Speaker 1: This is Master's in Business with Barry Ridholds on Bloomberg Radio.
Speaker 2: This week on the podcast, I have an extra special guest.
Speaker 2: Matthew Chebron is the co founder of TKO Capital, a
Speaker 2: Paris based alternative asset manager. They run over forty billion
Speaker 2: dollars worth of assets. I found this to be really
Speaker 2: a fascinating conversation about approaching the world of investing from
Speaker 2: a different angle, being creative, thinking out of the box,
Speaker 2: looking to not just imitate what other people do, but
Speaker 2: create new opportunities by just thinking about the world differently.
Speaker 2: The conversation was really informative and quite fascinating. I thought
Speaker 2: it was great and I think you will also with
Speaker 2: no further ado my conversation with TKO Capitals.
Speaker 1: Matthew Chebron, Thank you, Baron.
Speaker 2: I forgot to mention you have received the Chevalier de
Speaker 2: l'Ordre de la legend Anna by the President of the
Speaker 2: French Republic in January twenty twenty two. We'll circle back
Speaker 2: to that at some other point. I don't know how
Speaker 2: relevant that is to asset management, but let's talk a
Speaker 2: little bit about what you were doing before you were
Speaker 2: being lauded by the French president. You went to school
Speaker 2: in Paris, but you began your career in London at
Speaker 2: Maryland Deutsche Bank. Tell us a little bit about that background.
Speaker 1: Yeah, no, that's right, Barry. You know, it's that's one
Speaker 1: thing you know.
Speaker 3: In Europe where.
Speaker 4: London was and actually think still remain, you know, the
Speaker 4: one place where you know you want to get exposure
Speaker 4: when you join financial services. So I was lucky to
Speaker 4: get this summer internship at Marylynch back in the late nineties.
Speaker 4: I met Antoine effectively my co founding partner, So that
Speaker 4: was you know, a while back, but nonetheless, you know,
Speaker 4: if it was love at first sight, but we got
Speaker 4: to get along, you know, pretty well, and after a
Speaker 4: few years working for investment banks, he then joined Goldman Sacks.
Speaker 4: I joined effectively Dutch Bank. We decided, you know, to
Speaker 4: try to have a go on our own. We were
Speaker 4: twenty eight thirty respectively, and looking backwards as much as
Speaker 4: investment banking, even with banks that no longer there was great.
Speaker 4: You know, that was a great training. I think it
Speaker 4: was a great training. I think you know, we learned
Speaker 4: a lot. The exposure you know, you get in investment banking.
Speaker 4: I was a leverage finance banker by background, and so
Speaker 4: late nineties that the emergence of the high yield market
Speaker 4: in Europe. You would print deals, you know, like never before.
Speaker 4: You get this exposure. You're a young analyst associate. You
Speaker 4: get to go on the road show with management teams.
Speaker 4: You know, I look backwards, that was a hell of
Speaker 4: for training. You know, in terms of the exposure.
Speaker 2: I can imagine was the plan when you were going
Speaker 2: to school in Paris ways to go into finance or
Speaker 2: were you originally leaning another direction?
Speaker 4: In a prior to joining a business school in Paris,
Speaker 4: I studied political sciences in my native Provence, you know,
Speaker 4: in excellent province, and there was no hint at the time,
Speaker 4: you know that I would be heading into into finance.
Speaker 4: And so when I then got the exposure and getting
Speaker 4: to learn with the great teachers, by the way, what
Speaker 4: and again went back in you know, in the late nineties.
Speaker 4: But then you start reading books and I'm not talking
Speaker 4: about the theoretical books, but you know some experience, you know,
Speaker 4: the people I remember these books, you know, reading the
Speaker 4: you know Lias Poker from Michael Lewis, you know, reading
Speaker 4: a Predator's Ball, you know about the milk and junk
Speaker 4: bond and that's where you know, the excitement started and
Speaker 4: you're like, you know, I have to get exposure to that.
Speaker 4: So no, there was nothing written, but it was a
Speaker 4: great step.
Speaker 2: So fast forward to today. You now work in a
Speaker 2: large European firm in the USA, but really you began
Speaker 2: your career at big American firms in London.
Speaker 1: That's right.
Speaker 2: What are the cultural differences, like a US firm in
Speaker 2: Europe versus European firm in the US.
Speaker 4: Yeah, well it's an interesting, interesting question looking from the US.
Speaker 4: But you know, at times, you know, Europe you know,
Speaker 4: may may be an easy concept, but it's a very
Speaker 4: complex reality. And so doing business in Europe is obviously
Speaker 4: you know, it's all about being local because Italy is
Speaker 4: not Spain, France is not you know, Germany. You know,
Speaker 4: at times people in London think that they cover in
Speaker 4: the whole European playfield. But again it's a complex reality.
Speaker 4: So having met people back then, you know, Americans working
Speaker 4: for these US banks, you know, now they understand that
Speaker 4: and the one successful and even some of for you
Speaker 4: know peers competitors friends American franchise who are competing and
Speaker 4: tackling the European market. Very often the one successful and
Speaker 4: very SUCCESSFU are the one who've been, you know, spending
Speaker 4: a lot of time you know, on the ground, and
Speaker 4: then on the contrary, hopefully having worked for US franchise,
Speaker 4: having spent time with the people and great mentors. You know,
Speaker 4: for me, I now can hopefully understand better, you know,
Speaker 4: the cultural difference, you know, as we expand here and
Speaker 4: as I'm sure you know you would appreciate, you know,
Speaker 4: being here in New York is a very different reality
Speaker 4: than the rest of the the Americas, partly when it
Speaker 4: comes down to visiting new clients. You know, in the Midwest,
Speaker 4: you know there are you know, the part you know
Speaker 4: of the of the US. So hopefully there's a bit
Speaker 4: of convergence here, you know, to make it worthwhile.
Speaker 2: I love the old spoiling great quote. I don't live
Speaker 2: in America. I live in a small island off the
Speaker 2: east coast of America. Because to your point, New York
Speaker 2: is in Kansas City, and Kansas City is in Miami.
Speaker 1: But New York is definitely its own creature.
Speaker 4: It is for sure, and you know, for us at TIKO,
Speaker 4: it's been an important step to to open and expand
Speaker 4: here in North America.
Speaker 1: You know, just background.
Speaker 4: When I moved here five years ago this year in
Speaker 4: twenty eighteen, you know, we had barely know relationships in
Speaker 4: North America. We had made a few investments relationship from
Speaker 4: a client standpoint, I mean fromn lpea standpoint.
Speaker 1: And fast forward.
Speaker 4: You know today is close to ten percent of houra
Speaker 4: a um that we have raised here. You know, we
Speaker 4: launch new initiatives, We try not to be differentiating, and
Speaker 4: obviously it's a long term game and you have to
Speaker 4: be definitely long term greedy when you set up a business,
Speaker 4: you know, in the in the US, but in the
Speaker 4: business we're in today, in the alternative asset management space
Speaker 4: as competitive it can be.
Speaker 3: But you know, the.
Speaker 4: Structural opportunity now is such that the commitment as a
Speaker 4: eure open that you have to make here has to
Speaker 4: be long term. I made the commitment, you know, personally,
Speaker 4: and I can see the path, you know, because there
Speaker 4: is room to expand the business.
Speaker 2: So let's talk about what led to the decision to
Speaker 2: launch TKO Capital back in two thousand and four. Your
Speaker 2: Deutsche Bank, your colleague ant One is a Goldman Sachs.
Speaker 2: What made you say, hey, let's get the band back
Speaker 2: together again.
Speaker 4: Well, you know what, it's actually back to what I was,
Speaker 4: you know, just saying, we were watching all these franchise
Speaker 4: being launched, and obviously at the top of them, you know,
Speaker 4: all the one you can think of, who are you know,
Speaker 4: leading the industry today, But back then they were you know,
Speaker 4: managing you a few tens of billions of dollars, which
Speaker 4: was you know, enormous back then, based only a fraction
Speaker 4: of what they are today. And we were seeing all
Speaker 4: these American franchise, you know, launching in in Europe, you know,
Speaker 4: out of London, and we're like, you know, why don't
Speaker 4: we give you a go?
Speaker 3: I mean, we.
Speaker 4: Learned leverage finance, we learned you know, real estate that
Speaker 4: we knew, how yield we knew, you know, opportunittic investment,
Speaker 4: and we're like, it's never too late, it's never too early,
Speaker 4: and we decided to go with you know, a huge
Speaker 4: four million aum that we had gathered from friends and family.
Speaker 4: So you can appreciate, you know, the challenge back then,
Speaker 4: but you have to start somewhere.
Speaker 2: Right that that's walking around cash back back then. So
Speaker 2: let's talk about not too late, not too early. You
Speaker 2: launch right after the dot com enplosure, correct, but a
Speaker 2: few years before the Great Financial Crisis?
Speaker 3: Right?
Speaker 2: What was that period like? What was that lull like
Speaker 2: between those two giant volatility events.
Speaker 4: It was an experience because you know, the dot com bubble.
Speaker 4: I remember being a young associate at Merrill Lynch and
Speaker 4: all the investment bank they had to reinvent themselves, you know,
Speaker 4: to make sure they could remember this retain talent, you
Speaker 4: know that we've been hearing, you know lately again, you know,
Speaker 4: And so they were creating some cool working space and
Speaker 4: you would no longer you know, wear a tie and
Speaker 4: all that, which was all form of a substance. And
Speaker 4: as if there was a shift. And then you have
Speaker 4: this ramp up from effective VO four when we launched
Speaker 4: to the GFC and we're three years, four years into business,
Speaker 4: you know at TKO, and I remember, you know, we
Speaker 4: feel extremely proud because then we were banking, you know,
Speaker 4: with Beochtern. So we're banking with Lehman Brothers. And that
Speaker 4: was you know a step in the entrepreneurial development. And
Speaker 4: then all of a sudden, over the weekend, those banks
Speaker 4: are gone, and so you're like a young entrepreneur leaving
Speaker 4: this nearness experience despite thinking that you were close to
Speaker 4: certainty because you were working with the best institution and
Speaker 4: counter party you can think of. And then all of
Speaker 4: a sudden, it's all about how you see and look
Speaker 4: at the world. Never take anything for granted, always be,
Speaker 4: you know, in the world of challenging everything. So it's
Speaker 4: not good for your stomach pain, you know, every morning,
Speaker 4: but only the paranoid survive. And I think that was
Speaker 4: a great learning experience.
Speaker 2: So let's talk about what took place post bear Stearns
Speaker 2: and post Liman From a business perspective, bear Stearns gets
Speaker 2: absorbed into JP Morgan Chase, so your contacts at bear
Speaker 2: Stearns are still in business. The best parts of Liman
Speaker 2: brother get absorbed into Barclay. So I got to imagine
Speaker 2: a lot of the folks you were doing business with
Speaker 2: at those places landed on their feet and you still
Speaker 2: had some relationship or am I being too sanguine about no?
Speaker 4: No, there was a bit of all of the above.
Speaker 4: But more importantly for us, you know in Aura, you
Speaker 4: know development, As I said, it was about you know,
Speaker 4: never taking anything for granting and granted because you know,
Speaker 4: Lehman Brothers. Is what a single a rated bank on
Speaker 4: the Friday night and it's defaulted, you know, on.
Speaker 3: The Monday morning.
Speaker 4: And even if I'm sketching a bit, you know, from
Speaker 4: there on at the time where eight hundred million a UM,
Speaker 4: I guess we have a team of twenty twenty five people,
Speaker 4: most of them still being with us today, by the way.
Speaker 4: And it's great when you've been to work together, if
Speaker 4: you allow me, because then you know, you just have
Speaker 4: to look at someone in the eyes and you know
Speaker 4: exactly how they're going to be eight because we've been
Speaker 4: through that, you know, together. And so for us, you know,
Speaker 4: beyond the people and beyond the institution, it was the
Speaker 4: beginning of a second phase of the journey. I like
Speaker 4: to say, maybe not less naive about you know, how
Speaker 4: easy all these things are, because they're not easy. Steve
Speaker 4: Schwartzman wrote his book called What it Takes, you know,
Speaker 4: And so for us, that was every single being equal,
Speaker 4: the beginning of the second phase of the journey, where
Speaker 4: it was no longer the teasing part. You were effectively
Speaker 4: like into the real stuff. Now on the positive and
Speaker 4: the civil lining was that this whole situation started you know,
Speaker 4: putting a lot of light on let's say, the alternative
Speaker 4: market private debt. Private credit was unheard of in Europe
Speaker 4: until the banks effectively went into this massive liquidity squeeze
Speaker 4: and all those asset managers had to you know, step
Speaker 4: in and feel this void.
Speaker 3: Great opportunity for US.
Speaker 4: Private equity at the time was only about buyout an
Speaker 4: LBO only if you had heard about, you know, the
Speaker 4: growth equity part where you need to strengthen an entrepreneurial
Speaker 4: companies in a balance sheet, because it's not you know,
Speaker 4: she's not trying to sell the business. It's just about
Speaker 4: you know, making sure you find the right partners, you know,
Speaker 4: to strengthen the balance sheet, and so so and so.
Speaker 4: You know, we started a new period. Adding on top
Speaker 4: of that, you know this very accommuniting military policy. Well
Speaker 4: that was the beginning of a new chapter for private
Speaker 4: markets and we were lucky, you know, to effectively embark
Speaker 4: on this journey at this time.
Speaker 3: So let me.
Speaker 2: Follow up on the financial crisis the period afterwards. Clearly
Speaker 2: it was highly disruptive, lots of damage done, lots of
Speaker 2: people lost their jobs, lots of businesses went out. But
Speaker 2: it sounds like a lot of opportunities were created in
Speaker 2: what came after.
Speaker 4: It was certainly the case for us again, you know,
Speaker 4: many challenges, but with the hard work and with people
Speaker 4: who could see, you know, the opportunity, and publicly with
Speaker 4: the European approach, thinking that, yes, you can develop a
Speaker 4: very multi local footprint organization in Europe, be an alternative
Speaker 4: to global investment tours to clients, to the to the
Speaker 4: one established you know mainly you know, mainly Americans. You know,
Speaker 4: I must admit that was very exciting, you know, it
Speaker 4: was very exciting to get into that and to a
Speaker 4: certain extent, you know, we had been looking forward for
Speaker 4: the day where we could face another of those crises,
Speaker 4: and we all know they're all different, but better prepared,
Speaker 4: better prepared, you know, with more resources, with the more
Speaker 4: powerful platform, with a bigger footprint and living you know,
Speaker 4: COVID aside living you know, I don't know Brexit aside
Speaker 4: leaving all these little steps. Over the past ten years,
Speaker 4: twelve years, we've been you know, getting better prepared, you know,
Speaker 4: for when the cycle changed and we may have entered
Speaker 4: you know, this new this new chapter of this new
Speaker 4: cycle raising interest rates started you know a year ago
Speaker 4: where of the view that it's no, it's not getting
Speaker 4: lower anytime soon, and so we go back to the
Speaker 4: basics of what our job should be risk on the
Speaker 4: writing risk assessment. Asset prices are different from asset valuation.
Speaker 4: I mean the valuation in the future cash flow discounted
Speaker 4: at the risk cre rate perscualisk premium. Well, guess what
Speaker 4: the risk cree rate now is five percent is no
Speaker 4: longer zero, and the risk premium is closer to five
Speaker 4: percent than.
Speaker 3: It is from two.
Speaker 4: And so all of a sudden, the whole merits of
Speaker 4: our job gets back into the center of the pitch,
Speaker 4: and that makes our drop much more exciting. You know,
Speaker 4: we've never been more excited that we've been for the
Speaker 4: past twelve months to invest today.
Speaker 2: So let's talk about what brought TKO to the US. Clearly,
Speaker 2: you guys were very successful in Europe. You now have
Speaker 2: thirteen offices around the world. Is it just the size
Speaker 2: of the US market?
Speaker 1: What was the attraction here?
Speaker 4: Well, I mean size is definitely you know a reason,
Speaker 4: But I would add we had just gone public at
Speaker 4: the time, you know, twenty seventeen, and for us, the
Speaker 4: leasting maybe way before it became more preyed you know,
Speaker 4: in the recent years was the main objective of the
Speaker 4: listing barrier was really to promote the brand, the franchise.
Speaker 4: We never saw the single share on the occasion of this.
Speaker 2: You guys only allowed a small piece to go.
Speaker 4: Public, right, that's right, and all our historical backers, shareholders,
Speaker 4: they actually you know, kept on supporting the business.
Speaker 1: You know.
Speaker 4: We tapped these here market twice and they all you know,
Speaker 4: reinforced their ownership. So unlike many IPOs which are away,
Speaker 4: you know, to monetize the business, for us, it was
Speaker 4: about really about rationalizing the platform. We had just come
Speaker 4: out of thirteen fourteen years of very entrepreneurial development during
Speaker 4: a period as you mentioned, which was pretty bumpy, and
Speaker 4: so it was a great way to rationalize the platform.
Speaker 4: Come with one brand, one name, getting the name out there.
Speaker 4: So that was in twenty seventeen when public on Neuron
Speaker 4: next Paris and coming to the US. Was there was
Speaker 4: no other alternity than coming to the US, you know,
Speaker 4: at some point, and we thought the timing was right
Speaker 4: both because we had now we are then you know,
Speaker 4: twenty billion aum. We've been in in Asia for a
Speaker 4: few years and it had been extremely promising and so
Speaker 4: I decided, you know, to come here, you know, to
Speaker 4: promote this brand, to convert into a commercial relationship, raising
Speaker 4: more capital towards US investors, which to your point is
Speaker 4: one of the deepest market in the world. And then
Speaker 4: also you know, start deploying capital here in the US.
Speaker 4: Not that there is a shortage of capital you know,
Speaker 4: by no means, but as we like to say, you know,
Speaker 4: create not compete. And so we started initially like secondary
Speaker 4: private credit, you know, private debt was a mainstream developed
Speaker 4: strategy here I mean globally and here in the US.
Speaker 4: I think we're one of the first one to move
Speaker 4: into secondary private credit. You know, fast forward a couple
Speaker 4: of fields. Three years now we can demonstrate the merits
Speaker 4: of the strategy, the track record of the strategy. We
Speaker 4: started expanding into a mid market infrastructure. That was right
Speaker 4: before the you know, the Biden election and all the
Speaker 4: focusing on infrastructure, when we were not active in infrastructure
Speaker 4: in Europe. So we try to find some play that
Speaker 4: could differentiate ourselves. Not only is a v you know,
Speaker 4: European and Asian investors, but also here in the US
Speaker 4: to be able to tell a different story to LPs.
Speaker 4: With one key differentiating factor is the skin in the
Speaker 4: game that we have, you know, as a structure and
Speaker 4: as founders into the organization.
Speaker 2: So a lot of companies that go public then have
Speaker 2: a valuable currency they can use for acquisitions. How did
Speaker 2: that plag into the thinking.
Speaker 4: Yeah, that's right, and we you know, we use that
Speaker 4: a couple of times very selectively since going up public
Speaker 4: Infras you know, was one of them.
Speaker 3: Another one in a.
Speaker 4: Real estate you know, in Europe, and I mean they
Speaker 4: were very selective bolt on acquisition, you know, an acquisition
Speaker 4: in our businesses is always a big bet, right It's
Speaker 4: we're in the people business, and you need the chemistry,
Speaker 4: I mean, you need the culture you know, to work out.
Speaker 4: But you know, looking forward, it's certainly we're in a
Speaker 4: better position today to come to your acquisition than we
Speaker 4: were in a few years ago. So as the market
Speaker 4: and the industry restructure, you know, we will certainly be
Speaker 4: very very opportunistic.
Speaker 2: It's kind of interesting the thought of Bolton as opposed
Speaker 2: to within the same space, there's a long history of
Speaker 2: financial acquisitions that didn't really work out all that well
Speaker 2: because of the chemistry as most of the cultural issues.
Speaker 2: But something you said earlier really stood out to me.
Speaker 2: You want to create, not compete. So let's talk a
Speaker 2: little bit about how you guys at TKO think differently.
Speaker 2: Tell us or a Steve Jobs term think different tell
Speaker 2: us how you approach the world differently than a lot
Speaker 2: of your competitors.
Speaker 4: You know, when we studied, as they told you, extremely
Speaker 4: extremely modest, there were plenty of franchise out there. And
Speaker 4: you know, even if you talk to private investors, high
Speaker 4: networth family offices can be a bit more nimble in
Speaker 4: the way. You know, they approach their asset a location.
Speaker 4: They need to see a reason why they would go,
Speaker 4: you know, with what was back then a tk who
Speaker 4: more than a TKO, you know, and find you know,
Speaker 4: and and find a reason why you know, they would
Speaker 4: allocate there back then. You know, in Europe back in
Speaker 4: the day when we start doing you know, private credit
Speaker 4: direct lending today is very much mainstream. I can tell
Speaker 4: you that that that back then it was not you know,
Speaker 4: at the time, they even called it shadow banking. You know,
Speaker 4: in Europe it's been quite a wild since you know,
Speaker 4: I last read about shadow banking be so it's become
Speaker 4: so mainstream and structural. You know today that it's really
Speaker 4: part of the year. So we've always tried to effectively
Speaker 4: be a little bit I don't know how it comes across,
Speaker 4: and it's not the underdog, but you know, coming with
Speaker 4: something that is different so that you can slay. Yeah,
Speaker 4: so that you can make you know, a name for yourself,
Speaker 4: and then you know, use these adjacencies at the business
Speaker 4: then to scale and make them very mainstream. I was
Speaker 4: saying the secondary private credit that we launched a couple
Speaker 4: of years ago. Now here in New York, it's becoming
Speaker 4: a bit more mainstream. Every day I would see one
Speaker 4: of the large Belch bracket banks, you know, launching or
Speaker 4: speaking about the INSUAD. But like, well, maybe that was
Speaker 4: a good idea we had, and competition is good, by
Speaker 4: the way, you know, nothing wrong about competition, but at
Speaker 4: least you've established, you know, a name for yourself and
Speaker 4: obviously got the track record and you can, you know,
Speaker 4: you can showcase that. So that's step one. The second thing,
Speaker 4: bar if I may, is you know, in our industry,
Speaker 4: what should make the biggest difference is the skin in
Speaker 4: the game that the managers you know, put into their business.
Speaker 4: I like to say that in our industry, you come
Speaker 4: across a lot of people who are willing to make
Speaker 4: money with someone else money. You came across less people
Speaker 4: willing to make some money with the kids money. Any entrepreneur,
Speaker 4: you know is you know, is taking risks by you know,
Speaker 4: borrowing some capital and investing into his.
Speaker 3: Business, whatever the business is.
Speaker 4: And in our industry at times, I think that there's
Speaker 4: been a little bit of.
Speaker 3: Irony, not to.
Speaker 4: Say hypocrisy in the way that we showcase the skin
Speaker 4: in the game. I don't think carried interest is a
Speaker 4: great alignment of interest. The only alignment of interest in
Speaker 4: the amount of capital that any given manager firm is
Speaker 4: putting into its fund. You when you read that, okay, well,
Speaker 4: you know we put you know, one percent of the fund,
Speaker 4: you know, as commitment from the GP. The fund is
Speaker 4: a billion, you know, we put ten million. It's a
Speaker 4: lot of money, yes, but you're charging two percent for
Speaker 4: the next ten years, so the option cost is not
Speaker 4: that high.
Speaker 3: When you're putting.
Speaker 4: Ten percent twenty percent of your balance sheet capital side
Speaker 4: by side with your LP. You can do a basic
Speaker 4: Excel spreadsheet and you'll see, you know, what is at
Speaker 4: stake and that effectively, yes, you're going to make some
Speaker 4: money on the management fees on the performance field of
Speaker 4: the carried interest, but you know what you have at
Speaker 4: stake side by side with your client is a totally
Speaker 4: different magnitude. And I think this is where the industry
Speaker 4: should be heading. And many or for you know, peers, competitors,
Speaker 4: they all have different models, but the one with significant
Speaker 4: skin in the game from the GP, from the partners,
Speaker 4: from the balance sheet and going public by the way,
Speaker 4: bar it was a great way for us to strengthen
Speaker 4: this equity base, which is you know, partner zone and
Speaker 4: control and management own to effectively create what has been
Speaker 4: so far, certainly in Europe, a second to none skin
Speaker 4: in the game model.
Speaker 2: I like the way that sounds. Let's talk a little
Speaker 2: bit about Europe. If we look at the past few decades,
Speaker 2: Europe out performed the US and the two thousands. While
Speaker 2: we were going through dot com and financial crisis in
Speaker 2: the twenty tens, the US markets were just on fire
Speaker 2: and really did very well. Twenty twenties things started out
Speaker 2: a little shaky.
Speaker 1: How do you.
Speaker 2: Compare the investment environment in Europe over the past few
Speaker 2: decades versus the US.
Speaker 4: Well, both of them were obviously driven by interest rates,
Speaker 4: and they moved you know, the same direction, but in
Speaker 4: different patterns. And when we first got into negative interest
Speaker 4: rates in Europe a few years ago on the back
Speaker 4: of the euro crisis, you know, and post the GFC
Speaker 4: first with the sovereigns, but then you know, with the
Speaker 4: IG market, with the investment grade market, you had corporates
Speaker 4: basically borrowing you know, one hundred and being asked, you know,
Speaker 4: to give back ninety eight. And today, you know, when
Speaker 4: you look backwards and with no back trading, you're like,
Speaker 4: you know, okay, what you know, what were we thinking about,
Speaker 4: you know, back then, because for what we do, and
Speaker 4: I mean, you know, the business Barry like risk underwriting
Speaker 4: is about effectively scaling the risk, you know, the return,
Speaker 4: and we were in a very awkward environment. And so
Speaker 4: that's why I was surprised to see so many people surprised.
Speaker 4: You know, a year ago May twenty two, you know,
Speaker 4: interest rates started rising and all of a sudden, the
Speaker 4: whole software were bugged. I mean, what we do is
Speaker 4: not rocket science, and it all come down to the
Speaker 4: value of liquidity and the cost of credit. And then
Speaker 4: we can start, you know, doing what we are supposed
Speaker 4: to be doing. You know risk and the writing, and
Speaker 4: so Europe US went into different patterns on the way
Speaker 4: down and very different on the way up. I mean
Speaker 4: here in the US, obviously you were much more reactive,
Speaker 4: you know, in raising rates. Rightly, so in my view,
Speaker 4: maybe Europe is lagging a bit that time around. You know,
Speaker 4: they were actually faster at reducing interest rates even so
Speaker 4: into negative territory. But there is a little bit of
Speaker 4: the coupling you know, going on right now, and for
Speaker 4: us it's a great way partly, you know, a tico
Speaker 4: where we are, you know, we are very exposed to
Speaker 4: the yield play credit in FRA real estate, be spoke
Speaker 4: credit and so all that's are the starting point of
Speaker 4: this risk underwriting.
Speaker 2: So let's talk a little bit about the difference between
Speaker 2: the twenty tens and the twenty twenties. Starting with Hey,
Speaker 2: it's pretty arguable that by the time the FED began
Speaker 2: raising rates here in the United States, they were already
Speaker 2: behind the curve. Their two percent target had been hit
Speaker 2: a year earlier, and CPI kept going higher. So if
Speaker 2: the FED was behind the curve, how much further behind
Speaker 2: the curve of the central banks in Europe in terms
Speaker 2: of dealing with their inflation issues.
Speaker 4: The you know, central banks in the US and in
Speaker 4: Europe they may have a different mandate, you know, one
Speaker 4: might be more political, you know than the others. And
Speaker 4: at times, you know, when you have to effectively finance
Speaker 4: you know, all the deficiats, you know, you have to
Speaker 4: be mindful that you need to be able, you know,
Speaker 4: to issue, you know, to issue and you pay down
Speaker 4: this debt. I think that you know, right now, and
Speaker 4: without getting into too many political details, I mean, Europe
Speaker 4: is probably is not in a good place relative to
Speaker 4: where they were in reacting to COVID for example, or
Speaker 4: reacting to the euro crisis you know, ten years ago.
Speaker 4: I mean, the political situation in Europe has created indirectly
Speaker 4: some effect maybe on the on the ECB and as
Speaker 4: much you know, I mean, Christian Legards has been doing
Speaker 4: a terrific job after a Mario drug you know there.
Speaker 3: But the institution you know.
Speaker 4: Maybe should be a bit a boulder, you know, in
Speaker 4: the way you're tackling this, this inflation issue, because we
Speaker 4: all know that period of very low interest rates create
Speaker 4: massive inequality, inequality you know, between people having access to
Speaker 4: credit and the people who don't have access to credit,
Speaker 4: and as in people, it's individual, it's corporate, its states,
Speaker 4: and so ironically, you know, you save a system, but
Speaker 4: you make it to be more inequal in the way
Speaker 4: people came out of this period.
Speaker 2: So that's really interesting. During the post financial crisis era
Speaker 2: of very low rates, anything priced in credit, real estate equities,
Speaker 2: bonds did really well. Certainly that helps the top ten
Speaker 2: percent in the United States. During COVID, rather than just
Speaker 2: a monetary response, we saw a massive fiscal response which
Speaker 2: seemed to have really helped across the entire economic strata,
Speaker 2: especially the middle class. So what do our experiences post
Speaker 2: financial crisis, post COVID tell us about the need for
Speaker 2: balance between monetary and fiscal stimulus.
Speaker 4: Yeah, you're absolutely right. But by the same token, we
Speaker 4: know that right now. I'm not an economist, but you know,
Speaker 4: in the US, in Europe, you know, the inflation, the
Speaker 4: structural inflation, people might have a different view about that
Speaker 4: is certainly hurting, you know, the one with the less
Speaker 4: you know resources, you know obviously food, energy, housing, and
Speaker 4: not even talking about you know, school, healthcare. And obviously
Speaker 4: in Europe we have a totally different different you know,
Speaker 4: environment and about this this matter. So's it's a tricky situation.
Speaker 4: And where I think, as SAT managers have a role
Speaker 4: to play is in making sure that whenever someone is
Speaker 4: saving a dollar or investing a billion dollar, you know,
Speaker 4: be a private investor or large insitual investors, is that
Speaker 4: there is the appropriate risk return associated with the strategy
Speaker 4: that is being implemented. That was very complicated to do
Speaker 4: in the zero interest rates environment because everyone through the
Speaker 4: dices and it was a double six because you can
Speaker 4: only make it right when money is free. Because when
Speaker 4: money is free, investment has no merits, you know. And
Speaker 4: now that we are in a situation where money are
Speaker 4: some value, then you can be discriminating and that should
Speaker 4: benefit again the one individual saving a dollar or the
Speaker 4: one institutional investing a billion, and that in that respect,
Speaker 4: regardless of this macro situation.
Speaker 3: If I can come.
Speaker 4: Back to our role, as I said, managers, that's where
Speaker 4: we have a role to play.
Speaker 2: So let's talk a little bit about valuations relative to
Speaker 2: risk and reward. Arguably, the United States, both the public
Speaker 2: markets and the private markets are not cheap today. They're
Speaker 2: not crazy dot com expensive, but they're certainly not inexpensive.
Speaker 2: How does Europe and the rest of the world compare
Speaker 2: on evaluation basis to the US.
Speaker 4: Maybe because I come from a leverage finance backgrounds, As
Speaker 4: I told you, I tend always to focus on the downside.
Speaker 4: But I also learned along the way that you rarely
Speaker 4: die I mean as a company from your from your
Speaker 4: P and L or from your assets, but you always
Speaker 4: die from your liabilities. And I think that effectively, this
Speaker 4: excess in very cheap money, this success in leverage, this
Speaker 4: success in thinking that you could access unlimited for an
Speaker 4: indefinite period of time of cheap to free capital, may
Speaker 4: have created some the wrong asset allocation pattern in some places.
Speaker 4: So I think we've now entered a period where we
Speaker 4: have to swallow this whole mispriced over leveled assets out there.
Speaker 4: Corporate create was one obviously the bonds, I mean the
Speaker 4: sovereign bond market, and we remember the SVB story.
Speaker 3: It's about you know, t.
Speaker 4: Builds, and then you obviously the real estate. You know,
Speaker 4: many areas that were over leveled at the wrong cost,
Speaker 4: and that could be painful because someone will have to
Speaker 4: take the pain, even if you know, unlike two thousand
Speaker 4: and eight, where the risk was concentrated, you know on
Speaker 4: banks boundary today is much more spread across let's say,
Speaker 4: you know, asset managers, but you have to find a
Speaker 4: way to dry up all this excess of liquidity which
Speaker 4: was necessary on the one hand, but maybe mispriced on
Speaker 4: the other hand. And so today I think that part
Speaker 4: of the IG fixed rate corporate bond market obviously you know,
Speaker 4: part of the real estate and you know, we've been
Speaker 4: talking at length about that we'll have to to suffer
Speaker 4: some of the pain or lossits in some where, shape
Speaker 4: or form. As always on the other side of this
Speaker 4: trade that we'll create, you know, great opportunities for people liquid, nimble,
Speaker 4: who don't have to carry age, you know, in ventories.
Speaker 4: You know, if I, if I may say, I have
Speaker 4: the impression that the US will.
Speaker 3: Be more.
Speaker 4: Realistic in the way they approach that, you know, in
Speaker 4: terms of you know, taking the heat, taking the pain
Speaker 4: starting again in Europe, maybe there's a little bit of
Speaker 4: preten and extent game, but it's always better, you know,
Speaker 4: to you know, what has to be done ultimately, you know,
Speaker 4: should be done immediately.
Speaker 1: As they had a band aid off.
Speaker 4: Exactly, and that's what we should do when it comes
Speaker 4: to financial risk and financial pricing.
Speaker 2: So you mentioned the access liquidly is causing accesses and
Speaker 2: the locations have higher fed rates and other around the
Speaker 2: world higher interest rates, taking some of that out of
Speaker 2: the system and combined, what is the impact of the
Speaker 2: regional banks that have gone value up? A handful of them,
Speaker 2: but it certainly has put the fear of God into
Speaker 2: a lot of small banking shops. What does that do
Speaker 2: to all the access liquidity that's out there.
Speaker 4: You know, on the regional bank rather not common. I'm
Speaker 4: not an expert, and it came in as if you
Speaker 4: has a surprise how quickly large, very large institution you know,
Speaker 4: could get into some liquidity liquidity stress. Coming back to
Speaker 4: my comment again, you know it's your liability side, and
Speaker 4: there's been a plenty of comment there. What I see
Speaker 4: is that once again for asset managers, it's a very
Speaker 4: interesting structural opportunity because it creates a bit of void,
Speaker 4: you know, in terms of the market that we can
Speaker 4: fill in in some way, shape or form. So I
Speaker 4: think that on the positive side, investors allocators today they
Speaker 4: can effectively allocate capital into strategies which will create a
Speaker 4: compounding effect to their portfolio because what was I don't know,
Speaker 4: three four percent in some strategies two years ago now
Speaker 4: can be eight to ten. And so when you start,
Speaker 4: you know, compounding your new allocation into these type of
Speaker 4: strategies that can make up for the part of your
Speaker 4: portfolio which itself you know, could be a little bit
Speaker 4: underwater as a consequence of those rising interest rates you
Speaker 4: know again, credit, you know, real estate.
Speaker 1: What have you.
Speaker 4: So that's the positive. You have to be able to
Speaker 4: do that, right, So how do you do that? I mean,
Speaker 4: if you have effectively the denominator's effect that people have
Speaker 4: been you know talking about, or you know, more liquidity
Speaker 4: constraint because cash is not coming back as quickly as
Speaker 4: you had anticipated, because your managers cannot sell their portfolio.
Speaker 3: Something the secondary market.
Speaker 4: Has been developing like crazy on the private equity for example,
Speaker 4: as I said, private credit, you know, is another one.
Speaker 4: Real estate will be an obvious one, you know, given
Speaker 4: the amount of capital out there. And so it's about
Speaker 4: being prepared to say, Okay, I've been making you know,
Speaker 4: five six seven percent on this strategy, maybe I will
Speaker 4: you know, exit the strategy, albeit at a discount, you know,
Speaker 4: the lowest possible, but the proceeds will be able to
Speaker 4: be gener reinvested into strategy that will generate a higher
Speaker 4: return which over a short medium time frame, can make
Speaker 4: up you know, for this cash flow requirement that I
Speaker 4: need for my pensioneers or you know what I have.
Speaker 4: You So, I'm actually very optimistic that all asset owners,
Speaker 4: asset locators, the one can be nimble.
Speaker 3: You know. It's a very exciting time I heard.
Speaker 2: Let's talk a little bit about how TKO champions impact investing. Obviously,
Speaker 2: the goal is to get to some sort of sustainable future.
Speaker 2: What your investment these is there?
Speaker 4: Yeah, I think we were relatively early in what has
Speaker 4: become a very mainstream strategy, you know, right rightly so,
Speaker 4: and that was really you know, a combination of many factors.
Speaker 4: We launched our very first growth equity growth private equity
Speaker 4: strategy in twenty seventeen, twenty eighteen, way before you know
Speaker 4: it has as I said, you know, become you know,
Speaker 4: a must have strategy for many managers and for many allocators.
Speaker 4: We started doing that because in Europe we've been investing
Speaker 4: alongside entrepreneurs, families. As I said, well, not the buyout shop.
Speaker 4: You know, we don't take control, you know, we don't
Speaker 4: level up company. We're trying to, you know, in our
Speaker 4: role of the middleman between the asset owners you know,
Speaker 4: and the companies to allocate where we see the financial play,
Speaker 4: but an impactful financial play. So when we started the
Speaker 4: strategy in seventeen eighteen and started allocating capital investing in
Speaker 4: entrepreneurs who had a solution that had to be massify
Speaker 4: because when you want to meet this target and these goals,
Speaker 4: you know, in terms of a climate of CEO two,
Speaker 4: you know, reduction, it's great to be investing in what
Speaker 4: will change in twenty by twenty fifty, but it's more
Speaker 4: important to find what works today and needs to be massified,
Speaker 4: scale up. You know, we're investing in profitable mid market
Speaker 4: companies making twenty twenty five to fifty million.
Speaker 1: A BDA and needed capital in.
Speaker 4: Those guys are not looking to sell the company, they
Speaker 4: need the capital in to scale. And we started doing
Speaker 4: that across lo carbon mobility, across energy efficiencies of the
Speaker 4: buildings as you know, you know it's forty percent of
Speaker 4: the green gas emission, and so we started doing that.
Speaker 3: I would say, you know.
Speaker 4: Naturally five years later, we now can you represent effectively
Speaker 4: the case studies? You know, obviously the truck record it matters,
Speaker 4: but people want to understand what we're talking about when
Speaker 4: we're talking about this type of fum impact investing here,
Speaker 4: it's about climate. We then launch you know, regenerative agricultural
Speaker 4: strategy because one of the key objective is how do
Speaker 4: you capture carbon and there's nothing like you know, the
Speaker 4: soil and the ground, you know, to help do that.
Speaker 4: That's on the equity side. And then we started doing
Speaker 4: some private credit impact financing.
Speaker 3: What does that mean?
Speaker 4: You're a borrower, We're lending you some money at five percent,
Speaker 4: you're three times you know, a BDA. We take all
Speaker 4: the traditional credit metrics of a financial analysis, and then
Speaker 4: we add a third dimension. If you hit certain target,
Speaker 4: certain goals, extra financial goals, then you will improve your
Speaker 4: cost of funding and your five percent coupon will go
Speaker 4: down to four if effectively you demonstrate that you're reduced
Speaker 4: by X or Y or change, you know, this production process,
Speaker 4: and all of a sudden you realize that if your
Speaker 4: cost of funding goes down as a consequence of some
Speaker 4: extra financial goals being met, well your written on equity
Speaker 4: goes up right, And so you can demonstrate that it's
Speaker 4: not about being a philanthropy, it's about you know, making
Speaker 4: sure that we use the capital available to send it,
Speaker 4: you know, where it makes sense, and then all stakeholders,
Speaker 4: you know, a benefit from it. And so as much
Speaker 4: as five years ago it was nice to have and
Speaker 4: once again create not compete, we're trying to push that
Speaker 4: forward today.
Speaker 3: It's not negotiable.
Speaker 4: It's not negotiable with our LPs. It's not negotiable with
Speaker 4: our customers, with our partners, with our banks, with our clients,
Speaker 4: with our staff, Barry, I mean when we talk to
Speaker 4: some of our twenty something thirty something colleagues, professionals, it's
Speaker 4: part of their commitment to the firm because one big
Speaker 4: issue you know, in this when it comes to this
Speaker 4: impact and YESG let's say in the wider sense, at best,
Speaker 4: you can come across very opportunistic. At worst you'll come
Speaker 4: across as fake. And in both situations it's not good.
Speaker 4: And so as you know, our colleagues are staff, you
Speaker 4: know people, and all the stakeholders, I mean there are
Speaker 4: the guardians.
Speaker 3: Uh, they are.
Speaker 4: The truats of us, you know, being real here. So again,
Speaker 4: now it's no longer nice to have. It's a must have,
Speaker 4: and it's uh, there's only one way.
Speaker 2: So ESG seems to have found a lot of support
Speaker 2: in Europe. Are you a little bit surprised about how
Speaker 2: this has become politicized in the US.
Speaker 3: It seems like.
Speaker 2: There are a group of people who are pushing back
Speaker 2: against impact investing, sustainable investing, not because of the returns,
Speaker 2: but they just don't like the politics of it.
Speaker 4: Yep, I'm not surprised because, you know, and again I'm
Speaker 4: an alien here, but you know, I'm I try to
Speaker 4: be an observer, you know, of the dynamic of the
Speaker 4: of the politics here in the USA, and we even
Speaker 4: experiment that ourselves, you know, with some some of our
Speaker 4: LPs very often made up of different boats, some teachers,
Speaker 4: I mean, policemen, you know, employees, you know, public public servants, employees,
Speaker 4: and whilst we were dealing with the same counterparty, the
Speaker 4: same pension fund, some of their constituents, some of the
Speaker 4: underlying boats disagree on.
Speaker 3: The approach to take there.
Speaker 4: So we've experienced that firsthand that within won't given investor,
Speaker 4: you know, asset owner, there could be some divergence and
Speaker 4: very often now I can say, because there was a
Speaker 4: bit of misunderstanding of what we were trying to do and.
Speaker 3: What others, you know, are trying to do so.
Speaker 4: I'm hopeful that with a bit of education, you know,
Speaker 4: the science based approach, people we realize that it's not
Speaker 4: a politic It shouldn't be a political game.
Speaker 3: I understand why. I'm not native.
Speaker 4: I understand why, but I think the majority should prevail
Speaker 4: to understand that the asset owners today, the asset managers
Speaker 4: who can help them deploy, you know, the capitol, have
Speaker 4: an historical mission because we will be we will be
Speaker 4: judging fifty years down down the road. I mean, people
Speaker 4: will look back and say, you know, what did you
Speaker 4: do with the amount of capital that was available back
Speaker 4: then to effectively direct this capitol to to where it matters.
Speaker 4: So I'm trying to take you know, this perspective because effectively,
Speaker 4: we've never been in an environment with so much cheap
Speaker 4: liquidity that could be used purposely.
Speaker 2: So you talked about esg ratchets where people get better
Speaker 2: rates if they hit certain metrics, and you talked a
Speaker 2: little bit about agriculture regenera of agriculture. Explain for those
Speaker 2: of us not familiar with that, what is regenera of agriculture?
Speaker 2: What is the focus? What do you want to accomplish with?
Speaker 2: It is it just carbon capture or is it.
Speaker 3: More it's the whole chain.
Speaker 4: I mean, it's act that you know, soil because without saying,
Speaker 4: is a scarce resource that need to be maintained in
Speaker 4: a way to be able, you know, to keep on
Speaker 4: producing in a way that for the next generation you
Speaker 4: don't look back and you leave you know, a brand
Speaker 4: soil full of fertilizer or or others that.
Speaker 3: Will not be able to.
Speaker 4: Generate the same quality of product you know, for the
Speaker 4: future generation at a time where you'll have to feed
Speaker 4: you know, much more in on people. So the technique
Speaker 4: here very similar to the to the climate approach you know,
Speaker 4: we we took you know, five years ago, is really
Speaker 4: about finding entrepreneurs and the companies who have a solution
Speaker 4: for you know, soil, you know, effectively a fertility let's say.
Speaker 3: Or some technique. You know. It's it's not really the.
Speaker 4: Agri tech as you may you know, be used to,
Speaker 4: but some some techniques have been proven and need this
Speaker 4: capital to scale, and this capital would not be available
Speaker 4: otherwise because it's not about you know, buying land or
Speaker 4: acres of forest. It's not about the agri tech which
Speaker 4: is effectively attracting a lot of a lot of capital.
Speaker 4: But these entrepreneurs, these small cap businesses with the proven
Speaker 4: concept and profitability, and they need this capital, you know,
Speaker 4: to scale. So you would be investing in a twenty
Speaker 4: to thirty percent taking twenty thirty percent of the company,
Speaker 4: investing this capital to effectively help scale the business to
Speaker 4: a size where then you can get to more you know,
Speaker 4: banking financing capital market which you know is not that open.
Speaker 4: So it's this old band. So it's certainly the case
Speaker 4: in Europe. We see it more and more here in
Speaker 4: the US of this small MidCap market that doesn't have
Speaker 4: and even more so coming back to your common about
Speaker 4: the regional banks, you've got part of the financial market
Speaker 4: structure which is disappearing, and so you need the alternative
Speaker 4: source of capital. And so that's where you know, we
Speaker 4: can be a very relevant tool, and that's that for
Speaker 4: the companies and the investors also want to allocate there.
Speaker 2: And you partnered with some really interesting companies on this
Speaker 2: access the big insurer and Unilever, the consumer products company.
Speaker 2: What's their interest in this sort of sustainable investor.
Speaker 4: So one comment, you know, as an aside, is, you know,
Speaker 4: artic here we've always partnered with the or we try
Speaker 4: as much as we can to partner with the corporates
Speaker 4: to bring additional skill set. We did that in energy transition,
Speaker 4: for example, with Total Energies very early on you seventeen eighteen.
Speaker 4: We did that in the aerospace cyber with a bunch
Speaker 4: of preminent European and global players such as you know
Speaker 4: Herbers that so Suffron Taless bringing you know, obviously some capital,
Speaker 4: but more importantly you know, some skill set, some knowledge,
Speaker 4: some rich So that back to my creating compete, we
Speaker 4: can tell a different, you know, a different story.
Speaker 3: With with investors.
Speaker 4: And as I and as you just mentioned, the last
Speaker 4: one you know with UNI Lever, you know is the
Speaker 4: same is exactly the same approach, which is bringing additional
Speaker 4: expertise alongside an asset manager, US financial investors and there's
Speaker 4: no shortage of capital, as we said, you know out
Speaker 4: there in that case, you know, one of the largest
Speaker 4: European insurance company, if not global, and having you know,
Speaker 4: together a different proposal fully aligned with some complimentary with
Speaker 4: some complimentary sourcing.
Speaker 3: To the to the to the deal flow.
Speaker 4: And here again you know, at first people were maybe
Speaker 4: looking at us like, you know, why you need to
Speaker 4: bring a corporate you know, there's some conflict of interest
Speaker 4: involved here, and then a few years you know, down
Speaker 4: the line, they're like, well, that's a very different proposal
Speaker 4: that we may have heard too, you know from all
Speaker 4: the managers, and there are plenty, plenty of out there.
Speaker 2: What's the conflict of interest if you're bringing in a
Speaker 2: consumer product to try and make food on in a
Speaker 2: more efficient, productive, sustainable way.
Speaker 4: Maybe that's my point that they should be known, and
Speaker 4: they are known, but you know, there's you know, people
Speaker 4: at times are a little bit reluctant or resistant, you know,
Speaker 4: to change. And so if that's that quo, it's really powerful,
Speaker 4: isn't it. Well I love this quote of yours. I
Speaker 4: have to ask you about this.
Speaker 2: The longer the happy hour, the harder the hangover, explain,
Speaker 2: very very French.
Speaker 4: Yeah, well that was you know, I think that was
Speaker 4: at Milken's at Milken Institute in May twenty two and
Speaker 4: that's when the interest rates you know, starting to raise.
Speaker 4: And I think I was telling you earlier I was
Speaker 4: surprised to see that many people in surprise because effectively
Speaker 4: the bar had been open for quite a long time
Speaker 4: with very you know, very cheap liquidity, if I may say, available, and.
Speaker 2: Going back to the financial crisis, the entire period that
Speaker 2: followed was free those for everyone exactly.
Speaker 4: And that's you know, that's ten years, if not if
Speaker 4: not more. And some of us, some of us, I think,
Speaker 4: had effectively lost sight that liquidity should have a price
Speaker 4: and credit, you know, has some value, and so effectively
Speaker 4: this you know, the this comment I made was that, yes,
Speaker 4: people are going to have a hangover of this mispriced,
Speaker 4: over leveled asset they may have both invested into as
Speaker 4: a consequence of this free liquidity.
Speaker 2: So let's talk about perhaps a mispriced asset class that
Speaker 2: was relying on free liquidly. As we're recording this, there
Speaker 2: is a recent Wall Street Journal headlined company insiders made
Speaker 2: millions before the SPAC bust. What are your thoughts on
Speaker 2: the SPACs special purpose investment vehicles? How do you look
Speaker 2: at those?
Speaker 4: So we got into Sparks two years ago, hopefully not
Speaker 4: to follow the herd, but because we saw there a
Speaker 4: very useful technology that could help some of our private companies.
Speaker 4: You know that that which is what we do, you know,
Speaker 4: belkof what we do is investing with private entrepreneurs accessing
Speaker 4: the public market with the support of experienced manager, the
Speaker 4: operating partners, you know, with the support of experience you know,
Speaker 4: financial players, and effectively, you know, we are very successfully you.
Speaker 1: Know, unsparked.
Speaker 4: You know some we had. We took public on NeuroNEXT Amsterdam,
Speaker 4: a great company in the TV content production business three
Speaker 4: billion turnover six hundred million a BDA. It's called you
Speaker 4: know fl Entertainment, great entrepreneurs Stefan Koby. It's a real
Speaker 4: company or spack string at I guess you know, ten
Speaker 4: bucks or around real company. So the issue was not
Speaker 4: the Spak as a technology. The issue was, you know,
Speaker 4: the type of company that we're trying to access this
Speaker 4: market opportunistically and rightly, so in front of some capitol
Speaker 4: that had been given to Spaks promoters and managers. Remember
Speaker 4: that interest rates were negative, so you know, Spaks were
Speaker 4: used by some investors as you know, as a vault.
Speaker 3: You know, here's you know, some.
Speaker 4: Cash exactly, I mean, I'll make up you know, for
Speaker 4: the interest you know, shortfall, and I have the option
Speaker 4: you know, to to opt out.
Speaker 2: So so it was a guaranteed higher yield I won't
Speaker 2: say high yields, but higher yield bonds with an equity
Speaker 2: option at the end. If you like the equity company,
Speaker 2: you can.
Speaker 1: Stay with it.
Speaker 2: Cyber Capitals one, a few others did the same thing.
Speaker 2: You know.
Speaker 4: The technology itself was you know, excess of cash you know,
Speaker 4: interest rates or or get negative cash or negative interest
Speaker 4: on my cash account. So here's the cash and I
Speaker 4: may opt out. Well, we tried to do in what
Speaker 4: we did and some work. You know, although you know,
Speaker 4: we decided to give back the capitol because back to
Speaker 4: my skin in the game approach, the one we decided
Speaker 4: to return the capitol that was last you know, last month,
Speaker 4: we had you know, one hundred and fifty million plus
Speaker 4: of our own capital committed to it. So rather than
Speaker 4: chasing you know, the cheap option with the view of
Speaker 4: hopefully making you know, the the return embeddied with the option.
Speaker 4: We're like, first and foremost, we're deplaying our capital. The
Speaker 4: opportunity is not there. You know, We're not going to
Speaker 4: deploy a capital for the sake of it.
Speaker 2: This comes back to skin in the game. When you're
Speaker 2: a co investor with your LPs, you don't make dumb
Speaker 2: decisions because hey, we have the cash, we might as
Speaker 2: well spend it.
Speaker 4: I think so, and So that was just I think
Speaker 4: a misuse of a new interesting technique with some investors
Speaker 4: and a misuse of interesting techniques for the wrong company.
Speaker 2: So I read a piece recently, a research piece that said, uh,
Speaker 2: Brexit may have taken as much as five percent off
Speaker 2: the total GDP of the United Kingdom. You worked in London,
Speaker 2: you're now in New York originally from from Paris. Does
Speaker 2: that sound realistic? What was the impact of Brexit on
Speaker 2: the UK and and who has stepped into the void
Speaker 2: that brexfast teed up.
Speaker 4: So first of all, that's a decision that was made,
Speaker 4: you know, by the by the British people, and you know,
Speaker 4: I will not comment on the on the rational. Beyond that,
Speaker 4: I read the same studios you know that you mentioned,
Speaker 4: and every day I would talk to some France entrepreneurs
Speaker 4: you in Europe telling me how challenging it has become
Speaker 4: and you know, just to move goods and things you know,
Speaker 4: into and just your trading you know with you. The
Speaker 4: one part I can comment on was the whole debate
Speaker 4: around the future of the city of London as a
Speaker 4: prominent financial place global.
Speaker 3: But obviously you.
Speaker 4: Know European well, I can tell you Barry is. You know,
Speaker 4: since you know the world reopen and you can travel again.
Speaker 4: I'm actually going back more often to London than to
Speaker 4: Paris nowadays, which is my you know, the headquarter of
Speaker 4: my firm. Why that because London remains you know, a
Speaker 4: critical business center, you know, for financial services. There are
Speaker 4: some challenging associated with from some regulation, you know, you
Speaker 4: know in the way you have to trade and white
Speaker 4: people and banks you know, had to had to open
Speaker 4: or export some branches onto the continent. And I understand
Speaker 4: why and that, you know, technicalities, but when it comes
Speaker 4: to the cosmopolitan nature of London attracting global talents and
Speaker 4: as much as I'm French, and Paris has been doing
Speaker 4: a tremendous job attracting talents and firms, but the scale
Speaker 4: is such that I wouldn't bet against London as a
Speaker 4: financial center. So we have to cope with technical aspects,
Speaker 4: you know, regulation, cost of doing business for some has
Speaker 4: become very punitive if you don't have the scale. And
Speaker 4: that's why, you know, if I'm a bit selfish in
Speaker 4: the approach. We were fully equipped on the continent to
Speaker 4: start with. We're now moving back more aggressively into London
Speaker 4: because we were less over exposed when many people are
Speaker 4: doing the country. You know, people are trying to reduce
Speaker 4: their investmental location to the UK, their workforce in the UK.
Speaker 4: So we're trying to be a bit contriant and taking
Speaker 4: advantage of that.
Speaker 2: So people overreacted in one direction. It's opportunities. Maybe Europe
Speaker 2: is dealing with a war on its eastern border. What
Speaker 2: has the Russian invasion of Ukraine done in terms of
Speaker 2: energy supplies and just the entire relationship of Europe with Russia.
Speaker 4: Well, it's it's a complicated one. It's a very sad
Speaker 4: one because I can tell you Barris sitting here in
Speaker 4: the US and and when I talked to france family
Speaker 4: over there, the perception of the war is very different
Speaker 4: from one side to the of the pont to the
Speaker 4: to the other because the reality that it's as we
Speaker 4: you know, it's two hours away from many of the
Speaker 4: Western European capital and the perception the filling with the
Speaker 4: population you know, is very you know, is very different.
Speaker 4: So having said that, remember a year ago when the
Speaker 4: war started, obviously the concern about you know, energy independence,
Speaker 4: sustainability was was front and center. That was a I
Speaker 4: think the silver lining of the situation to put more
Speaker 4: light and focus on accelerating you know, part of the
Speaker 4: transition and in itself, you know, that's that that was
Speaker 4: an encouraging step. Looking backwards, you know you're into or
Speaker 4: eighteen months now, you know, into this situation. It's not
Speaker 4: as bad I mean quote unquote on the energy side,
Speaker 4: which is a good news, but the whole situation, you know,
Speaker 4: which I think we are unfortunately stuck stuck with, you know,
Speaker 4: for a relatively long period of time, as creating a
Speaker 4: lot of uncertainty you know in the in the region
Speaker 4: and beyond, but also by the same token, a lot
Speaker 4: of political willingness you know, to move to move quicker.
Speaker 4: And the response if you remember that the European government
Speaker 4: made right after the war, I mean they made more
Speaker 4: progress a matter of in a few weeks then we
Speaker 4: had on you know, in a few years. And so
Speaker 4: at times it's it's effectively when the essential is at
Speaker 4: stake that people can react constructively.
Speaker 2: So the concern, aside from all the humanitarian tragedy of
Speaker 2: the invasion was oil prices with spike, it would eventually
Speaker 2: lead to recession in Europe. But a lot of Europe
Speaker 2: seems to have avoided that. What are your thoughts about
Speaker 2: greater Europe tipping into a recession? And pretty clear parts
Speaker 2: of Europe have slowed down dramatically because of the increased
Speaker 2: costs and dealing with the war. What does the environment
Speaker 2: in Europe look.
Speaker 3: Like to you?
Speaker 4: So not this similar to what we're experiencing here in
Speaker 4: the US and the reshoring you know of production capacity.
Speaker 4: We're seeing that in many countries across Europe. Re industrialization
Speaker 4: has been you know, probably the most popular world of
Speaker 4: politician you know lately, not only because you need to
Speaker 4: demonstrate less dependency you know, to outside market.
Speaker 3: The whole de globalization you know theme.
Speaker 4: I think it was accelerating by this whole situation, and
Speaker 4: so for politicians, you know, it's a way to show,
Speaker 4: you know, a direction for the population. It's a new paradigm,
Speaker 4: a new software and coming back to what we do
Speaker 4: for a living, you know, asset manager, it's a great
Speaker 4: frame in you know, finding ways to allocate, reallocate, working
Speaker 4: with global investors to attract more capital in certain you know,
Speaker 4: countries or for certain industries. It's not happening overnight, but
Speaker 4: you can make it happen fairly quickly. Fairly quickly being
Speaker 4: you know, a matter of months. If you've got all
Speaker 4: these stars aligned from the political direction you know, to
Speaker 4: the to the population adhasion, and then you know.
Speaker 3: The capital allocation.
Speaker 4: And so if you you know, I'm hopeful and I'm
Speaker 4: optimistic that that could be, that could be the civil
Speaker 4: lining of the whole situation as dramatic, you know, the
Speaker 4: situation can be.
Speaker 2: So you have offices in Asia. If we're deglobalizing to
Speaker 2: some degree, and China has been the big industrial driver
Speaker 2: of much of the world, what does it mean for
Speaker 2: investing in Asia generally, but more specifically China.
Speaker 4: So what we've been doing in Asia, first out of
Speaker 4: Singapore where we were we started eight nine years ago
Speaker 4: in Singapore, and then Korea and Japan. We don't have
Speaker 4: any presence in China as a matter of fact, and
Speaker 4: the dialogue we had with these investors locally was really
Speaker 4: about attracting them to some of our existing strategies in
Speaker 4: Europe or in the US.
Speaker 3: Asia.
Speaker 4: Is I have the chance, you know, to go back there,
Speaker 4: you know from time to time, and each time I'm there,
Speaker 4: I found you know, local economies that have and you
Speaker 4: know transform. If you look at Singapore what it was
Speaker 4: when we first moved there and you know eight years later,
Speaker 4: I mean that's that's a global hub. Like a global
Speaker 4: hub with all the consequences you're reading every day, you know,
Speaker 4: the Bloomberg News, you know the price of real estate
Speaker 4: and the numbers of family offices who moved from Hong
Speaker 4: Kong from part of the Middle East. You know, to
Speaker 4: open there for the very same reason that you have created,
Speaker 4: you know, a great talent hub, a very business friendly environment.
Speaker 3: You know, you've got the.
Speaker 4: Most sophisticated sovereign wealth funds in the world. We were
Speaker 4: lucky enough, you know, to have Temasek backing us as
Speaker 4: wely you know as twenty sixteen. I've been a great
Speaker 4: partner ever since. Great place, you know, great marketplace. And
Speaker 4: so the way we look at our single properations today.
Speaker 4: You know, we have a headquarter Paris, and we have
Speaker 4: three global hubs New York, London, Singapore and all of
Speaker 4: these hubs, you know, then you can reach on a
Speaker 4: global basis, first investors and effective you're tracking them where
Speaker 4: we think there is an interesting investment posle and also
Speaker 4: creating investment, you know, opportunities when you've got this supply
Speaker 4: demand imbalance. Again, it all comes down to supply demand
Speaker 4: and how we can best take advantage of that.
Speaker 2: Really interesting, So let's jump to our favorite questions that
Speaker 2: we ask all of our guests, starting with what have
Speaker 2: you been streaming these days? What's been keeping you informed
Speaker 2: and entertained? Either podcast or Netflix or whatever.
Speaker 4: One I like and I recommend, but because that's being
Speaker 4: produced by this company we backed that we took, we
Speaker 4: helped take you know, public a few months ago. Is
Speaker 4: the Peaky Blinders. That's great entertainment, and only because I love,
Speaker 4: you know, this whole story about you know, the villain
Speaker 4: and the gangsters and all that, but more eputently because
Speaker 4: that's great.
Speaker 2: Is that Netflix or Amazona?
Speaker 4: It's a Netflix one. It's a Netflix one I strongly
Speaker 4: recommend and produced by our friend at fl Entertainment.
Speaker 2: Really interesting. So who were your mentors who helped to
Speaker 2: shape your career?
Speaker 4: So few of them are senior people I worked for
Speaker 4: when I was a young analyst, you know, an associate,
Speaker 4: because every one of them, in their own, you know,
Speaker 4: different approach, helped me challenge the fact that we are
Speaker 4: going on our own at a relatively young age, you know,
Speaker 4: for this business. Some of them telling us, well, it's
Speaker 4: either too late or too early for good or bad reasons.
Speaker 4: And on the contrary, people saying, which was less the
Speaker 4: case is in Europe than it can be the case
Speaker 4: here in the US. There's never a good time, and
Speaker 4: you should give it a go, you know. And so
Speaker 4: many of them were finance professional most of the time
Speaker 4: in investment banking and still remained and I've still remain,
Speaker 4: you know, friends. Some of them join us by the
Speaker 4: way along the way, you know, at at TKO. And
Speaker 4: there's that's one thing that she was very valuable. When
Speaker 4: you start your own venture.
Speaker 2: What are some of your favorite books? What are you
Speaker 2: reading right now?
Speaker 4: So two books I've started very different. The first one
Speaker 4: I was lucky to turn one of the again Mike
Speaker 4: Milkan's you know Evan you know recently both in La
Speaker 4: and then Leon and as you know, is extremely focused
Speaker 4: on healthcare and the whole focus is putting through his
Speaker 4: institute and the all the philanthropy around there. And the book,
Speaker 4: you know, the book is called Faster Cures Accelerating the
Speaker 4: Future of Health, you know, by Mike Milkan, is something
Speaker 4: which is fascinating because you know, in a job day
Speaker 4: to day you know, it's really you know, short term,
Speaker 4: and when you step back a bit and you look
Speaker 4: a little bit of these demographic issues. You know, we
Speaker 4: touch based on some of those issues, you know, energy
Speaker 4: and all that, but the demographic is probably the most
Speaker 4: challenging one. And even if it's fifty seventy five from now,
Speaker 4: I think we should start factoring in you know, many
Speaker 4: of that, you know, in Today's Decision and the other book,
Speaker 4: you know, more recent I was lucky to meet a
Speaker 4: French professor in Boston who's teacher both at HBS and HKS.
Speaker 3: She's been there for twenty years, you know.
Speaker 4: Her name is Julie Batilana. And the last book is
Speaker 4: called Power for All, and it's all about you know,
Speaker 4: the relationship to I would say even power, but if
Speaker 4: effectively power is about having an influence on making someone
Speaker 4: else change behavior. How it's not only top down and
Speaker 4: the way we may have learned it, and how we
Speaker 4: should with the new generation in a new cycle, and
Speaker 4: the perspective of things that are you know critical to me,
Speaker 4: which are you democracy but also capitalism which is fueling
Speaker 4: many of that. How do you reconcile you know all that,
Speaker 4: And it's worthwhile reading sounds entry.
Speaker 2: Our last two questions, what sort of advice would you
Speaker 2: give to a recent college graduate who is interested in
Speaker 2: a career in either private equity or investing.
Speaker 4: Well, I would Sandymno. Some of the motos were using
Speaker 4: every day at TKO Capital. Be curious, think out of
Speaker 4: the box, be on the ball, think big. You know,
Speaker 4: I will share that with them because that's one thing
Speaker 4: that doesn't change. Technology may change, but you know, interpersonal
Speaker 4: skill set and being being hungry, I think that's what matters.
Speaker 2: Interesting And our final question, what do you know about
Speaker 2: the world of investing today you wish you knew twenty
Speaker 2: five or so years ago when you were first getting started.
Speaker 3: Never take anything for granted.
Speaker 2: Thank you so much for being so generous with your time, Matthew.
Speaker 2: We have been speaking with Matthew Chebron, co founder of
Speaker 2: TKO Capital. If you enjoy this conversation, well, be sure
Speaker 2: and check out any of the other five hundred or
Speaker 2: so discussions we've had over the past eight or so years.
Speaker 2: You can find those at iTunes, Spotify, YouTube, wherever you
Speaker 2: find your favorite podcast. Sign up for my daily reading
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Speaker 2: conversations together each week. My audio engineer is Sebastian Escobar.
Speaker 2: My producer is Paris walt A. Teak of val Bron
Speaker 2: is our project manager. Sean Russeau is my head of research.
Speaker 2: I'm Barry Ridholts. You've been listening to Masters in Business
Speaker 2: on Bloomberg Radio.