please welcome your panelists for global private equity outlook moderated by CNBC reporter Leslie picker [Music] [Applause] all right on the stage we've got six hundred billion dollars in assets under management combined my contribution to that is nothing but that figure is about 12% of the five trillion dollars managed by the private markets in its entirety and that number is up 8 percent year-over-year as Mike Milken recently said this is private equities in golden age and private equity will continue to play a growing role in the economy in the years to come but where do we go from here that's the big question with mega funds and trillions and dry powder some say private equity has reached a peak but others say secular forces have propelled the industry higher and its influence will only increase over time either way the pressure is up on these folks and others to keep the good times rolling and with that I want to introduce those far more equipped to a pine on the subject than myself starting with Leon black who is the chairman and CEO of Apollo Global Management Apollo calls itself a contrarian value oriented investment manager in private equity credit and real assets with significant distressed investment experience Apollo's core industry sectors include chemicals manufacturing natural resources consumer retail business and financial services leisure and TMT and to my right is Bruce flat the CEO of Brookfield Asset Management he had quartered in Toronto Brookfield invests in real estate renewable power infrastructure and private equity the firm says its competitive advantages lying at scale and global reach as well as its 115 years of experience you don't look that old Robert Smith the chairman and CEO of Vista Equity Partners Vista invests in software data and technology companies by managing private equity credit and public equity market funds Forbes recently named Smith one of the 100 greatest living minds along with Mike Milken and lastly John Sokoloff but not least Managing Partner at Leonard Green Leonard Green primarily focuses on companies in the consumer business and healthcare services space as well as retail John sits on the board of directors of many well-known companies like The Container Store j.crew and shake shock so now you get a sense of kind of the diversity of the panelists here today and half the panel are Leon and Bruce oversee firms that are diversified scaled and publicly traded the other half Robert and John are more specialized in sector focused and unlisted they're closely held so each of you have such different strategies and such different paths that you took within this industry one of the one by one to see why you chose the path that you did and why it's worked for you starting with you Leon okay good afternoon everyone pleasure to be here with you Leslie and also all my friends up here on the platform they are friends Bruce you were having dinner with our wife Sunday night we just had dinner Robert we had just had lunch and John we go back to Drexel and Joan's on our melanoma board so it's good to be here with good friends even more importantly what I like about this panel is the fact that each of us has a secret sauce to navigate basically what is a very challenging private equity world right now we're sitting I thought last year was absurd at ten and a half times EBIT thought multiple and I've heard recently it's now at twelve at times and so everybody says with all this money and these high prices how can you make money in private equity and I think what you have here is a panel of four pretty successful strategies to be able to traverse this challenging world out there there are many roads to Rome I like to say and it's well represented here our secret sauce is a few things one we have always been value investors which means we like to buy good companies at low prices now a lot of people say that but we've been able to actually develop multiple pathways over the last twenty eight years since we started to be able to accomplish that in different types of environments so during the four economic downturns that occurred in the last 28 years we turned our dial to distressed investing buying good companies basically through their debt when the financial markets were shut we'd buy the debt at at discounts we'd work with other creditors we'd end up restructuring the capital structure of those companies and hopefully ending up in control of those companies when it came out of bankruptcy or restructuring and if we didn't get control we'd make money on the bonds but a lot of people don't realize as the entry multiple in that strategy and buying the debt was that about a five multiple of EBIT tha so that would be one way another way is we deal a lot with complexity complexity deals that have a bit of hair on it deals that are multi carve-outs on the corporate side but deals where we could get a proprietary relationship with a seller we do a lot more of it than than most of our peers and most of that has been done at roughly a six multiple then we also do look at what do we call idiosyncratic buyouts where we think we can have an edge in an industry we cover about nine different industries some of them in packaging some of them insurance telecom and there sometimes we meet peers the first two we don't and in those situations we're at about a seven multiple the upshot of all of this is that we have put our portfolios together on the private equity side at about a six multiple you know last year in that ten and a half eleven environment our 18 billion dollar fund was deployed at a 5.7 multiple so not one multiple difference or two difference but really half of what our peers are doing and we've we've had good results you know from from that strategy the other thing that we we do is that our firm today is a two hundred and fifty billion dollar assets under management well seventy five of that is private equity but the biggest part of that and the fastest-growing part is credit so oftentimes you look at the capital structure and decide the best risk reward is at the bottom of the pile where you want to own the company through the equity sometimes it's higher up and so we buy a lot of debt and we buy senior debt even and there are some very good opportunities there also so our secret sauce is trying to be a fund for for all seasons in terms of what we do with the balance sheet what we do with cycles but always as a contrarian trying to buy at low prices very good companies and and the results fall in line the last thing I'd say about the strategy is that when you buy a portfolio at five point seven times it means you're also not levering at six times which is what peers do when they buy something at ten times when you buy it at five point seven it means we're levering at about three and a half times so we like that risk reward and that's what we plan to keep doing how about you Bruce so we're on the value side of the so our our our story is we're just under three hundred billion in size we're in four businesses real estate infrastructure renewables and our private equity business revolves around those three so it's private investments revolving around those three businesses so we just bought Westinghouse out of bankruptcy it services utility companies we knew it because we've been in the power business for a long time but our our sauce is essentially three things we have really three competitive advantages one is scale with the size of businesses we run there are often times when there are only a few people that can participate in taking down a transaction and I would say that just gives us an added advantage in certain situations unlike many and many are many firms are globalizing but we've been global a long time we have businesses in 30 countries with our 1200 investment people were spread in a hundred offices around the world with seven main offices were in every single relevant market in the world and that it what it allows us to do is to take ideas and turn them into actionable opportunities and often people say India would be a great place to invest right now or whatever the theme is that month but it's just not easy to do it if you don't have people in the ground so we've spent the last 25 years making sure that we had people on the ground and being able to move money in and out of countries figuring out the tax regimes and you can only do that if you have scale in size and third we have a hundred billion dollars of permanent capital in our parent company in four traded partnerships and those enable us to have long term businesses that we keep forever so we have 75,000 people that work for those companies they never leave they stay with us they carry a Brookfield card and they give us just a differentiation when we're trying when we're buying things we just can take instead of just buying an office building which is fully let or a company which is working well we can restructure them and we can work them out and so those are really I'd say the three things that we try to and they're not better or worse than anyone else they're just different and I think the Leon's point there are many every private equity is a broad term but there are a lot of different nice strategy strategies within it but the world is very large and if you can pick your spots and and capitalize on your advantages there's a lot of money to be made the long term remember yes thanks so I guess we're gonna be on the value creation side since then I you investors and what we have done I'd like to think about it in Leon and I had a great lunch the other day I was trying to describe we're not we're not just secret sauce but we create you know deep rich flavor as well good thing young just a kind of we're missing an interesting panel on artificial meat right now but we have to make sure they get a little bit of both of those so I think one of the keys to what we saw what we determine and what we do is that we're at an interesting confluence in the transitions if you think about it of the the global economy there's this this idea of ubiquitous computing power has enabled people to think about digitizing their business models and if you think about the digitization of business model you know victory of computing power connectivity IOT all those things they need software at the end of the day in order to become effective and and to actually bring the productivity to those organizations you know we in our portfolio from time to time every year every every six months do a survey of our portfolio companies what's the productivity of the products that we sell to our customers and it's well over 700 percent and if you think about that that ROI of an average software product that we sell has a return of less than five months to the customers so what that tells you is is going to be a continued demand for these productive tools and I always like to say your software is the most productive tool introduced in our business economy in the last 50 years and likely will be for the next 50 but the distributors of that software haven't necessarily learned most efficiently how to distribute it how to manufacture it how to make it how to how to enable their companies to be effective or efficient in their markets so what we've done is create an ecosystem in Vista that actually enables our executives to be more efficient at what they do we have an exceptional deal team that goes out scours the earth for what I call the highest quality mission critical business critical enterprise software companies we then enable these executives to run their companies more efficiently that's that deep rich flavor I'm talking about and then we focus on what is the second hallmark of an efficient of a great software company its product superiority and in online that comes in two ways one it has to be a process of being able to organically develop those products internally in the organization in the second is to evaluate a landscape of other products that we can then add to the mix of that platform company and expand our opportunity set so we like to think about it as really cracking that Rubik's Cube a profitable growth so in our businesses you know in we underwrite to a very simple methodology of critical factors for success being under our control so we're not underwriting - oh this is a growth market let's place a bet and hope that that growth is sustainable we underwrite the things we know we can change have changed and have been successful at changing them that leads to a very efficient value creation model that gives us you know opportunities not only on the buy but opportunities in evaluating how long should we hold these companies should we recap a thises company should we sell these companies and then using the balance sheet as a method to enhance returns not to get returns and I think those are the key differentiators in terms of a true what I call value creation model and what we do okay well thank you for having me and nice to be here with some good friends and again as Leon said our firms are all quite different and have all managed to thrive in a fiercely competitive private equity world which it seems to be more competitive every day so we're again a bit different than the other three we're fundamentally a growth investor and when you hear that the average multiple may have been 12 times we're paying 12 times and we're happy to pay 12 times and we've been in a relatively low growth economy even though expansion airy for eight or nine years and we're looking for companies that are growing dramatically faster than the economy and and we've managed to find them we're we tend to be consumer focused we're a multi location focused and in some ways we're looking for companies that are to use a tech term disrupting kind of pedestrian industries so we have a company called Jeff JETRO that's disrupting the the food service distribution we're in the car wash business we're in the body shop business we're heavy into the fitness business and we're in the healthcare services business we have a chain of dental clinics opening one new clinic a week so you can't find companies growing dramatically faster than the GDP and if they are going to double or triple while you own them you're happy to pay twelve times EBIT because in three or four years you probably own them at six times Eva da so that's work extremely well for us but it's hard to find but you do have to have a strong stomach to pay up for them when you find them the second part of our business is what do you do once you own them and private equity firms have dramatically different strategies in that sense some people have large armies of consultants and operating partners and and we don't but we have a fairly effective portfolio service division and our pitch to these companies is we help you but don't drive you crazy and it sounds kind of silly but it's very important to our secret sauce because a lot of our peers do drive the companies crazy so when you're courting a company to make an investment in them whether it's minority-majority we tend to buy really high quality businesses that don't want someone to come in and tell them how they're gonna do every tell them how to do everything better than they're doing it now they want someone who's going to be a coach it's going to help them we have tremendous resources within our firm to help our businesses and our hope is to make a good company into a great company and we hold summits every month voluntarily to be attended by our companies in a different discipline within there within whether it be you know transportation whether it be how to run their website better so we have a community of companies that's really focused on helping each other grow faster and if you grow it's more important the company you do buy and then necessarily the multiple that you pay now with the proliferation of private equity comes kind of larger themes one of those is for 20 years we've seen a decline in the number of publicly traded companies in the US on the flip side we've seen a dramatically large increase in the number of companies that are owned by private equity private equity backed and owned as portfolio companies now John I know this is a topic that's important to you it's something you've studied do you think that 10 15 years from now that this will be a good trend well to repeat this theme the disruption is an overused word today but in some in many ways I think our industry is disrupting the public equity market model that has been paramount in American economy for 50 years there's roughly eight thousand companies in the private equity world the number of public companies is shrunk in half to about 3,700 the private equity industry employs about half of the people that the sp500 employs so we are a very very important part of the economy a growing part of the economy and our view is that we're a better model we're a better model for governance governance we don't have to deal with all the hassles of the public boards and what's the you know the activists gonna say and what's the ISS gonna say and what's the you go to a public board meeting it's more form over substance you go to a private company board meeting we get right down to the meat of the business and we help the businesses and we're involved so I think it's a pretty dramatic shift that's going on and the public equity markets are really losing share now there's a few giant stocks so on a market cap they kind of distort things but I think our model many managers are you know love our model they may be scared of it initially because they don't know about it but once they learn about it and operate under the model it's much better and something else you're seeing a dramatic increase of in our world is our exits are often to other private equity firms depending on who you ask thirty to forty percent of our industry is sponsor to sponsor transactions as we call it and many firms the the most common eggs it used to be IPO and many firms just don't want to go public so a midsize firm might buy a company from a small firm and a large firm might buy a company from a mid-sized firm and a mega ferm might buy and there was a stigma attached to this 10 or 15 years ago but I think it's a circle of life in our industries our business model to make our investors active we have to sell now sometimes we can hold longer than others and and we just did a report con on a report card on our sponsor to sponsor deals and our returns are among the highest in our portfolio there was another way that our industry is evolving and keeping the companies in our community it's like the venture community companies are going public later are not going public later because the public markets are a little hostile in some ways and we believe our form of governance and running our businesses is superior and we continue to gain share in the economy but on that point obviously with the greater influence that private equity has had over the economy do you think that comes with the need for more regulation I know that's kind of like you know what happened on Capitol Hill with Facebook asking a private equity executive from you know to opine on having more regulation but if we can kind of take a step back and think about no no more regulation anyone feel like there should be more regulation just given the size of the influence it's a little bit I'm signing about matter what happens when the company goes private it is private for a while it doesn't have to report quarter-to-quarter things can get done it's John said more efficiently and then there's an exit most private equity is a 10-year term to it if it's not permanent capital related so it then goes public again so it's really as as John said a a cycle of life issue it's not like it's all of a sudden staying in some bucket forever most of the time it goes public again or it gets merged into something else plus the fact there are a lot of new companies being created all the time they're buildups they're carve-outs they're spin-offs this is just one more type of of interim vehicle which which can make for more efficiency on the regulation side you know there is a little more regulation now Cepheus clearly is something that we've all become more aware of the last few years that may under this administration be a more expansive reg regulator for a while if necessary but I don't think because it's private equity that that militates towards more regulation it's it's not like we're doing something totally different than when it's public we're managing that we've good management's they're they're hiring people if necessary they're firing people they're expanding they're growing businesses and then they're taking them public again yeah I think I think the fact that matters private equity has just frankly a better alignment of incentives between stakeholders stockholders you know management and and and the company you know the the the the challenge I think that the public markets have run into is that often the managers of those businesses don't actually have a meaningful stake in the company's any longer and so it's kind of management by the management for the management right and the Board of Directors often aren't necessarily you know directing those those managers to to maximize shareholder value for the gem holders but often it's for the management and private equity because we have our own capital a in each of these deals be we were managing capital that we only make returns personally when we actually returned to our to our stakeholders or our shareholders which are the public pension funds etc our alignment and our incentives are to actually transform these businesses and to make really efficient investments and make those companies operate more efficiently in return back to the shareholders as opposed to you know remain as incumbent in in in management in a company and milk the benefits out for ourselves so I think that fundamental you know difference in in alignment is why I think a the private equity model is going to continue to gain momentum and oh by the way when and I know these folks is probably some of theirs when we are providing incentives for our management teams it is based on a return to our LPS our our investors not based on how long they stay there or you know what activities they make it aren't value creating so I think those are the sorts of alignments that ultimately will continue to move the momentum in the direction of private capital as being the purveyors again of these businesses you know one other thing in our industry and in a world of software fact is every software company kind of starts off small and 98% of the businesses we look at are private and so they're used to that model and not because the cash flow generation generative nature they don't necessarily need to go public to get capital to grow they can create that and also get it from from folks like us to actually expand their business and the business opportunities in the capital I'm sorry I was gonna say lessee but I think two things that are missing out of this discussion is that the size of companies we say 8,000 down to 3,000 or whatever the number is or 4,000 companies but the size of the companies say are just bigger there's consolidation going on in every industry so I'm not sure what the numbers are I'm gonna go prove this after this panel I've seen both estimates yeah but if you if you look at the scale of the market caps they're just bigger mm-hmm today than they were before so just the size and scale of these businesses are bigger and secondly I think that it just this absent flows in them in the capital markets and it there has been a period of time when people more common going private there will be one more or going public but you know we've taken we've done brought one out of bankruptcy we didn't I this year we've did an IPO last week and we took two private one going private and one's been taken private so four of those have happened in the latus year in four months it's just this absent flows in the markets I think the general trend is look everyone in this room knows that private equity more money is going into private assets globally there's large money in of high-net-worth and in institutional clients and they want to put their money to work and we can efficiently put it to work for them in private assets but I don't think that means that the public markets are going away but it sounds like you're saying all of you that the the 5,000 companies that are publicly traded in the u.s. despite their study decline will never reach 0 I would say that's a guarantee ok great well speaking of money going into private equity obviously one of the biggest headlines about private equity in 2017 is the fund raising 921 private equity funds reached a final close last year securing more than four hundred and fifty three billion dollars that's the largest amount of capital raised in a single year and about twenty four point seven billion of that was Apollo's fund now Leon I would love if you could kind of reflect on the process why people are giving money what is it that was different about the fundraising round this time than the previous funds that you've raised in the past okay well I think you have to understand a few things about private equity number one it's been the best returning asset class for three years for five years for ten years that's including real estate that's including bonds that's including everything so one it's a very good asset class for investors overall two there's an alignment of interest I think much closer than in any other asset class that I know of basically we as a GP get a management fee for Apollo on private equity it's been about one on a quarter percent and then we get twenty percent of the profits but we only get twenty percent of the profits after our LPS have an eight percent minimum return and two when we do get it we give back the management fee so and we are invested alongside them our LPS with with a lot of capital so one it's the best returning asset class out there and has been for many years - there is real alignment of interest now what has happened recently what's happened recently is that the world is awash in capital with low interest rates and with the central banks carrying on the policies that they have there is a huge amount of capital out there and it's looking for return and so that combination has really opened the floodgates in terms of fundraising there's one big difference that's happened in the last five years is that a lot of the LPS have also wised up they hitherto had very very large portfolios as many as hundreds of GPS that they invested in they've had the opportunity over the last ten years to see which have been successful which have been less successful and they have made decisions - to try to have more rational portfolios where they're giving more to the winners and less to the losers which makes eminent sense so you know basically we were fortunate to have a history of being a winner in terms of having good returns in previous funds our strategy that I described in terms of being a value investor has has paid off - to our investors and so we were fortunate to be hitting this trend of a lot of capital around a lot of LPS looking for places to put it wanting good returns and so of course they're going to go with those that have given it to them with their strategies and if they have retained their teams that have been able to produce those returns that's that's where we are now McKenzie estimates that dry powder right now is sitting at about 1.8 trillion dollars and it's grown about 10 percent every year since 2012 but as a percentage of AUM it remains steady around 32 percent or so but if this trend continues and especially when you add leverage into the equation I'm curious Bruce what this means for your own deployment of cash in terms of sourcing deals do you sit out on the sidelines you wait for better pricing or do you try and find opportunities where they might persist look I'd say on balance in 2009 if you were a u.s. institution you should have put every possible dollar you could find to work today you should be a little more conservative so we are being a little more conservative than we were being in 2009 merely because in 2009 anything you could possibly buy you knew was gonna be a three bagger within a short period of time if the world reverted itself today and that's not to say that the world is we see any issues out there but we're just being a little more conservative and making sure that we find our spots and what that means for us again we were just we have a different strategy than than many is in the developed markets we put more of our people and they go do hard work we buy you can still amazingly even in this environment you can still find companies in bankruptcy people actually things happen and they put companies in a bank Racine you can buy them out of bankruptcy and third and because of our global business there's a lot of places in the world that don't operate at the same capital system or same environment as what the United States does so when we talk about capital markets we and money flowing around we generally think about the United States when we sit in the United States but we put 12 billion dollars into Brazil across all of our businesses in the last 24 months and there were very few people putting any money into Brazil and most people didn't have the capability to do it but the point is if you did there was lots of opportunity India today offers lots of opportunity so you just have to for us anyway you just have to find your spots now I'd love to hear the perspective from the more growth side of of the panel because in recent years LPS who were surveyed 88% of them said that they consider valuations to be the greatest challenge facing the PE industry I think the multiple was about eleven point two times on average in q3 that's according to Bain for buyout purchase price investors I talked to her and expecting that alpha will naturally diminish over time but Robert I'm curious what you do in this environment given that tech may be an area where you're you're kind of used to higher multiples but one where I think people are looking at and wondering when when that tide would turn sure there's a couple dynamics in our market that you have to take into account as you think about investing one is you know every industry is literally going through what we call this fourth Industrial Revolution there's a transition to a more digital based economy and the engagement of how companies are engaging with each other and how they're engaging with their consumers as a result of that you know software the world that we live in is is in a high demand across every industry because it has high productivity and capabilities that will determine in some cases winners or losers in those industries so some of the companies that end up bankrupt is because they haven't embraced the digital economy fast enough and they've lost touch with all of their customers and you can kind of look at the retail sector yeah which is littered with a number of companies who did not make that transition so that's one effect that you have to take an advance and take into account as relates to enterprise software as you think about multiples in the world that we live in and how we underwrite in again things that we know we can control and part of it is what does that business worth to us when we implement and work with our companies and implement these best practices reinvigorate you know the revenue growth and create the efficiency in those businesses is that really an eleven times multiple is are we owning that thing at four times you see the point and so to a great degree we look at what are the actual investments that we need to make and are making and that are those investments going to help us expand the opportunity set in a marketplace that frankly will have in some cases one determinant winner or one set of determinant winners in that industry and so you have to take advantage of that opportunity because once you have that customer set you often have those customers for decades and I always you know use the opportunity to say okay you can look back and say well where does that really work you look at the spreadsheet business and everybody in this room uses one spreadsheet unless there's some people here from Google okay and so if you think about it to a great extent that's how a lot of these industries in our market evolved there will be one winner that takes the lion's share of the economic rent for that product because it is the superior product and it delivers superior returns to its customer sets and that's what enterprise software customers look for so our model is really designed around how do we build the most efficient and effective products at the lowest cost and delivering most and at the broadest level to all of our customers sets in our company so to some degree we're not bound by what I look at oh what our traditional multiples what we're bound by is what in fact does this business deliver to its customer base and what is a competitive dynamic in that market that's what we focus on the more of a winners winner-takes-all and that is a nature of enterprise software and so from our perspective we need to create those winners or by the companies that we can that that are the winners in that space and help them ensure that they maintain that leadership for not four quarters or four years but for decades and I think when we get back to that you know the public market challenge the problems our public markets continue to look at quarterly as the measure of success as opposed to having the superior products which you can then deliver to your customers for decades and that's really that that that you know that gap in perspective is what creates opportunities for us in the marketplace for enterprise software I would say I've never been with Apollo since it started in 28 years I don't think there's a fund that we've raised where people haven't said there's so much money around how are you gonna find and that has happened fund after fund after fun and you know in 28 years we've had a net return of 25 percent to our investors about two and a half acts and Robert can't talk about it because he's in registration right now but he's done even better than that and I'm sure Bruce is gonna make even more than that in Brazil with that 12 billion so the fact of the matter is there are niches you can't just go by the averages out there and the fact that there's 1.8 trillion is is irrelevant it really comes down to what is your strategy what is your niche what is your team and and whether or not you're going to be able to perform in the future there in terms of who your competition is we don't see each other on a competitive basis just about and I'd say 95 percent right I don't see KKR or Blackstone or Bank in terms of what I'm doing out there so the aggregate numbers really don't matter that much your particular strategy and your team is what does matter yeah look it's a time of high anxiety amongst a our limited partners part of it is because they've been so successful everyone's been very flush returns have been extremely strong four seven eight nine years now and that's when people just kind of worry oh my gosh how long can the good times continue also our business we are money managers we're driven by the asset allocation model at our limited partners they say 10% is going to go in private equity well guess what last year the stock market was up over 24 said so the denominator went up 20% a few years ago the stock market was up 30% so they have to deploy money more money into different sectors to rebalance their portfolio so everything's being going up so we never worry about the dry powder this we worry about what we know how to do and all of us on this panel do one thing and try to do it well now if you want to get worried our returns are been terrific and they probably looked they they're probably better than I should because we've benefited the past few years from multiple expansion we buy something at eight times we sell it at ten times we buy something at ten times we sell it to 12 times you worry how long that can continue and we might all now have to have some multiple contraction so the only way we feel we can invest with that risk is fine growth so for example in our in our fund six portfolio the four-year average historical EBIT our growth rate of companies we bought was twelve and a half percent in the fund we're currently investing the four year historical EBIT a growth rate is 19 percent so if we can grow 19 percent and by the way when we do 19 historically we then re underwrite we reduce that so we had to have a 15% projected EBIT da which means you double over about five years so if you double over five years and even if you pay twelve times and exited ten times the model works so again you know focus on the numbers do what you do well stick to your knitting but you have to evolve to meet the market realities of today the market of today is very different than the market of two thousand eight or nine where we all pivoted and evolved and took advantage of the opportunities that the capital markets gave us at that time but you can't predict the future all the folks on this panel have shown is whatever twists and turns the market brings we've shown an ability to evolve and adapt and pivot and deploy our investors capital and continue to deliver the strongest returns in the investment community which is why the money's flowing in and the other thing I'll say about the money is a little different is the money is much more global now so ten years ago we might have had fifteen or twenty percent of our investor base being international and today it's fifty fifty percent and we may be lower than some of the folks on this table and there's new pockets of sovereign money opening up constantly and in Asia in the Middle East all over the world where people are flocking to America which is the stablest and best economy our returns have been strong so there's a lot of new players coming into the space because the returns have been great so LPS who are concerned about kind of the reversion to the mean in terms of performance do they have nothing to worry about you know I the only other point I'd make is the big and the companies that entities that have good returns keep getting more and more capital and and the institutions globally and many in this room know this they get larger and larger and they just can't spend the time with 50 million dollars into a fund it needs to be a hundred or two hundred five hundred or more and it's that scale that gives them the ability to have to you know when they have a five hundred billion dollar fund it's just not efficient to each they can't take the time to go to a 50 million dollar manager so to the point they're the big the big just getting bigger and I think if you had three small size firms up here the story of fundraising would not be the same mm-hmm that's there's a big difference out there in fundraising yeah I think Leon hit it exactly right a number of LPS that we are engaging with are all going through their own rationalization you know over the last 10 15 years they said okay let's try a number of firms they looked at how they performed over the last 10 years and now they're saying I'm going from you know 80 managers to 20 or 300 managers down to 70 or something that some look at that sort and I think that dynamic is going to just naturally concentrate the fact that a they have more capital because they've been returning quite well and B that's going to fewer people but there's another dynamic that's interesting which is what I call the alignment on the LP side of the fence okay and so some of them have got it exactly right where there's an alignment for long term investing with you know great GPS and how they're managing their Capital and they they're paying their people to make long-term decisions for their you know their pension ears but some don't necessarily have that correct and I think that's one of the areas that we're gonna see a frankly some reform over over a period of time because if you are managing massive pools of capital and you're in sinking them on short-term returns then they're not necessarily going to go to the best funds long term for your shareholders they may look for ones that are capturing I'll call it you know short term volatility opportunities in the in their in that fund set so I think that's a a dynamic gonna have to keep an eye out for with the LP community because that's another alignment issue that that exists in the marketplace that that you know some have got it right and something to work on it may say one more you know in our sector the the first decision you have to make is do you want to invest in private equity and let's say you make a decision ten percent of your portfolio in many ways the more important decision then is which managers to choose and there's a dramatically wider dispersion of performance in our industry I think than in many other asset classes and when you can look at averages we've outperformed the SP by five hundred basis points whatever for top quartile firms it could be a thousand or 1500 basis points out performance so manager selection is so crucial in our industry which is why many of the LPS are reducing the number of relationships they have and focusing on their winners and doubling down on their winners and hopefully you're in that small group and then you're happy now I'm curious within the retail and consumer space in particular recently it's taken some flak it's taken some blame for a lot of the bankruptcies that we've been seeing in that space to you as an expert in retail and consumer do you think that that blame is warranted do you think that there's another side to the story well I think the retail community is has been and will continue to be in dramatic change and turmoil and it's been a treacherous space to invest in in the past we had a we had a great run in retail for many years we were kind of known as the retail firm many people still think we're the retail firm and those are folks that haven't kept up with us because five or ten years ago half of our portfolio was retail and today it's closer to 10% and it's you know the the Internet has come and e-commerce and Amazon has turned the world upside down there's still a bunch of retailers that are thriving look at Home Depot look at t.j.maxx look at Ulta look at you know there's a bunch that are doing well but in the end the winner from the the you know the Darwinian change in that space is the consumer consumer is getting things faster cheaper when they want them how they want them but it's still an exciting you know exciting space look you figure companies like Walmart and Target you think they'd be out of business by now they're still actually growing you know in amidst the you know the craziness there at the Century City Mall next door to the hotel here was just underwent an 800 million dollar renovation you know 15 stores there started as online-only retailers and never made any money and now they're opening up retail outlets and those outlets are making money so the omni-channel evolution of the business is here and that's probably what will save those companies and make them profitable but a lot of those companies you mentioned whether it's Home Depot or Walmart they're not actually owned by private equity so when it comes to the blame that the industry has given I think they look at a lot of the companies that were private equity backed do you think that there's a correlation there or do you think that it's more just a factor of kind of the size and where they were in their cycle well if you if you over if you levered up a company heavily and then we're dramatically disrupted by some competitive dynamics and your profitability collapsed you didn't make it and in that case the debt was a problem and you made a mistake you made a bad deal he made a bad decision and there certainly were some of those in some of those situations it wasn't really the debt that killed the company it was just the changing world and that killed the company and and because it's easy to fix the balance sheet you can just turn debt into equity by the slice of above a pen and we've all done that as well but that doesn't help the underlying business and even with those restructuring some of these businesses haven't made it because the world has changed they didn't change and they are a casualty no I'm curious as you know a lot of the companies that you all invest in are getting disrupted and that's been a common I'm curious how technology has impacted the alternative assets industry and how you all are using technology whether it's from data sourcing in an Operations capacity to improve the businesses that you run a a natural place to start would be a few Robert sure I mean they're basic college you know you know it's kind of CRM or customer relationship management tools that we use to source and we always tease some of our LPS that we actively manage and cultivate over 800 investment banking and broker relationships and I said you probably couldn't name 50 if I paid you a thousand dollars to figure it out where we cultivate 800 in in a reverse solicitation fashion because we want to use our systems systems to ensure that we have the the greatest coverage in this ever expanding market that is software there's over 90,000 software companies well how the heck can you cover them in a retail model you can't you have to go wholesale so we rely on partners to enable us to have visibility into how those markets are actually performing terms of what companies are interesting which one should we keep an eye out on we also use another I'll call it set of tools which we're at the portfolio company level which is how do we identify add on acquisitions and do a screening against those to evaluate do they make sense for us to think about evaluating so from our perspective you know technology is just frankly part of the whole fabric of what is Vista in that context in addition to evaluating what I call the data that artisans out of each one of our portfolio companies those are the the the ways that we remain informed in our business on the one hand and frankly because I have you know 50 CTOs we've got 50 of the you know smartest people who are in specific industries who inform our teams as to what we need to be thinking about what are the changes in either the tech stack or a product dynamic or or something's happening in particular you know industry as it relates to some technology that's being developed that informs our whole ecosystem and community so again we don't think about using technology technology is just part of our whole fabric and that's really the way that we approach it do you all feel the same way have you seen a greater utilization of technology within the alternative asset industry you know I would just say that just remember we operate businesses that's all we do we buy businesses and we operate them and every business today is undergoing great technology chain change or using technology to advance everything that's in place and that's changing all of our businesses so every one of us I'm positive has each of the businesses and up top in in our in the overall business is using more technology than ever and will continue to do that it's it's a very important thing for the business now since this is the global conference and this is the global private equity panel I think I'd be remiss to not ask about one common region that I keep hearing about with regard to private equity and that is Asia both from a deal-making perspective from a fundraising perspective and Bruce Lee recently told Forbes that you believe that in thirty five years half of the global GDP will be in Asia and half of it will be in the Western economy making Asia a great place to invest what are some of the hurdles that have been lifted that has created this change to invest in Asia and what are some of the ones that still remain so the one good thing is if you say 35 years old nobody can ever but here's what I'd say we we've always believed China was in Asia in particularly in India and China let's call it's gonna be it's 2.5 billion people today it's growing the fastest anywhere it's gonna be very meaningful to the world in many many ways we have a number of we've always had a number of outstanding partners we went to Asia 15 years ago we've methodically built up our businesses we have 15 percent of our assets there today and in the longer term it will be if if companies are entities managers are set up to be able to do it and that's their thing it will be very meaningful to the global business and and to asset managers so we keep methodically building it out our offices all through Asia and and I think there will be great transactions it's tougher today then you'd find in the United States just because rule of law governance and other things depending the country to country but it gets easier every year and and we learn more every year I would say that 75% of what we do it Apollo well that's in private equity and credit and insurance is in the u.s. about 20% in Europe and 5% other today it's very hard for us as a value investor to be doing things in a lot of Asia right now because the prices are very high and in many of those countries you can't have control of the businesses and we are control freaks having said that I also believe the facts are the two-thirds of the world's population is Asian so you ignore them at your peril and clearly as John was saying earlier a big part of the fundraising world today is coming from Asia especially from the sovereigns that is something we take advantage of but it's you have to know where you can be smart money do they need your capital in a lot of these countries we have a great joint venture with ICICI and in India looking more at stress things which is up our alley as opposed to growth opportunities that's been a good business but a complex one but I think for for us we'll have to move very slowly and selectively in Asia in terms of putting capital there but as as trade routes change that will change - yes one of the things that we do you know we have to remain informed in the world of technology and because of again of EVIC wa t of computing power technologies being developed everywhere and it's a matter of finding it evaluating its capabilities it's it's it's its global extensibility is an important part of how we think about it so to give you an example 55,000 plus employees worldwide we have about 10,000 of those in Asia you know call it 7,000 or so in India in the balance and in China Hong Kong in the peninsula's etc but so from our perspective it's important to you know maintain intellectual property knowledge and you know I like to actually think about it is you know I actually think FinTech is going to be led out of Asia they have some of the more innovative FinTech companies coming out of parts of China that we've seen frankly on the planet there's a you know a bunch of intelligent people with some great university systems and and-and-and and structures that enable them to develop you know efficient code that that can fit global markets and local markets you know we announced a joint venture with McKinsey in Hong Kong on FinTech with one of our companies vanastra and in the five months we've had that announced there's been over 300 FinTech companies that have come to that joint venture environment that we get a chance to evaluate to leon's point we can't buy those as buyouts yet but it informs us in terms of in terms of where the technology is where it's going does it belong a part of our platform where should we think about creative ways to to invest in those platforms that then will be sold back into China so you know we have established a one this day in Asia one vista in europe strategy which aggregates you know the companies that would sell products in those areas and its strategic levels think about how we can enable those companies to be more effective selling their products into those institutions obviously you know producing higher revenues and profitability etc but also informing us as to how we need to think about how some of these technologies will inform product development cycles in other parts of the world you cannot be ignored you have to think about it strategically but it's not one that I'm ready to stick a hundred people on the ground and see them kind of washed up against the shore because we can't affect our strategy that we have been very effective at today there so we have to think about the right way to do it we think we have that model figured out at this point and John do you think on the fundraising side that it's becoming more global dramatically you know it's incredible as I mentioned earlier the sovereigns leading the charge Australians very active Middle East very active on Asia for a minute you know we're probably the wrong firm to comment on it because we don't have that much there but we had a couple things we just exited our first successful investment first investment in Asia but it was interesting how we did it we did it with a and a minority position with a local partner in Hong Kong that we had known for many years that we totally trusted in a space we knew well in the fitness and yoga space and we felt that part of the world was 10 or 15 years behind America in embracing paying for high-end fitness and yoga studios it's growing like a weed its opening in mainland China and we had a very successful exit but we were not comfortable doing that without that local partner as we sit here today Shake Shack is opening their first store today in Hong Kong at the IFC and they had staggeringly successful openings in the last year in Korea and the year before in Japan so we're fairly in touch with the Asian consumer and some of our US businesses are finding great receptivity in opening operations in Asia often with a local partner I just saw that one in Japan and to wrap up on a food oriented note like we started with I just want to thank you all so much for taking the time and providing your insights here really great [Applause]
