is possible to directly relate the level of each behavioural risk to an economic factor. Let’s look at pre-payments, for example. We can create a statistical model which relates levels of pre-payments in housing loans to selected interest rates or interest rate changes. Logically, as interest rates decrease, banks and their competitors are able to reduce the level of interest charged to products such as housing loans. And, of course, offers of lower rates entice customers to refinance.


So we can estimate the level of prepayment on sub-portfolios, given the prevailing level and changes in key interest rates. Behavioural cash flow models address the full range of possible behavioural adjustments for each and every product, for diverse client types.


There are also other behavioural aspects that impact the assets and liabilities side of the balance sheet. In particular, banks tend to lend on an internal or ‘prime’ rate, which is adjusted non-linearly to prevailing market rates. And, much liquidity risk modelling has excluded the impact of business growth and budgeting and forecasting targets. What we need to do, then, is include interest rate sensitivity models and asset/liability portfolio growth models with a holistic consideration of liquidity risk behavioural models.


Interest Rate Sensitivity

Cash flow amounts are usually dependent on the amount of interest charged on/accrued to the asset/liability. One of the challenges faced in modelling future cash flows, is the fact that bank rates are often deter­mined by the bank itself, rather than by the market. This is problematic when predicting the bank’s response to changes in market interest rates.


Our methods would estimate the relationship between a change in market rates, and the resulting change in internal lending and deposit rates. This is then input to a simulation to determine the level of interest charged on individual and corporate accounts, and therefore the value of projected cash flows.


For products with a reference rate based on an internal lending or deposit rate, rather than a market rate, Monocle has a methodology to predict future levels of internal lending and deposit rates, given the levels and changes in market rates.


Historically, there’s been a strong relationship between internal rates and market rates, but this may not always be the case. As market rates decrease, banks generally apply these ‘savings’ to their customers by reducing internal lending rates, to remain competitive. Similarly, as market rates rise, the banks pass these costs onto their customers by raising internal lending rates.


By looking at 5 to 10 years of market rates of all tenors, we can estimate the relationship between these rates and internal bank rates over the same period. This relationship can then be embedded within a statistical model which translates movements in market rates into a probability of change for internal rates. When the probability of change reaches a key value, the reference or prime rate is assumed to increase or decrease, depending on recent movements in market rates.


Since market rates are easier to simulate and project into the future, the model allows the bank to understand how each market rate scenario in a large simulation (typically 100 000 iterations) translates into changes in internal rates, resulting in a prediction of internal rates into the future. This can then be used for Net Interest Income (NII) and other profitability scenario analyses.


Asset/Liability Portfolio Growth Models

Typically a liquidity risk model is premised on a run-off basis, where assets and liabilities are not replaced as they reach maturity, or on a business-as-usual basis, where assets and liabilities are replaced as they mature. However, to achieve true business value, we need to understand at a product level, and at a client-type level, what the growth in a particular asset or liability will be. LaR is an ‘adjusted business-as-usual’ approach, in which a projected growth in each asset and liability portfolio, as a result of changes in economic factors, is taken into account.


As part of the simulation process, there is a series of techniques to predict the future growth in asset and liability values on a bank’s balance sheet. The models rely on the historical relationship between growth rates and interest rates, which can be combined in a multi-variable regression. Of course, we know that relationships between interest rates and growth levels have not always remained intact – particularly in the recent financial crisis. Market interest rates (interbank rates) have been near all-time lows for some time, which, under normal circumstances, would be a leading indicator of higher growth rates. But financial institutions have decreased their appetite for risk, and for extending credit, drastically reducing growth levels below what would normally be expected.


Because of this, growth models incorporate a “desirability” factor, which is a numerical indication of the bank’s appetite for extending credit, or for growing a particular product type. This “desirability” factor adjusts the output of the growth models, which are purely linked to interest rates.


Economic variables other than interest rates can also be taken into account, particularly those variables which are shown to be leading indi­cators, such as economic variables; inventories, sentiment indices, and money supply growth.


Combining Predictive Models in the LaR

LaR typically requires generating 10 000 to 100 000 simulations of underlying market factors over a one-year horizon. At a minimum, LaR will use simulated market interest rates as a driving economic factor, because interest rates usually show the strongest predictive power in behavioural modelling. The interest rate simulation produces 10 000 to 100 000 observations of possible future interest rate paths, along with paths for other market factors.


These interest rate paths, and other market factor paths, are used to drive the contractual cash flow models, the behavioural cash flow models, growth models, and interest rate re-pricing models. These models interact to provide a picture of how the balance sheet ‘evolves’ over time. New ‘synthetic’ accounts are created to compensate for predicted growth value, and cash flows are, in turn, calculated for these new accounts. The replication of the balance sheet is an image of how the future balance sheet may look.


One method we use is to hold interbank activity conducted by the bank constant over the funding horizon, to measure the bank’s reliance on the interbank market in times of heightened demand for liquidity. With the foregoing assumptions and processes in place, the simulation is run. At each month during the horizon, it’s possible to measure the liquidity gap on a point-in-time basis. Simply, the cash inflows and outflows are considered in isolation, to assess whether that month’s liquidity gap is positive or negative.


At the end of the one year horizon, for example, banks can calculate a distribution of possible one year Net Cumulative Cash Flows (NCCF). This is the sum of all twelve point-in-time liquidity gaps over the year, representing an accumulation of cash flow shortages, or excesses, from the beginning to the end of the year. At the 99.97 percent confidence level for example (consistent with a AA rating), LaR will be the 31st worst observation in this distribution.


LaR simulates the progression of a portfolio’s value through time – how cash flows should behave, how balance sheet values should change, and ultimately the cash inflows and outflows that result from these changes. It is known as a dynamic portfolio approach as the methodology assumes that the portfolio is constantly changing as loans mature and new loans are created. The goal of LaR is to produce 10 000 to 100 000 values for the NCCF at the desired horizon, which could be overnight (1 day), 7 days or monthly, from 1 month to 12 months.


What that does is make it possible to assess the maximum possible liquidity shortfall over a one year period, as well as at different points through the one year period, given that interbank activity has been held constant. It may even serve to mitigate against the probability of a severe funding shortfall arising in the first place.


The LaR framework, essentially, is about bespoke models, methods, and techniques that assist banks in managing their liquidity risk. So that we may be able to predict, anticipate and prepare for the next time we’re in an extreme market crisis; instead of fumbling around desperate for liquidity, wondering why we didn’t see it coming.


Opinion Pieces

There is a new and growing genre in bookshops that conceptually sits somewhere between Politics, History and Economics. It should properly be called Polemics, but the purveyors of the written word will generally place this new material either on their History shelf or on their Economics shelf – possibly through a misunderstanding of the purpose of the books, or simply because they do not have Polemics as a dedicated section.


More likely, however, it is because polemical writing is usually about something, or more specifically about undermining something – such as politics – rather than being something in and of itself. Its underlying topic – if all polemics were to be grouped in their own section of a bookshop – would be a smorgasbord of confusing subjects. You would have Nassim Taleb’s Fooled by Randomness sitting alongside the holocaust denialist David Irving, rather than finding their books in the Economics and History sections respectively.


As it stands, Nassim Taleb is generally to be found beside luminaries such as Joseph Stiglitz, truly a case of putting the cat among the pigeons; and Irving’s Hitler’s War, insultingly, will be found sandwiched between David Stevenson’s The History of the First World War and Philip Short’s Pol Pot. Or worse, even in a respectable bookshop, it is not an impossibility to find Irving’s Goebbels: Mastermind of the Third Reich – a study in historical revisionism and a sycophantic nod to one of history’s worst psychopaths – hugging the jacket of William L. Shirer’s The Rise and Fall of the Third Reich, the definitive tome on how it was possible for Germany to allow the dominance and banal evil of Nazism to overcome them.


In the case of Nassim Taleb, whilst his books on the surface would appear to be about the financial markets and risk prediction, they are really and truly purely polemical pieces of invective against all – really all – economic modelling, infused with a sociopathic dislike of most economic thinking. They are frustratingly inconclusive and unhelpful in their results, appealing to a mysticism of perspective, and at best invoking little more than fear. In Irving’s case, despite the distasteful position he adopts, there is at least some academic basis, but his work quickly falls prey, both in its arguments, and in its facts, to his undeniable anti-Semitism. His purpose is no different to that of Trump’s advisor Steve Bannon, previously the chairman of Breitbart News, and about as right-wing a commentator as one could find in a liberal democracy at present. His purpose, clothed as academic history, is really a political purpose, a manifesto.


It is therefore one of the ironies of bookshop browsing as a casual activity that the observant browser will, on occasion, be able to identify the polemics amongst the historians, the economists, and the politicians. The ‘art’ of vociferous argument, infused with sarcasm, fraught with diabolical assumptions, aggressive in tone, and dismissive of scientific balance as a genre of writing, is often scattered, unbeknown to most, throughout the bookshop, like the spies who were embedded in European cities such as Berlin and Brussels, posing as artists and journalists, and clerks, during the height of the Cold War.


To further confuse matters, one needs to stress that there is a distinction to be made within the genre of polemical writing itself. A lot of it is bad, and some of it is good. There is nothing wrong per se, in taking on, right from the start, a strong position in one’s argument, and pursuing that argument with vigour, whilst also acknowledging the existence and roots of the thinking and philosophies one is attempting to undermine. That is a very different matter, however, to writing a pure manifesto, picking one’s ‘truths’ out of context, perhaps even taking things further and engaging in the new and oddly accepted art of ‘post-truth’, exemplified by the phenomenon of President Trump’s tweets.


When an esteemed long-in-the-tooth publication such as Time magazine finds it necessary as recently as April 2017 to publish an issue on a solid black background cover, with the words only ‘Is Truth Dead?’ in the colour red, then it is apparent that there is value in making the distinction between good polemics and bad polemics. Good polemics inherit their value from the art of polemical writing, a genre and form of entertainment, and an essential part of the history of academic debate going all the way back to the Forum in Greece three thousand years ago, from bad polemical writing – the writing of unadulterated lies in an effort to justify, and to recruit, and to cloud better judgement. The worst forms of polemical writing are no different to the pamphlets distributed at right-wing rallies, preying on fear, urging immediate and thoughtless action. To a large extent, the trouble lies in the value of truth one ascribes to the published word, irrespective of its true agenda.


Good polemical writing has a long history, stretching back to Greek and Roman literature, but in its modern form – post World War II – it finds its most strident voice in writers like Christopher Hitchens. In the passage of his oeuvre one can trace his transformation from war reporter, to essayist, to activist, and polemicist and finally, in his dying days, to biographer. If one is looking for something written by him, one is going to have to look in several sections within the bookstore: to find Hitch-22, his confessional autobiography which eclipses in excellence all his previous work, is easy – just go to Biography. Whereas to find his vitriolic attack on Mother Theresa – titled The Missionary Position just to give an idea of its tone – is far harder. It could be anywhere – in History, in Politics, in Religion, or even in Economics.


This is the trouble with the new genre within a genre of left-leaning political writing that has emerged out of the ashes of the liberal agenda – in the wake of the political sharp right turn that has overtaken western democracy in the past eighteen months. It is writing that is infused with the anger that is felt by the democratic middle-class and whose mantle is carried by the left-wing, primarily US-based, academic. One thinks here of Edward Said, whose career has been spent deconstructing the Western notion of the Middle East. It is intelligent, insightful, factually accurate writing – but it is also angry.


Another US-based author, whose intelligence and academic credentials allow her to adopt a vitriolic style without descending entirely into the realms of political manifesto is Naomi Klein. Her two most significant contributions have been The Shock Doctrine – The Rise of Disaster Capitalism and This Changes Everything, her diatribe on climate change. In both cases an academic style, rooted in fact and analysis, is not intrinsically directed to add to a growing body of analysis and argument in a traditional scientific sense, but is rather a full-blast attack on our sensibilities, aiming, as per her title, to shock us towards change.


The entire purpose of her work is to achieve social and political change through her word, rather than to be canonised in a literary sense. She is capable of the latter, but her purpose is the former. This is a genre that includes at its roots Karl Marx’s Capital: A Critique of Political Economy. To give an idea of the extent to which polemical writing has become mainstream, one only needs to look at the praise The Shock Doctrine received. Tim Robbins as an example said of the book, “It could very well prove a catalyst, a watershed, a tipping point.”


When picking up a book like Jane Mayer’s Dark Money: How a Secretive Group of Billionaires is Trying to Buy Political Control in the US, one should ready oneself for a political speech rather than an enjoyable historical discourse or a reasoned argument. Naomi Klein called Mayer’s book “utterly brilliant and chilling”, and that is precisely how we are meant to feel: terrified. The generic argument goes something like this: since World War II and the Bretton Woods Agreement, since the establishment of NATO, since the imposition of the World Bank and the International Monetary Fund and other untold evils imposed upon the world, the rich have got richer and the poor have got poorer.


What is worse, Mayer argues, is that we have been duped – we have bought into the notion of capitalism and we have forgotten that it is not necessarily married to democracy, that the two can be separated. And meanwhile – other than impoverishing the Third World, and replacing jobs with robots – we are also destroying the planet. If we don’t stop now, it will all end in Armageddon. Mayer’s take on the topic is to veer towards conspiracy theory and conjecture, digging deep into specific organisations and shaming the individuals who have profited from the political control they wield through economic domination.


Reading this type of book can sometimes feel like that conversation you find yourself in with an old friend from university you haven’t seen for a while. They used to be a little intense, but you had no idea that over the ten years since you’d last seen them they had become evangelical – either towards Fundamental Christianity or towards climate change.


Climate change evangelists are no less vigorous in their proselytising than Fundamentalist Christians, or Tea Party right-wingers for that matter. You come away feeling that you are given no time to consider your options – agree now immediately and adopt the mantle, or you will be cast away as a victim of mainstream oppression. And there is no shortage of such evangelical and angry writing in the new literature of economics: there is Wolfgang Streeck’s How Will Capitalism End? and there is also Yanis Varoufakis’ And the Weak Suffer What They Must? In Varoufakis’ case, to be fair, his brief stint as Minister of Finance during Greece’s battle with the IMF over the question of austerity is enough reason to give his book more than a cursory glance. Streeck’s book, despite its academic prowess, and its innumerable facts and figures, never actually answers its eponymous question.


In this vein of academically-based work, angry and immediate in tone, and on the topic of the apparent failure of capitalism, Paul Mason’s book Postcapitalism: A Guide to Our Future, makes for interesting reading. Rather than focusing on the notion that through exposing the ills and evils of the modern capitalist framework readers will be more informed – and therefore more active in their resistance to capitalist oppression – Mason takes on a far more ambitious task. His book truly is a manifesto: it argues essentially that the battle between socialism and capitalism is already over – that socialism is not the only alternative to capitalism, that capitalism is already failing and is being replaced with what he terms ‘postcapitalism’. He argues that the ideals of postcapitalism can achieve a more equal world only if his specific steps and milestones are followed.


The skeleton of his manifesto is clearly laid out in the preface to the book. He writes, “So, I want to propose an alternative: first, we save globalisation by ditching neoliberalism; then we save the planet – and rescue ourselves from turmoil and inequality – by moving beyond capitalism itself.” Whilst it is not entirely clear what this would mean – insofar as moving beyond capitalism is concerned, even in the later chapters – he is at his clearest when describing the forces that will drive this change. The kernel of his idea is that a ‘networked economy’, exemplified in his idea of ‘networked individualism’ rather than in the old notion of the ‘community-based’ worker – and driven by new technology-enabled capabilities – will achieve the benefits of postcapitalism.


Once again, these benefits are, at best, opaque – even after a thorough reading. Of course, there are throughout the book the use of broad-stroke statements in respect of reduced inequality, and enhanced individual efficiency and a new kind of government. But there is little that one can really call a defined outcome. Where he is most insightful, however, is in his analysis of the processes he claims as the key driving forces behind postcapitalism. Specifically, in describing the three impacts of the ‘new technology’ on the old notion of the market-driven neoliberal economy, he is fascinatingly original.


“First,” he argues, “Information technology has reduced the need for work, blurred the edges between work and free time and loosened the relationship between work and wages. Second, information goods are corroding the market’s ability to form prices correctly. Third, we are seeing the spontaneous rise of collaborative production: goods, services and organisations are appearing that no longer respond to the dictates of the market and the managerial hierarchy.”


His third point is palpable already in every aspect of our lives, from the way the consumer purchases goods online, to the rise of peer-to-peer lending, to the use of cryptocurrencies as viable exchange alternatives. Probably the best example of ‘collaborative production’ is Airbnb, which breaks and transcends international boundaries, personal space boundaries, and has significantly upended not only the hotel industry, but also the entire tourism and travel industry. In respect of his second point, it is easy to think of examples in which market prices are no longer correct – at least for periods of time. There are, after all, well-documented cases in which market prices have been significantly manipulated by individuals and firms that have cynically corroded the market system – the prices of oil or aluminium as examples, or LIBOR for that matter.


Mason, however, is at his best when dealing with his first point – that technology has radically and permanently altered the nature of work itself. In describing the opacity of distinction between working within a community, and living and existing for oneself, couched in the term ‘networked individualism’, Mason cites the work of London School of Economics professor Richard Sennett. Sennett specifically studies the impact of greater job flexibility within the new highly-mobile hi-tech workforce.


Mason, paraphrasing Sennett, writes compellingly: “If work rewards detachment and superficial compliance, values adaptability over skill and networking over loyalty… this creates a new kind of worker: s/he is focused on the short term, in life as in work, and lacks commitment to hierarchies and structures, both at work and in activism.”


It is worth going further and quoting Sennett directly. He writes: “The conditions of time in the new capitalism have created a conflict between character and experience, the experience of disjointed time threatening the ability of people to form their characters into sustained narratives.”


And this really is the trouble with the new polemicists, and with economic and political writing in general – that one has to sift and wade through mountains of words, most of it banal or arrogant or reductive, to come across this nugget of pure gold. What an especially compelling and insightful observation to bring to the lay reader’s attention: that new technology and the phenomenon of social media, in tandem with the erosion of a stable work environment, has created an individual who lacks character, who is fragmented.


And this is why we find ourselves in the midst of an all-out battle to save the ideas at the heart of liberal democracy – choice, freedom, courage, community, empathy, truth – in a world of Donald Trump and Marine Le Pen and Nigel Farage. We are not overcome by political forces that peddle fear, who shut borders, who threaten violence, who feed on distrust – because they have good ideas. We are overcome by them because we have become fragmented by the very technologies and changes that we long ago accepted and embraced.


We are an Instagram, selfie generation. We post ourselves and our lives on Facebook, but mainly we post ourselves. If there is any doubt in anyone’s mind of the extent to which this is true, simply observe the following: as of writing the value of Facebook is USD 420 billion, whilst the value of General Electric, which differs in that it is a company that makes many useful things from refrigerators to jet engines, is valued at USD 250 billion.


Of course, it would be tremendously naïve to nostalgically wallow in dreams of a previous time. That would be to forget that those same times had their own post-truths – the imminent Russian invasion, the space race, the segregated US South, and of course apartheid – but Mason’s hidden nugget of truth is a blow to the gut. Of course we lack conviction in community, and of course we lack empathy. There really is no space in our lives for activism when we are so enamoured with ourselves in such a fragmented reality. There are various versions of ourselves: the one who goes to work, the several on social media, and the one in which we are part of a community. And in blending them, we have become less significant to others, and more significant only to ourselves.


It is a pity really that there is such a plethora of impassioned – yet unbalanced – writing on a topic as important as our political and economic future. And it is a pity too that there is such a dearth of reasoned analysis that would provide cogent proposals for change – proposals that would not necessarily require the adoption of an evangelical stance. There is danger in crowd psychology, and the adoption en masse of simplistic ideologies.


Opinion Pieces

We arrived by taxi at the track for the Saturday qualifying session and we were late. We had been held up by some poor planning, by breakfast at the hotel, and by the line of traffic that had begun at least three kilometres from the main entrance to the Circuit de Catalunya. Breakfast had been wolfed down at the hotel on the beachfront of Barcelona. In retrospect, we should have just grabbed some croissants and headed out earlier.


The Circuit de Catalunya is forty-five kilometres out of Barcelona proper, and sits in the foothills between the Catalan capital and Girona, and it seemed to us that the entirety of Spain had decided on the same itinerary as us – qualifying on Saturday, a tour of the paddocks, and the main races on Sunday. We got out of the luxury sedan we had been provided by the hotel and walked the freeway to the main gate and found ourselves run-walking in childish excitement to just get into the stands.


Security queues held us up, but it was no matter. The sheer number of fans for the 2016 MotoGP weekend in Catalunya, and the obsession that the Spanish have for the sport, had us in awe. There were thousands and thousands of people who had arrived on bikes. The sound of the machines ran like a base undertone throughout the Circuit complex, every now and then punctuated with the scream of an unencumbered monster GP bike hitting 320 kilometres per hour down the main straight. Even in the parking lot, it was heaven.


When we finally got through security and found our seats, we began to sense an undertone of strange stillness, of sadness. Luis Salom, we learnt, a Moto 2 rider, had perished in the Friday afternoon practice session, inexplicably failing to make one of the last turns of the Circuit, and sliding at high speed into a barrier wall, his heartbeat ceasing on the helicopter flight before even reaching the hospital. He was twenty-four years old.


We could feel the sadness of his death hanging over the Circuit – there was something awkward about being there, about celebrating this arena of racing at the very limit of human endeavour, when that limit had already been crossed. I made a comment then to my friend who had joined me in Spain to see the main race and to see Rossi, our hero, that in our world – today’s world – the gladiators are not meant to die.


That discomfort had to pass however. We had to see qualifying, as did the crowds around us, and we shuffled along through the retail stands – Valentino Rossi caps, Marc Marquez caps, Lorenzo shirts and caps, Honda Repsol colours, Yamaha colours, Ducati colours and the paddock girls, geared up in heels and make-up and the gaudy unashamed in-your-face marketing that somehow makes the whole image even more alluring, not less. In some ways, I told my friend, it is like walking through a market in Jerusalem – so many conflicting ideas and views of the world vying for our attention. One must just pick one’s hero.


Of heroes, for us – as for most – there was and remains only the one. Rossi. His very name evokes meaning – meaning that is decoupled from the naming of the man himself. He is a brand, yes, but he has now transcended even that status. He is now an idea. Of the man Valentino Rossi, we can say this: he is a phenomenon, he has changed the way racing is executed at the highest level of the sport, he is a joker, he is a clown, he is a businessman, he is a beautiful man, and he is nine-times world champion. Of the idea – of the idea we call Valentino Rossi – we can say far more. But to do so would first require that I explain why I love the motorcycle racer called Rossi.


There are two things I particularly love about Valentino Rossi. The first is the way he races against his rivals, usually Marquez or Lorenzo through the 2015 and 2016 seasons. He races from behind to beat them through wiliness and through courage and by hook or by crook. He is unrelenting – and for this many despise him. He races to win and he does so without a doubt in his head that he deserves to win, not because he is better than them – because truth be told he is not – but because he is more realised than they are, as a man and as a human being.


You can see this in the way he rides: I challenge anyone to deny this. He is racing in a higher state of self-realisation than any of his competitors. He does not arrive at this arena of human courage with the youth and fearlessness of Marquez, nor with the precision and coldness of Lorenzo, nor with the flourish and gusto of Dovizioso – he arrives not for his career, nor even his fans, nor even for himself. This is not what he does, this is who he is. And this is truer in his case, than in any other, regardless of the sport.


The second thing I love about Rossi are his brief interviews post-race, and there have been many. In these brief flourishes with journalists waiting by the pits, he embodies the very essence of the Italian man: he gesticulates, he pontificates, he shrugs, he smiles. But behind his eyes is a childish spirit, a primordial joy, a lack of adulthood really, in which one can see – only just see that is – that for him, this whole thing, this whole journey, all his wins and his entire career, and the crowds and the fans, are to him surprising and to some extent – well – funny. He is amazed, to this very day that he gets to do this: to race motorcycles and to be adored for it. His joy is palpable and it is innocent and it is that of a child. And in this he is unique.


So those are my two reasons for loving Valentino Rossi. But, like most heroes – like Achilles, like Spiderman, like John F Kennedy – there are faults, there are on occasion moments of hubris; and in Rossi’s case, there is the problem for my friend and I on that particular weekend at the Circuit de Catalunya that Rossi had not won a race for some time.


We watch qualifying from an air-conditioned lunch spot that sits three or four stories up across the racetrack from the main stand on the main straight. The riders are breaking 320 kilometres per hour as they pass us, so most of the qualifying is watched on a TV set-up as the bikes blast by behind us like rockets. Intermittently, we go onto the balcony above the track and watch the speed of the machines and the men on the machines as they pass. Just to see the sheer speed of it. It is horrifying and beautiful to see, a flash of colour, and the sound – the sound is awesome.


One sees the bike and the man on the bike in that moment as one thing, for if one didn’t – if one separated the two in one’s mind – the danger of it, the proximity to death, would be too much to bear. I want to tell my friend this thought, I want to convey to him this idea, but I balk at the moment I am about to utter it. Because it cannot be said. Not then, not while the spectacle of this all is actually taking place. Perhaps later.


Rossi, as it happens, qualifies poorly. At least not too badly, but by no means is he in pole position. Marquez is phenomenal. Marquez may be taking risks, but they are not risks that are visible to us, even in the TV slow motion shots. He appears to be impenetrable. And then there is Lorenzo. Our fear is that if Lorenzo gets out in front on the main straight and is the last to break on the right-hand corner at the end of the straight and he takes the lead, the other riders will never see the front of him again. It would be awful, I comment to my friend, to travel all the way to Catalunya to see such a thing. He nods his agreement. It would be awful, he says. Or for that matter, if Marquez gets out in front, I say. Yes, he says, but it would take a miracle for Rossi to win. He is tempering my expectations. Managing them to the extent he can. Why, I wonder, would I expect Rossi to win in Catalunya just because we have travelled to see him. It is illogical. We are not regular fans. We are connoisseurs of the sport. But still, if only Rossi would just win – why not on this one day, for us?


That night we go out and we imbibe in the spirit of Barcelona and we take responsibility for ourselves and for the moment and for the occasion. We do not over-indulge because we wish to reach the Circuit the next day fresh and in full essence and in connection to the track and to the possibility of a Valentino Rossi win. We watch Moto 3 from the stands at the last corner before the main straight – the battle between the fledgling racers whose careers in this division will either end after a few seasons, or will lead them to Moto 2, and then possibly on to the pinnacle of the sport, the sharp end. Where Rossi lives and battles.


There are crashes, as there always are in Moto 3 and as we walk along the track to the main stands to our luncheon we hear the voice of Brad Binder and his complaint at the riding style of his competitors and of the disappointment in his loss. We miss most of Moto 2, although we catch the start – the revving of the machines as the riders wait for the red lights to count down, and we see that very moment of clarity that exists at the interstice between stillness and movement, before these monsters of noise leap into action. It is surreal.


The balcony from which we watch the start of the main race is too packed to really make out the riders. I find myself jostling for position and I give up and go inside and join my friend in front of the TV. Rossi at turn one is down to fifth or sixth, I cannot recall exactly, but he is at least still in the mix. I am between two worlds: on the one hand, there is the comfort of the Dorna executive lounge, the canapes and the detail one can see of the race on the TV screen; and on the other there is the immediacy and reality of what is taking place just metres away on the balcony.


I flurry between both, in a schizophrenic daze, anxious as time is moving forward, the laps and the experience tumbling away, too fast. The crowd roars, I rush outside, there is a sea of green vr46 flags – Rossi’s race number for the past decade – waving wildly on the main grandstand opposite. Rossi has made it past two riders into third place. I am now pumping my fists into the air, screaming Rossi’s name with the rest of the balcony. He takes second position breaking late and dangerously and finally passes Marquez in a gladiatorial battle that goes on for several laps. He takes first position and is able to hold it.


I am standing now at the edge of the door to the balcony, on my toes, peering over the sea of spectators to catch a glimpse of Rossi’s green Yamaha take the final right-hander into the main straight to take victory. The commentators on the TV are going wild and the crowd outside is going wild and it is beautiful. We are jumping up and down like children, even the German man travelling on his own whose conversation over lunch has been dry. For some reason I hug him.