Hello again, everyone, and thank you for
staying through to the very end of Bloomberg Wealth.
Delighted to see you all. This panel is a bit different.
This is a panel of investors. We haven't done this yet today.
And as you've probably seen, it's a panel about investing in private
markets. I have brought you subject matter
experts, as you just heard. See you, Kim, as an overseas private
equity and cppib. Roger here is managing director in
private credit at Apollo. And Isabel does private credit, does
private equity, does real estate. It has infrastructure overseeing
alternatives at AXA investment management.
And so they will bring you, the investors among you insights from fellow
investors. And since it is a conversation about
private assets, why not begin with a poll?
Everyone get out your phones.
We'll bring up the QR code once again. And the poll itself.
How much of your investment portfolio should be in private assets is the right
answer. A, 10%.
B, 25%, C, a third or D, half of your portfolio.
Folks, please register your votes. And after
an initial round of questioning here on the panel, we shall reveal the results.
I thought a good way for us to begin this discussion would be with an
overview of the asset classes. Our panelists are experts in.
And so Sui, I'm going to ask you to begin by sharing your perspective on
what's happening right now in private equity, as many people are in our
audience. Surely no private equity is in a bit of
a tricky spot. Exits are challenging.
There are maturities coming due on loans that were originated at much lower
rates. Leverage is harder to get, and that's
just the beginning of what private equity is dealing with as an investor in
private equity. What's it like?
Thank you, Eric, and thanks for having me.
It's an honor to be here. I've been in private equity industry now
almost 25 years. This is an industry that has grown
significantly and dramatically over that time period.
And this is an industry I am still passionate about for a couple of
reasons. Somebody said the private equity
industry is a governance arbitrage. We all know that the performance of the
business is very much himself and what the governance that you have for the
business is. Private equity by your strategy in
particular has strong governance and the company is an owner.
It's driven to make two and a half to three times money in five years and they
deliver it. Private equity is also, as an investor
is an asset class that if you do more work, if you do more diligence, you can
make better informed decisions, hence you increase your chances of making
higher returns. So I call this as honest asset class.
I tell our team, the more you do have more conviction, it's likely that you
do. You deliver?
Yeah. As Eric mentioned, I run global private
equity business ACP Investments. We have currently about 156 billion CAD
of private equity assets underground. That's about 120 billion USD.
That makes us one of the largest, if not the largest private equity investor in
the world. Over the last ten years, we have
generated more than 15% net return. That's, after all, the expenses, all the
allocated cost, as you may know. So this is an asset class that performed
for us long term and a very and a stable and high performing and bidding to
public market equity returns that we have seen over the period as well.
Yes, as Eric mentioned, that industry is going through some adjustment over the
last two years. The activity has really slowed down, as
we all know, 2022 and with the inflation rate has went up.
Rate hikes and people, buyers and sellers had a different views about the
valuation of the assets that they own. Sellers did not want to sell that.
They want to sell it at a discount to the carrying value of their assets.
Buyers thought that with the new rate environment, they didn't want to pay the
multiple that they saw the years before. What I have seen from my own portfolio,
as well as in the industry, is that we have seen the underlying assets growing
at a very healthy pace. We have seen for the last two years
across all my asset portfolios, top line and bottom line, growing double digits,
particularly strong growth for our U.S. investments, which is more than 60% of
the entire private equity market. And same for my overall portfolio too.
So over the last few years, I would say that the price discovery, I feel like
that that discovery has been coming to close to an end.
The price expectation gap has been narrowed.
So I'm seeing that activity is picking up.
Eric, You're also right that exit people call the exit drought has been there.
Given this buyers seller valuation gaps activity has not been happening.
IPO market was on hold. I do also see the signs of that opening
up as well in our own portfolio. Just last month we signed
signed an agreement to sell one of our assets called Dorna Entertainment, which
is a motor motorcycle racing company to sell it to Formula One Liberty Media,
and that was a strategic exit. We also, two weeks ago IPO, one of our
portfolio company called Viking Cruise, which is a river cruise company, and
that was one of the biggest IPO in this market and it's trading really well as
well. So I do see signs of that opening up to.
One last point, There's another way of the exits private equity industry has
created and that we are one of the pioneers, which is secondaries and
secondary. It has been from the I think of getting
in their position of providing liquidity to the LPs as well
as in the private equity industry. One quick question for you, Sue, you
before we move on. Private equity isn't that old, an
industry that dates back to the bootstrapping of KKR in the mid
seventies and it's gone through several eras.
We are obviously long past the days when there was so many inefficiencies in the
market that without very much effort, private equity managers could crank out
30 and 40% annualized returns. But if you look at what you're doing and
where you think the industry is headed, particularly with interest rates, where
they are and where they're likely to be, are the days ahead for private equity.
Better or worse perhaps, than what we experienced in the the, you know,
aberrant years of ultralow rates between the GFC and the pandemic.
Yes, you're right that with a very ultra low rate, private equity had a great
time and compounding and getting multiple expansions.
So there are reports out there talking about the returns.
Half of that came from the multiple expansions, but it differs depending on
what type of investors and which managers are you looking at, what type
of deals you're looking at? Right.
Some multiple expansions without the rates decrease or low ultra low rates,
you can still justify if the company goes are revenue from like, you know,
three times and four times, do you and then do you have a better position in
the market? Can you justify higher multiples?
I do think, yes. The bad news is that going forward for
you to be able to do that and without less reliance on the multiples, the work
that you need to do to create the value of the assets that you own would be
harder work. You just need to put into the harder
work to get to the probably senior resort or getting over our industry.
Getting to that result will be hard and it will be more differentiation between
people who are really putting a lot of work to do, the value creation versus
people who in the. Just relying on some great Microtel Mint
Roja as your turn to talk about private credit there is.
Discussion, shall we say, In some corners of financial markets, the
private credit is in a bubble. Heaven's too much capital, chasing too
few opportunities, documents getting looser and some shenanigans going on.
The beginnings of what appears to be creditor on creditor violence and
private credit, which wasn't supposed to happen.
So tell us what's going on. Well, thanks again.
It's a real pleasure to be here and thanks for your time.
I think the way to answer this question is to really point out that there was
one missing answer in the responses you were given.
It should have been the fifth option, 90% of your portfolio in private assets,
jokes aside. I think before I start,
you know, for us at Apollo today, we manage about 450 billion in dedicated
private credit assets, and most of that actually is geared
towards high quality investment grade senior credit.
And we ask ourselves daily the same question and perhaps to you as well, is
that why should we have a dollar of a public market instrument in our
portfolio? Do you really need to own one?
And if you go back and you answer the question by saying that, well, public
markets did serve a very important part of our portfolio allocation.
It served as a good beta, served as a good means of liquidity.
But, you know, it had a lot of tailwinds that we have seen over the last ten, 15
years. A lot of that is unwinding or has unwind
it, and we may not see that in the future.
So what does the private markets really do?
It's really become a home of massive amounts of liquidity that a bond from
various aspects of our markets and it has become a home.
And that also leads to the fact that there's no real price discovery.
So as an alternative, the way we answer the question is that, you know,
alternative credit, alternative assets, alternative private credit is probably
one of the few areas where you can actually generate alpha, and you can do
that by actual underwriting of a certain asset or asset class and you can
generate alpha. Now, we don't think that's the
possibility of that in the public markets exist today.
As I said, it's really, really has become a home for liquidity and you
really can control your purchase price. As one example,
S&P 500 today trades at 23 times dividend yield, less than 4%, yield
inflation five 6%. And you have, you know, interest rates
at around 5%. Now, the question is that, you know, for
you to go into that at today's price, that purchase price matters and what we
can do an alternative in private credit is that we can patient and we can source
assets and we can underwrite to generate a very healthy return.
Now, as I mentioned, of our 450 billion, we are mostly invested in the senior
part of the capital structure and we chose to be part of senior credit.
And there's a reason for it. You know, if you go back in history,
private credit and where we are today really came out of a few factors really
came from deep banking in the US which really saw the brunt post GFC.
You've seen it in Europe, Asia, it's much less Asia.
It's not the regulators that are telling banks to get out, but companies are
requiring more sophisticated financings that the bank market can address today.
So if you think about the LBO market, a 5 trillion market, banks are told to get
out and banks underwriting companies elbows that six times debt EBIT, EBITDA
cash flow metric and you know, spreads are 400.
That's a great market to be for us. We can generate assets in the low teens
staying at the top of the capital structure and we can actually control
our exit through those instruments. Now, secondly, a lot of the banks have
gone out of very acid incent intensive operations business.
Think about trade finance. We bought BNP straight finance a few
years back and that has given us the power to originate a lot of the trade
finance loans, you know, a lot of middle market and large corporates.
Third, you know, we bought Credit Suisse securitized business called Atlas.
That was last year, and that's really an investment grade warehouse for ABS
products. So all of these opportunities that are
sitting on banks balance sheets really are private assets that have come out to
the folks like us or others in the private credit market where we can
generate investment grade instruments at high single digits and also, you know,
secured lending in the low teens. And my final point is that why I feel
optimistic about private credit going forward despite all of the bubble and
I'll come to that in a second, is that you have Basel three coming and Basel
three is going to have additional capital standards for banks, especially
in securitized product asset backed securities.
You talk about aircraft leasing, lending to consumers, lending to autos.
That is a 20 trillion market and we haven't even touched the surface.
So that just tells you that today while. Private credit.
On paper, people say it's between one and a half to 2 trillion.
You're talking about another 20 trillion of possible assets on banks balance
sheets that is going to come. So, you know, finally, I think the most
important thing is that purchase price matters and will matter more in 2024
because we expect some managers to make mistakes.
You're coming in and buying assets out at the top of the market, but there'll
be equity release states and even even for private credit, there's going to be
safe alternative private credit. There's going to be a risky part.
And you just got to make sure that you allocate your portfolio to have the
right balance. Roger, very quickly.
At least in the US market, where private credit arguably originated, it is mostly
and you touched on this LBO financing. I think that that's something that many
people don't actually realize that 95% of the loans that are originated are
there to finance leveraged buyouts. Is that the same here in Asia, or are
you just intimidating banks in different ways?
So I think that's a very good question. I mean, in banks, obviously, that was
banks bread and butter for a long time. And to just give you one example, in the
US, 90% of all corporates had more than a
hundred million revenues are actually private companies.
So for companies to stay public, the incentive of that has come down a lot
because private companies can now access capital that they would go to the banks,
right? So that's that disintermediation has
really seen kind of, you know, a large proportion of that in the US.
And we are seeing in Europe now, as I mentioned in Asia, you do have sponsored
activity, you do have LBO financings, but clearly deal activity has been low
in the last few years. But nonetheless, I think what has
happened in Asia is that a lot of the domestic capital markets have become
increasingly sophisticated. Hence, corporates are looking for much
more sophisticated solutions that banks either can provide.
And that's where private credit can come in.
And here we can really do large deals. And especially in Asia, people talk
about the relative size of the small. You can do large deals in Asia.
And as one example, Eric, you know, just a few months back we did a large
transaction for Panasonic. We actually carved out one of their
businesses that made automotive cockpit systems and we structure the private
credit wrap around it. So I think those types of opportunities
are going to be what we see here. It's not that banks are leaving or being
told by regulators to exit, but it's really that the sophistication of the
capital markets and borrowers here are increasing at a rapid pace.
Isabel, before we turn to you, let's reveal our poll results.
Everybody remember, it was how much of your investment portfolio should be in
private assets and the winner is 25%, but only by a hair.
Some of you think a good number of you think it should be a third.
And as we go down, it gets, as you can see, 10%, a quarter of the audience,
very few of you think you should be dedicating 50%.
Isabelle, I'm not sure whether that's good or bad news for you.
I suppose in some respects my answer would have been a 31, so a third.
So I think we share some of the same views as most
of the audience. So you have a broader overview of
private assets in your role at AXA Investment Management, private equity,
private credit, as I mentioned. But and you could touch on those, but
also please share with us some perspective on real estate and
infrastructure. So yes, private asset globally, I think
for most of the investor, we, we, we, we, we talk to yes the target is are on
the one sell on and it's a balance and a mix of private equity real estate
infrastructure private debt.
But the way we look at all those asset classes is more looking at the
underlying trends, what our convictions on the markets that will drive our
investments. So just to
add to to to echo a little bit what has been said and notably on the on on
private credit about the bubble, I'm not sure there is a bubble because
when you look at the high put available for private credit, it's below what is
needed by the dry powder available for private equity.
So we have seen a mismatch, I think said that you have some capacity from the
bank that the Cielo market was closed last year.
So more more capital that has been and more transactions have been done with
private debt. The Cielo market reopening, it will
rebalance and hedge. That's the way the markets are working.
But to come back on the way we are looking at all those asset classes, we
are driven by convictions, by underlying trends.
So for example, bank disintermediation, we were talking about credit, that's the
big one. And of course this drive is the
capability to generate returns, notably on the private online lending, as I
said, because there is some yes translation between doing.
A DSL market and a lending market. But it it's also a lot of opportunity
bank disintermediation, notably on, for example, the strategies where we can
access to bank for you and do what we call significant risk cost of buying a
first class of second loss of a bank, not for you in order to.
And we generate double digit returns thanks to that, getting access to a pool
of loans that will be very, very, very good quality.
And those and those type of deals that we are
doing, being based on bank disintermediation is also, of course,
theory that we have one of the largest share that's an unlisted debt franchise.
And we are at a time where and we can talk about really said we have values of
adjusted on real estate may be more or less depending on which kind of asset
class, which kind of geography, but you are entering the credit market with very
low level of our market valuations that have adjusted and
a market that normally usually is dominated by banks in Europe.
Banks we present to third of the credit market a little bit less than that in
the US because you have insurance companies, you have the CMBS market that
has always been more active that a market that remains dominated by banks.
Banks are off because of all everything we know, notably salary, but also
because of the they have taken on real estate.
So it's a perfect moment for on credit you can do this this banking
disintermediation is offering a lot of opportunities.
We like the healthcare sector. That's one of our preferred sector.
But we invest in health care, school, real estate.
We have one, if not the largest life science franchise in in Europe.
So we built and we developed buildings, laboratories in partnership with the
universities, with the medical centers in order to offer has the premises
needed by all the startup and players in the healthcare sector.
That's something within the relative segment that is performing very well.
We have been very active in the medical offices, in hospital, in real estate.
We are also investing in the healthcare sector with our infrastructure division,
where we have invested in laboratories, for example, that provide diagnosis and
tests. And this is also something that is
performing very well. We have we have invested in healthcare,
in private equity. We the strategy that is targeting the
market where you have big population, so more emerging markets.
So we source companies in Europe or in the US, but with that are developing
molecule of devices or vaccine that can address the big part of the population.
So they will address pregnancy disease or they will address with vision
problem, they will address diabetes is. And so we distribute and we make the
returns thanks to the high volume. So that's also a very strong bet.
But all this is supported by this conviction on health care.
And of course, when we invest in private credit, it's a very, very strong focus
and there is a lot of trends of growth. Digitalization is one of them.
We that's a big focus when we invest in data centers, when we invest in fiber
that has been those sectors have overperform over the past year and
supported by this digitalization trend. So that's the way we look at it.
And if we because we have talked a lot about private equity and private equity,
but if we talk a little bit about real estate, that is the the asset class that
has probably been on the headlines and not always for the
best over the past months is when I look at what for you offices represent less
than 30% of the portfolio and those offices, they are generally more they
are European. We have not no exposure in the US and
this is more in the US where I offices are under pressure.
But even in Europe, when I look at the hotel growth we have generated with the
office portfolio, it was 10% last year. So yes, there is issues with offices,
notably those that are not well-located, but the best asset well-located continue
to attract to attract a lot of tenants and within that had good returns.
But if I look at the rest of the portfolio of a real estate portfolio, we
have overweighted over the past year logistic, residential, but also student
accommodation, senior senior living and all those
sectors that benefit from very strong underlying trends, very strong cash
flow, a lot of demand. So yeah, the hotel was overall on the
portfolio, on the real estate portfolio was 10% last year.
So I'm not telling you those portfolio are immune from interest adjustment of
course, because is also for private equity.
All the assets that are capital intensive, they have
they can be and they have affected by the.
Cost of financing that has been multiplied by maybe 3 to 4.
But when you consider it had cash flow and good cash flow growth, it can
compensate of overcompensate for this adjustment.
And maybe the difference between private equity probably and real estate is the
fact that on real estate, because we have a lot of open ended vehicle,
because those asset classes are also owned by insurance company that are
forced to put those asset at mark to market.
There is valuations that it has been taken within the portfolio.
So when we show you a portfolio, this is at values that are adjusted.
It is more challenging in private equity that is generally more school closed
ended vehicles and where you don't have the same valuation system in the market.
So that idea of the performance
cannot be immune from the level of interest rate and the cost of financing.
I'm delighted that you brought up these two.
Things that are so elemental to any form of
active investment, like all of you do. And I'm curious to know whether there's
some agreement among our panelists on, you know, high conviction and
megatrends. Isabel here mentioned health care, for
example. And, you know, within logistics, of
course, there's sort of trade reorientation.
We've heard a lot today about the energy transition.
We've also heard about artificial intelligence, in fact, just on the
preceding panel. Roger and Susie, do you share any of
what you heard from Isabelle in terms of high conviction?
And how are you applying it in the investments that you're originating?
Private equity, again, as I said, as high risk and return as a class within
private equity. Also, there are different level of risk
taking. If you go to early stage ventures, it's
a higher risk and return buy out less so that you have more predictable cash
flows. So private key players has been very
good at navigating, finding the best opportunities in make two and a half to
three times money in five years again is a big challenge.
So for the last ten years we've invested a lot in enterprise software and that is
a digitization trend that I think we are still in the middle of that.
So digitization, I think well up to now, super speed with the AI as well.
There are lots of other infrastructure, whether it's electric generations or the
transmissions or data centers all need it.
But also our business itself should be ready to be able to utilize all of
those. So we do see the digitization across the
world, whether you're buying a company that's providing vertical or horizontal
enterprise of software solutions or I.T. solutions businesses, I just came back
from India is India is a one big country where they provide a lot of outsource IT
services. Yes, with the air development, it could
get interrupted, but not all IT services business are the same.
There are the businesses. They're focusing more on migration of
your data as to the data lakes and helping the companies to be able to
implement growing cloud or implementing your data analytics as well.
So I think there is a dissertation there's one big trend I do agree also on
the health care side as well, private equity, when you look at underlying
portfolio cost that we have, these technology and health care services are
the two biggest proportion of the portfolios.
We all know that globally that aging is happening in the developed markets and
even some developing countries as well. And the health care needs to continue to
innovate and their players are doing better and better and then market share
growing overall market growth with I think that it will continue to be there.
What about you, Roger? Sure.
So I think from our perspective, what we what we feel really passionate about is
really the two high conviction teams. One is, as I mentioned, you know, we
have chosen to invest most of our private credit in the senior part of the
capital structure, but more importantly with large corporates.
And I'll give you an example, which actually just was announced today,
we are lending more than 10 billion to a joint venture with Intel Corporation
to build one of their semiconductor chip plants in Ireland.
And this is a very unique financing because it serves a couple of needs for
Intel. They wanted equity treatment, they
wanted efficient cost of capital and a long term partner.
So I think the team is that a lot of these corporates that used to deal with
banks, especially for large financings, they are looking to enter into
partnerships. So someone like Apollo who can come in
and even with a private credit or a private alternative asset solution, that
we are providing them with, the solution that's going to take care in the long
run, five, ten, 20 year transactions that we enter into some of these large
corporates. You know, we did a multibillion dollar
deal for AT&T in the U.S. We did a multibillion dollar deal for
Adnoc similar one for another Bush in the U.S.
So all of these large corporates and their boards are coming to us and saying
that, well, you can solve for X, Y, Z, and you can also invest with us for the
next ten, 15 years. And for all these investment companies,
we are creating assets for our global wealth clients in the high single
digits. Now that to me sounds really, really
attractive. Secondly, I think the other team is the
team of platforms, and by that I mean the Apollo.
We have invested 8 billion of our capital to invest in 13 platforms and
these are platforms that generate senior credit every day.
You talk about, you know, aircraft leasing, lending to planes, trains,
automobiles, consumers. And here we are generating, again, top
of the capital structure at a very good attractive returns.
So I think these are kind of the two primary themes that, you know, we are
looking to to create. And a lot of these goes into, you know,
our our semi liquid perpetual products that are really geared for our wealth
investments. So you actually get diversity and a lot
of these what I call top of the capital structure super safe large corp credit.
At a very attractive laid versus the public markets.
I'd like to know a little bit about how geopolitics is affecting your investment
decisions. It's pretty hard to ignore geopolitics
sitting here in Hong Kong. In some respects, you know what Roger
just told us about the deal that Apollo has done with Intel?
You know, in some respects that is a function of geopolitical trends.
Intel is a beneficiary of very generous subsidies from the US
government, and that is creating opportunities for Intel to do things
with its portfolio of fabs around the world and by extension, creating an
opportunity for Apollo. Isabel, why don't you tell us how is
geopolitics affecting the way that you look at the investment decisions you are
making at AXA? Are there things that you are doing
because of geopolitical trends and things perhaps that you're also not
doing because of geopolitical trends? When you are looking, I think we are all
fascinated by private assets that have been in this industry for 30 years.
And the reality is that to to adjust your portfolio to make a transaction on
private equity can take six months, sometimes even more.
Even on private debt, it's not. We are not.
The beauty is that we are not trading on on the Bloomberg
screen. So tragically,
we look at Bloomberg. We use Bloomberg a lot because we have
to have the reference and the public market reference.
But again, we are investing in I said that it takes longer to transact, it
takes longer to build a spot for you and it takes long to shift your portfolio.
If I look at our real estate portfolio, it was two the offices and then ten
years ago today, retail has almost disappeared and offices is below 30.
But you have to have the right course and the high conviction to want to go
through the cycle. So, yes, we know that geopolitics is
there. We knew that.
But I didn't know about COVID. I didn't know about the Ukraine.
Well, I didn't know about what's happening in the in the Middle East.
Even if we can predict and this tension between China and us is also there.
We know that is there, but it cannot be in there.
And you know that your investments, your portfolio has to be as immune as
possible from all those risk. And so you will avoid the way to create
to to protect from from those risk is to avoid some countries that are very
tricky. Of course, we have never invested in
Russia, we have never invested in China neither because we we are not so
comfortable about our capacity to engage with them there.
So you have to select countries where you feel convertible on the long run.
And once again, look at the underlying trends, look at what will support.
You have said whatever happens, whatever.
And I'm happy to say that post-COVID or investment convictions are exactly the
same than they were pre-COVID because those crisis, what they do is they just
accelerate those trends. So they are they are catalysts, an
accelerator. And so if you pick the right
convictions, if you designed the right. Yes.
Best way to adjust your pot for you. You will protect your your own, your
performance, whatever happen and even things that are a little bit
unpredictable. So that's the way I would look at it.
And the other thing is diversification. If you want to protect your your
portfolio from those risks, you have to diversify, Wiesenfeld said.
Within infrastructure, within private credit, within private equity, that's
that's the recipe. And so, yes, the convictions and the
diversification are the best protection. Now, do we can we benefit from those
geopolitical risk? Yes.
Logistic, for example, that's a booming asset class.
And yes, we get advantage of the fact that we have a lot of reshoring, a lot
of companies that make the decision to change their home
chain, the supply chain system, and that to reshore more and more in Europe or in
the US. And that's something that is giving
accelerating notably the the the trends on logistic and yeah allow us to have
handle growth on the on the sector that is also more than double digits so on.
Yeah Roger so are you, are you leading into anything because of how you see
geopolitical trends evolving or perhaps leaning away from anything?
And also since Isabelle brought it up, how do you feel about China?
Good. Good.
Oh. I was going far as well.
So I think from our perspective, I think one of the thing that Isobel
mentioned is that you really got to make your portfolios all weatherproof.
And I think the way we do that is really by having a very value oriented
approach, which is why we go back to one of our tenets is like purchase price
matters, guys, don't forget it. It does play a very important role as to
how your portfolio returns shape up on my migrate with respect to geopolitics.
Look, I mean, we you know, we take a very pragmatic view in terms of where we
can actually conduct business, where we can underwrite assets, where we can call
it an edge of what we can do versus being completely at the mercy of
policies or other regulatory aspects that that we just can't quantify.
And sometimes it's not a science. It's a bit of art.
So I think we pick our we pick our geographies as an example I give you for
Asia Pacific. I mean, you know, we are open for
business in Asia Pacific, but we have certain country focuses India,
Australia, Japan, Korea clearly are some of the countries that we focus on.
Now, China is in our mind. Is it just that the gravity has shifted
away from China? And again, that has led to what my
earlier comment was. A lot of the liquidity flows has come
out of China and found home in public markets, which distorts pricing.
But at some point in time, China is going to come back.
I can't predict the time. So it's really a question of where are
you positioned, where you can actually invest with a certain level of comfort
and confidence that you will have some desired outcomes.
And to the extent that those are not possible or maybe just some amount of
time, that you take a step back, but you never kind of walk away because the
opportunity arises when there are market dislocation, when capital flows, leaves
the public markets, you know, opportunities arise.
So you see geopolitics and regulation
has become more important areas of diligence.
Right. And therefore, as an equity investor and
private equity investor, we run lots of scenarios.
Generally, your return and investment case doesn't come with your investment
base case. So with this uncertainty and geopolitics
and regulations, our team needs to run a lot more downside cases and potentially
upside cases as well. There are companies that has a strong
moat in their own domestic market. They may benefit.
Have you said that we do not rely on regulatory benefits, as in the base
case, as Isabel kind of alluded as well, This is a long term asset class, private
equity investment. So if you invest in shares of funds,
it's a 12 year asset class, direct investments, anywhere five years to the
seven years that you need to hold. We have seen government changing
generally over the time in most of the most of the countries and tax policies
changing and all of those. So do we take into account the IRA when
we do the base case returns? No, actually, we look at it as as a
gravy on top. Yeah, there are cases of this We called
the stroke of a pen risk. Stroke of a pen?
We do not like those assets. There are industries that are sensitive
that on top of the national security agenda of many countries around the
world, we do not like those industries. And then when you think about this
upside and downside and focus on the fen of outcome that you can get in any given
investments structure in countries and markets, it's challenging to make the
investment case. Could you give us a couple of examples
of stroke of the pen, for example, or that last category that you just
outlined about sort of sensitive areas? So there are some of the industries that
were in the past that you would manufacture out of China, you would
export out to the U.S. You may not want to invest in the teams
because the US government believes some of the industries like semiconductors
and national security areas, not the private it could invest into
semiconductor that is actually very asset intensive businesses and it's hard
to make you gain two and a half to three times money in five years.
So that's one of the examples. There are many other things.
I mean, we talked about health care. Health care is highly regulated industry
financial services, highly regulated industry.
Telecom is highly regulated industry. Some of the niche businesses that you
that you look at it, once the government change the policies, your economics may
dramatically change. And we do not like to own those assets.
Yeah, and finally, we don't have much time, regrettably.
Could you you've spent a good part of your career here in Asia.
In fact, once upon a time based in Hong Kong, if I'm not mistaken.
And how is Cppib thinking about China right now?
I opened our office, our first international implosion capital
investments ever hired. I've been based out of Hong Kong for 14
years. I've been here for many years as well.
China is with we have our home office. We have more than 100.
People on the ground here as well, investing across Asia Pacific.
China is one of the largest economies in the world.
We do believe as a large global investor, it is important to understand
that market. If you're not investing directly into
market, which we do continue to invest in that market, but not understanding
that part of the world will have impact on understanding the rest of the world
how the business is going to pan out and economics is going to pan out.
So that's how we look at it. Very good.
Ladies and gentlemen, I could continue talking to this panel for quite a bit
longer, and I suspect you could continue listening to them.
But sadly, everything must come to an end.
And that does conclude our plenary programme for today.
