Latest / Merryn Talks Money / Permira's Kurt Björklund: Where Are We in the Private Equity Cycle?

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Permira's Kurt Björklund: Where Are We in the Private Equity Cycle? · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. If you'd like to
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  Speaker 1: hear more from us in our wonderful colleagues at Bloomberg
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  Speaker 1: don't forget, You can sign up to subscribe to Bloomberg.
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  Speaker 1: See the link in the show notes. Welcome to Meren
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  Speaker 1: Talks Money, the podcast in which people who know the
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  Speaker 1: markets explain the markets. I'm Maren zums Web. This week
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  Speaker 1: I'm speaking with Kurt Bejuckland, executive chairman at Pamira, one
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  Speaker 1: of the world's leading private capital firms. Premier managers over
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  Speaker 1: eighty billion euros and led two of the largest tech
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  Speaker 1: deals in twenty twenty four, taking both Squarespace and Adminter
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  Speaker 1: private for seven point two billion and fourteen billion euros respectively.
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  Speaker 1: Kurt became executive chairman in twenty twenty four. Haven't been
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  Speaker 1: the managing partner since twenty twenty one and co managing
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  Speaker 1: partner since two thousand and eight. Kurt is joining us
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  Speaker 1: today to talk about exactly where we are in the
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  Speaker 1: private equity cycle after a couple of fairly dismal years,
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  Speaker 1: and also to discuss the themes over the next ten
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  Speaker 1: years and exactly who private equity is suitable for. Kurt
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  Speaker 1: thank you so much for joining us today. We really
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  Speaker 1: appreciate it.
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  Speaker 2: Marian, thank you for having me. It's a great pleasure.
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  Speaker 1: We'll find out.
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  Speaker 2: I'm looking forward to this conversation right now.
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  Speaker 1: We've talked a lot about private equity on this podcast
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  Speaker 1: over the last few years, and we've watched it go
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  Speaker 1: from a sector that has regular reported outperformance to regular
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  Speaker 1: report it under performance. And we've seen three years of
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  Speaker 1: difficulties in this sector pretty much since interest rates started rising.
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  Speaker 1: So why don't we start by talking about the sector
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  Speaker 1: as a whole. Set the scene for us. Are we
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  Speaker 1: near the end of this difficult period? What happens next?
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  Speaker 2: Yeah? So I think that's a profound question which which
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  Speaker 2: needs to be looked at through a long period of time.
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  Speaker 2: So I joined what became Premiere twenty nine years ago,
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  Speaker 2: and this is the third megacycle. If I use that expression,
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  Speaker 2: then I see now and they actually have turned out
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  Speaker 2: to be relatively predictable in how they roll out. So
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  Speaker 2: you have a period of performance, then some exuberants, you
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  Speaker 2: have a lot of capital coming in, and then some
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  Speaker 2: sort of art attach, typically in markets or macro And
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  Speaker 2: in the end of the dot com period, it was
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  Speaker 2: excessive capex investment into telecom stuff, and then in the
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  Speaker 2: financial crisis it was excessive leverage in some corners of
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  Speaker 2: the financial markets coupled with valuations driving too high in
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  Speaker 2: some areas. And what we see now is this period
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  Speaker 2: through COVID, then the great inflation bump leading to rates
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  Speaker 2: resetting from kind of zero to kind of four percent,
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  Speaker 2: and the industry having in some corners discipline in that
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  Speaker 2: period of time, and then a very significant reset in evaluations,
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  Speaker 2: and that has then led to an exit digestion problem,
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  Speaker 2: which you've seen in the industry not driving enough exits
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  Speaker 2: in twenty two, twenty three going to twenty four. And
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  Speaker 2: then at the same time you've had this remarkable period
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  Speaker 2: of public markets performance where over the last three years,
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  Speaker 2: I don't know how many people would have guessed in
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  Speaker 2: twenty twenty two that were set up for three years
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  Speaker 2: or continued ball market, but that's what's happened in the
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  Speaker 2: public markets. You know, whether that's we can talk about
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  Speaker 2: what there's bubbles, whether there's not bubbles, but that's a fact.
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  Speaker 2: So you look at the private equity industry, which over
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  Speaker 2: the very long term, has done I would argue a
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  Speaker 2: really good job for the right investors in that ASA class.
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  Speaker 2: We'll talk about why. But over the last three years
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  Speaker 2: or so has not looked good enough comparatively in terms
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  Speaker 2: of ail equidity lock up that it does compared to
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  Speaker 2: what the public markets have delivered.
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  Speaker 1: Yeah, I mean, I think it's worth saying that the
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  Speaker 1: major underperformance has come in the last three years, and
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  Speaker 1: in particularly with this extraordinary performance from the US equity markets.
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  Speaker 1: But we now see there was lots of reporting earlier
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  Speaker 1: in the year about the State Street Private Equity Index,
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  Speaker 1: which now has been out performed by the S and
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  Speaker 1: P over pretty much every time period out to ten years,
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  Speaker 1: and so that was a bit of a shot for
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  Speaker 1: the private equity industry those performance numbers. I know that's
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  Speaker 1: listed private equity funds, but nonetheless.
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  Speaker 2: Well it's listed private equity funds. I think there's a
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  Speaker 2: lot of stuff that masquerades as private equity in the
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  Speaker 2: markets today, and we should talk about what private equity
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  Speaker 2: actually means. Private equity is a governance model with a
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  Speaker 2: very significant competitive advantage compared to In my opinion may
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  Speaker 2: be biased, but I've seen that play through for a
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  Speaker 2: long period of time over in many cases, the public
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  Speaker 2: governance model and that advantage governance model leads, when apployed
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  Speaker 2: properly in the right situations, to an alpha that is
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  Speaker 2: really undeniable over time.
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  Speaker 1: Why don't we stop there then, just to tour bin
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  Speaker 1: rather than let's lose the flow that we had of
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  Speaker 1: talking about where we are in the cycle and stop
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  Speaker 1: briefly to talk about what that governance model is in
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  Speaker 1: your few Because, as you say, there's an awful lot
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  Speaker 1: of stuff out there calling itself private equity. The spectrum
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  Speaker 1: is huge. What does it mean to you?
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  Speaker 2: Yeah, what private equity means to me is controlled by
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  Speaker 2: out governance. So private equity GP.
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  Speaker 1: So, just before we go any further, because not all
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  Speaker 1: of our listeners a completely expert in this area, GP
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  Speaker 1: sends for general Partner, which in the world of private
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  Speaker 1: equity refers to the active manager of the private equity
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  Speaker 1: investment fund.
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  Speaker 2: So private equity GP buys first of all, does great
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  Speaker 2: assets selection, so picks out of one hundred companies that
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  Speaker 2: you could buy, you pick the one or the five
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  Speaker 2: that really fits your capabilities. The markets become super specialized
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  Speaker 2: these days, so you know, some firms are phenomenal at
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  Speaker 2: FARMA investing and other firms are phenomenal B to B
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  Speaker 2: services invested thing and third ones that let's say real
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  Speaker 2: estate development. But you pick the one, three or five
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  Speaker 2: assets out of one hundred that you think are a
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  Speaker 2: great fit with what you do, and then after that
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  Speaker 2: you set out to transform the businesses strategically, tactically, operationally,
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  Speaker 2: organizationally over the next five years. And the thing that
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  Speaker 2: really matters is that you have enough time to drive
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  Speaker 2: through long term evolutionary businesses. But it's not like an
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  Speaker 2: it's not an open checkbook where you can own a
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  Speaker 2: business for ten to fifteen years, so there's a sense
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  Speaker 2: of urgency. By the time year, four year, five years,
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  Speaker 2: six maybe takes by, you're starting to run out of time.
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  Speaker 2: So it creates this sense of patients, but at the
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  Speaker 2: same time urgency in all the stakeholders. And the third
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  Speaker 2: element is very strong alignment. So you have a management
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  Speaker 2: team that tends to have a significant ownership in the companies.
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  Speaker 2: You have a private equity GP that is incentivized by
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  Speaker 2: the outcomes through carried interest, and then you have the
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  Speaker 2: investors that provided that this formula works well and the
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  Speaker 2: right assets are selected and the patient capital does it
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  Speaker 2: governor's job, you will get very strong outcomes. So that's
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  Speaker 2: private equity now. The moment you then start blending into
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  Speaker 2: that buying small stakes in companies in the same way
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  Speaker 2: as the public markets can do. You know, you buy
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  Speaker 2: a one percent stake, a five percent stake in a company.
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  Speaker 2: The moment you start going into places in the capital
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  Speaker 2: structure where you don't have the governance control, you might
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  Speaker 2: get attractive returns, but you typically take risk that is
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  Speaker 2: commensurate with that. You don't transform the companies and you're
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  Speaker 2: not in charge. So that for me, start shifting away
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  Speaker 2: from real private equity, if you will, towards the broader
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  Speaker 2: alternatives basket. In all of these assets, I mean, the
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  Speaker 2: real question is we ask our investors to forego their liquidity.
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  Speaker 2: So instead of investing in Nvidia stock or you know
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  Speaker 2: in a UK any publicly listed company, we ask investors
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  Speaker 2: to lock up their capital in substance for a period
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  Speaker 2: of years. And for us to make that ask, we
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  Speaker 2: then need to deliver out performance in return for that.
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  Speaker 2: For some investors they can take that trade, for other
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  Speaker 2: investors they can't take that trade.
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  Speaker 1: Okay, so let's just pick up that. I think what
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  Speaker 1: is your main point there, which is that for you.
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  Speaker 1: Owning stakes in private companies is not the same as
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  Speaker 1: being a private equity investor.
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  Speaker 2: No, you can be a private equity investor owning stakes
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  Speaker 2: in private companies, but control private equity is an ESSETT
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  Speaker 2: class which is designed to be accountable and in charge
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  Speaker 2: for driving transformation in businesses in addition to picking great
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  Speaker 2: companies to invest in, and that's where you then get
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  Speaker 2: the out performance.
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  Speaker 1: Okay, and the role of debt in all this, because
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  Speaker 1: when we talked about that the three things that are
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  Speaker 1: important to you when it comes to finding private equity.
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  Speaker 1: Financial engineering isn't mentioned, but it's usually a big part
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  Speaker 1: of this, isn't it.
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  Speaker 2: I think that it's a part that can modestly amplify
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  Speaker 2: the outcomes, but it should never be an existential reason
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  Speaker 2: for making an investment. So that's really important. I think.
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  Speaker 2: So on average when we buy companies, our LTV is
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  Speaker 2: like forty percent forty fifty percent, and that helps, especially
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  Speaker 2: with the current environment where the cost of debt might
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  Speaker 2: be all in, you know, six eight percent. Even that
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  Speaker 2: helps amplify your performance a bit. But fundamentally what matters
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  Speaker 2: is that your EBITA or your operating hashflow in the
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  Speaker 2: portfolio is growing. So we have around sixty companies in
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  Speaker 2: our buyout portfolio. The EBITA is growing sixteen percent per
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  Speaker 2: year organically, and it's that compounding of those profit poors
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  Speaker 2: that is actually driving the performance. And then you put
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  Speaker 2: a bit of debt financing on that and it amplifies
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  Speaker 2: the sixteen percent somewhere into the twenties with other things
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  Speaker 2: going on as well, and that's what the private ecutive
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  Speaker 2: returns then than come from.
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  Speaker 1: So again, this is I'm actually going to saying old
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  Speaker 1: fashioned method of private equity. And there's quite a few
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  Speaker 1: academic studies knocking around at the moment suggesting that the
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  Speaker 1: majority of the returns across private equity as a whole
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  Speaker 1: over the last fifteen twenty years or so have come
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  Speaker 1: from debt.
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  Speaker 2: I don't necessarily agree with their studies because I don't
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  Speaker 2: know all the cooking that goes into them. But what
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  Speaker 2: I do see and do know is that those private
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  Speaker 2: equity firms that consistently deliver real ALFHA to their investors,
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  Speaker 2: they are phenomenal at identifying great businesses and driving through
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  Speaker 2: patient long term transformation of those businesses. I think the time,
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  Speaker 2: you know, when I joined the industry in the mid
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  Speaker 2: nineteen nineties. You're absolutely right that financial engineering at the
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  Speaker 2: time would allow you to drive and create good returns,
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  Speaker 2: and that was kind of the decade that led up
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  Speaker 2: to the financial crisis. I think all of that has
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  Speaker 2: been commoditized out of the industry practice twenty years ago.
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  Speaker 2: So for the last fifteen twenty years in the industry,
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  Speaker 2: what has driven differentiated returns is firms that have biged
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  Speaker 2: great long term structurally growing themes to back and have
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  Speaker 2: then either backed or created number one market leaders that
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  Speaker 2: have benefited from this long term profit waar compounding. And
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  Speaker 2: that's what, in my view, great control private equity is about.
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  Speaker 1: Okay, all right, we've got our definitions straight.
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  Speaker 2: Now, I think we're okay, So.
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  Speaker 1: Let's go back to Let's go back to where we were.
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  Speaker 1: You were in wonderful flow about where the industry is
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  Speaker 1: at the moment after a difficult period, and I interrupted you,
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  Speaker 1: for which I apologize, But can I get that flow back?
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  Speaker 2: Yes, let's get the flow back, and you're welcome to
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  Speaker 2: interrupted at any point in time. So these three megacycles
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  Speaker 2: that I was talking about, basically the way it happens
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  Speaker 2: is is, you know, the industry gets a little bit
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  Speaker 2: over exuberant, there's a shock to the system that appears
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  Speaker 2: from somewhere. Liquidity drives up because it's harder to it,
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  Speaker 2: and you probably see backwards looking performance weaker because there's
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  Speaker 2: been exuberants in the system at some point in time
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  Speaker 2: with too much capital chasing chasing deals, and then there's
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  Speaker 2: a shakeout in the industry. And that's what's happening at
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  Speaker 2: the moment. We love shakeouts in the industry because what
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  Speaker 2: that's proper shumpedy and destruction competition where those gps that
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  Speaker 2: have not performed, they struggle in raising funds. The funds
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  Speaker 2: might be smaller, they might not raise any funds, and
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  Speaker 2: the teams therefore shrink or disappear from the market. Whereas
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  Speaker 2: those firms that have had a good strategy and that
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  Speaker 2: are backing the right types of companies with a great team,
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  Speaker 2: a good strategy, they will they will raise funds a bigger, smaller,
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  Speaker 2: same size, that doesn't matter, but they will raise funds
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  Speaker 2: that will allow them to continue executing on their strategy
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  Speaker 2: and continue thriving. So and this you see every time
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  Speaker 2: when you get these megacycles where we are now, I
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  Speaker 2: think the cycles tend to be like or to five
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  Speaker 2: year cycles when they happen, and we're probably somewhere in
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  Speaker 2: year three four. So what you're seeing now is a
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  Speaker 2: rapid pickup, very bifurcated, but rapid pickup in the exit
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  Speaker 2: velocity of those firms that have built the right portfolios
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  Speaker 2: of the last let's call it a decade, last five
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  Speaker 2: to ten years. They are now in a position where
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  Speaker 2: they can sell those businesses, and firms like US are
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  Speaker 2: having very significant liquidity performance of at last year or two,
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  Speaker 2: and that will then feedback into the system. It'll start
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  Speaker 2: creating more capital coming back, it'll demonstrate the performance of
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  Speaker 2: the funds, and then who knows what happens with the
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  Speaker 2: public markets. I mean, you and I have been around
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  Speaker 2: for long enough to know that what today looks like
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  Speaker 2: phenomenal public markets performance tomorrow might look more of the
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  Speaker 2: same more it might look much weaker. So what you
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  Speaker 2: get in private equity is that sort of decade long
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  Speaker 2: perspectiveive on returns, which, by the way, then means that
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  Speaker 2: as private investors will get back to that topic. As
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  Speaker 2: private investors, you need to be very patient, that you
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  Speaker 2: need to be prepared to invest into that dynamic.
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  Speaker 1: The excess that are coming through at the moment. And
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  Speaker 1: one of the things that you wait for in a
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  Speaker 1: cycle like this in the first few years of it
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  Speaker 1: is an acceptance of a shift in valuations right, and
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  Speaker 1: that has been quite a long wait in private equity
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  Speaker 1: for possibly some investors to realize that the valuations they've
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  Speaker 1: put on some of their holdings weren't quite right. We
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  Speaker 1: get that immediately in the public markets, which is of
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  Speaker 1: course the wonderful thing about the public markets, but the
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  Speaker 1: private markets there's a lag in valuation acceptance, not on
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  Speaker 1: the upside, but certainly on the downside.
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  Speaker 2: It's always very tempting to talk about averages on topics
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  Speaker 2: like this, but of course we know that averages are
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  Speaker 2: actually never what the experience we experience distributions and what
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  Speaker 2: I see at our end of the industry is when
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  Speaker 2: your profit walls are growing at fifteen to twenty percent
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  Speaker 2: per year. Even if you get fifteen or twenty percent
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  Speaker 2: correction in private market valuations, it's only a matter of
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  Speaker 2: a year until the companies have grown back into the
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  Speaker 2: same baseline that you might have held them at, or
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  Speaker 2: papes of them, let's say a year ago. So the
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  Speaker 2: problem really emerges if you are stuck in a portfolio
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  Speaker 2: which is not growing, and especially if it's not growing
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  Speaker 2: and you have a lot of leverage on the companies,
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  Speaker 2: and if it's faintly cyclical. So that's when private equity
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  Speaker 2: firms get into trouble. It's private equity firms that are
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  Speaker 2: or portfolios that are too dependent on leverage, and then
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  Speaker 2: leverage becomes more expensive and maybe less accessible if the
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  Speaker 2: companies don't grow. That means that if your baseline shifts downwards,
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  Speaker 2: you kind of can't grow out of it. Time is
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  Speaker 2: not your friend. And then if a macro cycle hits,
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  Speaker 2: you get an adverse current and you need to swim upriver.
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  Speaker 2: So that's when I've seen private equity go really peer
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  Speaker 2: shaped in this kind of environment. The opposite side of
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  Speaker 2: that applies to most of a portfolio like ours, which
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  Speaker 2: is we own these long term compounders where revenue is
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  Speaker 2: growing somewhere in the teens, the profits are growing somewhere
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  Speaker 2: in the mid teens to even twenty percent, and the
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  Speaker 2: revenues are consisting mostly requiring revenue models where the macro
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  Speaker 2: sensitivity is less and as I said earlier, forty fifty
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  Speaker 2: percent learn to value only, so were less sensitive to
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  Speaker 2: interest rate shifts, So that kind of portfolio, Yes, we
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  Speaker 2: might lose in years. Sometimes with the market correct so
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  Speaker 2: we might lose eighteen months, but it will come out
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  Speaker 2: of it. And in this sort of environment, I know
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  Speaker 2: that people are very focused on owning real assets. You
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  Speaker 2: can look at what's happened with the price of gold,
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  Speaker 2: for example. But for me, what you really want to
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  Speaker 2: own is scarce things that everyone in the world wants
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  Speaker 2: to own. In fact, an increasing share of the world
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  Speaker 2: wants to own that are growing. And the most attractive
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  Speaker 2: things of that definition are scarce companies that are market leaders,
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  Speaker 2: that make product services that people really want to buy,
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  Speaker 2: and that are growing, that are growing from year to year.
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  Speaker 2: So if you own those, it's a fantastic protection against inflation,
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  Speaker 2: it's a great protection against what interest rates might do.
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  Speaker 2: And time is on your side, so over time you
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  Speaker 2: will be fine. You'll be even better than fine.
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  Speaker 1: Is that also the case if you own a portfolio
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  Speaker 1: of excellent listed companies over a ten year period, you'll
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  Speaker 1: be fine.
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  Speaker 2: Yes, So if you were fifteen years ago or even
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  Speaker 2: ten years ago, if you were smart enough, which I wasn't,
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  Speaker 2: to pick the companies that became the Magnificent seven today,
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  Speaker 2: you would have done phenomenally well. Now if you picked
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  Speaker 2: the four hundred and ninety three companies in the SMP
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  Speaker 2: five hundred that didn't become the Magnificent seven, then your
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  Speaker 2: performance will be kind of pretty lackluster. And you know this,
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  Speaker 2: we all know this. It's really the SMP five hundred
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  Speaker 2: is really driven by these seven ish companies that have
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  Speaker 2: performed fantastically well, and especially now over the last three years.
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  Speaker 2: If you have owned anything that touches AI, you've seen
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  Speaker 2: a great kick in your evaluations. But if you're outside,
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  Speaker 2: that screwed. If you weren't good enough ten years ago
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  Speaker 2: to pick pick that, you would actually have done better
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  Speaker 2: in other places of the financial market. So I think
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  Speaker 2: it's a there's a survivor bias, as psychologists would call it.
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  Speaker 2: In looking at if you had earned the best SMP
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  Speaker 2: five hundred companies, you'd be you'd be doing really well.
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  Speaker 1: But I mean the same problem exist in private equity.
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  Speaker 1: You've got even more companies you from presumly then a
• 19:01
  Speaker 1: listed manager you have to make more decisions rather than fewer.
• 19:05
  Speaker 2: I don't think so. If you look at the number
• 19:09
  Speaker 2: of real persistent performance in private equity. Persistent performance in
• 19:14
  Speaker 2: private equity is more, much more than it is in
• 19:18
  Speaker 2: public equities. The first point and the second point. If
• 19:22
  Speaker 2: you look at gps that have the scale and the
• 19:27
  Speaker 2: capabilities to really compete and become one of the best
• 19:31
  Speaker 2: investors in pharma platforms or B to B services or
• 19:36
  Speaker 2: enterprise software in the world, there's not that many of
• 19:39
  Speaker 2: them terms that can write large commitments to back phenomenal
• 19:46
  Speaker 2: market leading companies that become these long term compounders. I
• 19:51
  Speaker 2: mean you can in each of those themes, you can
• 19:53
  Speaker 2: pick I don't know amongst ten gps fifteen gps, and
• 20:00
  Speaker 2: out of those ten fifteen, maybe five or ten will
• 20:02
  Speaker 2: stand out. And then you pick your themes and you
• 20:06
  Speaker 2: build your portfolio. You pick amongst five ten firms that
• 20:10
  Speaker 2: you back the funds on, and you see the persistence
• 20:12
  Speaker 2: of the returns you will do and you will have
• 20:15
  Speaker 2: done really well with that strategy. And by the way,
• 20:18
  Speaker 2: it'll be more absolute return than relative return, and it'll
• 20:22
  Speaker 2: be a super nice diversified portfolio of the sort of
• 20:25
  Speaker 2: companies that you typically can't access in the public markets.
• 20:30
  Speaker 1: It's just harder cut than it was at the beginning
• 20:33
  Speaker 1: of your career in that the sector has grown a lot.
• 20:36
  Speaker 1: The competition has grown enormously, paying higher evaluations for companies
• 20:40
  Speaker 1: when you find them. Is it harder than it was
• 20:43
  Speaker 1: twenty years ago?
• 20:44
  Speaker 2: So I'll tell you a story thirty years ago. Yeah,
• 20:49
  Speaker 2: when I joined the firm in nineteen ninety six, I
• 20:51
  Speaker 2: got I was a kid from Finland and I got
• 20:54
  Speaker 2: a job offer to join this firm that I didn't
• 20:57
  Speaker 2: know much about. So I called a friend who worked
• 21:00
  Speaker 2: at Goldman in London and asked him, Hey, can you
• 21:02
  Speaker 2: find out about this firm and these people? So he
• 21:06
  Speaker 2: went around, called a few people and called me back
• 21:08
  Speaker 2: and said, hey, yeah, it's a really good firm, smart people.
• 21:13
  Speaker 2: But you need to know that it's too late to
• 21:15
  Speaker 2: join the private equity industry. The best times of private
• 21:18
  Speaker 2: equity are passed, and today there's too much competition and
• 21:22
  Speaker 2: too much capital chasing too few opportunities. This was in
• 21:26
  Speaker 2: nineteen ninety six. And then when myself, together with a
• 21:30
  Speaker 2: gentleman called Tom Lister, we then took on the co
• 21:34
  Speaker 2: managing partner role at Permira in two thousand and eight.
• 21:38
  Speaker 2: There was an article kind of announcing this, and the
• 21:40
  Speaker 2: journalist in an unnamed publication said so and so times
• 21:45
  Speaker 2: too have been appointed to this job. The golden age
• 21:48
  Speaker 2: of private equities, however, passed, and they will have a
• 21:51
  Speaker 2: tough time in driving the firm going forward. So I'm
• 21:54
  Speaker 2: telling you this because nothing has been more persistent in
• 22:00
  Speaker 2: my journey for three decades in private equity other than
• 22:03
  Speaker 2: our returns, has been people thinking that the golden years
• 22:07
  Speaker 2: are past. And the thing that that sort of misses
• 22:11
  Speaker 2: is that we're insanely entrepreneurial industry. So we attract great talent,
• 22:17
  Speaker 2: great young talent, and the incentive model, the governance model
• 22:21
  Speaker 2: is really strong. We have the whole time. So what
• 22:24
  Speaker 2: you think, well, what might appear like a relatively steady
• 22:29
  Speaker 2: state evolution is really this constant buzz under the water
• 22:34
  Speaker 2: of in our own firm trying and discarding themes and ideas,
• 22:40
  Speaker 2: and a constant evolution of the talent and this sort
• 22:44
  Speaker 2: of collaborative but the Vinian model of the best entrepreneurial
• 22:48
  Speaker 2: investors emerging inside our firm and inside out the gps
• 22:53
  Speaker 2: that come up with great ideas that combine capital and
• 22:57
  Speaker 2: decisive governance and patients to outcomes, and kind of that's
• 23:03
  Speaker 2: what investors are backing. They're not backing the static let
• 23:07
  Speaker 2: us look backwards five to ten years and assume that
• 23:10
  Speaker 2: you're going to do the same over the next five
• 23:12
  Speaker 2: to ten years. But they back our platforms that are
• 23:15
  Speaker 2: super nimble and able to adopt with great talent and
• 23:19
  Speaker 2: depth of capabilities into an ever changing environment. And yeah,
• 23:25
  Speaker 2: I mean, you're right that on average it's really hard,
• 23:28
  Speaker 2: but it's kind of never felt easy, Like it really
• 23:31
  Speaker 2: really has never felt easy. It's always felt tough on
• 23:35
  Speaker 2: the margin.
• 23:56
  Speaker 1: Here we are in what year four or five of
• 23:59
  Speaker 1: the tricky bit? You think, so nearly at the end
• 24:01
  Speaker 1: from the open view, what.
• 24:03
  Speaker 2: Do you think three before? I think I said, out
• 24:05
  Speaker 2: of kind of.
• 24:06
  Speaker 1: Four three, four, sorry, out of four or five? Okay,
• 24:08
  Speaker 1: so kind of halfway there, nearly that When you look
• 24:11
  Speaker 1: out over the next decade, and you said that you're
• 24:15
  Speaker 1: constantly pivoting, constantly changing, what does the next decade look
• 24:19
  Speaker 1: for you? Where are you pivoting to? What is the
• 24:21
  Speaker 1: change and what are the themes that will come out?
• 24:24
  Speaker 2: First of all, I think, what's going to happen over
• 24:26
  Speaker 2: the next two to three years, You'll live like this
• 24:29
  Speaker 2: creative destruction or pain that the industry will in some
• 24:33
  Speaker 2: corners suffer because fundraising is harder and performance comes to
• 24:36
  Speaker 2: the fourth. It will lead to a healthier competitive environment
• 24:41
  Speaker 2: I want, I don't say easy, but healthier competitive environment.
• 24:44
  Speaker 2: So you'll have a few firms, fewer firms with greater
• 24:47
  Speaker 2: clarity and more concentration of capital that that will continue
• 24:52
  Speaker 2: developing and executing on their strategy. And I of course
• 24:57
  Speaker 2: think that we will be in our chosen themes of
• 25:00
  Speaker 2: those firms that are strongly benefiting from this. So that's
• 25:03
  Speaker 2: that's the first thing. Then the second thing that we
• 25:07
  Speaker 2: must talk about is the impact of technology AI and
• 25:11
  Speaker 2: this rapid acceleration of the pace of change driven by technology.
• 25:17
  Speaker 2: So again you know, we are sort of tech first,
• 25:21
  Speaker 2: but not tech only. We've been invested in that space
• 25:24
  Speaker 2: for dotal firms and existence of over forty years and
• 25:27
  Speaker 2: have backed you know, we were early capital into many
• 25:31
  Speaker 2: of the great tech stories. So for the last last decades,
• 25:34
  Speaker 2: and you know, there was there was a dot com revolution,
• 25:36
  Speaker 2: and then there was a there was a mobile telephony revolution,
• 25:40
  Speaker 2: and there was a cloud compute and software transitioning into
• 25:45
  Speaker 2: the cloud revolution, and now we're seeing this ar revolution
• 25:48
  Speaker 2: and each of these create amazing opportunities for driving rapid
• 25:54
  Speaker 2: positive shift and growth, and they of course also create
• 25:58
  Speaker 2: amazing opportunities to get it very wrong if on the
• 26:01
  Speaker 2: wrong side of that transformative watershed. And what is so
• 26:06
  Speaker 2: exciting about this shift is that, in very much the
• 26:09
  Speaker 2: same way as let's say, in the dot com revolution
• 26:13
  Speaker 2: twenty five even thirty years ago, we're so complete transitioning
• 26:17
  Speaker 2: of many industries, whether it's consumer facing businesses or enterprise
• 26:23
  Speaker 2: facing businesses. Here we are seeing an even broader and
• 26:26
  Speaker 2: more rapid impact. So the farmer industry is going to
• 26:29
  Speaker 2: get completely transformed driven by AI over the next three
• 26:33
  Speaker 2: four or five years, three two ten years, I should say,
• 26:37
  Speaker 2: the B to B services space, you will be able
• 26:39
  Speaker 2: to drive better services, more growth, better customer outcomes and
• 26:45
  Speaker 2: better therefore customer loyalty, and do so with better productivity.
• 26:49
  Speaker 2: And of course the impact directly on the kind of
• 26:52
  Speaker 2: tech space and the consumer internet space and so forth
• 26:55
  Speaker 2: is very significant. Now there are aspects of this which
• 27:00
  Speaker 2: are clearly in bubble territory. So I mean, I'm sure
• 27:05
  Speaker 2: you will have discussed with many others.
• 27:07
  Speaker 1: Much every week every week there we go.
• 27:10
  Speaker 2: So so the sort of you know, just like adding
• 27:13
  Speaker 2: up the big numbers is very clearly hard in some
• 27:18
  Speaker 2: of these aspects. But what we see in our portfolio
• 27:21
  Speaker 2: in terms of what we can do in real life
• 27:24
  Speaker 2: in terms of driving additional revenues and better outcomes for
• 27:26
  Speaker 2: customers and so forth and so forth, is transformational. And
• 27:31
  Speaker 2: it actually helps that you have intense competition at the
• 27:35
  Speaker 2: foundation model end and at the data center en and
• 27:38
  Speaker 2: so forth, because that drives rapidly down the cost for
• 27:41
  Speaker 2: the users being us in the application end that can
• 27:45
  Speaker 2: then use that to drive change in our businesses and
• 27:49
  Speaker 2: offer that to the customers and in our portfolio companies.
• 27:52
  Speaker 2: So that's a really big deal. And getting that right
• 27:55
  Speaker 2: is existential. It's not only attractive, it's existential. And then
• 28:00
  Speaker 2: I think I think the third one that is gonna
• 28:04
  Speaker 2: I think the industry is going to do a little
• 28:06
  Speaker 2: bit full circle back to you know what we've started
• 28:09
  Speaker 2: our conversation with, back to kind of the boots. So
• 28:14
  Speaker 2: when you start calling everything that's not publicly listed alternatives
• 28:20
  Speaker 2: and equating that to private equity, I think we are
• 28:24
  Speaker 2: maybe in a in a sort of obfuscation zone. Sometimes
• 28:29
  Speaker 2: for fun with my hedge fund friends, I will call
• 28:33
  Speaker 2: hedge funds a fee model masquerading as an asset class.
• 28:37
  Speaker 1: And what will they call you kat, They will.
• 28:40
  Speaker 2: They will come up with lots of appropriate insults in return.
• 28:44
  Speaker 1: I mean they can say the same about a lot
• 28:45
  Speaker 1: of private equity thumbs.
• 28:47
  Speaker 2: Where I was going with this is, so know, when
• 28:51
  Speaker 2: you talk about what private equity really is in terms
• 28:56
  Speaker 2: of the governor's model and the patient capital and all that,
• 28:58
  Speaker 2: all of that stuff that we talked about, But then
• 29:01
  Speaker 2: when you when you start buying into the same companies
• 29:04
  Speaker 2: that you might have bought in with a public portfolio,
• 29:08
  Speaker 2: with small non governance stakes, in a very diversified portfolio,
• 29:13
  Speaker 2: then you can I think it's a very fair criticism
• 29:16
  Speaker 2: like what's the right way of buying this and how
• 29:18
  Speaker 2: much should investors pay for that? And how So that
• 29:21
  Speaker 2: that's where I was going with this, and so I
• 29:24
  Speaker 2: think you're going to see a bit of a circling
• 29:26
  Speaker 2: back to the roots and to the core essence of
• 29:30
  Speaker 2: what should private equity really be? Why has it over
• 29:34
  Speaker 2: the long long term delivered consistent both both absolute and
• 29:38
  Speaker 2: relative returns. With accepting the critique that at the moment,
• 29:42
  Speaker 2: with where public markets are and with like effects and
• 29:46
  Speaker 2: other things, the performance on sometime series doesn't look good enough.
• 29:51
  Speaker 2: I do think strongly that that will self correct, especially
• 29:55
  Speaker 2: when you look at private equity that's doing what kind
• 29:57
  Speaker 2: of private equity was created to do, which is the
• 30:00
  Speaker 2: asset sect and government great companies for long term better
• 30:03
  Speaker 2: outcomes and creating better businesses. By doing that, I think
• 30:07
  Speaker 2: you're going to see a circle back to this and
• 30:09
  Speaker 2: some fluffy is going to go out of the industry
• 30:11
  Speaker 2: and the true performers are going to attract the capital
• 30:15
  Speaker 2: and take more share.
• 30:17
  Speaker 1: And in that model is the expectation that the improved
• 30:21
  Speaker 1: company is that the exitus onto a listed market, that
• 30:24
  Speaker 1: the exit is in IPO. Because that's what seems to
• 30:26
  Speaker 1: make sense. You get the company, improve it, you build it,
• 30:30
  Speaker 1: you set it on the correct path, and then you
• 30:32
  Speaker 1: effectively gift it to the retail a vesta viron ipo.
• 30:36
  Speaker 2: But what says that the ultimate destiny of a company
• 30:40
  Speaker 2: must be in the public markets? Right? So I won't
• 30:43
  Speaker 2: get this number exactly right, but approximately right. So the
• 30:46
  Speaker 2: number of public companies in the United States has fallen
• 30:50
  Speaker 2: from let's call it eight and a half thousand and
• 30:52
  Speaker 2: nine thousand two, let's call it four and a half thousand,
• 30:55
  Speaker 2: four eight hundred or something like that. Last when I
• 30:57
  Speaker 2: saw the number. So you've had a very significant deep
• 31:02
  Speaker 2: public market deification. You know, that's not the word, but
• 31:04
  Speaker 2: let's use it as a word now.
• 31:05
  Speaker 1: The agatization, Yes, but it's still not quite it's still
• 31:10
  Speaker 1: equity because it's still equity private equity, right, So it
• 31:13
  Speaker 1: just is not public anymore.
• 31:16
  Speaker 2: And what's happened is that whereas the case used to
• 31:19
  Speaker 2: be that venture capital funds and private equity funds would
• 31:22
  Speaker 2: own the kind of really small and small medium sized
• 31:25
  Speaker 2: companies and maybe medium sized companies, and then the natural
• 31:29
  Speaker 2: home would become the public markets once they're medium sized
• 31:31
  Speaker 2: and larger, what's happening now in the markets is that
• 31:34
  Speaker 2: the public markets, in my opinion, are really only takers
• 31:38
  Speaker 2: of the really like fifteen twenty thirty billion dollar euro
• 31:45
  Speaker 2: Sterling companies and upwards, because that's when these public market
• 31:50
  Speaker 2: investment machines can really put the brain power into understanding
• 31:53
  Speaker 2: and analyzing and creating a liquid market and so forth.
• 31:56
  Speaker 2: So what's happening is that this space in company size
• 32:02
  Speaker 2: is being filled by different forms of private equity and alternatives. So,
• 32:08
  Speaker 2: you know, I would never have dreamed of when I
• 32:10
  Speaker 2: joined the industry in the in the nineteen nineties that
• 32:12
  Speaker 2: we would be owning companies that are worth ten or
• 32:15
  Speaker 2: fifteen or whatever billion dollars. But we do, and we
• 32:18
  Speaker 2: do so consistently, and we buy and we sell them.
• 32:21
  Speaker 2: And that's because our industry has become a longer term
• 32:26
  Speaker 2: holder and evolver of these companies. And what that means
• 32:31
  Speaker 2: is that for investors, be they institutional investors or are
• 32:36
  Speaker 2: trying networth individuals, they get to own companies through private
• 32:41
  Speaker 2: equity that the otherwise could not own because they're not accessed,
• 32:45
  Speaker 2: like you can't own that three one or three or
• 32:48
  Speaker 2: five billion dollar company through the public markets because the
• 32:52
  Speaker 2: public markets actually didn't want to earn them. So it's
• 32:56
  Speaker 2: created a space we as an industry are feeling and
• 32:59
  Speaker 2: have feel that, and I think that's just going to continue.
• 33:02
  Speaker 2: So therefore to your question, coming full loop to that,
• 33:07
  Speaker 2: I don't think the end game always is that this
• 33:10
  Speaker 2: must be a company that goes into being a public company,
• 33:13
  Speaker 2: because because okay, you know, do you make the four
• 33:15
  Speaker 2: and a half thousand companies in the US that are public.
• 33:18
  Speaker 2: Maybe you do, maybe you don't. But if you don't,
• 33:21
  Speaker 2: if you have a fantastic company that's market meeting and
• 33:24
  Speaker 2: it's growing and all of that stuff, and it's generating cashflow.
• 33:27
  Speaker 2: You can sell it to strategics. We if I look
• 33:29
  Speaker 2: at our exits up at last twelve eighteen months, it's
• 33:32
  Speaker 2: actually the largest category of selling has been to strategics.
• 33:37
  Speaker 2: We can sell it to all kinds of.
• 33:39
  Speaker 1: Sorry, cat, go back. What do you mean by strategics.
• 33:42
  Speaker 2: I mean a large company another enterprise buying a smaller
• 33:47
  Speaker 2: company because it feels maybe a gap in a product
• 33:50
  Speaker 2: portfolio or a geographic portfolio or otherwise is highly symingistic
• 33:56
  Speaker 2: to what they do. So that's one exit route, and
• 33:58
  Speaker 2: the other one is this So many variants today of
• 34:01
  Speaker 2: financial ownership that is not public markets. It's of course
• 34:07
  Speaker 2: everything that is private equity and broader alternative assets. It's
• 34:11
  Speaker 2: family offices, it's this semi liquid private ownership vehicles that
• 34:17
  Speaker 2: are emerging and so forth and so forth, and those
• 34:20
  Speaker 2: become exit roots for also great companies that sit in
• 34:25
  Speaker 2: private equity. But it's super bifurcated. So if you own
• 34:28
  Speaker 2: again a kind of small medium sized company that doesn't
• 34:32
  Speaker 2: grow and doesn't generate cash and is faintly cyclical, this
• 34:36
  Speaker 2: is like zero exit market for that rightly, so, so
• 34:39
  Speaker 2: you shouldn't earn those companies But if you own a
• 34:42
  Speaker 2: fantastic market leader that's worth one billion, and tomorrow it
• 34:45
  Speaker 2: might be worth two billion, and it's compounding in a
• 34:48
  Speaker 2: very predictable way and taking share of the world economy
• 34:52
  Speaker 2: if you will, then there's lots of ways of exiting that,
• 34:56
  Speaker 2: whether it's worth a billion or three or five.
• 35:00
  Speaker 1: Okay, I would love to spend some time talking about
• 35:03
  Speaker 1: whether the decline of public markets is a good or
• 35:06
  Speaker 1: a bad thing, But times moving on, So I think
• 35:11
  Speaker 1: we better move on to talking about who should hold
• 35:15
  Speaker 1: private equity in the style that you're talking about. And
• 35:18
  Speaker 1: I know that one of the things you want to
• 35:19
  Speaker 1: talk about today was the extent to which private equity,
• 35:22
  Speaker 1: again of the type that you're talking about, should be
• 35:25
  Speaker 1: held inside a high networth portfolio, a medium networth portfolio,
• 35:29
  Speaker 1: and ordinary retail investor portfolio. So from what you've said,
• 35:34
  Speaker 1: someone who only participates in the listed markets is missing
• 35:37
  Speaker 1: out on the majority of the growth companies across economies
• 35:42
  Speaker 1: at the moment. So you might say, well, if you're
• 35:44
  Speaker 1: any in the listed markets, you're really missing out on
• 35:47
  Speaker 1: the exciting innovative growth stuff.
• 35:50
  Speaker 2: There is that element. Yes, there's also a significant trade
• 35:54
  Speaker 2: off which it's important that we highlight, which is that
• 35:58
  Speaker 2: the liquidity the public markets. Of course, you know, sometimes
• 36:02
  Speaker 2: you're selling into very strong markets, other times you sell
• 36:04
  Speaker 2: into weak markets, and it's unpredictable, but at least in
• 36:07
  Speaker 2: most plays of the year, you can sell if you
• 36:10
  Speaker 2: suddenly need the liquidity in private equity or alternity is
• 36:14
  Speaker 2: more broadly, the whole point is that these companies are
• 36:19
  Speaker 2: not liquid and we as an industry end up selling
• 36:23
  Speaker 2: them when we are towards the maturing end of our
• 36:26
  Speaker 2: value creation plan. We created the company that we wanted
• 36:29
  Speaker 2: to set up, if you will, for an exit, and
• 36:32
  Speaker 2: the exit timing is right. And that means that when
• 36:34
  Speaker 2: you commit to private equity through a regular fund, you
• 36:38
  Speaker 2: should absolutely expect a premium performance to what you would
• 36:42
  Speaker 2: get in the public markets, because that's the trade off.
• 36:46
  Speaker 2: But at the same time, you don't have control of
• 36:48
  Speaker 2: when that liquidity comes in. So therefore, the industry as
• 36:52
  Speaker 2: you know it sort of grew up from institutionally investing
• 36:57
  Speaker 2: pension schemes, sovereign well funds, insurance companies with long capital duration.
• 37:04
  Speaker 2: So the vast majority of our investors are these types
• 37:08
  Speaker 2: of entities that have capital duration. The liability duration if
• 37:13
  Speaker 2: you will can be a decade or two or three,
• 37:17
  Speaker 2: or maybe even perpetual. When you look at some of
• 37:19
  Speaker 2: the sovereign wealth funds, and consequently they are very happy
• 37:23
  Speaker 2: to make the trade off. This okay, So if you
• 37:24
  Speaker 2: deliver for US five or ten percent or whatever it is,
• 37:28
  Speaker 2: returns above the public markets benchmarks, we will happily accept
• 37:34
  Speaker 2: that our capital is locked up for a number of
• 37:37
  Speaker 2: years with less productability of when it comes out. And
• 37:41
  Speaker 2: this is the key with then private individuals coming in.
• 37:46
  Speaker 2: So for ultra high network individuals, I know that that's
• 37:49
  Speaker 2: a pretty fluid definition. But people that can think of
• 37:53
  Speaker 2: capital in a sort of really long term way and
• 37:56
  Speaker 2: perhaps even in a generational way, I think it's a
• 37:59
  Speaker 2: really good because it's typically diversifying, and it accesses companies
• 38:05
  Speaker 2: that you otherwise couldn't access, and you can keep the
• 38:08
  Speaker 2: GPS foot to the fire, and you can back these
• 38:10
  Speaker 2: sort of strategies that you want to back. But then
• 38:16
  Speaker 2: for the retail investor who has high need full liquidity
• 38:20
  Speaker 2: and perhaps an unpredictable high need full liquidity, it may
• 38:23
  Speaker 2: be harder. And then people create these and I think
• 38:26
  Speaker 2: this is really important. Then people create these rappers to
• 38:30
  Speaker 2: make liquid products be a bit more liquid semi liquid products,
• 38:37
  Speaker 2: but we just need to be realistic. There are limitations,
• 38:40
  Speaker 2: So that's not an asset class. A semi liquid wrapper
• 38:43
  Speaker 2: around a non liquid or lower liquidity private equity set
• 38:47
  Speaker 2: of assets. It's a rapper, but the underlying assets are
• 38:51
  Speaker 2: still low liquidity. So those can help somewhat, but they
• 38:56
  Speaker 2: always come with a trade off on the returns because
• 39:00
  Speaker 2: those semi liquid products they need to carry more cash
• 39:04
  Speaker 2: and they call in the capital earlier than when it's invested.
• 39:07
  Speaker 2: They might need to invest in some credit products that
• 39:10
  Speaker 2: are higher liquidity, lower return, So you almost always end
• 39:14
  Speaker 2: up with a trade off where you get a bit
• 39:17
  Speaker 2: more liquidity until you don't and we've seen that in
• 39:20
  Speaker 2: the market, and you get lower returns. So if we
• 39:24
  Speaker 2: draw it as a continuum, I think there's the retail
• 39:27
  Speaker 2: investor who probably shouldn't invest in in liquid products because
• 39:33
  Speaker 2: they have a high need for liquidity and it's unpredictable.
• 39:35
  Speaker 2: Then there's in between. There's a set of investors who
• 39:39
  Speaker 2: can start making some of that trade off, but they
• 39:41
  Speaker 2: need to tread with caution and think deeply about what
• 39:45
  Speaker 2: level of exposure.
• 39:46
  Speaker 1: And also understand as understand as you say that they're
• 39:49
  Speaker 1: buying a rapper.
• 39:50
  Speaker 2: And understand crucially that they're buying a rapper where the
• 39:53
  Speaker 2: underlying product is not that liquid, and understand the constraints
• 39:59
  Speaker 2: that comes with that. And then at the other end
• 40:02
  Speaker 2: of the bookshelf, you have investors that can afford to
• 40:06
  Speaker 2: think about capital in kind of five even ten years,
• 40:10
  Speaker 2: perhaps longer increments. And therefore I'm very happy to make
• 40:14
  Speaker 2: those trade offs and in fact have a competitive advantage
• 40:17
  Speaker 2: in being able to make those those trade offs. So
• 40:20
  Speaker 2: that's kind of the way I would think about it.
• 40:22
  Speaker 2: What I don't think is right. And again we've seen
• 40:25
  Speaker 2: this through the previous cycles in the industry where where
• 40:30
  Speaker 2: some retail focused alternative products have gone wrong when people
• 40:38
  Speaker 2: really did need liquidity rapidly. And that's that's something that
• 40:42
  Speaker 2: I mean, time tends to clear this out out, but
• 40:46
  Speaker 2: it's just important to be aware of that.
• 40:48
  Speaker 1: Okay, So this will make sense again that the highest returns
• 40:52
  Speaker 1: over the long term will go to the already very rich.
• 40:56
  Speaker 2: That's a very provocative way of saying it. But if
• 40:58
  Speaker 2: you look at if you if you look at most
• 41:02
  Speaker 2: ninety plus plus percent of our investors, they are actually
• 41:06
  Speaker 2: pension funds where pension funds and insurance companies where the
• 41:09
  Speaker 2: beneficiars are really not already very rich. There are people
• 41:13
  Speaker 2: for whom private equity has created longer term patients accrual
• 41:19
  Speaker 2: in a way the otherwise went never had four for
• 41:21
  Speaker 2: their pension savings.
• 41:23
  Speaker 1: That's again a very good comeback. Perfect. So our high
• 41:28
  Speaker 1: networth investor here he is. He's not a mansion fund,
• 41:31
  Speaker 1: he's not an American university endowment in, not any of
• 41:35
  Speaker 1: those things. He's a rich guy. He'd like to invest
• 41:37
  Speaker 1: in private equity. He loves what he's hearing from you.
• 41:40
  Speaker 1: He's like, our marriage should shut up with the challenges.
• 41:42
  Speaker 1: Because Kurt knows exactly what he's doing. How does this
• 41:45
  Speaker 1: high networth investor get access to what you do?
• 41:49
  Speaker 2: So this is where I cannot and do not want
• 41:52
  Speaker 2: to talk directly about what we do because that'll be promotion.
• 41:58
  Speaker 1: Canny go to his wealth manager and say, can you
• 42:00
  Speaker 1: buy me a stake and one of Kurt's funds.
• 42:03
  Speaker 2: So the way it works is is the best wealth
• 42:05
  Speaker 2: managers will have the best GPS on their if you
• 42:10
  Speaker 2: will shelf. And if this investor goes to their wealth
• 42:14
  Speaker 2: manager and says, hey, I'd like to build a portfolio
• 42:18
  Speaker 2: of you know, two or three great GPS that achieved
• 42:21
  Speaker 2: the following thing for my portfolio. Let's talk about how
• 42:25
  Speaker 2: much the exposure should be and how I should think
• 42:27
  Speaker 2: about timing it and so forth. Then that wealth manager
• 42:31
  Speaker 2: will also have the best GPS on there in their offering,
• 42:35
  Speaker 2: and that they will be able to commit into these products. Again,
• 42:39
  Speaker 2: let's put the sort of some a liquid stuff aside,
• 42:41
  Speaker 2: because we talked about that, but they will absolutely be
• 42:44
  Speaker 2: able to commit into the best GPS probably that those
• 42:48
  Speaker 2: are fundraising at that point in time, and create a
• 42:51
  Speaker 2: portfolio that luks and feels very similar to what the
• 42:53
  Speaker 2: sovereign wealth fund might be to day.
• 42:56
  Speaker 1: Okay, brilliant. Can I go back briefly? We are nearly
• 42:59
  Speaker 1: done for far too long, and I apologize, but just
• 43:02
  Speaker 1: fun can I go back? Can I go back briefly
• 43:05
  Speaker 1: to the decline of public markets and to the extent
• 43:09
  Speaker 1: that is a long term problem for not just non
• 43:12
  Speaker 1: very rich investors, but also for society and for economies.
• 43:15
  Speaker 1: I mean, as you will probably know, we're all terribly
• 43:18
  Speaker 1: upset about the endless decline of the UK market, the
• 43:21
  Speaker 1: lack of listed companies, lack of IPOs. The company is
• 43:25
  Speaker 1: disappearing abroad, etc. It's a problem and we worry that
• 43:29
  Speaker 1: it destroys our networking effects. It did bad for our
• 43:32
  Speaker 1: professional services. It's bad for our economy as a whole.
• 43:37
  Speaker 1: So even though there's a very active private equity business
• 43:40
  Speaker 1: based in London, of course there is the loss of
• 43:43
  Speaker 1: the listed market. It does seem to be a problem.
• 43:48
  Speaker 2: Yeah, so I think it is, and of course it's
• 43:51
  Speaker 2: for us. It's good for our business. It's good because
• 43:54
  Speaker 2: it allows us to increase our share of ownership in
• 43:57
  Speaker 2: the types of companies that we want tourn. I think
• 43:59
  Speaker 2: that it's bad because then for those perhaps retail investors
• 44:03
  Speaker 2: who cannot or choose not to invest in private equity,
• 44:08
  Speaker 2: they find it harder than to own the kinds of
• 44:10
  Speaker 2: companies that would be good diversifications, and then and then
• 44:14
  Speaker 2: they get sort of stuck in a much error and
• 44:16
  Speaker 2: actually by number shrinking basket of investment opportunities. The reason
• 44:21
  Speaker 2: for this is you go back to the financial crisis
• 44:24
  Speaker 2: and some of the regulation that emerged in the United
• 44:28
  Speaker 2: States and across European I include, by the way, having
• 44:31
  Speaker 2: lived in London for a quarter of a century give
• 44:34
  Speaker 2: or take, I include the use But.
• 44:35
  Speaker 1: Are you the last private equity guy living in London.
• 44:39
  Speaker 2: I'm actually in Abouda at the moment where I'm meeting
• 44:42
  Speaker 2: our investors, So so no, there's plenty of private equity
• 44:46
  Speaker 2: people living in London. I think London is a great
• 44:48
  Speaker 2: talent magnet for people and it will remain so going
• 44:51
  Speaker 2: forward for the forever future. But let's not go into
• 44:54
  Speaker 2: that topic.
• 44:55
  Speaker 1: And was he going to enjoy that one second? I
• 44:58
  Speaker 1: was looking forward to that topic. But way, you're right,
• 45:00
  Speaker 1: let's get that one.
• 45:01
  Speaker 3: Yes, carry on, yes, yes, yes, Another very big question,
• 45:05
  Speaker 3: which is which is the equitization of the public equitization
• 45:09
  Speaker 3: of the markets, And and what's happening there is that
• 45:12
  Speaker 3: after the financial crisis, regulation came in and and clipped
• 45:18
  Speaker 3: the ability for equity analysts to get paid in a
• 45:21
  Speaker 3: way which actually paid for the sort of brain power
• 45:25
  Speaker 3: that went in there.
• 45:26
  Speaker 2: And this coincided with this with this massive growth of
• 45:29
  Speaker 2: ETFs and automatic trading and index trading and so forth,
• 45:34
  Speaker 2: and and and the fees have shrunk more and more
• 45:37
  Speaker 2: and more and more. And that means that today and
• 45:40
  Speaker 2: I'm sort of carricaturing this a bit, but unless a
• 45:44
  Speaker 2: public market investor can write a three hundred or five
• 45:49
  Speaker 2: hundred million euro dollar commitment. They can't really maintain the
• 45:56
  Speaker 2: team that gives them the brain power, the analytical depths
• 46:00
  Speaker 2: and power to form a highly qualified, highly informed view
• 46:05
  Speaker 2: of that investment opportunity. So if the check size needs
• 46:08
  Speaker 2: to be you know, two hundred, three hundred, five hundred,
• 46:10
  Speaker 2: whatever it is, and they can't own more than a
• 46:13
  Speaker 2: couple maybe three percent of the company before things get
• 46:17
  Speaker 2: flagged and liquid, then by definition you back solve when
• 46:21
  Speaker 2: the company enterprise value sorry equity value needs to be
• 46:25
  Speaker 2: ten billion, twenty billion. So this is kind of what's happening,
• 46:28
  Speaker 2: and there's no there's very limited analytical depths and high
• 46:34
  Speaker 2: quality institution appetite for the smaller mid sized companies. There
• 46:38
  Speaker 2: are exceptions from this, as you know. For example, Sweden
• 46:42
  Speaker 2: is the most active IPO market in Europe over the
• 46:46
  Speaker 2: last over the last year or so, and it's a
• 46:49
  Speaker 2: sort of retail equity market. There's a culture of retail
• 46:52
  Speaker 2: investors wanting to earn equity and this has This is
• 46:55
  Speaker 2: not really the case in the UK anymore. All of
• 47:00
  Speaker 2: these factors coinciding, so kind of media that's been super
• 47:06
  Speaker 2: critical of public companies and incentive schemes and so forth
• 47:12
  Speaker 2: in the public in the UK, you take this drift
• 47:15
  Speaker 2: towards larger and larger stakes, therefore larger and larger enterprise values.
• 47:21
  Speaker 2: And then of course the growth of private equity as
• 47:24
  Speaker 2: an alternative ownership or governance model that has led to
• 47:29
  Speaker 2: a shrinking public market. Then we can debate whether it's
• 47:32
  Speaker 2: a big problem, a medium problem, or a small problem.
• 47:35
  Speaker 2: I think it's at least a medium problem. And we
• 47:38
  Speaker 2: would love to have thriving, well functioning public markets in
• 47:42
  Speaker 2: the UK and across the European continent, and for of
• 47:47
  Speaker 2: course the US public markets also to happily receive kind
• 47:51
  Speaker 2: of large meatcap companies and upwards, because you, as you
• 47:55
  Speaker 2: asked before, that is a contributing not an exclusive, but
• 47:59
  Speaker 2: it's a contributing way for us to exit companies in
• 48:02
  Speaker 2: our portfolio.
• 48:03
  Speaker 1: Okay, brilliant, that was super helpful. Thank you very much.
• 48:07
  Speaker 1: Last question, literally I promised the last one, Kat. What
• 48:10
  Speaker 1: are you reading at the moment?
• 48:12
  Speaker 2: I am reading at the moment the fantastic biography on
• 48:18
  Speaker 2: Masa Yosis's son by Leno Barber. I started that, Yes,
• 48:24
  Speaker 2: I started that probably six eight months ago, and then
• 48:27
  Speaker 2: for some reason I read some things in between and
• 48:30
  Speaker 2: then I came back to that and it's fun. I
• 48:33
  Speaker 2: tend to read stories about exceptional people. That's mostly what
• 48:38
  Speaker 2: captures my imagination. I tend to read stories about exceptional people,
• 48:43
  Speaker 2: and then sort of social psychology type books like books
• 48:46
  Speaker 2: about how we think.
• 48:49
  Speaker 1: Help you understand those management.
• 48:51
  Speaker 2: Well, help me understand myself and other people. I think
• 48:56
  Speaker 2: it's best to start with understanding ourselves as much as possiblesolutely.
• 49:00
  Speaker 1: Well, that's a great pick. I love that book. Alonel's
• 49:02
  Speaker 1: a great writer.
• 49:03
  Speaker 2: Is okay?
• 49:05
  Speaker 1: Thank you so much, Kut, Thank you for joining us today.
• 49:07
  Speaker 2: Thanks that was great fun.
• 49:13
  Speaker 1: Thanks for listening to this week's Marin Talks Money. If
• 49:15
  Speaker 1: you like our show, rate review, and subscribe wherever you
• 49:18
  Speaker 1: listen to podcasts. Also keep sending questions or comments to
• 49:20
  Speaker 1: Marror Money at Bloomberg dot net. You can follow me
• 49:23
  Speaker 1: and John on Twitter or x. I'm at Marinus w
• 49:25
  Speaker 1: and John is John Underscore Stuppic. This episode was hosted
• 49:29
  Speaker 1: by Me Maren Sunset Web. It was produced by Zamasadi
• 49:32
  Speaker 1: and Moses and sound designed by Blake Maple's Special thanks
• 49:36
  Speaker 1: to Kurt