1 00:00:06,059 --> 00:00:08,709 Speaker 1: Welcome to COI Time, a podcast series on markets and 2 00:00:08,710 --> 00:00:11,989 Speaker 1: economies from DBS Group Research. I'm Tamra Wegg, chief economist. 3 00:00:12,060 --> 00:00:14,779 Speaker 1: Welcoming you to our 151st episode. 4 00:00:15,569 --> 00:00:18,579 Speaker 1: A couple of episodes ago, we had a lengthy discussion 5 00:00:18,579 --> 00:00:23,000 Speaker 1: on private credit. Today it's time for private equity. Alicia 6 00:00:23,000 --> 00:00:26,229 Speaker 1: Gregory is our guest. She is managing director at Blue Owl, 7 00:00:26,270 --> 00:00:29,280 Speaker 1: a leading alternative asset manager based out of Australia. 8 00:00:29,639 --> 00:00:32,799 Speaker 1: Prior to joining Blue Owl last year, Alicia was Deputy 9 00:00:32,799 --> 00:00:36,430 Speaker 1: Chief Investment Officer for Future Fund, Australia's sovereign wealth fund 10 00:00:36,430 --> 00:00:40,909 Speaker 1: that manages over $250 billion in assets. She oversaw all 11 00:00:40,909 --> 00:00:43,909 Speaker 1: asset classes, both listed and private assets, and served on 12 00:00:43,909 --> 00:00:47,869 Speaker 1: the fund's Investment committee. Alissa Gregory, welcome to COI time. 13 00:00:47,990 --> 00:00:50,110 Speaker 1: You are our first guest from Australia. 14 00:00:51,348 --> 00:00:52,630 Speaker 2: Thanks for having me here. 15 00:00:53,470 --> 00:00:56,659 Speaker 1: It's it's great to have you and uh, we're gonna 16 00:00:56,659 --> 00:00:59,889 Speaker 1: do like a one on one start on private equity, OK. 17 00:01:00,099 --> 00:01:02,990 Speaker 1: So walk us through the journey of private equity as 18 00:01:02,990 --> 00:01:06,620 Speaker 1: an asset class and if I correct in thinking that 19 00:01:06,620 --> 00:01:09,540 Speaker 1: the leveraged buyout era of the 1980s basically brought private 20 00:01:09,540 --> 00:01:10,500 Speaker 1: equity to the fore. 21 00:01:11,419 --> 00:01:14,489 Speaker 2: Yeah, I think that's a fair assessment. Uh, perhaps if 22 00:01:14,489 --> 00:01:17,720 Speaker 2: I start off, the private equity is an asset class, 23 00:01:17,970 --> 00:01:21,649 Speaker 2: there are really 3 sub-categories I think about within private equity, 24 00:01:21,970 --> 00:01:25,239 Speaker 2: there's buyout, there's growth equity, and there's venture capital. 25 00:01:25,730 --> 00:01:29,819 Speaker 2: I think the origins of both buyout and venture capital, 26 00:01:30,190 --> 00:01:34,179 Speaker 2: the very embryonic stages, uh, were probably the 50s and 60s. 27 00:01:34,349 --> 00:01:37,150 Speaker 2: But as you rightly point out, I think 1980s was 28 00:01:37,150 --> 00:01:41,250 Speaker 2: really the emergence of both buyout and venture capital as, 29 00:01:41,260 --> 00:01:44,750 Speaker 2: as an asset class. And I think the catalyst for 30 00:01:44,750 --> 00:01:48,910 Speaker 2: that was really institutional investors in the United States, and 31 00:01:48,910 --> 00:01:51,900 Speaker 2: in particular endowments. Endowments for the first time, 32 00:01:52,330 --> 00:01:56,970 Speaker 2: Uh, had an asset allocation to, uh, private equity, which 33 00:01:56,970 --> 00:02:01,010 Speaker 2: did cut across both venture and buyout, and that really 34 00:02:01,010 --> 00:02:05,370 Speaker 2: made the, the asset class grow over that next period. 35 00:02:08,548 --> 00:02:12,339 Speaker 1: OK, so the US was the hotbed and by endowments, 36 00:02:12,348 --> 00:02:15,389 Speaker 1: you're basically talking about universities who tend to have a 37 00:02:15,389 --> 00:02:19,708 Speaker 1: huge amount of endowment that their alumni contribute to and, 38 00:02:19,738 --> 00:02:22,377 Speaker 1: and they raise funds and then there's a large corpus 39 00:02:22,377 --> 00:02:24,698 Speaker 1: of fund and typically they can be a little more 40 00:02:24,699 --> 00:02:27,748 Speaker 1: patient in letting their long term strategies work out. Would 41 00:02:27,748 --> 00:02:29,988 Speaker 1: it be safe to say that the pension funds like 42 00:02:29,988 --> 00:02:32,958 Speaker 1: the Ontario teachers or Texas teachers, they also join the 43 00:02:32,958 --> 00:02:33,978 Speaker 1: fray around the same time? 44 00:02:34,889 --> 00:02:37,639 Speaker 2: Yeah, I think, uh, they were that, you know, everyone 45 00:02:37,639 --> 00:02:40,710 Speaker 2: in a slightly different time period, I think, but after, 46 00:02:40,919 --> 00:02:43,440 Speaker 2: after those US endowments, not, you know, over the next 47 00:02:43,440 --> 00:02:46,250 Speaker 2: few years, many of the big pension funds came into 48 00:02:46,250 --> 00:02:49,119 Speaker 2: the asset class as well. Um, and you, and their 49 00:02:49,119 --> 00:02:53,800 Speaker 2: pension funds, like for example, um, the GM pension fund 50 00:02:53,800 --> 00:02:57,899 Speaker 2: was one of the earliest investors in, in things like, um, in, 51 00:02:57,919 --> 00:03:01,429 Speaker 2: in things like private capital and and venture capital in particular. 52 00:03:01,919 --> 00:03:04,440 Speaker 1: OK, and when did the Aussies come to play? 53 00:03:05,360 --> 00:03:08,440 Speaker 2: Yeah, it's a good question. I think that the Australians initially, 54 00:03:08,550 --> 00:03:13,020 Speaker 2: probably in the 90s, late 1990s, uh was the emergence, 55 00:03:13,229 --> 00:03:15,269 Speaker 2: and actually a lot of the Australians had a little 56 00:03:15,270 --> 00:03:18,789 Speaker 2: bit of a home country bias. Probably not dissimilar to 57 00:03:18,788 --> 00:03:21,429 Speaker 2: the US um for that, for that first few. 58 00:03:21,535 --> 00:03:25,205 Speaker 2: Yeah, I think um it was really the early 2000s 59 00:03:25,205 --> 00:03:28,845 Speaker 2: that the Australians really came to private, private equity as 60 00:03:28,845 --> 00:03:29,353 Speaker 2: an asset 61 00:03:29,354 --> 00:03:29,875 Speaker 2: class. 62 00:03:30,205 --> 00:03:31,725 Speaker 1: And was there like some sort of a spillover from 63 00:03:31,725 --> 00:03:33,883 Speaker 1: the US like you had like Wall Street bankers showing 64 00:03:33,883 --> 00:03:36,884 Speaker 1: up in Australia and convincing the wealth managers that this 65 00:03:36,884 --> 00:03:37,595 Speaker 1: is the way to go? 66 00:03:38,830 --> 00:03:42,029 Speaker 2: Actually one of the earliest uh into private equity in 67 00:03:42,029 --> 00:03:45,110 Speaker 2: Australia was Macquarie Bank, and so rather than, rather than 68 00:03:45,110 --> 00:03:47,990 Speaker 2: the US banks coming in and creating the spillover, I 69 00:03:47,990 --> 00:03:50,190 Speaker 2: think it was um, you know, everyone today will know 70 00:03:50,190 --> 00:03:54,309 Speaker 2: Macquarie Bank, but back in that early 2000 period. 71 00:03:54,639 --> 00:03:57,979 Speaker 2: Um, they were still really just growing up, and I think, uh, they, 72 00:03:58,059 --> 00:04:00,380 Speaker 2: they were one of the earliest, one of the earliest 73 00:04:00,380 --> 00:04:03,520 Speaker 2: players in the, in the sector, and, um, actually how 74 00:04:03,520 --> 00:04:05,500 Speaker 2: I got to the asset class in that in that 75 00:04:05,500 --> 00:04:10,600 Speaker 2: early 2000 period, Macquarie Bank did a listed private equity. 76 00:04:10,785 --> 00:04:15,815 Speaker 2: Um, and you know, you know, popular again, the evergreen 77 00:04:15,815 --> 00:04:19,734 Speaker 2: private equity, but actually a listed private equity fund in 78 00:04:19,734 --> 00:04:24,274 Speaker 2: that early 2000s period, um, which, which kind of had the, 79 00:04:24,295 --> 00:04:26,845 Speaker 2: the market looking at at the space here in Australia. 80 00:04:27,630 --> 00:04:29,988 Speaker 1: OK, a little later, I'm gonna ask you what exactly 81 00:04:29,988 --> 00:04:31,790 Speaker 1: is an evergreen equity fund. We'll get to that in 82 00:04:31,790 --> 00:04:34,559 Speaker 1: a minute. But uh let's uh lay down a couple 83 00:04:34,559 --> 00:04:37,750 Speaker 1: of basic building blocks. What's the appeal of private equity 84 00:04:37,750 --> 00:04:41,019 Speaker 1: both from the perspective of the company and the investor? 85 00:04:41,839 --> 00:04:44,059 Speaker 2: Yeah, it's a really good question, and the important one. 86 00:04:44,269 --> 00:04:47,859 Speaker 2: I think if I think about it from a company's perspective, um, 87 00:04:48,149 --> 00:04:51,339 Speaker 2: access to capital is very important, especially for a business 88 00:04:51,339 --> 00:04:53,890 Speaker 2: that is looking to grow quickly. And when you're looking 89 00:04:53,890 --> 00:04:57,549 Speaker 2: to grow quickly, the willingness or desire to pay out 90 00:04:57,549 --> 00:05:01,190 Speaker 2: large dividends, um, not, not necessarily there because you want 91 00:05:01,190 --> 00:05:04,190 Speaker 2: to use your cash flow to continue to grow. And 92 00:05:04,190 --> 00:05:06,308 Speaker 2: I think that that that that is an important part 93 00:05:06,309 --> 00:05:07,619 Speaker 2: of private markets. 94 00:05:08,079 --> 00:05:10,380 Speaker 2: I think the next coup, the next couple of features 95 00:05:10,380 --> 00:05:13,019 Speaker 2: that I would touch on, often the company is looking 96 00:05:13,019 --> 00:05:16,619 Speaker 2: for the expertise that perhaps the private, the private equity 97 00:05:16,619 --> 00:05:20,178 Speaker 2: manager can bring. Uh, there are many specialist private equity 98 00:05:20,178 --> 00:05:23,980 Speaker 2: firms today, and as companies are looking to grow and scale, 99 00:05:24,100 --> 00:05:28,420 Speaker 2: that ability to partner with a, with a firm that 100 00:05:28,420 --> 00:05:30,820 Speaker 2: has done it before and can help them do it 101 00:05:30,820 --> 00:05:32,779 Speaker 2: can often be pretty important. 102 00:05:33,390 --> 00:05:36,820 Speaker 2: I think the third factor would be that long-term focus 103 00:05:36,820 --> 00:05:40,269 Speaker 2: that you touched on about the endowments. I think one 104 00:05:40,269 --> 00:05:44,709 Speaker 2: of the, the constant, um, things you hear from entrepreneurs 105 00:05:44,709 --> 00:05:48,868 Speaker 2: who take private capital is the long-term nature of the 106 00:05:48,869 --> 00:05:52,428 Speaker 2: private capital market to allow them to really think about 107 00:05:52,428 --> 00:05:55,010 Speaker 2: how to grow a business over 5 to 10 years 108 00:05:55,299 --> 00:05:57,119 Speaker 2: is is an important attribute. 109 00:05:57,649 --> 00:05:59,649 Speaker 2: Uh, and then, if I, if I, if I go 110 00:05:59,649 --> 00:06:01,609 Speaker 2: to the other side of the equation and what you 111 00:06:01,609 --> 00:06:04,649 Speaker 2: asked about, like for investors who think about why should 112 00:06:04,649 --> 00:06:09,428 Speaker 2: I invest in private capital, I think the first one clearly, um, 113 00:06:09,440 --> 00:06:12,769 Speaker 2: is looking for access to higher returns than you can 114 00:06:12,769 --> 00:06:16,159 Speaker 2: earn out of the public markets, which are, which are 115 00:06:16,160 --> 00:06:19,209 Speaker 2: much more liquid. A couple of other things though that 116 00:06:19,209 --> 00:06:22,570 Speaker 2: I think a lot of people think about, um, access 117 00:06:22,570 --> 00:06:23,850 Speaker 2: to both innovation, 118 00:06:24,410 --> 00:06:28,659 Speaker 2: And if I think about innovation in today's world and 119 00:06:28,660 --> 00:06:32,500 Speaker 2: productivity growth, two really important themes that many countries are 120 00:06:32,500 --> 00:06:36,420 Speaker 2: talking about the the importance of. And if you look 121 00:06:36,420 --> 00:06:41,500 Speaker 2: today at the NASDAQ, nearly over 90% of companies listed 122 00:06:41,500 --> 00:06:44,700 Speaker 2: on the NASDAQ started with venture some sort of venture 123 00:06:44,700 --> 00:06:46,480 Speaker 2: capital or private equity funding. 124 00:06:46,859 --> 00:06:49,450 Speaker 2: And actually the Magnificent Seven too, if you look through 125 00:06:49,450 --> 00:06:52,410 Speaker 2: early funders, have, have support from there. And so this 126 00:06:52,410 --> 00:06:57,729 Speaker 2: ability to innovate, do things differently, often starts actually in 127 00:06:57,730 --> 00:07:02,079 Speaker 2: the private markets. And as an investor of a large portfolio, 128 00:07:02,709 --> 00:07:08,390 Speaker 2: access to diversification, innovation becomes a really important theme for, 129 00:07:08,488 --> 00:07:09,279 Speaker 2: for many. 130 00:07:09,959 --> 00:07:12,410 Speaker 2: I, I think the final part I would say, um, 131 00:07:12,420 --> 00:07:16,890 Speaker 2: as an investor in the asset class is alignment of interest. 132 00:07:17,299 --> 00:07:19,940 Speaker 2: One of the most important things you can do in 133 00:07:19,940 --> 00:07:23,619 Speaker 2: private equity, um, is really set up an alignment and 134 00:07:23,619 --> 00:07:28,359 Speaker 2: uh between management, um, uh, you as an investor, um, 135 00:07:28,380 --> 00:07:31,929 Speaker 2: and the company, and that can drive to really strong outcomes. 136 00:07:32,019 --> 00:07:34,130 Speaker 2: And so I think when you get all of that right, 137 00:07:34,339 --> 00:07:37,470 Speaker 2: as an investor, it can be a really attractive asset class. 138 00:07:38,790 --> 00:07:41,290 Speaker 1: Sure, uh, Alicia, I'm glad that you had this reference 139 00:07:41,290 --> 00:07:44,010 Speaker 1: to the Magnificent Seven because I think that non-specialists listening 140 00:07:44,010 --> 00:07:47,049 Speaker 1: to this conversation would sort of realize that private equity 141 00:07:47,049 --> 00:07:49,820 Speaker 1: is not that exotic, it is actually pretty ubiquitous, uh, 142 00:07:49,890 --> 00:07:51,690 Speaker 1: and it's been around for a long time. So give 143 00:07:51,690 --> 00:07:53,970 Speaker 1: us a sense of how large is this as a class. 144 00:07:55,010 --> 00:07:57,079 Speaker 2: Yeah, it's a really good question. I think at at 145 00:07:57,079 --> 00:08:02,250 Speaker 2: Blue Hour we estimate that there's about $200 trillion in 146 00:08:02,250 --> 00:08:06,929 Speaker 2: assets under management in the world, and actually only about 147 00:08:07,160 --> 00:08:10,790 Speaker 2: 12 trillion of that is private markets, and of that, 148 00:08:10,850 --> 00:08:15,160 Speaker 2: you've obviously got property, infrastructure, private equity. Private equity probably 149 00:08:15,600 --> 00:08:18,989 Speaker 2: makes up about a third of that. And so whilst 150 00:08:18,989 --> 00:08:21,890 Speaker 2: a lot of people talk about the strong growth in, 151 00:08:21,950 --> 00:08:25,299 Speaker 2: In, um, private markets and in particular in private equity 152 00:08:25,299 --> 00:08:29,369 Speaker 2: over the last 10 or 15 years. The reality is, 153 00:08:29,640 --> 00:08:32,619 Speaker 2: private markets make up about, you know, under that estimate, 154 00:08:32,750 --> 00:08:38,169 Speaker 2: about 6%, 7% of all assets globally under management. And so, 155 00:08:38,340 --> 00:08:41,299 Speaker 2: you know, it's the, the, it's still the minority of investments, 156 00:08:41,340 --> 00:08:43,530 Speaker 2: I think you see, uh, globally. 157 00:08:44,150 --> 00:08:45,289 Speaker 1: Still trillions of dollars. 158 00:08:45,859 --> 00:08:46,669 Speaker 2: Yeah, indeed, 159 00:08:47,330 --> 00:08:51,530 Speaker 1: yes. And has there been some conversation between regulators, let's 160 00:08:51,530 --> 00:08:54,010 Speaker 1: say the Reserve Bank of Australia or the Fed and 161 00:08:54,010 --> 00:08:58,010 Speaker 1: the investment community about this asset class becoming so large 162 00:08:58,010 --> 00:09:01,169 Speaker 1: that there are some systemic implications are so far it's 163 00:09:01,169 --> 00:09:02,598 Speaker 1: sort of flying under the radar. 164 00:09:03,690 --> 00:09:07,390 Speaker 2: I think um we, you've definitely seen in many jurisdictions 165 00:09:07,390 --> 00:09:12,500 Speaker 2: throughout the world changing regulation in private markets, and obviously, 166 00:09:12,789 --> 00:09:16,329 Speaker 2: as the asset class has continued to grow, um, the, 167 00:09:16,419 --> 00:09:19,150 Speaker 2: you know, the regulators have spent some more time, uh, 168 00:09:19,190 --> 00:09:22,739 Speaker 2: looking at the different asset classes. um, but like I said, 169 00:09:22,789 --> 00:09:26,210 Speaker 2: it's still relatively small compared to what goes on in 170 00:09:26,210 --> 00:09:27,390 Speaker 2: public markets. 171 00:09:28,080 --> 00:09:32,109 Speaker 1: Sure, um, earlier, uh, when you were describing the, uh, 172 00:09:32,119 --> 00:09:34,619 Speaker 1: genesis of private equity, you mentioned a couple of structures, 173 00:09:34,719 --> 00:09:39,039 Speaker 1: things like uh buyout fund and growth equity fund and VC, uh, 174 00:09:39,200 --> 00:09:41,039 Speaker 1: would you sort of walk us through those a little bit? 175 00:09:42,229 --> 00:09:48,590 Speaker 2: Yeah, sure, and so, um, venture venture capital funding is really, um, 176 00:09:48,710 --> 00:09:52,830 Speaker 2: everything from the ID stage, so seed funding all the 177 00:09:52,830 --> 00:09:57,429 Speaker 2: way through until, um, what can be later stage, uh, 178 00:09:57,590 --> 00:10:03,580 Speaker 2: venture capital, really a company that is, um, growing very quickly, 179 00:10:03,830 --> 00:10:08,709 Speaker 2: often consuming cash, um, and trying to enter new markets, 180 00:10:08,830 --> 00:10:10,640 Speaker 2: build new product, and. 181 00:10:10,705 --> 00:10:14,914 Speaker 2: Create a structure. At the other end of the spectrum 182 00:10:14,914 --> 00:10:21,684 Speaker 2: is buyout investing, and buyout investing is really, um, it's private, 183 00:10:21,844 --> 00:10:27,895 Speaker 2: private companies, um, that are up and running, have cash 184 00:10:27,895 --> 00:10:32,843 Speaker 2: flow attached to them, and you're buying them on, not, not, 185 00:10:32,895 --> 00:10:35,614 Speaker 2: you're pricing them not dissimilar to how you price a 186 00:10:35,614 --> 00:10:36,844 Speaker 2: public market stock. 187 00:10:37,359 --> 00:10:39,659 Speaker 2: I think in the middle of that is growth, growth 188 00:10:39,659 --> 00:10:43,939 Speaker 2: equity investing, and there is, there is this ability, and 189 00:10:43,940 --> 00:10:49,219 Speaker 2: the difference here is often growth equity investing is a 190 00:10:49,219 --> 00:10:51,469 Speaker 2: company that, 191 00:10:52,130 --> 00:10:56,349 Speaker 2: Has a very large opportunity to grow very quickly. Often, 192 00:10:56,539 --> 00:10:59,218 Speaker 2: you know, we talk about the rule of 40, and 193 00:10:59,219 --> 00:11:02,580 Speaker 2: that's really talking about the fact, um, that it could be, 194 00:11:02,659 --> 00:11:05,340 Speaker 2: you know, you're looking to grow at sort of that 40% 195 00:11:05,340 --> 00:11:10,140 Speaker 2: kind of rate, um, and so, whilst the company, if 196 00:11:10,140 --> 00:11:13,750 Speaker 2: you were growing a little bit slower, could have, um, 197 00:11:14,039 --> 00:11:17,598 Speaker 2: Pretty good earnings, you're reinvesting a lot of those earnings 198 00:11:17,599 --> 00:11:21,450 Speaker 2: to go after growth and really enter new markets, build 199 00:11:21,450 --> 00:11:24,250 Speaker 2: market share, do those type of things. And so they're 200 00:11:24,250 --> 00:11:28,679 Speaker 2: the three different segments, um, that, and generally speaking, you 201 00:11:28,679 --> 00:11:31,869 Speaker 2: need different skills, uh, if you're working with a business 202 00:11:32,320 --> 00:11:35,750 Speaker 2: that is just starting out, like you are in venture capital. 203 00:11:36,200 --> 00:11:39,960 Speaker 2: A business that's really scaling very quickly, like you might 204 00:11:39,960 --> 00:11:43,799 Speaker 2: be in growth equity, or in a, in a buyout business, 205 00:11:44,090 --> 00:11:47,289 Speaker 2: where um it's a more mature business, probably with a 206 00:11:47,299 --> 00:11:50,979 Speaker 2: a bigger management team, but a very big footprint off it. 207 00:11:52,809 --> 00:11:57,409 Speaker 1: So, from a sort of an incentive perspective, a startup 208 00:11:57,409 --> 00:12:01,690 Speaker 1: founder who wants large access to capital, but maybe not 209 00:12:01,690 --> 00:12:04,119 Speaker 1: big enough or doesn't have a track record to warrant 210 00:12:04,119 --> 00:12:07,570 Speaker 1: a bank becoming interested in them, would be showing up 211 00:12:07,570 --> 00:12:11,530 Speaker 1: for early stage investing from VCs so basically you graduate 212 00:12:11,530 --> 00:12:13,429 Speaker 1: from friends and family, and then you go to the 213 00:12:13,429 --> 00:12:16,760 Speaker 1: VCs and then when you become consequential and huge growth potential, 214 00:12:16,969 --> 00:12:18,049 Speaker 1: private equity comes to play. 215 00:12:18,869 --> 00:12:20,848 Speaker 2: Yeah, that's it, that's exactly it. 216 00:12:21,250 --> 00:12:26,169 Speaker 1: Um, the, uh, question that I had, ah, recently, it's 217 00:12:26,169 --> 00:12:28,289 Speaker 1: not that much in the news, but a couple of 218 00:12:28,289 --> 00:12:31,609 Speaker 1: years ago, it was very much in vogue with Sacks. 219 00:12:31,849 --> 00:12:35,789 Speaker 1: Were the private equity players sort of instrumental in making Sacks, ah, 220 00:12:36,169 --> 00:12:37,049 Speaker 1: you know, popular? 221 00:12:38,559 --> 00:12:41,000 Speaker 2: Oh look, I think that is a good question. I, 222 00:12:41,039 --> 00:12:43,718 Speaker 2: I mean, I think what drove Sacks was what was 223 00:12:43,719 --> 00:12:47,189 Speaker 2: going on in the public market, right, and so, um, 224 00:12:47,239 --> 00:12:51,549 Speaker 2: that ability to, uh, list a vehicle in in and 225 00:12:51,559 --> 00:12:56,679 Speaker 2: and do that with the company, um, was really driven 226 00:12:56,679 --> 00:12:59,880 Speaker 2: by what was a pretty buoyant public market, in particular 227 00:12:59,880 --> 00:13:03,929 Speaker 2: for growth companies, um, you know, we've seen this often 228 00:13:03,929 --> 00:13:05,950 Speaker 2: over the last 25 years from, 229 00:13:06,849 --> 00:13:11,309 Speaker 2: The late 90s, where there was, you know, real bullishness 230 00:13:11,309 --> 00:13:14,789 Speaker 2: for growth in public markets, and then that sentiment turned 231 00:13:15,239 --> 00:13:19,189 Speaker 2: uh '99, 2000, and you see, you see ebbs and flows, 232 00:13:19,239 --> 00:13:24,000 Speaker 2: I think in, in public market desire to both price 233 00:13:24,000 --> 00:13:29,159 Speaker 2: growth and want growth versus um versus sort of stability 234 00:13:29,159 --> 00:13:30,349 Speaker 2: and income, and so, 235 00:13:30,690 --> 00:13:33,260 Speaker 2: Um, I think what you saw with SAS was a 236 00:13:33,260 --> 00:13:38,580 Speaker 2: period where the public market, um, was pretty hungry for 237 00:13:38,580 --> 00:13:42,070 Speaker 2: growth type assets, and so that was sort of an innovation, um, 238 00:13:42,380 --> 00:13:46,900 Speaker 2: that came about or, um, was utilized, given, given that 239 00:13:46,900 --> 00:13:47,939 Speaker 2: demand that we were seeing. 240 00:13:48,880 --> 00:13:51,539 Speaker 1: It's interesting, Lusia, that although stock markets have been pretty 241 00:13:51,539 --> 00:13:54,590 Speaker 1: buoyant in recent years, they've done pretty well, uh, when 242 00:13:54,590 --> 00:13:56,869 Speaker 1: we look at the IPO market, by and large, it's 243 00:13:56,869 --> 00:14:01,229 Speaker 1: not that vigorous. So as a private equity investor, how 244 00:14:01,229 --> 00:14:04,109 Speaker 1: does one, or rather a private equity fund that is 245 00:14:04,109 --> 00:14:06,710 Speaker 1: trying to return capital to their investors, they try to 246 00:14:06,710 --> 00:14:09,069 Speaker 1: have an exit through an IPO and then everybody monetizes 247 00:14:09,070 --> 00:14:10,809 Speaker 1: the asset and then you move on to the next fund. 248 00:14:11,030 --> 00:14:14,030 Speaker 1: But in there is a drought of IPOs, how do 249 00:14:14,030 --> 00:14:15,869 Speaker 1: private equity funds find exit? 250 00:14:17,049 --> 00:14:20,200 Speaker 2: Yeah, it's a good question. I think um there there 251 00:14:20,200 --> 00:14:25,919 Speaker 2: are 3 mechanisms, generally speaking, that a private equity fund 252 00:14:25,919 --> 00:14:27,479 Speaker 2: can use for exits. 253 00:14:27,950 --> 00:14:31,510 Speaker 2: The first of those is IPO like you just touched on, um, 254 00:14:31,520 --> 00:14:34,510 Speaker 2: but over the long-term, that's actually, you know, the minority 255 00:14:34,599 --> 00:14:38,909 Speaker 2: of exits for private equity backed companies. The second one 256 00:14:39,119 --> 00:14:43,510 Speaker 2: is sale, um, to a strategic bus to a strategic buyer, 257 00:14:43,880 --> 00:14:49,440 Speaker 2: and the third is a sale to another financial buyer. Um, and, 258 00:14:49,640 --> 00:14:51,280 Speaker 2: and so 3 different mechanisms. 259 00:14:51,705 --> 00:14:57,424 Speaker 2: You tend to find time periods where strategic buyers have 260 00:14:57,424 --> 00:15:00,075 Speaker 2: plenty of cash and are pretty bullish and want to, 261 00:15:00,385 --> 00:15:03,775 Speaker 2: and really want to go out and, um, acquire assets, 262 00:15:03,784 --> 00:15:07,614 Speaker 2: and then you find other periods, um, where they're not there, 263 00:15:07,784 --> 00:15:11,104 Speaker 2: the same can be said for the IPO market, and again, 264 00:15:11,145 --> 00:15:14,744 Speaker 2: the same can be said for strategic financial buyers, and so, 265 00:15:15,140 --> 00:15:17,900 Speaker 2: They tend to be the three mechanisms um that are 266 00:15:17,900 --> 00:15:23,140 Speaker 2: utilized uh to exit private equity deals, and um, you 267 00:15:23,140 --> 00:15:26,219 Speaker 2: tend to find they all of them can sometimes be open, 268 00:15:26,500 --> 00:15:27,539 Speaker 2: sometimes be shut. 269 00:15:28,640 --> 00:15:32,760 Speaker 1: And you as an investor, you don't have any preference 270 00:15:32,760 --> 00:15:35,760 Speaker 1: as long as you know, any of which allows the exit, 271 00:15:35,770 --> 00:15:36,250 Speaker 1: you're OK. 272 00:15:37,369 --> 00:15:39,890 Speaker 2: Look, I think the way I think about that is 273 00:15:39,890 --> 00:15:42,960 Speaker 2: what's best for the company. I think one of the, the, 274 00:15:42,969 --> 00:15:48,130 Speaker 2: the most important components of the private capital system, especially 275 00:15:48,130 --> 00:15:51,159 Speaker 2: when you've been off, so often you buy a business, 276 00:15:51,739 --> 00:15:56,049 Speaker 2: Um, you own it for 57 years, and then we're talking, 277 00:15:56,099 --> 00:15:59,090 Speaker 2: if we get to this, you're looking to exit the business, uh, 278 00:15:59,099 --> 00:16:02,659 Speaker 2: and realize your investment. Um, you've been working with that 279 00:16:02,659 --> 00:16:05,859 Speaker 2: business for the last 5 or 7 years, seeing it 280 00:16:05,859 --> 00:16:08,369 Speaker 2: get owned by the right next owner to allow it 281 00:16:08,369 --> 00:16:10,059 Speaker 2: to continue to grow and flourish. 282 00:16:10,140 --> 00:16:14,039 Speaker 2: Is is generally really important to private capital investors, and so, 283 00:16:14,369 --> 00:16:17,330 Speaker 2: you know, for different businesses, there are different places that 284 00:16:17,330 --> 00:16:20,250 Speaker 2: it's probably the most like should be the place that 285 00:16:20,250 --> 00:16:23,169 Speaker 2: it should, it should be owned next, and that's the 286 00:16:23,169 --> 00:16:24,890 Speaker 2: way I think about that. So they can all be 287 00:16:24,890 --> 00:16:28,440 Speaker 2: really strong, viable opportunities depending on what the business is. 288 00:16:29,440 --> 00:16:31,710 Speaker 1: All right, I'm gonna ask you, I, I hope this 289 00:16:31,710 --> 00:16:33,190 Speaker 1: is not a hard question, but I really hope that 290 00:16:33,190 --> 00:16:35,349 Speaker 1: you have a great answer for that. Earlier, you're talking 291 00:16:35,349 --> 00:16:39,270 Speaker 1: about that the investors with a longer time tolerance would 292 00:16:39,270 --> 00:16:42,739 Speaker 1: be interested in private equity, hoping for superior returns. So, 293 00:16:43,109 --> 00:16:46,989 Speaker 1: are there good studies in journals of finance or economics 294 00:16:46,989 --> 00:16:51,750 Speaker 1: or business that sort of so conclusively that private equity 295 00:16:51,750 --> 00:16:53,549 Speaker 1: offers superior returns over the medium term? 296 00:16:54,580 --> 00:16:57,849 Speaker 2: It's such a good question. I, uh, I, I'm gonna 297 00:16:57,849 --> 00:17:02,520 Speaker 2: start with, um, the, the, I think conclusively studies show 298 00:17:02,729 --> 00:17:06,770 Speaker 2: that the dispersion of returns in private equity is much 299 00:17:06,770 --> 00:17:09,859 Speaker 2: larger than you find in just about, um, any other 300 00:17:09,859 --> 00:17:12,968 Speaker 2: asset class. And so one of the things, what, so 301 00:17:12,969 --> 00:17:18,489 Speaker 2: what does that mean? That means the cost of getting 302 00:17:18,489 --> 00:17:19,849 Speaker 2: it right. 303 00:17:20,030 --> 00:17:23,760 Speaker 2: Wrong, can be pretty high. Um, and, you know, and I, 304 00:17:23,819 --> 00:17:26,458 Speaker 2: I was saying to, I would say to one of 305 00:17:26,459 --> 00:17:30,540 Speaker 2: my friends in, in the equity market, um, you know, 306 00:17:30,619 --> 00:17:37,079 Speaker 2: the difference between top quartile and bottom quartile might be 2%. Um, 307 00:17:37,140 --> 00:17:39,660 Speaker 2: and you look through in private equity, and that can be, 308 00:17:39,780 --> 00:17:43,300 Speaker 2: that can be as wide as 7 or 8%, depending 309 00:17:43,300 --> 00:17:45,369 Speaker 2: on the time periods, right? And so, 310 00:17:45,729 --> 00:17:50,520 Speaker 2: Um, the cost of getting private equity wrong can be higher, 311 00:17:50,859 --> 00:17:54,619 Speaker 2: and the cost of getting it right, um, can be pretty, 312 00:17:54,780 --> 00:18:00,790 Speaker 2: can be pretty valuable. And so, many studies, academic studies have, have, 313 00:18:00,800 --> 00:18:03,020 Speaker 2: have run this and different time periods of. 314 00:18:03,135 --> 00:18:06,084 Speaker 2: Showing different things. I think your question was, does it 315 00:18:06,084 --> 00:18:11,724 Speaker 2: prove it, you know, unequivocally? I think that, um, most 316 00:18:11,724 --> 00:18:15,925 Speaker 2: of the studies show that if you're in the top quartile, um, you, 317 00:18:15,964 --> 00:18:19,444 Speaker 2: you can deliver pretty strong performance relative to the alternatives 318 00:18:19,444 --> 00:18:22,765 Speaker 2: over the long term. Um, if you look at it 319 00:18:22,765 --> 00:18:25,363 Speaker 2: on an, like, just year by year basis, it can 320 00:18:25,364 --> 00:18:27,484 Speaker 2: be a little bit, uh, you know, you can get different, 321 00:18:27,604 --> 00:18:28,915 Speaker 2: you can get different results. 322 00:18:29,770 --> 00:18:33,728 Speaker 1: Are there any geographical variations like, you know, are the 323 00:18:33,729 --> 00:18:37,010 Speaker 1: Australian funds more successful than Americans or Americans more successful 324 00:18:37,010 --> 00:18:39,089 Speaker 1: than everybody else, I mean, what's the sense? 325 00:18:39,839 --> 00:18:43,430 Speaker 2: Yeah, interestingly, the data does support, uh, look, Australia has 326 00:18:43,430 --> 00:18:46,719 Speaker 2: been a really strong market for private equity and in 327 00:18:46,719 --> 00:18:49,959 Speaker 2: particular both buyout and venture, and I think as part 328 00:18:49,959 --> 00:18:53,000 Speaker 2: of that, um, one of the ones we would say 329 00:18:53,000 --> 00:18:58,239 Speaker 2: here in Australia is that, you know, the, the demand 330 00:18:58,239 --> 00:19:02,430 Speaker 2: and supply for capital in the private market industry can, 331 00:19:02,750 --> 00:19:06,760 Speaker 2: can lead to, um, but you know, the way the 332 00:19:06,760 --> 00:19:08,469 Speaker 2: performance outcomes that get driven. 333 00:19:08,819 --> 00:19:13,270 Speaker 2: And here in Australia, we haven't had a huge influx 334 00:19:13,270 --> 00:19:16,469 Speaker 2: of capital from other parts of the world, um, and 335 00:19:16,469 --> 00:19:18,670 Speaker 2: so that supply and demand is pretty much held in 336 00:19:18,670 --> 00:19:20,589 Speaker 2: balance over a period of time, and if you look 337 00:19:20,589 --> 00:19:23,510 Speaker 2: through the data, actually Australia's been one of the top 338 00:19:23,510 --> 00:19:26,109 Speaker 2: performing buyout markets in the world over the last 7 339 00:19:26,109 --> 00:19:28,550 Speaker 2: to 10 years, and so, and I think a big 340 00:19:28,550 --> 00:19:30,709 Speaker 2: part of that is to do with that supply and 341 00:19:30,709 --> 00:19:31,739 Speaker 2: demand of capital. 342 00:19:32,619 --> 00:19:36,020 Speaker 1: Fascinating. Are we going through good times in the private 343 00:19:36,020 --> 00:19:39,479 Speaker 1: equity world? Are investors by and large getting decent returns 344 00:19:39,479 --> 00:19:39,969 Speaker 1: these days? 345 00:19:41,300 --> 00:19:44,270 Speaker 2: I, I think it all depends on when you started 346 00:19:44,270 --> 00:19:46,670 Speaker 2: and what that looks like. I think I get asked 347 00:19:46,670 --> 00:19:49,109 Speaker 2: this a little bit, but if you look at, and 348 00:19:49,109 --> 00:19:51,869 Speaker 2: let's put aside the last couple of weeks, but through 349 00:19:51,869 --> 00:19:55,319 Speaker 2: till the end of last year, um, for calendar year 350 00:19:55,319 --> 00:20:01,510 Speaker 2: 23 and calendar year 24, equity markets had phenomenal returns, um. 351 00:20:01,959 --> 00:20:05,430 Speaker 2: And so, you know, and then as an Australian investor, 352 00:20:05,719 --> 00:20:08,760 Speaker 2: investing in global equities, it would depend on your hedging 353 00:20:08,760 --> 00:20:11,520 Speaker 2: and all of that, but you know, when you're getting 20% 354 00:20:11,520 --> 00:20:16,760 Speaker 2: plus returns out of equities, um, many a private equity 355 00:20:16,760 --> 00:20:22,359 Speaker 2: portfolio looks to return 5 to 6% above its equity portfolio, 356 00:20:22,400 --> 00:20:24,479 Speaker 2: that's a pretty high hurdle. Very hard. 357 00:20:24,880 --> 00:20:27,109 Speaker 2: And so I, and I say to people, people ask 358 00:20:27,109 --> 00:20:29,869 Speaker 2: me often, and I say listen, if you think equities 359 00:20:29,869 --> 00:20:33,380 Speaker 2: will continue to do 21 to 22% per annum, 360 00:20:33,849 --> 00:20:36,150 Speaker 2: You should probably put all your money there, right? Um, 361 00:20:36,329 --> 00:20:40,540 Speaker 2: because that'll be a really hard hurdle, um, for PE 362 00:20:40,540 --> 00:20:44,050 Speaker 2: to outperform over that kind of time period. I think 363 00:20:44,050 --> 00:20:46,569 Speaker 2: what you see, and I used to have this conversation 364 00:20:46,569 --> 00:20:50,089 Speaker 2: with people and, and my boards, you know, 5 and 365 00:20:50,089 --> 00:20:53,329 Speaker 2: 6 as well. In, in, in 2006, I remember sitting 366 00:20:53,329 --> 00:20:55,400 Speaker 2: in front of my board and equity markets had just 367 00:20:55,400 --> 00:20:58,810 Speaker 2: had a great ER and they're like, PE's lagging right now. 368 00:20:58,930 --> 00:21:00,810 Speaker 2: What do you think? And, you know, we all know 369 00:21:00,810 --> 00:21:01,448 Speaker 2: what happened after. 370 00:21:03,420 --> 00:21:06,530 Speaker 2: Yeah, right. And so I think if you look through, 371 00:21:06,619 --> 00:21:09,819 Speaker 2: you know, 5 year numbers continue to show private equity 372 00:21:09,819 --> 00:21:13,339 Speaker 2: is doing very well, um, I think where you've invested, 373 00:21:13,459 --> 00:21:18,609 Speaker 2: what you've invested in does matter. And so I, that's not, and, um, but, 374 00:21:18,719 --> 00:21:20,420 Speaker 2: you know, if, if what you're looking at is the 375 00:21:20,420 --> 00:21:22,979 Speaker 2: last 12 months, it's been a hard hurdle to beat 376 00:21:22,979 --> 00:21:26,050 Speaker 2: the public equity markets that have had a really stellar run, 377 00:21:26,339 --> 00:21:29,369 Speaker 2: putting aside the the more recent volatility. 378 00:21:29,790 --> 00:21:32,750 Speaker 1: Right, but I think despite the fact that equities had 379 00:21:32,750 --> 00:21:36,310 Speaker 1: such an awesome 23 and 24, I don't think enthusiasm 380 00:21:36,310 --> 00:21:38,349 Speaker 1: and private equity ebbed as a result. 381 00:21:39,790 --> 00:21:42,510 Speaker 2: Look, it's definitely harder to raise money in private equity 382 00:21:42,510 --> 00:21:46,900 Speaker 2: today than it was in 20122, um, you know, and I, 383 00:21:46,949 --> 00:21:51,540 Speaker 2: and I say that easily because, uh, I, I, I watch, um, 384 00:21:51,550 --> 00:21:52,989 Speaker 2: and you can see that, 385 00:21:53,489 --> 00:21:57,319 Speaker 2: Everybody wants to ring and ask, what's Australia like today 386 00:21:57,319 --> 00:21:59,520 Speaker 2: and should I come down there and fundraise? And so 387 00:21:59,520 --> 00:22:01,959 Speaker 2: I know that it must be harder to fundraise when 388 00:22:01,959 --> 00:22:04,599 Speaker 2: people want to ring me, uh, from all over the 389 00:22:04,599 --> 00:22:09,280 Speaker 2: world and say, I'm thinking of coming down, can we talk? Um, 390 00:22:09,560 --> 00:22:11,959 Speaker 2: and so that's always a great sign that it's harder 391 00:22:11,959 --> 00:22:14,880 Speaker 2: to fundraise when people are willing to spend that long 392 00:22:14,880 --> 00:22:17,119 Speaker 2: on a plane to come and talk to investors. 393 00:22:17,869 --> 00:22:20,670 Speaker 1: OK, that's a very good metric to look at. Alicia, 394 00:22:20,869 --> 00:22:24,579 Speaker 1: walk me through the process of investment screening. You look 395 00:22:24,579 --> 00:22:28,069 Speaker 1: at deal flows, you see all sorts of companies coming 396 00:22:28,069 --> 00:22:31,948 Speaker 1: through your door. What is your criteria for a good 397 00:22:31,949 --> 00:22:34,819 Speaker 1: solid pitch and then, then you sort of go for it. 398 00:22:35,630 --> 00:22:39,218 Speaker 2: Yeah, of course. I think, um, and maybe, maybe I start, 399 00:22:39,339 --> 00:22:42,300 Speaker 2: I mean, with a fund like funding, like if I'm 400 00:22:42,300 --> 00:22:47,329 Speaker 2: thinking about investing in a fund versus a single company, right? Um, uh, 401 00:22:47,420 --> 00:22:50,780 Speaker 2: perhaps if I, if I bring you to a private 402 00:22:50,780 --> 00:22:53,979 Speaker 2: equity fund, I think plenty of good, you know, we 403 00:22:53,979 --> 00:22:56,699 Speaker 2: always look, three things I look for when I think 404 00:22:56,699 --> 00:22:59,780 Speaker 2: about a fund, and it's, um, what is their investment 405 00:22:59,780 --> 00:23:02,449 Speaker 2: philosophy and and region and strategy. 406 00:23:02,810 --> 00:23:07,050 Speaker 2: Um, what is their process and what process do they 407 00:23:07,050 --> 00:23:09,489 Speaker 2: think about to go after that? And, and what sort 408 00:23:09,489 --> 00:23:11,109 Speaker 2: of people do they hire, and do they have the 409 00:23:11,109 --> 00:23:13,989 Speaker 2: right skills to execute on that? And I, and then, 410 00:23:14,109 --> 00:23:16,709 Speaker 2: and there's a 4th, like a 4th component to that 411 00:23:16,709 --> 00:23:19,988 Speaker 2: which is this alignment of interest question, and how am 412 00:23:19,989 --> 00:23:22,909 Speaker 2: I creating that alignment of interest. And, 413 00:23:23,780 --> 00:23:27,260 Speaker 2: There is no perfect answer, you don't like, you, you 414 00:23:27,260 --> 00:23:31,839 Speaker 2: can have different investment philosophies, you can have different processes, 415 00:23:32,099 --> 00:23:35,010 Speaker 2: but what you need, just like in public markets actually, 416 00:23:35,219 --> 00:23:39,550 Speaker 2: is all of those things aligned so that the, the, 417 00:23:39,579 --> 00:23:42,619 Speaker 2: the philosophy aligns them with the process and that aligns 418 00:23:42,619 --> 00:23:44,109 Speaker 2: with the people you hire. 419 00:23:44,569 --> 00:23:48,969 Speaker 2: And that is, if you look back, almost at, um, 420 00:23:48,979 --> 00:23:52,099 Speaker 2: what have led to great fund outcomes and probably where 421 00:23:52,099 --> 00:23:54,900 Speaker 2: you look back and go, oh, I, I, I wish 422 00:23:54,900 --> 00:23:57,900 Speaker 2: I hadn't done that one, something in that broke along 423 00:23:57,900 --> 00:24:01,250 Speaker 2: the way, um, and, and so that that would be the, 424 00:24:01,260 --> 00:24:02,459 Speaker 2: the criteria. 425 00:24:03,119 --> 00:24:07,920 Speaker 2: I think that next piece, in private markets, unlike public markets, 426 00:24:08,510 --> 00:24:11,859 Speaker 2: you are likely invested for the next 10 years, um, 427 00:24:11,910 --> 00:24:14,270 Speaker 2: and then, you know, and we can touch on, um, 428 00:24:14,550 --> 00:24:18,149 Speaker 2: the structure and how that works, but this is not 429 00:24:18,150 --> 00:24:20,380 Speaker 2: something you can just trade in and out of, and, 430 00:24:20,420 --> 00:24:22,630 Speaker 2: you know, a lot of my equity friends, they'll initially 431 00:24:22,630 --> 00:24:24,910 Speaker 2: put a small piece on and then as they build 432 00:24:24,910 --> 00:24:28,180 Speaker 2: more and more conviction, maybe put a bigger position on. 433 00:24:28,849 --> 00:24:31,699 Speaker 2: That's not how in private markets works. All of your 434 00:24:31,699 --> 00:24:34,819 Speaker 2: work has to be done before that 1st $1 leaves 435 00:24:34,819 --> 00:24:37,099 Speaker 2: because you're stuck with it for the next at least 436 00:24:37,099 --> 00:24:41,180 Speaker 2: 10 years, right? Um, and so there's this, I'm gonna 437 00:24:41,180 --> 00:24:45,939 Speaker 2: call it front loading of, of diligence, and then once 438 00:24:45,939 --> 00:24:46,660 Speaker 2: you're in, 439 00:24:47,140 --> 00:24:50,780 Speaker 2: Over that 10 years, something's gonna go wrong somewhere, right? 440 00:24:51,219 --> 00:24:55,189 Speaker 2: And that's where I find alignment of interest becomes really important. 441 00:24:55,300 --> 00:24:59,130 Speaker 2: If you're aligned, you find solutions to whatever's going wrong, 442 00:24:59,180 --> 00:25:02,569 Speaker 2: wherever it is, and you actually lead to really good outcomes, 443 00:25:02,780 --> 00:25:05,179 Speaker 2: and often it's when you don't have that alignment of 444 00:25:05,180 --> 00:25:10,939 Speaker 2: interest quite right, um, when something does inevitably go wrong somewhere, um, 445 00:25:10,979 --> 00:25:12,739 Speaker 2: that things can sometimes breakdown. 446 00:25:14,130 --> 00:25:17,790 Speaker 1: Yeah, it's fascinating. Just as a side note, um, sometimes 447 00:25:17,790 --> 00:25:20,189 Speaker 1: I hear that, you know, like SpaceX is not a 448 00:25:20,189 --> 00:25:23,109 Speaker 1: public company, but you can trade it. uh XAI is 449 00:25:23,109 --> 00:25:24,909 Speaker 1: not a private company, but there are sort of, you know, 450 00:25:25,069 --> 00:25:28,589 Speaker 1: structures available to go along that. So, are, are, are 451 00:25:28,589 --> 00:25:31,109 Speaker 1: those things also sort of linked to the world of 452 00:25:31,109 --> 00:25:31,750 Speaker 1: private equity? 453 00:25:33,050 --> 00:25:35,669 Speaker 2: Yeah, of course, and I think um, you know, there 454 00:25:35,680 --> 00:25:40,060 Speaker 2: there is a lot more commonality like that, that goes on, um, 455 00:25:40,469 --> 00:25:42,030 Speaker 2: You know, and if you look at, if you can 456 00:25:42,030 --> 00:25:44,030 Speaker 2: have a look over in a lot of the public 457 00:25:44,030 --> 00:25:47,630 Speaker 2: market portfolios today, most of them have a sleeve to 458 00:25:47,630 --> 00:25:52,829 Speaker 2: hold pre-IPO and late stage private companies, even though it's 459 00:25:52,829 --> 00:25:56,560 Speaker 2: a public market mandate, um, and, and vice versa, right? 460 00:25:56,670 --> 00:26:00,459 Speaker 2: So that, the line between the markets has definitely, uh, 461 00:26:00,469 --> 00:26:02,948 Speaker 2: blurred in the, over the last, I'm gonna call it 462 00:26:02,949 --> 00:26:06,180 Speaker 2: 10 years, um, and there's a lot, there's a lot more, 463 00:26:06,270 --> 00:26:09,300 Speaker 2: the way to think about things, um, has changed. 464 00:26:10,229 --> 00:26:12,869 Speaker 1: OK, at the earlier part of the discussion, you mentioned 465 00:26:12,869 --> 00:26:16,729 Speaker 1: evergreen private equity structures. What's that all about? 466 00:26:17,189 --> 00:26:17,550 Speaker 2: Yeah. 467 00:26:18,050 --> 00:26:19,660 Speaker 2: So maybe if I take that back, I think a 468 00:26:19,660 --> 00:26:25,020 Speaker 2: traditional private equity, um, investment, um, is generally through a 469 00:26:25,020 --> 00:26:30,459 Speaker 2: closed-end limited partnership. And the way a closed-end limited partnership 470 00:26:30,459 --> 00:26:35,640 Speaker 2: works is as a, as an investor, you make a commitment, um, 471 00:26:36,010 --> 00:26:38,899 Speaker 2: to the, to the fund, and in a you know, 472 00:26:38,939 --> 00:26:42,339 Speaker 2: there's a period where you make that commitment, that capital 473 00:26:42,339 --> 00:26:45,899 Speaker 2: that you commit is generally drawn down over 3 to 474 00:26:45,900 --> 00:26:46,969 Speaker 2: 5 years. 475 00:26:47,560 --> 00:26:51,640 Speaker 2: The typical hold period um for each asset within the 476 00:26:51,640 --> 00:26:54,520 Speaker 2: fund is about 5 to 7 years, and that's how 477 00:26:54,520 --> 00:26:56,560 Speaker 2: you get to this average life of 10 years of 478 00:26:56,560 --> 00:26:59,160 Speaker 2: a fund, right, because they draw it down over that 479 00:26:59,160 --> 00:27:01,520 Speaker 2: 1st 3 or 4 years, they hold the assets for 480 00:27:01,520 --> 00:27:05,079 Speaker 2: an average of 5 to 7 years, and the and 481 00:27:05,079 --> 00:27:08,439 Speaker 2: then at the end when they sell assets, the capital 482 00:27:08,439 --> 00:27:11,869 Speaker 2: is returned to you, um, over that period. 483 00:27:12,459 --> 00:27:15,420 Speaker 2: I think, and so that is the typical structure that 484 00:27:15,420 --> 00:27:18,459 Speaker 2: private equity has been invested in. If you, if I 485 00:27:18,459 --> 00:27:23,139 Speaker 2: compare that, um, to a public market portfolio, you don't 486 00:27:23,140 --> 00:27:25,500 Speaker 2: kind of commit to your public market fund manager, they 487 00:27:25,500 --> 00:27:28,139 Speaker 2: tell you what the portfolio is likely to be, and 488 00:27:28,140 --> 00:27:30,500 Speaker 2: when they, you know, over and over a period of 489 00:27:30,500 --> 00:27:33,449 Speaker 2: time once those stocks hit their limits and they sell them, 490 00:27:33,660 --> 00:27:34,979 Speaker 2: they give you your money back and you've got. 491 00:27:35,064 --> 00:27:37,494 Speaker 2: Choose where, where to go and put your money next, right? 492 00:27:37,604 --> 00:27:42,625 Speaker 2: And so, the evergreen fund, um, you know, is really a, 493 00:27:42,734 --> 00:27:46,295 Speaker 2: it's an, it's an open-ended structure like you see in 494 00:27:46,295 --> 00:27:50,494 Speaker 2: public markets. And the way that works is that that 495 00:27:50,494 --> 00:27:53,175 Speaker 2: would mean that the fund is available, you can commit 496 00:27:53,175 --> 00:27:55,334 Speaker 2: to it sort of at any time. It doesn't have 497 00:27:55,334 --> 00:27:57,655 Speaker 2: a fixed period that you have to make your commitment. 498 00:27:58,180 --> 00:28:01,420 Speaker 2: And you would generally be funded immediately into it, and 499 00:28:01,420 --> 00:28:05,660 Speaker 2: so if you commit $100 that $100 is invested into 500 00:28:05,660 --> 00:28:11,520 Speaker 2: the fund immediately, and there is no fixed term, and so, um, that, 501 00:28:11,550 --> 00:28:18,089 Speaker 2: that portfolio manager will continue to buy, sell, trim assets, 502 00:28:18,380 --> 00:28:20,420 Speaker 2: and ultimately build a portfolio. 503 00:28:20,989 --> 00:28:24,199 Speaker 2: And liquidity gets created in a different way, obviously as, 504 00:28:24,239 --> 00:28:28,270 Speaker 2: as the portfolio is um growing and building um and 505 00:28:28,270 --> 00:28:31,079 Speaker 2: you can trim positions. So, you know, it's, it's much 506 00:28:31,079 --> 00:28:34,510 Speaker 2: more akin to the way you might build an active 507 00:28:34,510 --> 00:28:37,670 Speaker 2: equity portfolio, but in private companies. 508 00:28:38,459 --> 00:28:42,619 Speaker 1: Very interesting. What is the, what is the information flow? Uh, 509 00:28:42,699 --> 00:28:45,780 Speaker 1: I have invested in a public structure, I know that 510 00:28:45,780 --> 00:28:48,859 Speaker 1: it's a 57, 10 year journey, but am I getting 511 00:28:48,859 --> 00:28:51,410 Speaker 1: some sort of a mark to market sense? Do I 512 00:28:51,410 --> 00:28:53,890 Speaker 1: know if the investment is underwater or way above water? 513 00:28:54,099 --> 00:28:55,579 Speaker 1: What kind of information are you looking at? 514 00:28:56,459 --> 00:29:01,369 Speaker 2: Yeah, so generally speaking, um, funds will mark their assets 515 00:29:01,369 --> 00:29:05,569 Speaker 2: once a quarter, and, and that is done on a 516 00:29:05,569 --> 00:29:09,650 Speaker 2: fair market value basis. Uh, that includes, look at it 517 00:29:09,650 --> 00:29:14,479 Speaker 2: depends on, you know, for businesses that are more buyout focused, um, 518 00:29:14,569 --> 00:29:16,569 Speaker 2: there is the earnings basis. 519 00:29:17,260 --> 00:29:20,250 Speaker 2: There is the multiple, and then a multiple that's applied 520 00:29:20,619 --> 00:29:24,319 Speaker 2: on a, on a venture capital basis, um, it's often, 521 00:29:24,579 --> 00:29:28,060 Speaker 2: you know, those businesses don't have that earnings basis and 522 00:29:28,060 --> 00:29:31,939 Speaker 2: so you're looking really at revenue growth, um, and, and again, 523 00:29:32,060 --> 00:29:35,089 Speaker 2: but not dissimilar to how growth businesses get valued in the, 524 00:29:35,140 --> 00:29:36,780 Speaker 2: in the public markets. 525 00:29:37,829 --> 00:29:41,349 Speaker 1: OK, right, so I'm a macroeconomist. I had to throw 526 00:29:41,349 --> 00:29:44,459 Speaker 1: in a macro question sooner or later, so here it comes. Um, 527 00:29:44,949 --> 00:29:50,310 Speaker 1: between 2007 and 2022, we were living in this world 528 00:29:50,310 --> 00:29:53,099 Speaker 1: where interest rates were basically, you know, close to their floor, 529 00:29:53,430 --> 00:29:54,520 Speaker 1: went up a little bit in 60. 530 00:29:54,584 --> 00:29:57,885 Speaker 1: 1718 came down again crashing during the pandemic. Only the 531 00:29:57,885 --> 00:30:00,454 Speaker 1: last three years have we seen a proper interest rate cycle. 532 00:30:00,564 --> 00:30:03,324 Speaker 1: I have colleagues, Alicia at DBS who've never lived through this, 533 00:30:03,405 --> 00:30:06,244 Speaker 1: you know, people in their thirties, never seen a proper 534 00:30:06,244 --> 00:30:08,885 Speaker 1: interest rate cycle. So the fact that we had a 535 00:30:08,885 --> 00:30:13,604 Speaker 1: big rate hike, you know, cycle in 23, 24, and 536 00:30:13,604 --> 00:30:16,535 Speaker 1: then rates have come down a bit, not a whole lot. 537 00:30:16,765 --> 00:30:19,125 Speaker 1: We're worried that all the tariff stuff that's going on 538 00:30:19,125 --> 00:30:21,814 Speaker 1: may actually leave interest rates high because it's going to 539 00:30:21,814 --> 00:30:23,194 Speaker 1: add to inflation at least in the next. 540 00:30:23,510 --> 00:30:26,709 Speaker 1: 6 to 12 months. So, the link between cost of 541 00:30:26,709 --> 00:30:30,750 Speaker 1: funding going up and performance of private equity, where do 542 00:30:30,750 --> 00:30:31,229 Speaker 1: we stand? 543 00:30:32,219 --> 00:30:35,020 Speaker 2: Yeah, and look, uh, you know, as a macroeconomist, you 544 00:30:35,020 --> 00:30:37,530 Speaker 2: kinda know this better than me, but from my perspective, 545 00:30:38,219 --> 00:30:41,020 Speaker 2: you know, the most important thing as an asset owner, 546 00:30:41,140 --> 00:30:43,459 Speaker 2: like if you're an asset owner, is actually the real 547 00:30:43,459 --> 00:30:46,410 Speaker 2: rate of return that you can earn on an asset, right, 548 00:30:46,459 --> 00:30:47,040 Speaker 2: and so, 549 00:30:47,530 --> 00:30:50,050 Speaker 2: Yeah, and, and, you know, that big one of those 550 00:30:50,050 --> 00:30:54,160 Speaker 2: big changes that you're talking about in that analysis, um, 551 00:30:54,209 --> 00:30:58,369 Speaker 2: when interest rates were between 0 and 1, but inflation was, 552 00:30:58,449 --> 00:31:02,430 Speaker 2: it was north of 1, right? The real return on, 553 00:31:02,449 --> 00:31:05,329 Speaker 2: on that cash rate was a negative number, like a 554 00:31:05,329 --> 00:31:08,650 Speaker 2: pick your period of how negative, but it has been 555 00:31:08,650 --> 00:31:12,750 Speaker 2: for investors, a negative return to be on the credit 556 00:31:12,750 --> 00:31:13,849 Speaker 2: side of the equation. 557 00:31:14,329 --> 00:31:17,069 Speaker 2: Um, and right now, if you look at, I don't know, 558 00:31:17,109 --> 00:31:20,949 Speaker 2: the 10 year rate, 4.3, 4.4, and, and you can 559 00:31:20,949 --> 00:31:24,180 Speaker 2: buy 10-year inflation rate, starting with a 2 in the market. 560 00:31:24,229 --> 00:31:27,680 Speaker 2: And so the real rate of return right now, um, 561 00:31:28,229 --> 00:31:32,910 Speaker 2: starts probably with a 2. And so that, that changes 562 00:31:32,910 --> 00:31:36,189 Speaker 2: the pricing, I would argue, not only for PE, but 563 00:31:36,189 --> 00:31:37,030 Speaker 2: for every asset. 564 00:31:37,255 --> 00:31:40,755 Speaker 2: Because, um, you know, the fundamental of what you can 565 00:31:40,755 --> 00:31:44,275 Speaker 2: earn in the risk-free rate or in credit as a 566 00:31:44,275 --> 00:31:47,635 Speaker 2: as a real return has moved. Um, and I think 567 00:31:47,635 --> 00:31:51,675 Speaker 2: that fundamentally impacts many types of asset classes. And actually, 568 00:31:51,755 --> 00:31:54,155 Speaker 2: you know, the first derivative of that, and this this 569 00:31:54,155 --> 00:31:56,755 Speaker 2: doesn't surprise me at all, over the last 12 months 570 00:31:56,755 --> 00:31:59,875 Speaker 2: as you've watched, you know, an ability to earn real rates. 571 00:32:00,430 --> 00:32:05,670 Speaker 2: Um, be really emerge, spreads in credit have come right in. 572 00:32:05,880 --> 00:32:07,800 Speaker 2: And someone looked at me and said, oh, a spread's 573 00:32:07,800 --> 00:32:10,739 Speaker 2: too tight. And I said, Well, you know, and we, 574 00:32:10,880 --> 00:32:14,050 Speaker 2: as you talk through some of that, um, the reality is, 575 00:32:14,160 --> 00:32:17,920 Speaker 2: I think part of that is, um, that as spreads 576 00:32:17,920 --> 00:32:23,079 Speaker 2: have come in, because people are seeing this opportunity to, um, 577 00:32:23,939 --> 00:32:26,329 Speaker 2: To being credit and earn a real rate of return, 578 00:32:26,359 --> 00:32:29,170 Speaker 2: and so it's the combination of this real rate of return, 579 00:32:29,380 --> 00:32:33,569 Speaker 2: as well as, um, that I think investors, um, large 580 00:32:33,569 --> 00:32:35,260 Speaker 2: investors globally, really think about. 581 00:32:36,890 --> 00:32:40,140 Speaker 1: Um, spot on, uh, the one way I look at 582 00:32:40,140 --> 00:32:42,719 Speaker 1: sort of the risk in the equity market is the 583 00:32:42,719 --> 00:32:45,540 Speaker 1: difference between risk-free returns and the dividend coming from the 584 00:32:45,540 --> 00:32:49,380 Speaker 1: public equity markets and the gap is rather worrisome right now. 585 00:32:49,459 --> 00:32:51,420 Speaker 1: I mean, it is as high as it has been 586 00:32:51,420 --> 00:32:56,540 Speaker 1: since 2007, and we all know what happened after that. Uh, so, uh, 587 00:32:56,640 --> 00:32:58,780 Speaker 1: so yeah, the, the valuation of the equity market is 588 00:32:58,780 --> 00:33:01,739 Speaker 1: also exceptionally high in the public equity side and the 589 00:33:01,739 --> 00:33:02,300 Speaker 1: fact that 590 00:33:02,780 --> 00:33:05,180 Speaker 1: Both the nominal and the real rate of return and 591 00:33:05,180 --> 00:33:08,579 Speaker 1: the risk-free asset is still substantial. Um, that is my 592 00:33:08,579 --> 00:33:12,099 Speaker 1: headache for 2025. Even if there was no tariff war Alicia, 593 00:33:12,140 --> 00:33:15,229 Speaker 1: I would have been worried about that dislocation risk. Um, we, 594 00:33:15,300 --> 00:33:17,219 Speaker 1: we talked a little bit about the secondary market. I 595 00:33:17,219 --> 00:33:18,420 Speaker 1: just want to sort of 596 00:33:19,010 --> 00:33:21,209 Speaker 1: Refer to this one number, I think this was in 597 00:33:21,209 --> 00:33:24,369 Speaker 1: the Financial Times last month. The secondary market volumes traded 598 00:33:24,369 --> 00:33:28,969 Speaker 1: globally reached 162 billion in 2024, in which PE investors 599 00:33:28,969 --> 00:33:31,329 Speaker 1: sell their stakes to new investors for cash or fund 600 00:33:31,329 --> 00:33:35,310 Speaker 1: managers themselves sell company stakes to new funds. Um, is 601 00:33:35,310 --> 00:33:38,770 Speaker 1: this a phenomenon or it's like it's something that's been 602 00:33:38,770 --> 00:33:39,619 Speaker 1: going on for a while? 603 00:33:40,589 --> 00:33:44,900 Speaker 2: Yeah, so the secondary market really was created in the 604 00:33:44,900 --> 00:33:51,219 Speaker 2: early 2000s. I'm gonna say the original player was collar Capital, um, and, 605 00:33:51,500 --> 00:33:55,770 Speaker 2: and the genesis of that market was buying, so if 606 00:33:55,770 --> 00:33:59,060 Speaker 2: you have LP interests in funds, and so what I 607 00:33:59,060 --> 00:34:02,589 Speaker 2: mean by that is I committed to that 10 year fund, 608 00:34:02,939 --> 00:34:05,229 Speaker 2: and I get 5 years in, and I think. 609 00:34:05,482 --> 00:34:07,241 Speaker 2: Actually, I don't want to be in this anymore. There 610 00:34:07,241 --> 00:34:09,882 Speaker 2: are buyers out there, secondary buyers who will buy my 611 00:34:09,882 --> 00:34:15,072 Speaker 2: position within the fund. And so buying positions from LPs. 612 00:34:15,402 --> 00:34:20,041 Speaker 2: And over, over the last, you know, period, um, actually 613 00:34:20,041 --> 00:34:23,981 Speaker 2: that market has been for, for managers willing to buy 614 00:34:23,981 --> 00:34:29,882 Speaker 2: positions in funds, secondary managers, um, around that, somewhere between. 615 00:34:30,052 --> 00:34:34,103 Speaker 2: $50.70 billion dollars per annum. I think what's really seen 616 00:34:34,103 --> 00:34:39,742 Speaker 2: a marked change in the secondary market is, um, the 617 00:34:39,742 --> 00:34:45,413 Speaker 2: evolution of what are called continuation vehicles, and continuation vehicles 618 00:34:45,863 --> 00:34:50,252 Speaker 2: really only emerged, um, in the last 5 or 6 years, 619 00:34:50,383 --> 00:34:53,422 Speaker 2: and they now make up somewhere between 40% and 50% 620 00:34:53,422 --> 00:34:54,582 Speaker 2: of all volume in the. 621 00:34:54,706 --> 00:34:58,475 Speaker 2: Secondary market. And so, the secondary market numbers like you 622 00:34:58,476 --> 00:35:02,285 Speaker 2: just quoted, we still have that $50 to $70 billion 623 00:35:02,285 --> 00:35:05,165 Speaker 2: of LP interest that have changed hands at that kind 624 00:35:05,166 --> 00:35:07,446 Speaker 2: of rate for quite some time, but you've got this 625 00:35:07,446 --> 00:35:12,335 Speaker 2: new and emerging, um, continuation vehicles. And actually, one of 626 00:35:12,335 --> 00:35:15,006 Speaker 2: the really interesting parts of and so what is a 627 00:35:15,006 --> 00:35:19,285 Speaker 2: continuation vehicle, I guess, um, a continuation vehicle is where, 628 00:35:20,010 --> 00:35:23,449 Speaker 2: An existing fund manager who is somewhere in that journey, 629 00:35:23,729 --> 00:35:28,120 Speaker 2: probably later in that journey of the 10 year fund life, um, 630 00:35:28,449 --> 00:35:32,840 Speaker 2: says this company is not yet either ready to be sold, 631 00:35:33,209 --> 00:35:37,040 Speaker 2: or needs to remain in private markets for another 5 years, 632 00:35:37,050 --> 00:35:40,120 Speaker 2: and I believe there's another whole leg of growth to go. 633 00:35:40,669 --> 00:35:45,699 Speaker 2: And I wanna continue to own it. And instead of just, 634 00:35:45,780 --> 00:35:48,669 Speaker 2: you know, given that that that there's a finite life 635 00:35:48,669 --> 00:35:53,310 Speaker 2: in that investment, um, that fund manager sells it from 636 00:35:53,310 --> 00:35:54,399 Speaker 2: the existing fund. 637 00:35:54,919 --> 00:35:57,540 Speaker 2: And buys it with a new group of investors, often 638 00:35:57,540 --> 00:36:01,459 Speaker 2: a secondary player, and so that is the phenomena that 639 00:36:01,459 --> 00:36:05,100 Speaker 2: has really allowed, and you've seen the secondary market to 640 00:36:05,100 --> 00:36:08,969 Speaker 2: grow very substantially as a result of the emergence of 641 00:36:08,969 --> 00:36:10,540 Speaker 2: these continuation funds. 642 00:36:11,580 --> 00:36:14,689 Speaker 1: Very good. Um, yeah, I'm not sure whether I'm about 643 00:36:14,689 --> 00:36:17,050 Speaker 1: to ask a provocative question, but maybe there's a very, 644 00:36:17,100 --> 00:36:21,169 Speaker 1: it's a very mundane question. Is there some circularity between 645 00:36:21,169 --> 00:36:22,810 Speaker 1: private debt and private equity? 646 00:36:23,969 --> 00:36:27,000 Speaker 2: Yeah, I think, um, a little bit like you might say, 647 00:36:27,530 --> 00:36:30,040 Speaker 2: uh if I step us back to the public markets, 648 00:36:30,330 --> 00:36:33,009 Speaker 2: and I'll, I'll use Australia just because I'm sitting here 649 00:36:33,010 --> 00:36:35,929 Speaker 2: at the moment, but if you look in public markets, 650 00:36:36,050 --> 00:36:41,199 Speaker 2: some of the biggest stocks are the banks, um, CBA, Westpac, and, 651 00:36:41,300 --> 00:36:44,479 Speaker 2: and if you go into the public debt market, um, 652 00:36:44,610 --> 00:36:49,600 Speaker 2: some of the biggest issuers, um, of whether that be, um, 653 00:36:49,610 --> 00:36:52,290 Speaker 2: of public debt, whether that be all the way through. 654 00:36:52,375 --> 00:36:55,495 Speaker 2: Through the hybrids, high yield, all of it, are the banks, right? 655 00:36:55,514 --> 00:36:59,685 Speaker 2: And so, um, the commonality that you can find between 656 00:36:59,685 --> 00:37:04,754 Speaker 2: private equity and private debt is there are often common companies, 657 00:37:04,844 --> 00:37:07,165 Speaker 2: just like I was talking about there in CBA that 658 00:37:07,165 --> 00:37:12,004 Speaker 2: need both equity and debt. And as those companies generally 659 00:37:12,004 --> 00:37:14,965 Speaker 2: have equity and debt in them, they have two options, right, 660 00:37:15,044 --> 00:37:17,725 Speaker 2: for the debt, that, I mean, there's many versions of this, 661 00:37:17,804 --> 00:37:19,485 Speaker 2: but they can go to the public market, or they 662 00:37:19,485 --> 00:37:20,804 Speaker 2: can go to the private market. 663 00:37:21,280 --> 00:37:25,639 Speaker 2: And similar for equity, um, and so, the, the commonality 664 00:37:25,639 --> 00:37:30,340 Speaker 2: between private debt and private equity is often, um, that 665 00:37:30,600 --> 00:37:35,439 Speaker 2: there are common companies, uh, sitting in portfolios between private, 666 00:37:35,469 --> 00:37:40,080 Speaker 2: private debt managers, uh, and private equity managers. 667 00:37:40,889 --> 00:37:42,229 Speaker 1: And then you are one of those, right? 668 00:37:43,000 --> 00:37:43,959 Speaker 2: We are, yeah. 669 00:37:44,590 --> 00:37:46,610 Speaker 2: Yeah, one of the private debt managers and blew 670 00:37:46,610 --> 00:37:52,888 Speaker 1: out. Exactly, um, talk about multi-asset. um, Alicia, the conversation 671 00:37:52,889 --> 00:37:56,209 Speaker 1: so far has been about institutional investors, but I increasingly 672 00:37:56,209 --> 00:38:00,370 Speaker 1: read articles about ETF vacation or private equity or retail 673 00:38:00,370 --> 00:38:04,199 Speaker 1: investors finding options to get into the private equity world. 674 00:38:04,370 --> 00:38:06,209 Speaker 1: So tell us a little bit about this phenomenon. 675 00:38:07,300 --> 00:38:09,929 Speaker 2: Yeah, look, as, as you will know, this has been 676 00:38:09,929 --> 00:38:13,889 Speaker 2: a phenomenon in other ISAC classes now for the last 677 00:38:13,889 --> 00:38:16,610 Speaker 2: 20 years, right, you know, Vanguard and our friends that 678 00:38:16,610 --> 00:38:21,070 Speaker 2: created ETFs in equities, um, and we've watched this trend 679 00:38:21,070 --> 00:38:25,800 Speaker 2: for for quite some time. I think, and other private 680 00:38:25,929 --> 00:38:30,850 Speaker 2: asset classes, shorter duration, private asset classes, um, have also 681 00:38:30,850 --> 00:38:32,678 Speaker 2: taken on this trend, and I think, 682 00:38:33,409 --> 00:38:36,729 Speaker 2: One of the last frontiers that have done less of 683 00:38:36,729 --> 00:38:40,530 Speaker 2: this is private equity, and so, um, it look, you know, 684 00:38:40,770 --> 00:38:45,530 Speaker 2: that hence the conversation that you hear about, um, should 685 00:38:45,530 --> 00:38:48,090 Speaker 2: private equity be next for this, and if you look 686 00:38:48,090 --> 00:38:51,370 Speaker 2: at the horizon of assets that have done it. 687 00:38:51,449 --> 00:38:55,049 Speaker 2: You've started with the most liquid types of assets, and 688 00:38:55,050 --> 00:39:02,219 Speaker 2: over time you've gone really sequentially through to, um, shorter duration, 689 00:39:02,520 --> 00:39:07,509 Speaker 2: private assets, and we're now talking about longer duration private assets, um, 690 00:39:07,520 --> 00:39:09,560 Speaker 2: and going through these types of structures. 691 00:39:11,229 --> 00:39:15,120 Speaker 1: But there is an illiquidity issue. There's a leverage issue. 692 00:39:15,250 --> 00:39:18,929 Speaker 1: Are retail investors equipped to deal with risks like these? 693 00:39:20,060 --> 00:39:22,120 Speaker 2: I think there are different ways you can deal with that, 694 00:39:22,169 --> 00:39:24,169 Speaker 2: and if I, if I bring that back out, you know, 695 00:39:24,250 --> 00:39:31,159 Speaker 2: I think institutions, um, have liquidity needs as well, right? 696 00:39:31,199 --> 00:39:35,330 Speaker 2: And so institutions for a long time and and institutions 697 00:39:35,330 --> 00:39:38,750 Speaker 2: have very different liquidity needs, some have, you know, if 698 00:39:38,750 --> 00:39:40,760 Speaker 2: I think about here in Australia, 699 00:39:41,229 --> 00:39:45,250 Speaker 2: The superannuation system, they get, they get funds flow and 700 00:39:45,250 --> 00:39:48,770 Speaker 2: cash in every week, right, as people are paid, whereas 701 00:39:48,770 --> 00:39:52,129 Speaker 2: at the Future Fund, we didn't have inflows, right, so 702 00:39:52,129 --> 00:39:55,169 Speaker 2: we're managing a portfolio more like an endowment. And so, 703 00:39:55,570 --> 00:40:00,810 Speaker 2: I think there's um relatively sophisticated mechanisms today. If you 704 00:40:00,810 --> 00:40:04,800 Speaker 2: roll back 20 or 25 years ago, some people would say, 705 00:40:05,090 --> 00:40:08,009 Speaker 2: if you don't have cash flows, like if you're more endowment-like, 706 00:40:08,110 --> 00:40:08,510 Speaker 2: how do you, 707 00:40:08,564 --> 00:40:11,314 Speaker 2: Manage liquidity and all of those type of things. And so, 708 00:40:11,554 --> 00:40:14,665 Speaker 2: I think, um, it does make it a little bit 709 00:40:14,665 --> 00:40:17,395 Speaker 2: more complicated to manage a portfolio. It makes it a 710 00:40:17,395 --> 00:40:21,634 Speaker 2: little bit more complicated to rebalance a portfolio. Um, but 711 00:40:21,635 --> 00:40:25,955 Speaker 2: there are definitely tools that have been developed in the 712 00:40:25,955 --> 00:40:29,714 Speaker 2: institutional world that are just as applicable to think about 713 00:40:29,715 --> 00:40:33,155 Speaker 2: that can allow for the right type of investor to 714 00:40:33,155 --> 00:40:35,864 Speaker 2: have a little bit of liquidity in their portfolio. 715 00:40:36,239 --> 00:40:39,610 Speaker 2: Um, and hopefully earn that return premium that we were 716 00:40:39,610 --> 00:40:43,090 Speaker 2: talking about earlier, as well as potentially get access to 717 00:40:43,090 --> 00:40:47,489 Speaker 2: things like innovation, um, and, and new and emerging themes. 718 00:40:48,300 --> 00:40:50,780 Speaker 1: Well yeah, I'm absolutely fascinated by this because, you know, 719 00:40:50,820 --> 00:40:53,819 Speaker 1: the Americans have 401ks in Singapore, we have CPF, the 720 00:40:53,820 --> 00:40:58,540 Speaker 1: Provident Fund of the population, and these are illiquid investment vehicles. 721 00:40:58,580 --> 00:41:00,860 Speaker 1: The government will not let you access these till you 722 00:41:00,860 --> 00:41:04,219 Speaker 1: reach retirement age. So it seems like you're suggesting that. 723 00:41:05,000 --> 00:41:07,600 Speaker 1: Vehicles like this, there's a room for private equity. 724 00:41:08,939 --> 00:41:12,590 Speaker 2: Look at, if you look at Australia, Australia's superannuation system 725 00:41:12,800 --> 00:41:14,909 Speaker 2: is a defined contribution system. 726 00:41:15,760 --> 00:41:19,149 Speaker 2: And they they've they've found ways to bring private equity 727 00:41:19,149 --> 00:41:23,770 Speaker 2: into it. Um, and so, uh, like I said, different 728 00:41:23,770 --> 00:41:27,629 Speaker 2: ways that you can think about liquidity, if that makes sense. 729 00:41:27,709 --> 00:41:30,679 Speaker 2: But for, for the right type of investor, um, to 730 00:41:30,679 --> 00:41:32,840 Speaker 2: get access, like I said, to hire, if you have 731 00:41:32,840 --> 00:41:37,010 Speaker 2: a long-term horizon, um, you, you can leave some return 732 00:41:37,010 --> 00:41:39,800 Speaker 2: behind by not thinking about private markets. 733 00:41:40,790 --> 00:41:44,009 Speaker 1: OK, final question. I was having dinner with a friend 734 00:41:44,010 --> 00:41:46,810 Speaker 1: who runs a private equity fund last night, and his 735 00:41:46,810 --> 00:41:48,929 Speaker 1: way of looking at the world is through what is 736 00:41:48,929 --> 00:41:51,489 Speaker 1: known as IITA. It was II at this and II 737 00:41:51,489 --> 00:41:54,090 Speaker 1: at that, and I reminded him that Warren Buffett is 738 00:41:54,090 --> 00:41:57,489 Speaker 1: not a big fan of that particular accounting treatment of 739 00:41:57,489 --> 00:42:00,360 Speaker 1: looking at company's performance. Where do you stand on this? 740 00:42:01,639 --> 00:42:05,399 Speaker 2: It completely, I mean, it depends, um, it depends on 741 00:42:05,399 --> 00:42:09,239 Speaker 2: what the company is, it depends on the industry it's in. 742 00:42:09,840 --> 00:42:11,610 Speaker 2: And I would say to you, I never look at 743 00:42:11,610 --> 00:42:14,899 Speaker 2: a single metric anyway, right? And so look, if you, 744 00:42:15,610 --> 00:42:17,649 Speaker 2: you know, that'd be, you know, a part of this, 745 00:42:17,729 --> 00:42:20,199 Speaker 2: it's a, it's a common question, but if I say, 746 00:42:20,290 --> 00:42:22,850 Speaker 2: and I say back to my equity friends, do you 747 00:42:22,850 --> 00:42:24,649 Speaker 2: just look at earnings or do you also look at 748 00:42:24,649 --> 00:42:27,299 Speaker 2: free cash flow, right? Like, I mean, putting aside whether 749 00:42:27,300 --> 00:42:30,669 Speaker 2: it's IIA, whether what the metric is, right? I think 750 00:42:30,669 --> 00:42:35,600 Speaker 2: all financial investors, you, you triangulate the financials of a company. 751 00:42:36,020 --> 00:42:39,469 Speaker 2: Um, for a business that is very low in capex, 752 00:42:39,790 --> 00:42:42,620 Speaker 2: you know, you, there's quite a different version of the, 753 00:42:42,629 --> 00:42:45,050 Speaker 2: the type of, the type of earnings you're thinking about 754 00:42:45,050 --> 00:42:49,219 Speaker 2: versus businesses that are very high in capex, for example. 755 00:42:49,389 --> 00:42:53,750 Speaker 2: And so, I think, um, what industry, what the company is, 756 00:42:53,870 --> 00:42:56,629 Speaker 2: the stage of the company, but I'd generally say you 757 00:42:56,629 --> 00:42:59,189 Speaker 2: need to look at many financial metrics before you make 758 00:42:59,189 --> 00:43:01,279 Speaker 2: a decision on what price you want to buy. 759 00:43:01,610 --> 00:43:05,110 Speaker 2: Um, a business for, and look, IED is just one 760 00:43:05,110 --> 00:43:05,779 Speaker 2: of those. 761 00:43:06,949 --> 00:43:10,270 Speaker 1: It's been such a great conversation. Alicia, thank you for 762 00:43:10,270 --> 00:43:13,419 Speaker 1: demystifying what some people think is an exotic asset class, 763 00:43:13,429 --> 00:43:15,270 Speaker 1: but I think you have made it seem pretty mundane. 764 00:43:15,389 --> 00:43:17,149 Speaker 1: Thank you so much for your time and insights. 765 00:43:18,179 --> 00:43:20,770 Speaker 2: Teyma, thank you for having me along. I really appreciate it. 766 00:43:20,889 --> 00:43:22,899 Speaker 1: It's great to have you and thanks to our listeners 767 00:43:22,899 --> 00:43:25,659 Speaker 1: as well. Kope Time was produced by Ken Delbridge at 768 00:43:25,659 --> 00:43:29,969 Speaker 1: Spy Studios. Violet Lee and Daisy Sherma provided additional production assistance. 769 00:43:30,260 --> 00:43:33,370 Speaker 1: All 151 episodes of this podcast are available on YouTube, 770 00:43:33,379 --> 00:43:36,510 Speaker 1: as well as on Apple, Google, and Spotify. As for 771 00:43:36,510 --> 00:43:39,899 Speaker 1: our research recommendations and webinars, you can find them all 772 00:43:39,899 --> 00:43:44,219 Speaker 1: by Googling DBS Research Library. And remember, nothing that we 773 00:43:44,219 --> 00:43:47,459 Speaker 1: discuss form any trade recommendations. Have a great day.