dad norman macrae died of cancer june 2010- his obituaries- his last article dec 2008 on the sad consequences subprime would trap youth in - coming notes on remembrance parties across the globe- on his 10th parting we are also zoom-remembering- rsvp chris.macrae@yahoo.co.uk..
next only to education/health/safety, change in banking immediately changes lives of families and generations whereas infrastructure and natural resources multiply national impacts over time- financial services have at least 3 segments - how its designed for people, for big organisations, for pensions ang government
since 1950, in developed countries - quarter of humans) changes in tech have caused changes in finance first- some peoples have leaped into banking consider those most linked to developed west, development of china region, rest of developing world- we will map what happened to innovation of tech to the west which has had access to 4 tech revolutions from 1950 rural, space-communications, engineering , computing brain power- china that had access to rural revolution in 1970s, engineering from 1980s, all tech from about 2005, and bangladesh which accesses rural change from 1970, has for most of its people not yet accessed engineering change, has joined in other tech between 1995-2005 thanks to being the epicentre of ngo sdg economy - epicentre fazle abed- of course in a world of 200 nations there are other hybrid models but decide which if any of these three is one your peoples need to understand first because big data collection has gone global - see society 5.0 and osaka track g20 2019
key system transformations -paper non-digital banking operations, digital operations, consumer digital atm and cards and end of community banking. mobilising change in commerce and banking, integrating all post 1950 tech revolution- finance needed to be a future affair that teachers and students questioned before youth began livelihoods- since 1760 alumni of adam smith and james watt glasgow u birth of industrial revolution have recommended mediating these questions openly - how much of wealth and natural resources do the top 10 and 500 people control- is your society one in which 3 halves of people - women youth and poor each have less than 10% voice in the future of their generation

putting our species at risk- wall streets bankers and washington lobbyists and careless media moguls did the worst job ever at end of 2000s- can ny's biggest fund managers return the planet to all families as we enter 2020s - search worldrecordjobs -biggest marketmakers bezos and ma - then join us at economishealth.com -or help us value goal of worlds biggest -search - google versus microsoft; health&safety investor bloomberg vs soros; largest funds fink versus mitsubishi ; education for all schwarzman versus hongkong-singapore partners -supercity adaptability ban ki-moon versus masa-son; big decision makers events schwab vs guterres; rural villages fazle abed partners

we also thank the baltimore branch of www.chinacybercenter.com for sharing its investigative scholars of everything that's crazy about 21st financial services that thurgood marshall wouldn't have let rip chris.macrae@yahoo.co.uk

dec 2020 Washington thinktanks have become in most cases as dismal as the supreme leader trump making these exceptions absolutely brilliant 1 2
this economics policy series shows how banking in america has been serially designed to tip off the poor and the young - and even when the rich elders mess up they demand the poor and young bail them out- i now see why my father as early as 1980s described macroeconomics as totally fame political chicanery nothing to do with the origins system designs of the first 200 years of followers of adam smith moral sentiments- see also economistscotland.com
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Sunday, October 3, 2021

blom day 3

 7:00 AM - 8:00 AM EDT   (1 Hour)

BROADCAST HAS ENDED

Recording will be ready soon

The ultra-wealthy are turning into a major driving force for investing trends across multiple markets. After fueling the SPAC boom, many reports identify digital assets as the next area set for market-shifting inflows from high-net-worth investors. To find out what's next for global wealth and the latest investor trends, top investors and wealth managers offer their insight into the key investment strategies and tactics that are helping their clients achieve market-beating growth and long-term wealth security.

7:00 AM - Welcome Remarks

  • Yvonne Man, Co-anchor, Bloomberg Markets: Asia, Bloomberg Television 

7:05 AM - Opening Remarks

  • Yousuf Mohamed Al-Jaida, CEO, QFC

7:10 AM - In Conversation With Nuno Matos

  • Nuno Matos, Chief Executive, Wealth and Personal Banking, HSBC
  • Moderator: Yvonne Man, Co-anchor, Bloomberg Markets: Asia, Bloomberg Television

7:25 AM - In Conversation With Mark Delaney    

  • Mark Delaney, Deputy Chief Executive and Chief Investment Officer, Australian Super
  • Moderator: Haidi Stroud-Watts, Anchor, Daybreak Australia, Bloomberg Television

7:40 AM - In Conversation With Omar Aguilar

  • Omar Aguilar, Managing Director and Chief Investment Officer, Schwab Asset Management
  • Moderator: Kailey Leinz, Co-host, Bloomberg Surveillance: Early Edition, Bloomberg Television

7:55 AM - Closing Remarks 

  • Kailey Leinz, Co-host, Bloomberg Surveillance: Early Edition, Bloomberg Television
8:00 AM
 LIVE

8:00 AM - Welcome to Day 3 of Invest Global

  • Ed Hammond, Deals Reporter, Bloomberg

8:02 AM - In Conversation With Orlando Bravo

  • Orlando Bravo, Founder and Managing Partner, Thoma Bravo
  • Moderator: Ed Hammond, Deals Reporter, Bloomberg

8:20 AM - In Conversation With Sheila Patel

  • Sheila Patel, Vice Chairman, B Capital Group
  • Moderator: Haslinda Amin, Anchor, Bloomberg Television

8:35 AM - JAMPRO Sponsor Spotlight: Jamaica: Building Our New Future

  • Diane Edwards, President, JAMPRO
  • Septimus ‘Bob’ Blake, CEO, National Commercial Bank (NCB)

8:45 AM - In Conversation With Shu Nyatta

  • Shu Nyatta, Managing Partner, SoftBank Group International
  • Moderator: Caroline Hyde, Anchor, Bloomberg Television

9:00 AM - In Conversation With Steven Mnuchin

  • Steven Mnuchin, Founder, Liberty Strategic Capital; 77th United States Secretary of the Treasury
  • Moderator: David Westin, Anchor, Bloomberg Television

9:25 AM - In Conversation With Kirill Dmitriev

  • Kirill Dmitriev, CEO, Russian Direct Investment Fund
  • Moderator: Yousef Gamal El-Din, Anchor, Bloomberg Television

9:40 AM - The Real Estate Outlook

  • Lauren Hochfelder, Managing Director, Deputy Chief Investment Officer of MSREI and Head of MSREI Americas, Morgan Stanley
  • Adam Schwartz, Co- CEO and Co-Chief Investment Officer, Angelo Gordon
  • Moderator: Lisa Abramowicz, Anchor, Bloomberg Television

10:05 AM - Closing Remarks

  • Sonali Basak, Wall Street Correspondent, Bloomberg 
xTwo years into the pandemic. A global recovery is underway, Global vaccination, rates are improving and the world is adjusting to a new normal yet. The markets remain volatile beijing's prank down continues, Chinese stocks listed in the u.s. Suffering. The global supply chain is in turmoil. The FED is rolling out a massive stimulants will continue. Provide the economy, the support that it needs.
It's for as long as it takes could soaring debt trigger the next financial crisis. How can investors navigate volatility and uncertainty amid. The volatility, where is the opportunity? Hello.
I'm shonali basak Bloomberg Wall, Street correspondent on behalf of Bloomberg. I'm so pleased. You can join us on a third day of Bloomberg and best Global. The economic effects of this pandemic has changed the financial landscape. And today, the markets are volatile. There are fee pressures and low interest rates, but in the middle of all this uncertainty, there are opportunities and our terrific lineup of guests will help you spot them. Before we get started. We have a few tips to help you get the most out of this event if you have any Shoes with audio or video, quality. Try to refresh your browser or use the chat bottom in the bottom right corner.
If your screen for support, you'll be able to submit questions during the interviews and we hope you do, we want you to engage with us. So if you want to submit a question, please click the white tab on the right side of the video window, if you know your name and geographical location will give you a shout out. And while we may not get to all of you will try our best and on social media. It's hashtag Bloomberg and best. Please use that. And remember, you can connect and engage with other attendees in the event. Chat, that's in the bottom right corner of your screen.
Like to take a moment to acknowledge our us presenting sponsor and Basco QQQ, are presenting sponsors, Abu, Dhabi investment office. Angola's investment and Export promotion, agency gray, scale Investments, do business. Jamaica letter one, and Qatar financial center, and finally are supporting sponsors. CMC, Markets connect. All right, let's get started. We kick things off with a focus on what's next for Global wealth and investing. Are you ready to grow your business?
Venture into one of the strongest and fastest growing economies in the world. Katha doing business in Qatar has easy, efficient transparent, and getting simpler. By the day, get unparalleled Market access and support by setting up a Qatar Financial Center, 100%, foreign ownership and many, many other benefits.
Hello, I'm Yvonne man in Hong Kong and welcome to Bloomberg invest Global the next 60 minutes or. So. We're going to be focusing on what's next in global wealth and investing to open the session. I like to introduce Yusuf Mohammed Al Jada, CEO of Qatar, Financial Center. Good afternoon, everyone. It's a pleasure to be here. Parts of this year's Bloomberg invest Global that brings together influential leaders from the finance economics. It's an investment Landscapes to discuss key issues driving.
Investment strategies. Our participation in this Summit comes at an important juncture in time as the world has effectively started to move into the post pandemic recovery environment creating an array of opportunities as well as new industry Dynamics. For Global Investors. The economic recovery trend is more visible in Qatar in part because of how quickly and extensively it responded to the Slowdown resulting. From the pandemic.
Light of such measures. The country's GDP is forecast to grow to 231 billion US Dollars by 2020 for from 193 billion and 2020 with Calpers commitment to advance its business ecosystem. Increasing number of Global Investors. Continue to choose our Market to set up. Their operations enjoying a range of benefits facilitation programs and in Incentives, such as the robust business and
Structure, offered by the Qatar Financial Center.
Not a financial center, which is a leading unsure business and financial center located in. Doha provides an unparalleled business expansion and Innovation infrastructure for companies from around the world, presenting an ideal Gateway for them to set up locally and expand to The Wider, markets of Asia, the Middle, East and Africa. The apart of.
Center offers its own legal regulatory tax and business environment, allowing a hundred percent foreign ownership, a hundred precent perpetration of profits and charges a competitive 10 percent corporate tax rate on locally, sourced income. You welcome a broad range of financial.
Chillin on Financial Services firms and currently have over a thousand one hundred registered firms on our platform with an increasing number of new companies. Continuing to choose the platform as your gateway to the country at QFC, who welcomed the most vibrant companies across key sectors, including digital Sports media, and financial services to invest in color, and seize, the opportunities available here and build Bridges. Has with the wider region.
Among others, we have seen a rising number of financial technology companies setting up on our platform innovating and disrupting in the industry by offering solutions to the most pressing Financial Services challenges responding to the continuing growth and Investment Management sector on copper in the growing interest among investors from around the world. The key of C continues to offer an Innovative and flexible regime for the high net-worth segment. The diversity of our solution.
And the flexibility of our approach to invest facilitation to cut off having position dust as the go-to platform for businesses willing to venture into the wider middle east region, given Cutters robust economy. There's a great potential for Global Investors to set up their operations here on copper, especially since the country is forecast to witness more growth, leading up to the FIFA World Cup. 22 and Beyond.
I'm Yvonne man from Bloomberg TV. I'm joined here by a new. No mitosis HSBC wealth CEO here in Hong Kong, you know, you were appointed to this job earlier this year. What are your Ambitions and vision for China and the region for the wealth business? Well, Asian world is our passion. If you want, just simple, as simple as that. And I would start by saying that world is by far in the consumer space. The most compelling opportunity for the financial industry if you want, okay, and you have some global For example, the expansion.
Of the Afghan population. You have a low rates for longer and you have customers very much educated trying to look for returns, which today don't exist in normal interest rate, right, but then you also have some Regional Trends which are very very clear. Asian wealth is growing twice as fast as the rest of the world. And you know, what? We are the bank of Asia, right? So it's a compelling opportunity for us if you want, you have some pretty ambitious. Plans for hiring in China, particularly
You mentioned, you wanted to hire 700 wealth managers On The Ground by the end of this year. Are you on track to reach that goal? We are fully on tract. Actually, I would say our plans is to hire three thousand until 2025. That plan is a five years plan. It started this year, DC were planning to hire 500, and we are going to hire 700. So, we are actually accelerating our plans in China and who are you actually hiring? Is it more about your senior bankers? That can help and Target some of the ultra high net worth or is it more about bankers? And
The more mass affluent, all of what you said it's happening at this moment, we are not targeting the mass Market in China. It must be said, we are targeting the mass affluent and the high Network. So we are hire private. Bankers. If you want where our must have found our ramps and we are hiring external sales forces to sell wealth products, example insurance and we've been doing that very intensively and very successfully in the political environment. Of course, has been quite interesting and it's developing as we speak. Of course. Given what we've seen with China, clamp Downs, that the tensions that we see with the US.
What is the sentiment like among your clients right now? Well, I would say the following our clients in terms of how do we invest their assets are slightly more courses at this moment, but they are more cautious for real reasons. The pandemic changed expectations in terms of when the world will go into a full opening right? Interest rates, might be on the rise. We are talking about tapering Asia as a whole is slowing down a little bit in terms of growth. So I would say is absolutely normal. Amal that our customers became a little bit more defensive. It's not a big change, but and out there more.
I would say then that we fully believe that they should stay invested because the recovery Israel and rates will stay low, but I would say something in this second phase of the recovery. We need to diversify. Not all assets are going to go up. So we need to verify and make sure we go for Quality assets are talking about large gaps and high yield dividends. I would go for that a common Prosperity. That's a big theme in China right now have You observe any concerns from your Ultra?
Worth clients. Are what questions are they asking you at this point and how are you advising them? Yeah, during this time. Well, I would say common Prosperity, makes absolute sense with Chinese history. Right? And you look into the numbers and is happening at this moment, talking about the middle class, in China is bigger today than the whole US population. 340 million people in China are middle class, in 25, will be a half a million people. Then if you talk about myself and we're talking about 30 million. Ian and high Network 2.5 million, so there is space for all the
These growing astronomically for wealth business like us. This is a compelling opportunity and I think it works well for high Network, massive on that mass Market, they are all looking for investing their world and we are therefore there for them and we've seen a lot of nerves in the markets, whether it's on Tech. Crackdowns in China, you have high yield bonds that are pummeling just based on what the ever Grande crisis has been going on. Have you seen of your clients want to move their Capital overseas? We did not and I must say that, The world story in China is absolutely intact again.
His happening. This, this growth is happening by the day. The level of growth of middle class and high Network population is growing at nine percent per year. So we don't see a major displacement of world stocks from China outside, even though some will have will happen, which is normal in a world that wants to diversify their wealth. Does it in any way? Impact your Ambitions on the mainland? By no means we are fully in in China. We are the leading international National Bank. In China, the biggest
China will hold the biggest number of licensed in China. We have been there since our foundation for a hundred and fifty six years. We want to be there for the next two, hundred fifty, six years, fully committed. I would say that if you go to China with medium short-term approach for the next two quarters, you are in the wrong place. You have to go to China for the long term. That's the right mindset. That's the right approach and that's what we are doing. I'm not going to ask you about politics, of course, but of course, it has in some way affected your business. There's there's talks in Hong Kong about a potential anti sanctions law. We're still not hearing about whether we're going to get it or not, but I have to ask. Are you looking at?
You're different clienteles. Now, whether it's the retail side or whether it's on the other side, as well, on how you look at clients right now. Based on what could be coming this legislation. Well, that's one of this way, we understand. Geopolitics. They're obviously the impact everybody, the impact companies. They impact us impact customers, but we know what we can manage, and what we cannot manage, what we can manage is our customer business. And that's where our focus on managing our customers business and delivering to them the right products and services. How do you manage it? When there's directives from both sides who might legislation from the us as well?
China. Is there a way to appease both sides? While you do business? We continue to focus on our customer needs as simple as that because that's the only thing we can manage. Does it change how you view different. Well, pubs outside, of China, for example, like Singapore, how attractive a market is that for you? The very attractive, but I would say for us, it's never about Hong Kong or Singapore for us, is Hong Kong and Singapore, and Asia. It's about winning in Asia. Hong Kong and Singapore, by the way. They are the second and third cross-border markets in.
Willie on the world space. We don't want to be out of that. And by the way, they are only there, only below Switzerland, but by 2025 Hong Kong, will be the number one. Cross-border wealth Hub. And Singapore is the fastest-growing. We want to be there, and we want to do to do that, to connect the world with those wealth. Hubs Hong Kong is very important to Mainland China. Very, very important. And the GBA region initiative is just opening a world of opportunities for us. Singapore is very important for the Asian connectivity.
Dayton region connectivity for the Middle East and is actually very vibrant as a financial Hub. We just recently announced an acquisition in Singapore of AXA. Yeah, which for us is a tremendous play because we are doubling down on our insurance business. We are getting scale on the life insurance business. We are getting a better position on the health business and we are getting an external sales force which didn't have. So for us, is Hong Kong, Singapore, and frankly all the way. Old hubs in the world where we are present and that's what we are doing. Yeah. Yeah.
No, Quinn talked about that during the latest earnings report saying that they're looking at some small bolt on Acquisitions. You mention about accessing aboard. What are some other targets that you're looking at in this region? Well, I would say the first thing as well, an obvious one. 90% of what we are going to do, he's going to be organic, we have the right to win. We have the customers. We have the segment's, we have the capabilities. We are full Asset Management employees. We have full Assurance in place. We have full private banking in place. So we We have the right to win, just by growing.
On top of what we are. Having said that, if we look into an opportunity, which will accelerate our strategy or will allow us to gain scale in one market, will go for it. So we are planning for 4-5. Small bolt ons Acquisitions, which will increase our wealth Ambitions in our Asian, Top markets, which I would say, are Hong Kong. Mainland China, India and Singapore. I would not tell the names of easily, but I would say we hope that will happen. Open soon as part of your scope looking.
Some of these more kind of Boutique profit-making shops in the region. Is that something that you're looking at as well? We're not looking for boutiques. Specifically, we are book. We're looking for businesses that will expand our scaling of in the market. We're looking for the elements that are adding to our capabilities. I would not call it protects. I would call it capabilities expansion of scope outside of China. We talked about Singapore, but beyond that. What are some of the markets that you think have the most growth Runway here right now? What are you most? Most interested. I'll repeat its in Asia. Our top former.
Our Hong Kong and obviously, we are the dominant Bank in Hong Kong. If you want is about mainland China. We are the leading Bank in China. International Bank, in China. If you want, Singapore, we want to continue to grow our already meaningful position in that market and India, it's a huge Market. It's a Well story at this moment. Wealth is growing at 10 10, 20 percent, depending on the industry in India. We have a small presence in India on the Wild Side. We want to find our way in In into a more ambitious, size in India. And what kind of timeline do you have for that? Do?
You set your Targets on that, we set our targets for the next five years. Okay, and in the next five years, we want to be the leading wealth manager in Asia. And that's a bold ambition. We want to deliver you mentioned about kind of your clients are a bit cautious right now. Rightfully. So we mentioned about the tension that we're seeing markets, whether it's, you know, what, we're seeing in China today. We're seeing quite a bit of a sell-off here when it comes to concerns about inflation. What are your wealthy clients investing in? In particular are there? Pacific Global Trends and Regional trends that Europe.
In them that you're seeing right now. Yeah. Well, I can't I can't auctioneering about what they are doing. Right? But the first thing I would say is that every customer every customer has been anxious to get some returns in a very low interest rate environment that stuff, right? And the traditional banking product like a term deposit. Does not serve any more to protect your wealth because it just consumes is consumed by inflation. Right? So I would say that on the fixed income space, yields are extremely low. That's obvious. There is still some space on the
Market bones and on the high-yield bonds. Okay, and then for the, the wealthiest customers, a new Avenue, which is if you want growing by the day, is what we call the alternative space which talking about real estate Investments, private Equity, private credit hedge funds. This is a new range of products for that population. Ultra-high Network, High Network. That is really embracing. If you want this, need for higher returns, also higher risk, you must set and then Then.
Summers, by the way, which will always traditionally. Very domestic bias. They are now looking into difference. If I globally, as they also see the Asian economy is still slightly going down a little bit slowing down, but they have been very disciplined in terms of thematic and new economy Trends. So they are looking into smart. Manufacturing Healthcare Renewables electric vehicles. Just to name some of it. Yeah ESG ESG. I should have said it. It's a wave by the way. It's an exponential wave that is is going through the market.
That's a place where we want to be one of the leader investors in one of the leading providers of sustainable investment for that population. ESG is an obvious need. We know that the planet is not sustainable. The planet needs to be transformed. Okay, and this generation talking about our generation is called into action. And we have this decision to make which is, are we going to be the generation of going to save the planet or we'll leave it to the next one? Which will be too late to be to be frank. So, our bank takes this very, very
Usually we want to be the one financing, the transformation financing, the transition of our customers companies and individuals. Last year. We announced for example, our policy very clear policy. We want to be Net Zero on our operations by 2030. We want to be Net Zero on our customers portfolios by 2050 and we are committing to one trillion dollars of investments into sustainable investment. What is very curious that our customers, our consumer? Tumors are starting to be very much aware of this equation. We did some.
Three and four of our retail. Customers of all segments. They want to know more about how they can place their money to more sustainable options and 50% of our wealthier. Customers must often customers. They actually believe that in three to five years, all their Holdings will be in sustainable investment. So we are delivering to that. We are creating by, do they capabilities funds, discretionary mandates, that only focus on sustainable? Moment. We also doing simple things like all our credit cards.
The cars are now in recycled plastic that will be completed by 2026 and we are doing this to become a leading sustainable Investment Bank yet. Yeah, you're new to Asia. So I think you're looking at the business in a different lens. I have to ask before we go, the biggest risk to the business right now. What would that be? Well, the biggest risk is the lack of ambition, which we don't, we don't miss, we have a lot of ambition to grow. Okay, and then, as I always say, the macroeconomics obviously, Determine a lot what we can do in banking, but we
Management economics. So we focus again on the things we can manage and what we can manage in HSBC, is the ambition, the passion. We have for well, for example, in about a Slowdown in China that we're seeing right now. China is slowing down slightly, its effect. We see that on the PMI and trade data China, also had to restart the Convoy is not result in the corner because of covid. So obviously, it was expected that China would not pickup in growth. Having said that, we believe that the in 2022, To China will be growing again, above fig five percent. Probably five point six, which is
Spectable we will see the infrastructure Investments growing up. We see more fiscal stimulus. Going to the economy Central and local. So we don't think China will slow down further than what you did. So we are very positive again in China, you know, you so much for joining us. Thank you was a pleasure. Yeah. Appreciate it. Thank you so much.
Thank you, Mom. Thank you so much for joining us. Let's start off with the good last year. You had such a strong year when it comes to returns. In fact, I think you called it. Pretty much a perfect year. You managing expectations in terms of what's achievable this year. Yeah, we always try and manage expectations down really. Well, I go to the member briefings, they say, oh, here we go. Again. He's going to tell us. We won't have this good numbers as last year. So last year, we had over 20 percent which was the best way. Turn ever and on a large amount of money, really, but the thing it's Jacob.
Leigh, is that we've had great returns for over a decade. Now, for the last ten years, the balance cleanser, 9.7 percent. So, it's been a great environment for investing, right through the whole last decade. And we tend to forget that with the ups and downs of covert or european debt crisis or something else. But, last decades been phenomenal for investing, the it rained out of debt / debt crisis. Just feels like a long time ago. It's really interesting. What a couple of years of this pandemic does to your perspective, right? Is it? Time to get defensive though because I think when we spoke to you in the middle of this year, you had said
Look, yes, higher interest rates. Tightening monetary policy. Might prove to be a bit of a head wind, but it's not enough for you to take a defensive position yet. Has that change given that we've had no concerns over China, potentially an energy crisis as well as what central banks are doing. So know best. You might be surprised to know, R is still fairly constructive. We think the basic preconditions remain in place, very low, interest rates and an ongoing recovery recovery. If Jewels profit growth and the interest rates, mainly alternative we invest in growth.
It is very hard to find. So there are more headwinds of hearing, so that the margin, it's getting more difficult. And you identified a few of those, like the central banks are pivoting to removing stimulants, which will make it less easy than what it was in the previous year. So we can't expect me turns to be as good as what they were, but it doesn't. It's not big enough. It's change to make us become negative. What about what's become more attractive than If you're sort of tweaking, your portfolio around the edges at this point. Where do you See the most attractive of opportunities. Where are you? Perhaps D risking a bit.
I'm so the most attractive opportunities. We think our interior has high-quality unlisted assets where we can get good long-term returns out of those. And so we've been deploying capital in those areas. And the other one, I still think that Equity is a reasonably attractive, at least, for a few more years in the current environment. We still wouldn't deploy any Capital into fixed interest yet. That's Cycles. Got a bit further to go and credit no style. Investments are still very expensive than Turns are probably aren't high enough what they're after. So the basics.
A good Equity portfolio and high-quality down listed assets, Remains the Same. So, I think you were something, like, close to 60% heavyweight allocation to equities. Do you see that staying pretty much the same increase, decrease a bit. We're probably a little bit under that, but not much and over the next three years or so. We anticipate that waiting will come down. So certainly Our intention to take some off. So, take some equities out of the portfolio, over the next . But we wouldn't be starting now.
Bonds, have yielded, so little. I mean, that's just a fact we've seen a lot of interesting variations on how you then hedge volatility. And one of them has been more interest in ethics trades. Can you kind of explain the attractiveness of that? Is that something that you've considered? And how, how would you kind of try and get that hedging effect? Yeah, very good question. Really like like it's like a pension plan expert. So, the key thing with hedging, this most of your portfolio is invested in Great Assets in equities. So what you want is Investments, which go up when equities go.
I know it sounds really simple. So the idea of investing in bonds is in a recession in my Capital Returns on your bonds. And now compensate some mod for the negative losses you make on your equities as earnings from the Australian dollar is also another investment with typically tends to go up in value by the $1, foreign currency goes up in value against the euro dollar in an economic downturn. I think a lot of planes will move to hold more foreign currency and blue. A bit less fixing.
Over time as and think too, if you like diversify their diversifiers over the next five years or so, so does that mean you see FX exposure? Potentially for a long-term investor as a defensive asset class? I think that's where it's going to head to it. What would you then need to see?
At a point where you stop reducing that underweight compared to bonds. We would think you'd need to have a long run position in FX to heat you up the volatility and you add the margin, you have you might spot some of your bond exposure for more effects exposure, but the to result the same. That's why I like the idea of having a basket of diversifiers rather than rely extensively on mine. If you go back and look at all the previous Equity market downturns and see what happens. To the Australian dollar or see what happened to interest rates.
Don't diversify all the time. Sometimes you can lose money on bonds and equities at the same time. And sometimes you can lose money on FX adequate. He's at the same time. But if you have a balance of both approaches, you put in one place. We touched on the volatility in China, a little bit earlier, and I know, I stallion super and a number of other Pension funds have been steadily becoming more cautious on China and that was even pre ever Grant. Can you give us an assessment of of us? Suppose your Rata, G. If you will, when it comes to China, how much exposure you have, and when you'd be more comfortable.
Taking one more. So we've had an office in Beijing since 2012 2013. So I've had a long term commitment to China and we think it is a area of excellent investment opportunities particularly as the capital markets become more accessible and more. It was been a long-term View and it's proven to be, well, placed the changes in the Chinese regulatory environment around every around education, companies around the real estate sector, whatever to be part of. A expected to some extent as they putting stronger Prudential.
So these things will happen in a developing country. But China Still Remains a very attractive place to invest. We've got about, I think it's through three to four billion dollars already in China. All right, across listed, stocks and some fixed income and I suspect that's been a grow over time. China is the second biggest economy in the world and will be probably be as second biggest location for investing in the world. I don't think funds can disengage from China and Australia has been paid pretty close with like super China over the long term. So I think all
Actors will work in the long run. So it sounds like you're comfortable with the level of de-risking that's already taken place. Regardless of what happens with every Grant and the property sector. What would you need to see? To make getting more exposure a compelling option? I think there's two aspects. You have a look at the stocks themselves and we will expose you to Alibaba and Ten Cent and whatever. And the regulatory environment around those stocks has been changing for the probably don't pass.
For years outside, progressively Ventures you to the past four years, Clarity around the regulatory environment would be useful for us to buy greater exposure. Because if we be certain about future learning streams, the real estate delivers you, the real estate is not a new story in China, you know. Try to deliver on the one hand. We have people saying China's got a debt bubble and on the other hand we say the leveraging is a problem. You can't have a cake and eat it too. And what they've got is a process of steadily. You that amount of levels in the economy, and that's probably pretty appropriate.
I think that all those conditions will sort themselves out over time and will look for good long-term investment opportunities because we're a long-term investor. Still making.
And thriving Australian up you guys. Now one of the first phone calls that investment investment bankers make when there's a deal on foot. Mr. Baker's, the key thing for them is to get the deal done and Australian super be such a strongly growing fun has a lot of capital to deploy in under two transactions. So if I was the investment banker, I'll be calling someone with Deep Pockets, which is Australian super. So it's entirely appropriate. The key thing is not whether we get the The called, which we do get. The key thing is really what is the quality?
The investment opportunity, it'll be quite the investment. Bankers only run Us and nobody else. But all people reading after the runs dry and super, and there is competition for assets. And in the ever have to pay the market price to get reported number of Assets in them, in the most recent, 12 months, and more bank property, Logistics, exposure. We with Transit, but in the West Connection ticket, and we've been in the Optus, tear isil down as well. All of those are really good Lon. Long-term listed assets reflecting your strategy.
What else are you looking at? Given that there are expectations, that this is really just a sign of things to come well in Australia, which pretty much opportunistic. You can't correct. Deal flow. The deal flow has to be there. Then you have to lean The Rock position to win it, if that's what you want to pay. So with four,
I listed at since you're buying long-term learning streams. And clearly, what we want to do is buy those with favorable Tailwind. So you've seen the situation whereby digital has disrupted them, a number of unlisted assets, like real estate, like real estate, for example, and benefits of others with regard to, if you like industrial digital platforms and Ally. So been looking for more digital plan digital assets. If we can looking for those, which have got really good, long term, earnings dreams, and told her Title example of that and then
We're participant in the bid for Sydney airport because we think the veil on travel will come back as well in the long run. So, Five of all tile.
Opportunistic Investments, which reflect market conditions. But all of that is really driven by the quality of the deal flow, which really something we can't control Sydney. Airport is an interesting one, because you take a look at just how beaten down by the entire industry has been over the past couple of years. Is this really backing an expectation that there are going to be some industry that not just recover from the pandemic but actually come back stronger in terms of demand why can't talk too much. Much about Sydney airport deal because it's a public to private transaction. So I think I'll leave what I've said there.
But we're favorable about are laws as long as Imports as long-term Investments when it comes to the great debate about inflation. The market seemed to be considering this idea that it's going to be transitory for longer or perhaps even prolonged. And I guess if you're a bear you'd be arguing that you do as economic growth projections. Come down. We could potentially be looking at stagflation. Very conditions. Is that something that worries you and do you have settings in your It's that hedge for inflation and also potentially stagflation.
Gosh, you know, I grew up as a learning my economics in the late 1970s and I thought I'd never hear stagflation again. Here. We are twice in a lifetime. Has come back to haunt me. Everybody in the market thinks the inflation is temporary, make no bones about it. That's what everybody thinks. If you have a look at the factors, which, of course, inflation to rise. It's heavily concentrated in those areas where their supply chain disruption and motor vehicle. Prices are simply the biggest component of in the US.
Other things being equal. You think that those supply chain dislocations would sort themselves out over time and it wouldn't be a source of ongoing inflation. So I like the market are of the view that is temporary, but it might take longer to work through. Because their supply chain disruptions are taking longer to work through. As you recover from covid. He's taking longer. So, all those things are linked up covert supply chain, disruptions feeding into higher inflation.
Now, anybody knows that when you invested yet, you might have your base for you, but you've also got to look at the Alternatives which is what you want talking about. What happens if you're wrong. It's very hard to protect portfolios from inflation. That's the bottom line of this. It's very hard. There's some assets which have CPI link revenue streams, which will help a long way, but not that many in your think. And what you tend to find is that, if you flash it becomes persistent interest rates rise, It's at the higher discount rate, affects. Almost all our.
That's not our call view. The what you have seen is the central banks are moving to withdraw stimulus from covid. That's it.
Hollywood likely to covid. I think, unless related to the temporary nature of inflation.
I'm Kelly lines from Bloomberg television in New York and I'm joined in conversation by Omar Aguilar. He is Schwab Asset Management, Chief investment officer and managing director. So Omar. We're going to focus a lot on the retail Trader in our conversation. But first, I just want to get your macro out. Look how bullish are you going into year ended on and to 2022?
Well, this is very interesting Kaylee because we have gone in through the fastest economic cycle in our lifetimes, you know, we, you know, at the end of 2019, you know, we were in that process of, you know, trying to decelerate and, obviously, nobody expected that we will actually hit a big pandemic that took the economy into a recession. And then we recover, you know, quickly, very, very quickly. In fact, you know, the, the, a lot of the economists. A lot of studies suggest that these ended up being more like, A natural disaster where, you know,
Tons of liquidity is stimulus program fiscal programs. Everything was attacking to try to solve the source of the issue, which in this case, was a Health crisis, and we did recover very quickly and obviously the equity markets and all your risky assets, you know, took a significant amount of of of the lead on trying to get the economy back into into shape. And so we're in that in that process where, you know, going into the summer of 2021, you know, we were really just, you know, hitting an all the strides, you know, economic growth was He's very strong, we so Equity markets, doing very well.
Operations, you know, having plenty of liquidity record earnings red instead of all these different pieces until we started to hear about concerns about Supply, the, you know, disruptions where we ended up having these imbalances, you know, between supply and demand, you know, what, we had ports that couldn't get the capacity to deal with all the goods that were coming and the demand was just in there. So we combine that with the fact that we had a find the middle of it, you know, us into flames were now, Where we are, you know, going into the fourth quarter is still growing.
Very decent pace, but I would probably say in one word decelerating. We're decelerating the global economy. We're decelerating the rate of inflation. We're decelerating the the amount of consumer demand, which is probably the main concern I have going into the holiday season and we're decelerating, you know, all going in through the for into the end of the fourth quarter which obviously puts us in a place where we're still in the recovery period we're just not going at the same pace and we were, you know, right at the beginning of 2021.
Yeah, so I'm wondering if that means that you think the buying of the dip that behavior we have seen so frequently over the last 18 months is going to stop working. Well.
We have recently done a lot of the work on behavioral finance, and it's something that we do at SWAT Suave a lot to just educate investors on, you know, trying to take the emotions out of the market and focus on the long term and long term, you know, we just went through a month where we had a significant negative return in the market, which is something that investors have not been used to, at least for the last, you know, several months in since, March of 2020. So, so when you, when that happens that bent Ality or bind a deep, you know, gets.
To is it good time for us to just repurpose, you know, those assets to rebalance and there is a temptation to time the market, you know, this is a great opportunity to get in. This is a good opportunity because things are actually cheaper than they were you know, 5% ago. And I know our process in educating clients in always sees the timing. The market is very difficult. You always try to think about your long-term goals and trying to do these weighted dollar average, where you know is not necessarily write a good time. Tomorrow, there will be another opportunity. It is better to actually.
Find those assets that you want to buy and have a strategy that allows you to systematically get into them. Well, Omar. This is where the retail investor part of the conversation comes in because it has been the retail Trader that has driven so much of that dip buying is there signs that retail behavior is changing that their desire to take on risk is waning the farther we get out from post pandemic.
Fear. Well, that's good. It's kind of interesting. The, you know, the you know, we are very happy and very proud to see that there is even more and more interest by the retail investors to get into the markets. It is always good to have more investors, you know thinking about how they can invest their assets for the long run. You're right, you know in even if you think about, you know, what has transpired in depend emic there was an excess level of savings that were accumulating during the process of Of 20/20, in fact, studies and research shows that it was probably four times.
More excess capacity than in a normal cycle. So what that means is that there is a lot of savings, they consumers and investors The Leverage. They reduce the amount of debt with the amount. They saved During the period of 2020 and therefore, they have more time, you sitting in their homes. They have more time looking at the screens. They have more time and therefore their ability to actually start to get in and use those exact a savings for investing was something that was very tempting. And they in fact, they did you're very right, you know, if Stirs that it started in 2020, you know, we're we're more interested in taking positions.
You know, and things that they had never done before. Now what is interesting over the course of the last few months Kaylee is that that has the celebrated to the deceleration of interest in what was so called the meme stocks, you know, it started to just change. Right, you know, at the end of the summer, not at the same Pace, that was at the beginning of this year. Yeah, well, Omar to your point. You talked about.
Of the liquidity that has been out there for the last 18 months. You have the monetary policy side, but also the fiscal side in the fact that stimulus checks put a lot more money in people's pockets as those impulses fade. How does that affect? How retail investors are going to be involved in the market going forward? Well, you know these the
The majority of investors that actually have gone into the market have actually seen positive rewards, you know, what, the fact that you have still a bull market, despite the end of the last, you know, set of volatile days is that, you know, you can actually see that that you know, reward goes into a there is a very typical behavioral bias called recency bias. Is that basically puts a lot of weight in your recent experience and recent information and therefore a lot of those retail investors. The new to invest that ended up, you know, investing in certain assets they have I actually got rewarded and therefore, you know that becomes in his Noble effect. They will continue to just
Until that process. Now, what is interesting though is and this is a big part of what you hear at Schwab we tried to do is we're very interested in continue to educate clients to know whether or not it's at an actual investment that will work for their risk profile and for their wealth planning. And that's a big part of you know, what we try to do because you know, the excess savings could easily go away. If they actually don't get channel to the right place. What is good about the studies that we have shown with the new investors, especially for those new new to Vestry. Retail investors that are all kinds of Ages. Is that over 90% of those?
There's said that they actually want to learn more about investing after their first experience. So you think about it, new investing new investor that came in and started to study in started to invest in a meme stops on his back or in any other areas. God rewarded. Now, they got engaged and all of a sudden they want to get more tools and research and that's basically very good for the market. It's very good for the investor in general.
So tell me how you go about that education because talking about the meme stock phenomenon. One of those things that that inspired was greater scrutiny from regulators and from lawmakers who want to protect the quote-unquote uneducated investor and make sure that they are able and enabled to make smart investment decisions. How do you attach swab? Make sure that they have the information that they need.
Well, we we provide a lot of information to clients and research and, you know, we always encourage to talk to advisors, you know, the the the main component of what we try to do with retail investors, whether it's a do-it-yourself or whether it's somebody that seeks advice is basically putting together, you know, component that allows them to exploit. You know, what are the options that they have a big part of that is understanding their own risk profiles. In other words, you know, trying to understand what is that, you You actually going to use those Investments for, and
Is the probably the most important piece of what hap? What is interesting about this studies that we have done would retail investors, especially for those new to investing is that the majority of people that try to get into investing, they actually thinking about the long run, they don't necessarily executed the in that way but they actually care about the long run. They actually care about saving for retirement. They actually care about saving for generating income in the future. But you know, what they're trying to do is trying to figure out what is the best way to To do it. And, you know, providing in a research information, access to a financial consulting.
Access to a digital tools and that's probably key of understanding how those digital tools can drive them so that they can actually get to the right investors asking the right questions through those digital tools. Is a key part of, you know, what we do at Schwab to continue to guide, those investors to the right, you know, place to do the right profile and this is all part of that kind of democratization of Finance conversation. The fact that retail Traders just have a lot easier access to the financial markets now than they did say. A decade ago are there inherent dangers?
I'm with that.
Well, it's it goes back to the being a behavioral aspect of the market if you actually think it's actually very good for people to be invested. That's for sure. There's no question about on the more people that get invested the better. We all are as a society. Now what you're completely, right? They access to information even for professional, investors is actually overwhelming. You can actually have information through social media. You can get information through different tools, your computer, your smartphone. And what that does is it triggers Those behavioral reactions that you have to information the most difficult part on.
Most, you know, prevalent thing that investors have today is the anxiety that comes for not knowing what to do with all that information. If you actually think about, you know, all of a sudden, you have an investment, you have earnings release, you have economic release. You have access to everything that, you know, in the past was probably not as simple to get. So what we have seen normally is that you actually have two types of behaviors. One is, you know, when you actually see Market volatility, there is emotional. Action that tends to drive a lot of the questions that we get, you know, if you think about information that you get,
Relation, you know, hits all of a sudden, the market volatility goes in, you know, people don't care about, you know, potential issues with regulation around, you know, certain areas of certain stocks immediately. Their the Fang stocks was another one that we have seen recently. And then going in through that piece, the information that gets you. A lot of what we have to do is continue to educate of not necessarily over react to every piece of information, reduce the amount of consumption of everything that comes in and focus on that long-term. I'm plan and that's the reason we encourage every single of our clients to try.
With a financial plan that allows them to have those so that they can mitigate those over and on the reactions that they have to information. Yeah, so talking about the Schwab specific angle. How have you had to evolve to meet this moment of easy accessible markets and information? What changes have you had to make to the products and services that you offer?
Well, it's a very interesting. We believe that the world, you know, continues to be rewarding, digitalization and personalization. Those are the two words that we continue to give to access. Either Schwab has always provided options for investors. We are, you know, trying to lower the cost and trying to give access to everybody that wants to be invested in the market. But as such, we also believe that investors continue to, actually, you know, put money to work with there. I'll use the concept of personalization is something that he continues to?
Do all of you think about the evolution of the phone, you know when you actually you know hard way back in the way, you know, just you know land lines all the way through smartphones that you can create your put your pictures, you can put your what being a little you know, pieces in there. That becomes yours. The world of investing has actually evolved to that area. Now that is not something completely new but it was only available for ultra high net worth and high. Net worth investors for a big fee. What you have is actually doing now is in the process of creating more Tools to give access to info to investors so that they can actually have access to tax management.
To have access to, you know, ESG investing. They can have access to different set of low-cost, you know, index and ETFs so that they can actually create their plan and they can actually figure out what is good for them. But that concept of personalization where you can be investing. And at the same time, follow your values, think about what you want to have. Mission is a big part of the driver of what the future might look like. How have you seen the values that your clients would like to focus on change over? Time. Is it now more leaning toward ESG or is
Else.
Well, you know, I there is old old varieties and that's what makes the, you know, markets Rich, you know, not everybody, you know, and necessarily has migrated towards believing that ESG provides a big, you know, value in terms of performance or in terms of return or in terms of, you know, value for their equities, you know, that's something that you know investors, you know, have a preference on Preference. They are that are but there is a significant increase in interest in understanding how the The ESG, you know, environment evolve so
Time not everybody, you know, believes that ESG is the same for everybody that goes back to my comment or personal decision for you. You know, the environment may be more important than social events. For me, social may be more important than some quality or governance issues. So, all of a sudden, you know, the concept of how people apply their views on ESG is not a one-size-fits-all. It basically has to do with how investors put those money to work where they believe, you know. Trade off between their value of their equity and they're in.
Men's together with what their mission and their values are. And that is the reason why digital tools and customization becomes Irrelevant for the next generation of investors. All comes down to personalization Omar. Thank you so much. It was great speaking with you. That's Omar Aguilar. The chief investment officer of Schwab asset management and Bloomberg. Invest Global continues, please stay with us. All you have to do is return to the main online Summit agenda to access the next session. Thank you and stay tuned for more Bloomberg invest globally. Mobile.
Two years into the pandemic. A global recovery is underway, Global vaccination, rates are improving and the world is adjusting to a new normal yet. The markets remain volatile beijing's, Crackdown continues Chinese stocks listed in the u.s. Suffering. The global supply chain is in turmoil. The FED is rolling out a massive stimulants. We'll continue to provide the economy, the support that it needs for.
As long as it takes, could soaring debt trigger the next financial crisis. How can investors navigate volatility and uncertainty amid. The volatility, where is the opportunity? We put this.
The biggest names across finance and economics. This is Bloomberg invest global.
Hello and welcome to blue bag. Invest Global. I met Hammond the deals reporter here at Bloomberg News. If you've just joined us, welcome. If you're with us for the previous hour or even the previous two days with the lighter to have you back again, we have an amazing line-up of speakers and conversations that we're going to get going on in just a minute. But before then remember that we want you the audience in this event to participate to engage with us via social media and Via chat. The hashtag is Bloomberg invest let's get started next. My conversation with Orlando. Our founder and managing partner at Irma Bravo. Well, I know Bravo great to be
You great to have you all on this morning. You're joining us. I know from Miami.
That thank you for having me. It's good to see you. You're looking great as always, by the way. Well, thank you. I think, the New York weather is doing me, some favors by giving me, a sort of gray backdrop against my nice blue. So, let's start with Miami. I took the liberty of going on your Twitter feed this morning. One of your most recent tweets from a couple of days ago, says Miami, it's the place to be exclamation. Mark, what is it about Silicon Valley? That's become unappealing in there in the last year or two. When look for Or us.
We lost our core values. We still do, we are growing, so our San Francisco. Office is a lot larger today than it was two years ago. Now, we also love Miami. How could you not love the movement that's going here? And new tech Hub is being created. People can be really entrepreneurial and it gives a big opportunity for young Future Leaders to set their own Mark. Also in a society in a way that in a way that fits that That.
They can do philanthropy in their own way. They can be leaders in the community. It's a lot more open to these young talented adults, especially in Tech.
On Tech you and I have talked a lot in the past few years about valuations and they seem to be getting higher and higher and higher without sort of ever slowing down to catch breath. I wonder how is a private Equity Firm. Therefore, what we traditionally think of as buying sort of cheap and turning stuff around and putting it back out. How do you manage in that environment? There is there is no such thing as cheap.
Anymore, there were only two times that our history in our 22 year, history of doing software buyouts and software investing that in hindsight. Only it was cheap. That was 2000 and 2001 after that. First internet Bubble Burst and then maybe a year and a half during the financial crisis when it was still really hard to do deals because nobody wanted to sell companies, we were able to transact with a lot of public companies at that time, which we are fortunate to do, but really, especially software buyouts. It's really a gross industry. It's really a growth Equity industry. It's a growth.
Industry. So you have to pay up to buy the best and then not only that you have to then provide big operational and value added to these companies in order to make the acceptable returns that are limited partner Community needs for their business. Let's talk about it. Because when you say,
Pay up by the best. At the moment. At least that means writing very big dollar checks. And and therefore you have to go out and raise very big pools of capital you guys I think last year close to your most recent fund around twenty three billion dollars you out raising a new fund at the moment. How does that work? When you are a smaller or newer private Equity, Firm coming into the market. You can't afford to write these checks. And even if you can you don't necessarily have the operational experience. Needed to turn these companies it from you know, expensive decent companies into even more expensive, very decent companies. That's a really insightful set of points that you're making.
Look, there are three significant barriers to entry. Now in Tech buyouts and software diodes in particular. Number one, is culture. A new entrant, you know. Culture is becoming the differentiator as I like to say cultures not the most important thing for us. It's the only thing. So, as a new entrant, how do you set yourself up to fit? What is going on in the market? And the companies that you're trying to buy that? That's a big deal because now this is an established place. It's not a new industry to do software.
That was 22 years ago. The second big thing is operational expertise, the average publicly traded SAS software company today. The average one loses money, and these are the best. So you have to have a a set of skills and a history and a reputation for bringing these companies to 30 to 40 to 50%. Even that margins in order to do the fundamental investing that our industry does, those are two key ones. The third one is newer.
And it's scale. It is very important to us to buy the number one player. In each specific software Market, you look at our deal with proof point in 12 billion dollar deal. They're the number one, email security vendor in the world. Why would a customer waste their time to invest or by the product of the number two, three, four, five, six, email, security, vendor when a male is the main Threat Vector of companies, we're seeing customers then, behave that way in. Going to the best of breed very quickly now.
Best of breed players can those Market leaders that we feel is where the world is going. Those are now massive companies. So it requires big Equity checks on their compounding at 20% and that in itself is another big barrier to entry. And we're seeing that.
Just in Tech, obviously, but across really all of private equity in terms of the very, very large private Equity players. Seemingly inexhaustible, ability to go out and raise huge amounts of capital to write very big checks. I wonder, is there a case or are we perhaps approaching an era when there is a case for for the to be more regulation of the space that you would see in traditional corporates, you know, whether that's looking at their deals on a sort of antitrust basis or indeed looking at a possible break up scenario for some of these firms that just have too much power, too much concentration and therefore keeping. Other entrance out of the sponsor space. That's absolutely the case. I mean, you're seeing
Big monopolies being built or establishing themselves even deeper in some of these markets, we do business to business software. We don't do social media. We don't do consumer in general, in business-to-business software. Most of these markets are heavily fragmented. Now, there are cases of companies that I will mention their names that have Monopoly Physicians because they give out all their other products for free in order to support something else. And that stifles Innovation because if you want to
Software company has the best of breed. Vendor a new face, a free lesser company in the market. That is, it's kind of difficult to operate it. But in general, for us when we go to sell a company, many of the new buyers of these large software assets, are industrial companies that are looking to digitally transform their businesses, not only internally, but through Ma, and they need scale. And they don't have antitrust issues because they're not in the space here. Yeah, and that's a very attractive strategic buyer for us.
Banking regulation, another area that is obviously very hot. At the moment is the SEC and proposals or initial proposals to allow retail investors more access to private Equity. It's been a topic discussed for years. This sort of how do you connect this Mass affluence with private Equity? They're Keen to let it happen, but they said there needs to be better regulation. Obviously, better transparency about what retail investors are getting into from where you sit, what should that look like? Disclosure, go back.
To the philosophy of the regulation of the regulatory scheme that exist, and just provide more disclosure have the the managers that are out there. Raising capital for retail investors provide all their numbers in many different ways and just have proper disclosure because I do believe and we were talking about it before that. Retail investors are retail investor of today is totally different than the retail investor of 20-30 years. These are extremely smart.
Highly Educated talented. In many cases, young adults, and they want in the game. And if you provide access to private equity, and venture capital for these pretty retail investors, they will find that in other ways in the public markets that Regulators don't like either like spax or other quote, unquote high-risk areas. Well, then fit that round. Is that?
I'm not doing too much to sort of mollycoddle retail investors and hold their hands and therefore not giving them credit for what you say. Is that level of sophistication? That's there.
I think The Regulators are not giving the retail investor, the credit they deserve for their sophistication. If you look at some of the strategies that have been used by retail investors, those could have been used by the big money managers and they didn't they have been innovators in this space in many ways. Once again that the profile of the retail investor is totally different than it was 30 40 years ago. When I started working in 1992, what you were worried about in terms of the retail, investor was somebody that looked like The Wolf of Wall Street, calling my grandmother and selling her son.
Sheets stocks that you couldn't even find in the Wall Street Journal. This is a totally different set of information, totally different people and they want they want in the game. And how much do you think?
To do with the way social media. And the way the sort of modern technology is actually allowed them to mobilize to do things. Like we saw earlier this year, when the shorts were being sort of squeezed, in a way that was not necessarily coordinated, but certainly carefully, it seemed like it was carefully orchestrated through social media platforms completely how powerful that has been. I follow some of these retail investors for fun first and social media and to I get some great insights from them. And the fact that the power of this,
A competing world and the fact that they can reach a lot of people just so quickly and get a big following for making good investment decisions. That's a big deal. That's a big change.
Tell me if you had any ideas from them that have led or will soon lead to a buyout by Thoma Bravo. Well now.
Not much not you know, we know it's not that big yet, but certainly for my own individual investing I get some ideas and also for some of our public Holdings, you get to see how the actual investor publicly out there gets to think about valuations and growth rates, and I think that's insane. I saw recently, obviously.
It's on bitcoin. You've been very publicly bullish about it and about indeed crypto in general as a being sort of future of currency. Talk to me about how we might see that intersect with your sort of business, your day-to-day business. I mean, it's time of Bravo going to invest in the space directly. Are they going to allow LP's to give the money in the form of cryptocurrencies? How is it going to work from a business standpoint? Well, look, first of all, we
Are one of the lead investors in the growth Equity round event Petty X, which is just a phenomenal trading platform. We believe it's the best in the market. We, we will be big players on the, by outside as this industry matures, especially around. Block. Take blockchain technology. In many cases. Blockchain is a better provides better use cases. For problems that exist then.
Database software products and we are seeing this maturation and we will be participating in a big way to us. It's just the software Market or the digital Market just became a lot bigger and it's providing a bigger opportunity set for us. What does it look like?
In terms of the deals, we could see you do either the companies that you would obviously go after, for buyouts in the space. Where is this going to be more like a venture capital model first? Its growth Equity. That's that's where the market is for this category. And now late stage growth equity, for this category is becoming very feasible to invest in. I think, in the next two to five years, it will move to brake control transactions, and we'll be right there. Just like, we were 22 years ago, as one of the first software by out for our Herbs in the world. Another area you and I have discussed this specs.
See, you did the time of our advantage back early this year. It's now these back through through iron source, which is now trading as a public company. The is fat game has been somewhat solid. I suppose by abuse by some participants or perhaps, like too much energy to quickly going into the space. I know when we've talked about it before, you said you had hoped to do another Speck. Is that still something that's in the works?
Yes, we will do now. Nobody likes that word. Nobody likes that term. The regulator's don't like and now investors don't like it. So we for sure we'll call it something different because it will be something different. I mean we do believe that there should be great alignment between the SPAC sponsor and the investors just like there is in private Equity investing real Capital behind it. Being the leader, the lead investor in the pipe. For example, which is something that that we Did in our deal with with iron Source We Believe.
Be a lot more transparency in terms of. What are the returns of that spec sponsor? What do they look like? And there should be a lot more transparency in terms of how does that company perform versus the projections that they originally gave the investors? That should be disclosed in every quarter. That should be a requirement. So we feel that that's packs are one of the great financial vehicles.
Or absorbing this wave of large software companies and Tech innovators that are looking for Alternative forms of financing. Now, it's also a great vehicle to combine the best of the liquidity in the public markets and diversity of investors that you get in that process and the best of private Equity as well. And we believe, we have a model for that. At, but when you look at it.
Yes, a lot of a lot of this back deals that were done, did involve those kind of companies, but an awful lot also have overcome the kind of companies that were highly speculative had sort of predictions. That potentially will be met, but they were fairly ambitious. I think to put it lightly, is that going to make it difficult to go and do a SPAC in future? Because people are going to look at it and say, well, you know, we don't believe the predictions because the last time this this was going around, people were saying it was going to achieve XYZ and none of It was delivered.
Look.
Pack is about who the investor is, who the sponsor is that totally also helping a company operationally and it's a good partner and this pack is about the company each. That's what it's about. It's a it's like an IPO would an investor value accompany differently because it went public with this set of banks, instead of with this other set of banks or because it did fit a direct listing instead of not a direct listing. That's that's irrelevant. It's about the fundamentals of the company. Now, Now, I do agree with you that.
The stock market should be for Venture deals because one of the advantages of this pack is that you can project your business and projecting a venture company. No matter who you are is very difficult because you have no track record on history of that company of producing results and seeing where you're going to be in the future. Now, of course Venture company go public through specs because there's a demand from retail investors and others that cannot access the Venture Capital industry. Anyway, And I suppose you need that.
A tip which a lot of those companies seem to have to get the sort of early excitement. Let's just talk about IPOs before we wrap up. Obviously, we're seeing some of the other large private Equity firms, make their sort of steps towards going public, I think tpg is widely. Touted to be the next one out. What can we expect from time? A Bravo now regarding future in terms of, you know, public company versus private company. We love our private company status. We are.
One of the few large private Equity firms, that's a hundred percent employee-owned. And we like it that way, it provides great alignment between us and our limited partners. And that is the fabric of how we built our business over time in going back to culture. Culture is not the most important thing for us. It's the only thing and the our ownership structure allows for that culture of Hiding and promoting the next.
Action of Future Leaders, that is really what drives us.
Couldn't you maintain that and keep the culture within the firm whilst being a public company, whilst having, you know, that public equity, which potentially would be good for the culture and good for the partners. You could, I think you make a really good point. You could the way we think about these decisions is decisions that are reversible, we make very quickly because if we make a mistake we can adjust decisions that are irreversible or may take a long time to reverse. We really take our time and are very thoughtful about Out. And that's how we're dealing with with this staying private versus going public point.
Let's just end where we began on Miami. You are opening this new office. Very soon. I believe in Miami is a plan over time to migrate more and more of the company to Florida, or do you think San Francisco is going to remain a sort of the home base? San Francisco is growing.
We're growing. San Francisco is growing a lot. We really loved it there. And we also love Miami because going back to culture. It was very important for us that we continue to higher diversity of thought and diversity of talent, having a nice post office, especially in this new growing and exciting Tech Hub is is adding to our culture significant. We've been able to hire some great people and we've been able to really promote once again, future generation leaders, and now can lead in different ways. Honda Bravo great to have you on the East Coast. Always
Get your thoughts and your wisdom. Thank you so much for joining us for this conference and speak again soon. Thanks so much.
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Oh, hello there. I'm as Linda. I'm an anchor of Bloomberg television and there is a funding frenzy. In Asia Global. Investors are rushing in to make a baton Asian Tech startups as the pandemic has accelerated. Digital adoption southeast. Asia will have 350 million digital consumers by years. And India already has half a billion and it's working on the next half billion. Let's talk Tech. Sheila, Patel is vice.
B, capital b c founded by Facebook's Eduardo Saverin, Sheila good to have you with us. Great to see you. Again. Miss Linda. It's been a while. You know Sheila the last two decades. The last two decades have been about consumer internet. The next two decades will be about digital transformation of traditional Industries. Where are you? Seeing the biggest opportunities in Asia in the year ahead.
Well, I think the opportunities in Asia are just spectacular and it's certainly a focus. It's been very exciting for me to make the shift into Venture and particularly as you mentioned with with be Capital after years in large-scale asset management. And as we look at technology in Asia, I think what you're seeing is what you mentioned at the header, the digitization of huge portions of the population in 2010. Only two percent of Indians had a mobile phone. Today is you To over half a billion, but what does that mean?
Pandemic driven activity has just been amazing. So people are shopping online. They're using their phones for finance. Fintech is having an explosion in Asia and what we see in Southeast Asia, and Indonesia, and India is innovative new companies that are coming up with new ways for people to use these tools when you think about comparing east and west or whatever, comparison our buckets. We want to make between emerging and Galloping markets and what we call the
Markets, when it comes to technology, I'm not sure. There's monikers, actually fit because some of the most interesting developments in technology are actually coming from places, like China, India, Indonesia, Southeast, Asia. That's,
I mean, we hear people say that when it comes to fintech, Innovation, Asia, surpasses, that of the valley. What Innovation are you seeing in Asia that you're not seeing in the valley? Well, when in
Sting example, is the all inclusive nature of fintech that you see in Asia. So in many cases, someone is able to do multiple things with with an app on their phone, in the US or in Europe. You've tended to see very tight verticals of development. In some of these Technologies. Something is checking and bill payment only. It doesn't also have savings. You can't also use it when you go in a grocery store. And so you have a proliferation. Duration of apps, whereas what?
Seen in Asia, in many cases, is a all-encompassing ecosystem that keeps the person in the business more and it keeps the person solving their everyday problems with one company, rather than several. But particularly, if you think about some of the things going on, in Asia, we also see a boom in services for small and medium Enterprise. In fact, in the last few weeks. We've had fundings for several companies in the space. And so caught a book is really interesting, a
And services company for small and medium Enterprises in India. It had a funding round series. See that was very successful. There's also a Spire in right in your hometown in Singapore, which is an eel bank for small and medium Enterprises and helps them with their banking needs and their financing needs. So there really is a proliferation of very interesting business, verticals in Asia that we see continuing to grow.
When you talk about tag, you have to talk about trying to attack. I mean, it's been under tremendous scrutiny, tremendous, clamp down. And I know that be capital is looking to allocate as much as 40% of its two billion dollar Global fun to to China. I mean, how are you looking at the clamp down? How are you assessing it? And what still looking at attractive? Sure. Well what I think when it comes to China, you know, let's hit the macro and then go to the micro and the macro side investors got a surprise. Don't know that.
It's in the market in China would necessarily characterize it as a surprise from many different perspectives. If you look around the world, Regulators have gotten their hands very dirty on data for consumers and on privacy and as you think about GDP are in Europe as you think about some of the data discussions going on in the US and elsewhere, you see that governments are very interested in knowing how data for their citizens is used captured. Used recirculated and and frankly, profited from
And so when you get to China, it's no surprise, I guess in our eyes that you see the same thing happen. Now, how Regulators can act in China, the government's ability to act very quickly versus some of the signaling that investors are used to in other markets. This is where China is a different market and where it pays to have a lot of knowledge.
About what is going on and how people on the ground are thinking about some of these changes for us. As we look at China, you know, the place we see really relatively unexplored and and about to Boom is Enterprise is digitization for business things that grease the wheels of Commerce, so to speak that make businesses have an easier time. So let's move away from the consumer. And let's think about where Where is the next Salesforce? Where is the next or?
Where is the next great Innovation from an Enterprise perspective that could come out of China? And from our eyes, China is a place right for that with the number of businesses that have grown over the last decade, but the fact that they don't necessarily have the Digital support that could make their businesses, even more efficient and profitable.
I'm just wondering if you can be confident about the winners. Are they clear winners even now or do you want to wait for greater Clarity before deciding where or how to deploy a capital? Yeah, look, I think it's such an interesting market right now and you see it in everything. You look at and every conversation you have there is money flowing into the space at a pace. That's that's kind of astonishing when you look at it in some ways. So entrepreneurs that might have been previously starved for Capital.
Now may have a menu to choose from you know, for us one of the things that helps us be selective, but also helps us be confident about the companies where we take on an investment and partner and look for them to grow, is our partnership with BCG, which we think is very unique. So BCG, the global consultancy has expertise in multiple sectors. Has connectivity to some of the biggest companies in the world. And when we Go in and look at a founders.
Years in business and how they look to grow leaning into what we can bring them from that BCG perspective. Perhaps, we can advise them on this sector. In the ways. It's been made more efficient in other countries and bring that BCG expertise to them and see them grow more rapidly because of that. In many cases, basijis Global Network of large-scale multinational companies, might tap into the expertise, a company we've invested In has in particular Marketplace, so there's still value.
Brought by the capitalist venture capitalist out there by the investors out there for us. BCG is a key part of that value. Add. And so we look allistic Leah. We're a company. Can go from a growth perspective. But we also think about how can we help them? Do it? Yeah, with China, under scrutiny is India, looking even more attractive of VCS. I mean, it's a vibrant subsea more than 60 unicorns and Counting.
Absolutely. So we see some major opportunities in India, you know, we kicked off our discussion with the digitization there and I think that can't be overstated. If you have half a billion people on their having a mobile phone and mobile phones are getting cheaper and the service is getting cheaper as well. You not only have that base. That's one of the biggest in the world but according to a panty and some other Research on how Indians are you?
Their phones. Indians are the top three in the top, three users of their devices. And so that has opened a broad spectrum of areas where we can see activity. For example, online Commerce, social e-commerce. Me shoe is a company in India, in which we've invested, which just did a new round and they've seen their business Skyrocket. Mainly it's because you seeing Indians adopt that technology.
Edgy, but what do we see that's different as we expand and grow and see these businesses version and India, you're seeing Indians, use their technology in a different way. There are massive cities to navigate. There are shops and small small businesses that are using chains of value that are actually disruptive to Value, because it is so many middlemen for them to get to the next place. We're seeing India becoming Being a real harbinger of the disruption to come.
How good's get to Consumers and how they're able to access the most interesting products from their country or region in a very efficient way. Is there?
To be concerned about regulations about the government possibly turning back policies. Look, I think in every Market, we pay close attention to regulators and regulation. I think again, some of the things that have come up in every Market that you will see continued or how are you treating consumers? What data are you taking from them? Are you deviating from any Norms? I think. Fintech is actually a place where having that combination. Ian of innovation and
Um thinking broadly about what Financial Services would make businesses better not just individuals lives. But again, the wheels of e-commerce work better is critical but then thinking about what fits within the constraints of regulations or in fact, what Regulators might even welcome. And I think very much in spaces like fintech, we haven't really talked about health care, but Health Care is a place where we see huge opportunity around the world and great ideas coming out of Asia. These are spaces where you have to think about the
Internship and the vision of where regulator sees a Marketplace and make sure you're acting accordingly. Oh, yeah.
Talked about how the so much Capital looking for all these Investments and that takes me to a question from the audience Roberts, asking, how do you hedge against overpaying in these growth markets or in these companies? Well, it's tough markets to do that. Right? I think it's got, it's gotten harder because you're seeing many new entrants. You're seeing many people that are deploying capital. For the first time. We really take a step back. We try to make sure that We are picking company.
And ideas and partnering with Founders that we think not only have a grasp on the marketplace there in today, but have the potential for a footprint beyond their current scope. That's a place. We can really, tap into BCG where their perspective on how things have gone. And other marketplaces on where certain Technologies might be able to have leverage. This is a place where we can evaluate a company and do that valuation really thinking about where they go next. Next, as opposed to where they are now.
I'm interested in getting your thoughts on the consolidation Trend. We had grabbed acquiring Uber. We had Go Jack and tokopedia in Indonesia emerging valuing that entity and more than eighteen billion dollars will consolidation be a theme. Well, consolidation accelerate. Well, we see more and my ma is in the next one to two years. I do think you'll continue to see consolidation and Acquisitions. There are a few different. Hats for this. Some of it is combination.
It's of like businesses. That's no surprise again for efficiencies for their own resourcing. It makes sense for some of these businesses to combine. But importantly, in this is for us a place. We leaned heavily into our BCG connection. There are Global players and large Regional players that I find it hard to fostering Innovation internally. We all know that that stuff starts hard to change things or come up with a great idea in your own house. But when you hear how somebody else does something, Like what? Why didn't I think of that? What?
Didn't I come up with that idea? And so, you know, I think you see many, many large companies, or at least larger companies that have tried to fix certain things in the past that have tried to innovate and telemedicine. But they're already a mega scale provider of services. They've tried to innovate and fintech, but they're ready. Big bank. And they have a way, they do things, and it's hard to make people Envision a new way. I think you'll see Acquisitions in these sectors that were focused on, and Enterprise fintech Healthcare.
Because large-scale, players need great ideas, and they need them. Now. They have a choice between being disrupted by the ideas or adopting them and Acquisitions are a great way for them to bring those ideas in house and frankly to leverage those ideas to scale and leveraging ideas to scale is again, to answer Rob's question. Again, earlier leveraging ideas to scale is another way, you know that you can take these companies and bring them to a place where you're comfortable and evaluation perspective.
Are you encouraging companies that you invest in to consolidate? That's one. And two is there risk, perhaps that merge entities will lead to markets controlled by few powerful players and that takes us back to China in China is trying to control the big tag because it's gone too big. It's monopolistic. So, are we going to be in danger of that? Look, I think at the moment from a broad broad brush,
Check is so fragmented and ideas. Disruption and Innovation are coming from so many sources. I think it'll take a while before you see that. Concentration come through the Acquisitions. We see going on. You know, that said, we work closely with the companies in which we invest to think about whether acquisition is a path for them. It's not something we proactively seek out necessarily, but because we have this connectivity between the the new scale space, the companies that are on The Cutting Edge of coming up with ideas. Diaz and the large-scale companies that are partner BC G and we interact with
Hey, finding those moments when that partnership and that combination might make sense is a part of our DNA and we'll keep thinking about that. Does that create a behemoth player? That would take a while? I think in some of these spaces but you never know. And, and certainly when it comes to China, I think we should be conscious particularly for services for businesses and in areas like health care that there could be the next great big idea. That is large-scale coming from that. Marketplace, however much it's been.
A place that's been disruptive or challenging for investors themselves of late.
Tell be capital is thank you so much for your time today. Been a pleasure. It's great to see you again. Thanks so much likewise.
We look forward to continued growth to customer-centric initiative driven by all inspired people and culture, providing products, and services that are easy, safe and valued.
Hello, this is Diane Edwards from jump Row in Jamaica. We are Jamaica's Economic Development agency, promoting investment in to Jamaica and exports from Jamaica. Thanks for joining us for this special discussion on Jamaica's opportunities for investment and are rapidly growing financial sector. You're going to hear very shortly from Septimus Bob, Blake. Who is the CEO. The group CEO of national.
Sal Bank, the largest financial institution in Jamaica. And in the meantime, I'm going to tell you a little bit about Jamaica's economic such situation, just to set the context for our conversation. So Jamaica pre covid-19 in a great place. We were on a growth path. We had actually reduced unemployment substantially or inflation, rate was stable and we had gone through 19, quarters of economic growth positive. Growth. We were in a good place in terms of our trajectory.
Rihanna in terms of the international financial markets, assessment of our credit worthiness. However, covid hit as we all know, and we're still living with it and will continue to live with it. So, what did the government do? Take a number of initiatives, really, to drive us out of this covid? Period into growth back to growth and recovering stronger than we were before? And what this has meant is Ocean in a number of areas. This has meant
Skilling or people through a Global Services sector project, which we implemented with the idb and also creating a number of strategies to improve or delivery and or ability to grow in certain critical sectors of the economy such as Global Services. Agribusiness and Manufacturing. We are really excited about the potential that Jamaica has going forward. Because we see that in In certain industries, we have been able.
To grow even despite the pandemic eyesight, for instance, Outsourcing where we have grown back to 43,000, people in employed in this sector. We look at positive GDP growth. We look at the recovery of the tourism and Hospitality sector. And we look at the growth of agribusiness where we are really poised to improve our food Security in agribusiness and also to make Jamaica a Truex. Sport Nation in agribusiness.
I know, I really have a treat in store for you because you are going to hear from Septimus Bob Blake and he prefers to be called Bob's. I'm going to call him Bob, who is really the driving force, and the CEO, and leader of National Commercial Bank. Jamaica's largest financial institution. So Bob, can you tell us a bit about NCB? The National Commercial Bank and its role in Jamaica and how you some of your key. Key success stories.
So the group on a whole, you know, AIDS in accumulating Capital mobilizing Savings availing funds, which its support growth and economic development of individuals and corporates and given the breadth of the ncba finna group, you know, we can create end-to-end financing Solutions across all the key sectors. So we see our role as one primarily supporting the unlocking. A of capital that is.
In funds available. We're rethinking currently, you know, the risk-reward Spectrum and ensuring we invest in capabilities to support those key segments. Another important area for us is that, you know, we design and deploy Innovative Financial Solutions to key growth, sectors of the economy and where we see opportunities, looming, large, so we are bullish about the future. I think over the past. Is it ten years? The
None true system, you know as performed creditably we came into the crisis in a strong position both as a sovereign and also as Financial system and we believe that we do interrupted by the pandemic. We're looking at it in two frames. One to ensure that we navigate the crisis. Firstly? What? Only making those bold move.
Yellows. So celery, total crisis.
A stick bug, that sounds really great. What are some of the investment success stories for NCB in Jamaica? What would you want to tell our audience about those successes? Well, we
Opportunities across a number of key sectors. There is infrastructure. There is agriculture. There is manufacturing. There's tourism and somewhat available sectors. So as an example, we would have support did the trans Jamaica Highway, you know, there is both equity and debt financing to repeat it unformed future. Concession agreements. And between October.
And into about March 20 20 and CB Capital markets, which is one of our key subsidiaries was was leader injure for purely, highly ordered called highly subscribe and successful initial public offerings to enough in excess of about a hundred and twenty nine billion Jamaican dollars and will continue to play a part in that spaced in terms of Tourism. The tourism sector is of critical.
Um loss and to Jamaica because it historical is accounted for about one-third of the economy and your challenges to the sector in 2020, brought on by the covid-19 pandemic, but we responded primarily, you know, to support that inter structure which would have been built up over decades and all position was that we would respond in such a way. Way that we would help many of.
Our corporate customers to navigate a crisis but also put them in a position to accelerate out of the crisis. So we would have responded with in a restructuring of transactions. The facility the challenges that they were having with their cash flows. We do have extended new facilities, and we also developed during that period through and Civic character like Creative Solutions. The area is, you know what we called.
You know which provides tourism players with creative Funding Solutions needed for retooling. A more importantly, sustaining operations. We expect that this will you know facility broad investment participation in this one. It only one hand. Dip the asset pool available to investors and also will also assist in terms of their access to higher yielding Investments. That's the one more area.
You terms of commercial Agriculture, and after processing their significant growth opportunities in agriculture, and it may sound strange. I'm talking about agriculture. But you know, the opportunity there are probably two fold One Import substitution which represents a significant opportunity. The other opportunity is to support domestic demand. And to get those internet.
Position and we continue to perform and you know to various offerings where they're super debt or Equity through the various, the close of the NCB Financial Group, the Global Services sector, which you spoke about earlier is an ear, which we have seen some of the resilience through the crisis. And we've actually seen growth. We are. I think Jamaica is ideally, positioned as Nearshore look, Location for the Caribbean.
And it continues that sector continues to fuel growth and job creation. And we have funded and continue to fund infrastructure in that particular area as well. So we have partnered in respect of access to that particular are through whether through facilities with her Development Bank of Jamaica or with usaid has an example to have access to lines which provide things like Partial credit, guarantees, you know, and
Interaction with this sector is beneficial to introduce over the long term because as these companies grow, I believe there'll be more opportunities to create wealth, and take advantage of investment opportunity. We are going to have to wrap up now. So I just wanted to leave our audience with one final word, which is really great opportunity to partner with National Commercial Bank in the future development of Jamaica. And if you want to find out more about them, Or us the ncbi website is Jay and
B.com, the jam Pro website is do business Jamaica.com and our virtual investment conference website is explore dot do business Jamaica.com.
It is a joy to be joined Now, by managing partner soft Bank Group International Juniata who, of course, joining me, Caroline hired a Bloomberg television to discuss a little bit more about your sort of wonderful marriage in where you are currently seeing investment opportunities because you head up you co-lead so many different funds over there. Whether it be the Latin American Funds, whether you think of an excess of eight billion dollars being put to work. Now, the opportunity fund which invests in Founders entrepreneurs of color. And And indeed, of course, the miami-based startups that you've been looking to allocate about a hundred million dollars.
It's all of these areas. You say, have a connection in that, they previously been underserved in terms of capital markets. Is it now, really competitive? What, how do you thread that needle between all of them? Sure. So, some background is, I've been investing for mass and for stopping for almost seven years and the first period of that was Global. We were investing in India and China and the US predominantly and in late, 2018, early, 2019, Marcello Clara who's my boss and I realized That there's
Latin America showing up in the hallowed Halls of Tokyo to pitch their startup tomasa. Why is that happening? And we decided to take a look at the region, set up a fun focused on the region and two and a half years later. What we've realized is, if you show up, they will come so to speak the entrepreneurs, are there. The ecosystem is maturing. Everybody understands how to build a startup. Now, although we're missing was a committed Capital Partner for the Long Haul and so that Playbook of if you show up and you show commitment and you plant a flag, entrepreneurs will come out of the woodwork has proven to be true. In Latin America, is
To be true with our opportunity fund which is you rightly said is focused on founders of color in the u.s. Is proving to be true in Miami. All these unexplored areas of startup activity which are not on the commonly beaten path and over the two years many other investors now have flocked to Latin America increasingly flocking. The founders of color increasingly flocking to Miami. So it seems we were right and we were early.
Which makes it difficult not to welcome the competition because we like it when all these Founders get Capital but at the same time we don't like competition. So it's a conundrum. It's cognitive dissonance on that. So,
That cognitive dissidence at. How do you see the Encompass competition coming and meet it head-on. How do you distinguish yourself? How do you still make yourself the partner of choice? Not just the first partner when it comes to say Latin America. Yeah, it's boring. It's important to build to last. As a fund. We say this to startups all the time. But building to last is a concept. We take to heart as a fund business to. So Latin America. We planted a flag in the region. We have most of our people in Brazil and in Mexico and some In Miami and in those Brazilian and Mexican offices were focused not just on.
But also on how we help the companies once we fund them. And we're there to stay a lot of the other investors who come into Latin, America are based in New York or based in Miami or business Hilton Valley and they fly in, they make some Investments and they fly out. We're in the region. We're hiring in the region, were committed to staying there. I think that gives us a long-term Advantage. Both in terms of finding opportunities getting positive selection. Not just the companies that can raise in New York and San Francisco, but the good companies, wherever they're able to raise. And also in adding value, once we invest Because we're building a team to do just that same thing with the opportunity fund. We didn't just say as many other firms that said, we care about diversity weaker.
Promoting more black entrepreneurs and black investors. Here's a bunch of capital going in that direction. Instead. We built a team and we built a team focused both on Capital deployment. And on adding value after we invest in Miami. We didn't just say Miami's interesting. Let's deploy Capital. We relocated a significant chunk of soft Bank Group International to Miami. This is now the largest office for soft Bank Group International and the world outside of the vision fund, which is the other really big piece of soft pink. So we vote with our feet with our infrastructure, we build to serve those markets. We don't just deploy Capital, which is what a lot of other investors do.
As you've seen, you know, the life cycle of these startups go into now, but exiting opportunities. We've seen a number of, for example, the Latin America fund starting to come to the market IPO in an America. For example, how long do you have boots on the ground within that company? How long do you remain committed? When you do see an exit? We've built quite a flexible Capital platform. So our idea is to fund the company from inception to IPO and Beyond. We started with It's investing because that was the biggest need in Latin America. But over time, we've realized we
To do more than that. And so we've created a public investment strategy where we invest in listed companies. Not just companies that we were, you own the whole public, but actually already listed companies and we have a few of those Investments and we've also launched an early stage fund that is focused on series seed and a, which is a very rare place for stopping to be investing. Why are we doing that? Because the rare asset in this whole game is the entrepreneur, the founder of The Talented founder and we want to catch them whenever we can as early as As we can a big shift.
Happening in emerging markets, in the types of businesses, being built to, it used to be very capital-intensive online to offline businesses. That was the classic Emerging Market startup. Now, people in Brazil, a building software companies, highly Capital efficient, they'll need one or two rounds and never another. And so if we don't catch them early, we miss them completely. So for all these reasons, we want to be the most flexible Capital provider in the region from seed to IPO and Beyond.
To go back to the competition. Award about valuations, whether it be across those based in Miami. Those based in Latin America, those with people of color leading the business. It's hard.
Say no, we're not worried about valuation two years ago. If you thought something was expensive. Now, it's double that price. And so you must still think it's expensive if not more. So. So it's hard to remain intellectually, honest and say, valuations, don't concern you, but I think it's important to distinguish between businesses were valuation matters and businesses. Were it kind of doesn't the first category, our businesses of the more constrained Market where you really need to pay the right price. Because helping the business can get is constrained by some external Factor. There's a category of businesses that are redefining huge chunks of GDP. They're bringing massive numbers of people into the economy with
You've never had it's difficult to size those markets and with those types of companies, which are not, which are not common. They're few and far between. But with those types of companies, it's almost a good investment to get in at any price. When was Alibaba expensive over the last 20 years? Maybe it IPO maybe a little after but every period until that point you could have bought Alibaba basically any price, same with Facebook and Google and these are the transformative companies. Those are being built in Latin America today. And so if it costs 500 or billion or Two billion in the trenches. That may seem like a huge disparity, but when you zoom out and look,
Time you attend your time frame, which is our kind of orientation. Then you have the appetite to stretch up. We don't like to, because it does compress returns, but there's some companies that are truly special where you're willing to do that, talking about stretching. Of course, you've decided that Latin America was so successful. You deploy a second fund raise more money, you've got an interesting way with the opportunity fund and particular in that you've said before, you know, start with a hundred million. Well, that could there for me and it will expand. But also a novel novel, way of not taking the traditional management fees and also reinvented.
The 50%, I think it was initially of the gains from the first Fund in two subsequent ones. Is that going story going so? Well, is, is the focus on entrepreneurs of color going. So well, that you are already looking to reinvest are managing to expand their source of funds. So, the opportunity fund is very different from supplements, traditional activity because it's truly predominantly an early stage fund, early stage funds, take you years to mature. And so it's very early to decide if it's being successful or not. But what we like to do is Is experiment and we like to experiment boldly, not just with a few.
We like to build teams that are addressing the challenge. So, in the case of the opportunity fund, as I mentioned before, we've built a full team, it's about 10 dedicated people more than half women, almost a hundred percent of them under represented Professionals in the world of investing black Latino, and we're dedicated to seeing the strategy through. So this is Phase One and phase. One is find great Founders put capital in their hands. Help them grow. Show that you can generate returns with a strategy. That is purely Racial equality. Focused.
If we execute stage one, well, they will be stage 2 and stage 3, and stage 4, and expand the platform and be even more ambitious. But the hard thing to do is to build the team and to focus on doing it yourselves, right? And that's still the phase wherein so that will last another couple of years. And then we'll think about other ways to expand what we're doing within within that space of founders of color. But so far, so good. A number of companies are raising subsequent rounds. A number of companies are growing really. Healthfully. We're doing follow-on rounds and companies. We invested in earlier because they're progressing well, Well, so we're very encouraged by what we've seen so far.
Of course, what was dissing couraging? This car? I got my English right to begin with. Was that about what? 1% was this fat? Start of VC back? Founders, are black. Is that changing? Do you think that with your help and others that we're moving the dial? No, we're not moving the dial. This is the first step on a very long journey. The path from here to equity is not overnight. It's probably generational. I think the important thing to do is stick with A lot of these, the
Startups as you create companies that create value in the people from those companies than create other companies that create value and building that ecosystem, that pays It Forward is what creates the magic of San Francisco, for example, it's why it's so difficult to replicate. And so with these founders of color, what we need to do is stick with it. We need to fund companies through to liquidity events, have them fund. Other companies create a flywheel in the community of Founders, who can all relate to each other and Inspire each other and build with each other, but that takes time, we're In the very, very first Innings of this journey, and we can't do it alone. Frankly. I encourage other companies.
Is to follow the example, we've set. Not just to deploy Capital to other people who are then going to deploy Capital. That's the easy thing to do. The hardest thing to do is to build an actual investment in practice. And the reason it's important is the brand that SoftBank brings to these communities. And these Founders is much more helpful than the capital. They might be able to scrape together capital for here and there, but if they can say SoftBank invested, it validates. What they're doing to employees? They're trying to attract to customers. They're trying to sell to, and you have a number of big brands. Has big established financial services and other brands who can lend their brand in a similar way to validate these.
That's much more powerful than giving someone else a check to then invest. So I think the template we've established is a very good one. Yeah, go ahead. I want to talk about that validation. And this is a sensitive topic and I want to address it with as much sensitivity as I can. But the opportunity fund how many of those great entrepreneurs that you say, you finding you want to put the capital in their hands, want to be backed by the opportunity fund or actually want to be backed by a more general fund. The jet Vision fund. They don't want to be taking money. Because there are black or person of color founder, then when we take money because they're a great founder, no matter what.
Yeah, it's a very important point. I relate personally to that. You don't want to be at the kids table. You want to be at the adults table? So to speak the good news, in our case, which is why I think big firms have the same Advantage. We have the good news. In our cases. We do not have an early stage font. There is no other investment vehicle that would fund the companies at that stage. So in many cases, this is the entry into the SoftBank ecosystem for all these firms and when they talk about where they got the funding, they just say SoftBank which we love. It's a little irrelevant, which vehicle it comes from. They say we have been funded by SoftBank and that helps them recruit.
It helps them sell it, helps them feel. They're on the right path. It helps them tell their communities that they're doing something that's not too risky, which is a very important thing for founder who doesn't come from the traditional background. So, we think that validation is present, even in the construct that we've built this fun, talk about the community now, sit in over in Miami and the validation. It seems that's happening day in day out. People, moving to Florida. I mean, we just heard today, Arc is moving its headquarters to Florida. Miami. You've in a way. It's an embracement of
Entrepreneurs to looking at Latino looking at black Founders, looking female Founders. How has Miami taken shape? How much will it continue to be a force within investment. Do you think we're very bullish on Miami? I think what the administration of Miami mayor, cover mere Suarez have done in the last year's incredible. They've opened their arms and said come will help you. Let's do something great together. It reminds me a lot of time. I spent in Dubai. Why it reminds me a lot of Singapore, there's certain elements that Miami has now.
That make it a contender as a global Mega City and the administration of Miami is embracing that challenge. So there's an energy in the air here. That's pretty different. Of course, the tax regime doesn't hurt. So a lot of financial firms who think with their Excel spreadsheets. Do the math and say it's better to be in Miami, but that's not it. That's always been true. What's happening now is a bit different. There's a bit of an organic Community forming here and I think that strength begets strength. So Miami is going to take advantage of this hype moment and turn it into something more. Or lasting. That's a bit of the challenge, but it's their opportunity to lose and we a SoftBank are committed to helping the city. Do that. We've relocated a huge number of our people and our resources.
You're in part because we believed in Miami, in a sense. Miami is like a company were funding. It's a gross Stage Company, were excited about it. And it's team. And as Founders just the way we would be about a start-up and we're here for the Long Haul. We think Miami is going to be great place. One thing that worries you should, because you feel like you're sort of positivity or energy. It's it's infectious to a certain degree, but we're now talking to investors across the board who worried about valuations and you, of course have a healthy realization of, perhaps things are going expensive, but Are worried about which way the markets going. Which Way inflation is going, Which Way interest rates are going is anything particularly worrying? You?
Space that you invest in right now. The beautiful thing about tech and I'll talk about that in America is, it's not about disruption anymore. This isn't about shifting market share from one player to another. It's about bringing huge numbers of consumers and businesses, into the economy for the first time. That is a secular Trend that does not care about macro, does not care about inflation. It is massively inclusive, and therefore massively durable. So I think the growth opportunities for companies that are bringing people into the economy. For the first time sees through this noise. And we think about it.
Horizon. I think there's no reason to be concerned about valuations and dips. Now, and again, if you think that in ten years, you're going to have millions and millions more people including the economy because of these Tech startups, Juniata. Wish we had more time UPS, a fascinating conversation. Stay. Well, come back to us. Thank you very much indeed. Managing partner over at SoftBank International Group.
I'm David West and I'm delighted now to welcome the former treasury secretary. And now he has a new job. He is Steven minuchin and he has a new fund called Liberty, strategic, Capital Steven. Thank you so much for joining us today. Let's go. Right to your new job. Tell us about this fun. Tell us about the fundraising. How much money you have. What are you going to do with that money? Well, David, first of all, it's great to be with you. We're focused on areas that are critical to both National Security and important transformative. I have issues so weird.
Were most focused on technology with an emphasis on Cyber Security, National Security data, privacy, and fintech, and financials. So let's talk about fintech in particular because there's a lot of talk about ventech. I think different people mean, different things. When you talk about investing in fintech, where are the investment opportunities, but we really like the payment space. We think that's a gigantic opportunity particularly for real-time cross-border occurrences. I think the underlying technology of blockchain and using stable coins is
Thing, that's very interesting. But let me just comment because I saw Bloomberg article this morning on one of the big stable coins. In my view, you know one some of these stable coin should most likely be regulated into if they're backed by dollars. They should be freely transferable and we should make sure that they're really backed by dollars. So that dollars are held by a custodian bank and that they're secure.
Let's go exactly. I'm glad you raised that because it was a piece on Bloomberg. Today was about tether specifically saying that right now, they have 69 billion tethers outstanding and 48 billion of them were issued this year. Theoretically, that means they have six to nine billion dollars of more or less us cash somewhere. How assured are we that they actually have that money? Well, I don't know much about tether other than what I wrote about in. And, you know, I thought the piece was actually quite interesting. But again, they shouldn't be like casino chips that they should be, in my opinion. Opinion. If you're going to issue a stable coin, the actual money should go be held in a regulated Bank in a trust account.
And the people who hold the stable coins should be able to exchange those for real dollars in any time. So the stable coin should be invested in us. Treasuries or things that look like us. Treasuries money, markets of Highly liquid backed Investments students. Not your job anymore. It was your job. Now, it's Janet yellen's job to figure out how you should best regulate that she's had some meetings. As, you know, to try to figure out regulation of things like stable coins from your point of view is that Something that should be the feds.
Billy. Is that the SEC. Where does that responsibility lie? Well, the Secretary of Treasury overseas a committee of all the different regulators and that's the right place. So these issues cross different Regulators. Some of them are Treasury regulations through fincen. Some of them are the OCC for banks. Some of them are the fed, and some of them are the SEC and in general, you know, I'm fine if people want to trade Bitcoin and Cryptocurrencies, but I think there should be full transparency. These shouldn't
The equivalent of a Swiss numbered bank account. So if you're going to trade in these, they should be fully regulatory compliant. Fully BSA compliant. And one of our big issues is to focus on cyber security. And again, one of the problems with ransomware is right. Now, it's way too easy to pay a 25 million dollar Ransom payment in, in Bitcoin, you know, you can't wire 25 billion dollars to people who you don't know. You can't deliver cash. I believe the One should be same on these other cryptocurrencies.
Is so, as you look to make investments with your fun, in this area, how vulnerable are your Investments to sort of regulatory changes. I mean, is that a risk and opportunity a little bit of both? Well, as I like to say, I've been regulated, when I ran a OCC bank, and I've been a regulate or so. I understand both sides. We actually like investing in companies in regulated entities because we think the, the legal and And political risk is a lot less. And
I think their safety and in a regulated institution, particularly whether a u.s. Institution, whether it's a regulated by the OCC or regulated by fincen or regulated by the SEC, so I as an investor would be very careful investing in unregulated entities. There are clearly places where it makes sense to do that. But one has to be aware of the regulatory risk.
Mr. Secretary, do you have a sense of the possibility of contagion? Let me be specific. Let's go back to tether promote, just because there was this piece just written today about it. There's a suggestion that perhaps, if tether collapse, I'm not saying it will but if it did, it could affect other cryptocurrencies. Is there a danger of contagion across cryptocurrencies? Well, let me just say, I'm less focused on the contagion. I'm more focused on there. Are people who are buying that thinking they're buying the equivalent of US dollars. So when you say, you're buying into a stable coin backed by U.s. Dollars, there should really be US Dollars there. So
Whether it's an issue that drifts into other things, where whether it's just investors can't get their money back. I think that's a big problem. And that's a regulatory concern. Let's look forward. If we can in success with the payment systems, really going into digital currencies, whatever we call them. How does that work? What does that do to our current payment system? Because our current payment system, both domestically internationally is a bit long in the tooth. I think it's fair to say. Well, let me just say the Federal Reserve payments. System were large transactions works.
Extremely. Well, the smaller Payment Systems to a large extent, still rely on on ACH, which is an older technology and not necessarily as secure. And what I'm most focused on is what I call real time payment systems cross borders where we allow consumers to be able to transact peer-to-peer across country in a very efficient way. People shouldn't have to pay five or ten percent or three percent commissions for that matter. ER, for transferring their funds, the, these should be things.
Are done at 25 basis points or 50 basis points? And I think this is a great economic area and great for consumers. So, mr. Secretary, there's one thing if moving from one payment system to another and they opportunities disruption, but also opportunities investment. Is it possible also that the overall size of the pie will grow on you? Short Prasad, actually, from Cornell has written a book saying, you know, this is an opportunity to have more democratization, eventual system globally.
Well, I think that's true in particularly outside the US. It's even harder for people. I mean, in the u.s. There are still way too many people that don't have access to bank accounts and that's even more of a concern as we go into the developing country. So I think this is a global opportunity. It is something that I think is very attractive opportunity. Give us a sense about the global competition in the space. Where is the United States in comparison to Europe? And let's be specific China with To digital payment systems. Are we behind?
I'm not necessarily and let me just say this is this is a long issue. So many again, the payment systems work very well in the u.s. They can continue to work very well. I know there's been a discussion about a digital currency for the fed. That's something the chair Powell and I discussed, I think, at this point, there's not a need for a digital currency from the Federal Reserve or the treasury. I think the private markets can solve this. In the case of china. They have a digital RMB. I don't see that as As a competition for the US dollar, the US dollar is the reserve.
Currency of the world. And I think for the foreseeable future given the safety and soundness of the dollar and the US economic and political system. It's going to stay that way in success. Once again of a digital payment system of digital currency broadly used. What does that mean for the big Banks? There's some suggestion that they may get I guess it's the word is disintermediated. Well, I think to a large extent you know it every single financial services company. There is a trance formation.
Using technology and actually, going back to 1999. When I worked at Goldman Sachs Hank Paulson who I worked for at the time, asked me to come and work as part of the executive office because I was a big user of technology and he foresaw technology impacting everything at the firm. So, I eventually became CIO and oversaw all of Technology across the firm. So, this is a, this is an effort that's been going back over 20 years, obviously, in terms of banks, the move from bricks, and Order branches to online banking.
Thing is something that's very important. And I know, all the big banks are embracing this change today. So, you know, they need to continue to invest in Innovation. My guess is we'll partner with some of the big Banks, some of the system's, they'll incorporate and some of them they'll be competition as outside. Fintech companies compete with them.
Talk about competition. What is your appraisal competition in your space right. Now? As you go to invest in some of these new payment systems, these new companies who else is out there. Investing how Diversified is the pool of investment in the area? Well, there's definitely let me just say there's a lot of capital on the investment side lines in all these spaces. Right now. We are particularly focused on areas where we have a lot of expertise internally. So where we're investing in companies. Were actively involved in the board. We're actively working with CEOs.
Grow these companies in the case of cyber reason, which was our first investment. I speak to the CEO. Every other week. We have a strategic dialogue and helping to grow that business. And in the cases of particularly National Security, cybersecurity fintech. We have a lot of internal capabilities. Combining both our government experience in my prior private investment experience. You mentioned cyber security, a couple of times. Now, talk to us about cybersecurity how Can you with your new fund investing cybersecurity? What does that look like?
Me just say I think cyber is the number one, most important strategic issue to every single company around the world. And I don't think there's one solution and I don't think this is a one-year issue. I think it's a 20-year issue. So I think that we as a nation need to have very strong cyber defenses and companies need to have strong cyber defenses. So when I was treasury secretary, I was responsible for cyber for all the financial services. That's an area. Shh, which has invested a lot. We worked very closely.
Mostly with the private sector, we worked very closely. I oversaw all the regulators and we used to look at drills on Cyber risk. I also oversaw the IRS where I was very focused on technology modernization and making sure that they had the proper cyber protection. So this is something I've been focused on, as I said, well, I was in government and now in my private capacity will be making investments in companies that have great cyber. Acts the first one, as I mentioned was,
Endpoint security. We're now looking at application security. We're also looking at operational security which protects infrastructure, and again, I think that every single company needs to have a cyber security plan, you've talked about how much money is out there available for investment, are there enough opportunities when the reports are at least you've raised something like 2.5 billion dollars a lot of it from some private wealth funds in the Middle East. Are there enough opportunities to put that kind of money to work? Well, let me just say we have a very diverse investment.
Is including International investors, including some Sovereign wealth funds. U.s. Insurance companies, family offices, both in the US and Europe. So we have a diverse investor base and we're comfortable if there's a lot of opportunities, you know, we'll probably invest in something like 15 to 20 companies. So we're limited. And what we're looking at. I'm actually on my way to Israel. This weekend will be opening an office and Tel Aviv, where we have very good. Ships. Their, there's great.
Technology coming out of Israel. And we think these are Global opportunities and where the called startup Nation, I think was the book that was written about Israel. Let's turn back to some of your old responsibilities with the US economy. What's going on? Let's start with Washington right now. We have sort of a crisis of sorts over the debt ceiling. Apparently, they may come out with a way of postponing, the issue until early December. What do you make of what's going on in Washington right now, but let me first say that, you know, I as a former. A jury secretary and I think all the former.
The secretary's agree that we cannot let the US default on its debt. The u.s. Debt is critically important. As I said, the dollar is the reserve currency. So I am a hundred percent supportive in seeing the debt ceiling raised. And I'm glad to see that there's been a compromise. It appears between the Republicans and the Democrats. Now, let me just say, I'm most proud of the fact that during the cares, the covid crisis. We passed two bills in the Diet, first 96 to 0 and the
A hundred to zero. So there was enormous bipartisan support that was 2.3 trillion and then 700 billion. And then after the election, we passed another trillion dollars on a bipartisan basis. So, four trillion dollars, that was a lot of money. I'm somewhat concerned about the additional spending that's going on now and the inflation. And again, when you talk about the debt, I think there needs to be a discussion on. What's the appropriate amount of Government debt, pre covid. We started with 20.
Trillion of GDP and a trap proximately, 22 trillion of debt. We're now up to twenty eight point eight trillion of debt and I think to fund the current obligations that the Administration has made, you know, my guess is it's over 30 trillion dollars. So, you know, we were at something like a hundred percent debt to GDP. I think, you know, to the extent that some of these other programs get past will be up to 32. T 3 trillion.
A hundred and forty percent debt to GDP is a very dangerous issue. So I think the discussion and Washington when people say things are budget neutral. If their budget neutral, think they shouldn't be increasing, the national debt. So I think there should be a discussion around. What is the appropriate? Level of national debt and appropriate spending. It's interesting. You hear that from a lot of people, even some people in Washington. I will say, at the same time. I don't get a sense that this discussion of the Debt ceiling actually triggers that kind of
You feel discussion over the long term. What is the appropriate level of debt? What is the way to have that discussion? Because I don't hear it. Well, if there's certain things in Washington, we do very well. There are certain things we don't do so. Well, I mean, in any business, you typically talk about when you make commitments, how you're going to finance those commitments, whether it be raising Equity using cash on the balance, sheet or debt. So I think the time we should be discussing. What's the appropriate? National debt is it's the same time when we make those.
Commitments. Now, if you go back to 2019 speaker Pelosi, and I negotiated in 2019, a two-year debt ceiling agreement and a two-year caps agreement and speaker Pelosi was very clear publicly at the time. She wouldn't agree to a debt ceiling increase unless we agreed to a spending increase. So I worked very closely with President Trump with Mitch McConnell with Kevin earthy, and we Today, two year deal. That was two years ago.
In spending and two years of that and that's the appropriate time to do these things together in my opinion. So I think the debt ceiling discussion should be happening at the same time that there's a discussion on spending and you know, I'm proud of the fact that we did spending on a bipartisan basis. I think using reconciliation for spending as a dangerous precedent. So give us your opinion as a former treasury secretary. Also, somebody who came from Wall Street really knows. The business World about the proper way of
Promoting growth United States and we have monetary stimulus, which goodness those. We've got a lot of from the fed. The FED says, they're going to start coming off of that. Now, we have enormous fiscal stimulus. What about that? Transition from monetary to fiscal is this a healthy thing? How much fiscal stimulus should we have? Well, again, you got to put this in perspective because covid-19 just, you know, an extreme emergency and look, anybody who ever ran a downside on a business, never anticipated zero revenues, and that was because the Government made the decision to effectively shut down the entire economy for
Which I think was the right decision. So again, the four trillion dollars of spending, we did was an emergency and the FED responded appropriately and the fiscal Congress responded, appropriately, but we're no longer in the same medical emergency. We were in. Then you know, the good news. Is we have vaccines. We have viral treatments. There's no question. The medical emergency is not the same and there's no question. We need to normalize. Eyes, both monetary and fiscal.
I think there's no question the FED has to at some point taper, the portfolio and right size, the FED, balance sheet, and normalize interest rates. And it's just a question of how fast they do that, and where we end up on interest rates. And again, personally, I do worry about inflation. I know this is an area that actually, Larry Summers some of his public comments. I agree. Completely with exactly Larry's, been on Bloomberg and talked about this repeatedly, what is your view right now? And inflation, is it transitory? Do we have a longer-term problem that we're looking at?
Well, there's no question. We have inflation today the FED models and the treasury models. Don't necessarily are able to predict what's going to happen in the future because again of the extreme fiscal and monetary response. My concern is that we will have inflation. This inflation will continue some of it may be transition. But look at Energy prices. I mean, you know, something I never thought we'd see during covid as You saw the negative prices of oil, but
You know, now that now the by the administration is talking about releasing oil from the Strategic Reserve. Clearly, we have inflation and energy. The good news is the economy is rebounding, very strong, labor prices are up. So I do worry that this will be ongoing inflation and we could easily end up with three and a half percent 10-year, treasuries, which again, just increases the cost of the national debt and creates budget issues as So, mr. Secretary, we no longer have the medical.
Emergency that we certainly did before we're not entirely out of the woods, but it's not like it was before we don't have the economic crisis that we had before. At the same time as we turn to a normal approach, talk about investment because some people would say, look at we should have been investing, for example, infrastructure all along. We need to catch up. Are you sympathetic to that? In fact is investment in infrastructure, not as likely to be inflationary. Well, I support the bipartisan infrastructure bill. I think that that actually those those are long-term Investments. So I think that well, no not every single part of that bill. Do. I agree with? There's clearly issues. I don't agree with but
That was done on on a compromise and there were issues that both both parties got so I think that that's something that's important, that's different than, you know, the, the ongoing fiscal response. So whether it was the additional 2 trillion that was done under reconciliation or it's the you know, what started as three and a half trillion that may know end up is one and a half trillion of additional spending that that's very different.
So you do have the experience of both Wall Street, the business world and Washington. Give us some sense. Do you think there is a prospect that we can actually get together? Republicans and Democrats here and operate on some of the more long-term issues such as the level of deficit? Such as investment come together. I won't even call it bipartisan, but just agree on a plan. God. I do. Look, I'm an optimist. We did this during the cares act. There's no question had, we not all come together. There would have been a global. All depression, knock Global recession.
There are clearly areas that both parties disagree on and there's clearly areas that both parties agree on, you know, some of the legislation that was recently passed in the Senate that sitting in the house. I think the house should move it forward. Okay, mr. Secretary. Thank you so much for your time today. That is former treasury secretary. Steve minuchin is now head of Liberty, strategic capital. Thank you, David.
Hello, everybody, a warm, welcome from Dubai to the next panel, a very important conversation, not just around the ongoing vaccination, roll out globally, but also the investment landscape more. Broadly. I want to get to our next panelist. That is the CEO of the Russian direct investment fund. The our dif that is curiel, dmitriev Kira. Let's start with Sputnik 5. I mean, when sort of it first was put into production was a part of A big idea, big Vision to put Russia.
On the map of a global vaccination drive when we last caught up over the summer, you said, hey, we're going to reach 800 million doses by the year. And are you still on track for that? Yes, you also thank you so much. And the first of all, I'd like to stress that this is indeed. The very joint struggle of every country, including Russia fighting with the virus. You know, we are fighting with it together and we are bringing to this fight out. 250 years of vaccine experience in Russia, and we are on track. To our Target, maybe will be delayed.
Two three weeks, but we are ramping up production significantly and what benefits us is that already 24 production partners of our dif in 13 different countries. Already producing Sputnik V and put me Clyde vaccine as we speak. And this partnership approach that Russia. Demonstrated enabling different countries to have production of Sputnik. We enables us to ramp up production quite quickly. So we'll be producing more than hundred. Ian dozes, including Sputnik light in October, will be increasing.
And More in November. And by November more than 50% of Sputnik, vien Sputnik light will be produced outside of Russia.
Have been some supply issues, especially with the second dose of what is a two dose vaccine complaints from Brazil. Guatemala was his scathing letter from Argentina that made headlines just a few weeks ago. How can you reassure them today about some of the promise delivery? Well, they are already reassured because we caught up with the second component delivery and just as all of the other producers have had some delays. The rest time delays with second. Doughnut, but they have been resolved in all of the car.
Ready by now. We delivered more than 7 million second component over the last couple of weeks. So those issues have been resolved. And what's very important is that actually the first component of Sputnik V. We call it Sputnik light and I'll talk about it a little bit more produces better protections. And many of the two short, vaccines and we'll share unique data. Next week. Is that against Delta variant? And this is I'm telling it to you, to you for the first time, the Sputnik light, produces better. The protection the most Too Short vaccines. So when we
It fell short to all those countries and you see, Argentina cases, by the way. Declining 30 times over the last four months really, it's a huge success story for Sputnik V, because puni Kokiri people contributed to a very successful vaccination program. And unlike some searches. You see in some of the Western countries. They did not use Sputnik, Argentina shows that using Sputnik has really stopped epidemic in the numbers sort of demonstrate that. So would you consider it? Put me like, then a new.
A new version sort of a 2.0 that maybe has improvements in the second dose portion of this, to dose vaccine process is that an accurate way to describe it? Well sport, Nick light is a very important initiative, adjust our first dose, and we just saw that first dose produces great Effectiveness. So it's 80% more than 80% effective as a standalone vaccine. Actually, Paraguay study showed efficacy of more than 93% as A standalone machine, but this is also vaccines that can be
After two other vaccines, so it's a standalone vaccine and the booster. And frankly is the first booster registered in the world because we understood the boosters I needed. So we are testing this booster with AstraZeneca combination with, in a farm combination with modern a combination on Argentina. And we believe that eventually, It's a combination of the vaccines, including adding Sputnik light booster, that can be the ultimate solution with many of the existing. In emerging mutations. Can you shed a little bit more light on?
The real world data that you've been able to gather because you've deployed your vaccine to Millions more people around the globe. You have probably a much better idea today of where Effectiveness stands compared to where it was 369 or maybe a year ago. Where are we 85-75, you know, there's a very even geographically. What are you seeing? Thank you. Joseph. And yes, so first of all, is the benefit of Sputnik. It's already registered in 70 countries with four billion people. Native half of the world population and we have data from tens and hundreds of millions of
People. So basically, we have real data from 15 countries that has been published already in 20 Publications. And what this real data shows is incredibly safe profile of the vaccine. So it has the least side effect based on Mexican data. What's very important to doesn't show track record of some of the rare cases that some other vaccines are having of myocarditis and CVT cerebral, Venous Thrombosis. So we don't have that. So it's a very safe platform by the way that showed Lee, safety of a long-term.
Which is very important on the efficacy. We see efficacy against Delta of H is 3.1% for Sputnik we against infection and more than 94 percent against hospitalization. So the key for us, but Nick is very effective against Delta and it showed in all of the clinical real world data. A very importantly we don't see things or decline in the effectiveness actual, right? Tina. You showed the effectiveness of Sputnik increases or appear to for five months while for some of these vaccines. It actually decreases. I mean, here's the issue Carol because I listened to
All the progress you've been able to make and you know, you're describing in as positive as sort of new Milestones as moving away from some of the difficulties of the early Beginnings as it were. Why? Then hasn't the who signed off on all of this. When are they going to come on book? Well, we are in the process with who with a minds are being very professional and they do all of their, you know steps. Sometimes be regretting steps that I needed our Ministry of Health confirmed that That, you know, all of the barriers have been removed and we believe there will be visit of
It show soon in October to Russia, but very importantly is that the vaccine has been not only approved by 70 Regulators, but it has been used on 10 million people and showed one of the safest and most efficient profile. So we have no doubt of who approval. They just need to go through the emotions and I think it's very important that this vaccine already has been used very actively in the world. And we expect WTO, by the way, also separate vaccine approval, which is very important track, but also work on Um, certificate acceptance around the world because it's very important, while bureaucracy continues to work on vaccine approval.
But since certificates are interchangeable and accepted around the world and that's a very important tracks that we believe is important to resume the World Travel. Do you have any capacity to get into, some new agreements to spread out the vaccination role and as we get into 2022, what are some of the other countries that you're speaking to or are you pretty much you know, you've got your orders for and your hands tied at this point? Well, I think we really recognize our sort. Of roll. We want to make a contribution, but we definitely have no production capacity.
To be the vaccine for the world. So we believe I've seen portfolio is the answer for the world because you cannot bet on just one technology. You see some fortunes of Technologies go up and down some declines in efficacy over five months to below 50 percent. So vaccine technology landscape is changing and the only way to feel secure is to have a portfolio of different vaccines that we believe Sputnik can be part of. So, you want to make a contribution. We are not trying to get a huge market share. Each country we go to. We say, we do not want to be more.
20% of your total vaccine Supply agreement because frankly, we have demand significantly over stripping our supply. So, we'll be working with existing countries trying to make contributions. Put nickel radius, the main vaccine for vaccination in Russia, and we just want to work with others. Be a partner with others and work in a positive partnership manner without the vaccine producers as well. How much progress have you been able to make domestically? There was quite a bit of criticism coming across too. Terms of how the initial rollout was handled. There was hesitancy in reluctance on part of me.
Your Parts portions of the population, Where Do We Stand today, well, first of all, Sputnik is definitely accepted as the most popular vaccine in Russia and already almost 50 percent of the population has been vaccinated. Now, we want to have, of course, higher vaccination rates and frankly Russia has been a little bit of victim of its own success because it handled the initial stage of epidemic very well, so when Delta came in, many people didn't really realize how Serious, you know, part of it is but now vaccination rates are increasing and definitely put
Part of that. So we believe that vaccination rates in Russia will continue to increase in speaking. Sputnik. Of course is the core part. The main part of the vaccination program in Russia. I want to sort of get to a bit of an overview on what is happening in the investment landscape, but you have course teams that are working across the world to try and find Opportunities, but just in terms of the state of the global economy, a fragile recovery post covid. What is your read? Okay, I'll go.
Just one second. Let me give you just one thought that I think is important from the vaccine and we'll finish with a vaccine stop because I think one initiative that would like to propose again for the first time given this conference. You said we believe it's very important to have much more of a direct comparison of different vaccines. So, for example, what we are doing with Argentina, we have combo Trials of Sputnik with AstraZeneca was moderna with Cena farm, and it's all compared on the same data set on the same population. So I think one initiatives, that would like to outline. Is that the Should be more direct comparison of how vaccines work with new mutations and not just have data from different countries. Okay? With Island.
Place. But going on to the vaccine landscape. I think it's very important to recognize the reality. Is that first of all, I think it's a great news, is that many people were afraid that pandemic will really destroy continents, but the world has recovered many economies are recovering on, that's great news. I think. Also, the cost of this is huge inflation. And we see that almost 40% of new money has been printed by some economies with major inflationary pressures, and agriculture and natural resources. So the question is, how do you basically Reserve wealth in the sky inflation environment and we believe there are several answers to this one.
With markets, so we believe that public markets, you know, really very high valuations. So private markets is the way to go. Of course, technology will play a huge role artificial intelligence genetics. And of course by the way, modernist talks and other stocks have showed the great promise of Technology, but the games that public starts now and we believe that the quite fairly valued and deaf until natural resources. So, Russia, as you know, an owner of a big part of world natural resources will definitely benefit from the High inflation environment.
To just build on what you just said. In terms of the inflationary pressure that you're seeing across. Supply chains is something that we talk on Bloomberg TV about a lot with some of the CEOs and leading officials. But are you able to do anything to mitigate some of those pressures? Or I'm going to have to pass these on these costs on to Consumers. I mean, how, how big a change are you seeing? How much does it affect, what our dif does? They today? Sure, so I'll benefit the set. We have a network of Partners. Who was it? Of sovereign wealth fund Partners in the world and all of them are concerned.
About preserving an increase in the wealth given that valuations are so high. In the question is they're going to public markets and then possibly have some risk. Oh, how do we deal with this? So we can big discussions about what actually preserves value in the new environment. I think initially, there was lots of value to be capture through technology stocks. And this is why, you know, lots of value has been, sort of going to technology stocks. There are lots of things that we are doing and infrastructure investing, and basically make it Structure Investments that are inflation protected and also
Benson agriculture and natural resources. Sort of by definition investment protected investment. So we are looking for pockets of such Investments and basically investment protection from inflation. I believe is one of the poor themes for many people to think about. Now the problem, when many people with lots of money, think about that it leads to more in flare. So some things the world has to work through. So what exactly are the geographic, priorities here? Where are we going to see? The, our dif do more deals. So we, of course, invest quite a bit in Russia.
Russia is about 80% of our investment mandate and ABC actually quite low multiples in Russia, because of a number of historical reasons of the number of perceived risks that are out there. So, we actually believe that Russian Public Market has still some ways to go and Russian companies. Represent very attractive investment opportunities, but we also investing in China. We have been investing in the Middle East and Europe. And once again, the benefit is that we have more than 20 Partners in Different countries. So we
Either make Russian companies more Global by partnering with them or invest in an opportunity that our partners offering bringing those opportunity to Russia. Carol has been what about six months a bit more than that. Since the new US Administration on the President Joe Biden's taken over, they've kind of found a feet. I'm wondering whether you're seeing potential here of a shift away from what was quite an acrimonious relationship with the United States between the United States and Russia. And whether there is a No opportunity for some kind of rough brush, mall, that would help.
Some of the sanctions.
Yes, thank you. I think the world will definitely benefit from a better relations between the US and Russia, on the economic side, and on geopolitical site. And I think what we've been positive are some of the direct conversation, the President Biden and President Putin have been having. So this Communications is really open discussion of issues. I think is very important as you know, Foundation of a relationship and I think also there should be more interaction between Russian and US business that can provide more of a framework of Oh discussions, so not only the difficulty of political questions I discussed. But ways to really investigate.
Those things together. So, we are quite hopeful that those direct discussions are creating the foundation of a better relationship. Russia has always been open to a better relationship. You know, we want to be partner with many countries in the world. So let's see how it emerges. I think it's great. If us and Russian business can play their role to make pollution ship better and make relationship more Economic and Business focused as well.
Closing question. All your biggest concern outside of some of the material that we've discussed, that is there another risk factor, you know, be it, perhaps instability in China on the economic front, with the ever Grande that Saga or another pocket of the world where you see the potential of quite a bit of derailing of sentiment and confidence. Well, I think big situation towards.
Gas prices in Europe and Russia is interested. In stable, Energy, prices, you know, we played a big role in stabilizing oil prices to avoid fluctuations. So many people would think those things benefit Russia, but the reality, we believe that long-term Supply contracts, I way to solve some of the energy issues and I think energy shock can be quite significant. Then, in addition to energy, shocks. Of course, you know, there are by risks terrorists risks, but we believe that, you know, transition to Green energy, but But in a meaningful way, is the best way to go to avoid energy shocks.
Carol, this has been a real pleasure and always is thank you for making the time for sharing some of your views with our Global audience. That is hero dmitriev. He's the CEO at the art dif. Thank you. Again. Thank you, sir. Thank you very much.
Welcome everyone. To one of the most fascinating L moments of the Year where we get to really dive into real estate a market that's been on fire, despite some concerns, even in areas that had been high concern spots, including the centers of big cities, where everybody declared the office dead. And now everyone wants their employees to come back joining us today. I'm so pleased to say Adam Schwartz. He is co-chief executive officer and Co CIO of Angelo Gordon with many years of experience. Appearance in the real estate market and I'm learning that the real estate world.
Relatively small and everybody knows each other very well. Lauren Hodge felt. I felt are also joining us. Lauren Hodge felder's managing director of Morgan Stanley as well as the deputy chief investment officer at the Morgan Stanley. Real estate investing group. And there is this idea right now that they're still our gains to be had, as more people look to private assets and as yields remain low. Adam Lauren, let's just start with a state of play of where we are. How much more value is? There left? Is this still a hot spot for people who want yields? Lauren, let's start with you.
Sure. Look I think it really depends on the type of real estate as the prospect of higher interest rates. Come presumably off the back of higher inflation. I think the tides are shifting a bit in a low rate environment. Like, where we've been, there's been tons of investor demand for long-term. Leased assets, that provide current yield some inflation protection, Etc. And we've seen yields compress materially for these long-duration. Frankly, risk off assets, but now, Now, as the world shifts and as we
All sort of wake up to this Prospect of inflation and Rising rates. Think those assets with long duration, leases are frankly more exposed, more at risk and then other places where as other types are more resilient. We're focused on areas of real estate that tend to do well in inflationary environments, where economic growth and secular Tailwinds can outpace can Propel Noy growth that really outpaces interest rate hikes, so, It really just it depends but we do still think. There are opportunities where we
Can grow income more than cap rates? Should widen. I don't, we also see this as sort of a perilous moment for hydration.
Yeah, I agree with this what Lauren is saying? I mean, I think you know when you look at I think the best proxy to look at is probably the fixed income market. And you know, the IG Universe right now is basically trading at negative real interest rates, right? And the spread that you can achieve from buying real estate relative to buying whether it's IG or high-yield. It's pretty attractive. It's probably actually the most attractive that it's been since the 90s, you know. The metrics that we look at would tell you that real estate if you wanted to get to
Need a sort of the long-term averages of fixed income in terms of spread to fixed income. That would tell you apply real estate has another 20% of price appreciation. We don't necessarily believe that you're going to capture all that, but it listen, it looks very attractive on a relative basis and there's is Lauren sent a lot of dry powder sitting on the sidelines, trying to get some yield. If we do get inflation, even better for certain types of real estate said, yeah, I think you want to watch out for those long duration fix. Just fixed asset. If, you know, fixed income type real estate assets, but those
Step are shorter duration have more upside. We believe. And just to clarify Lauren, when you talk about long duration, you're talking about Lisa's that go for a very long time. The idea that if there are a lot out of sort of properties spots, within a building for say that are extended out for a long period of time. Is that long duration? Or is there something else that also counts as such know that? I mean II do mean long list duration and I think in particular where there's no material CPI I indexation so where the income stays flat?
As rates rise. Yeah, so let's dig into some of these more so silly so, you know certain asset classes or will do better in an inflationary environment, those short Lisa stink of hotels or apartments where you're leasing them by the night, or by the year, you're able to capture that inflation much quicker than a tenure, you know, industrial or office lease. Well, let's go there because that sounds counterintuitive.
At a time when hotels are still struggling, certainly in the big city areas. Where are you seeing opportunities within the hotel sector within the Leisure industry, especially in areas that have relied in? Historically, at least I'd international travel. Well, you nailed it. I mean, it is Leisure. It's not corporate. It's not Group Travel. So we have been we've been more active in that space. We bought the Four Seasons in Vail, Colorado last year because we thought that you know an environment where people were not Travel, traveling internationally where domestic and drive to destinations. We're going to become more.
Wheeler that those types of assets would benefit and so we're definitely seeing that, you know on the corporate side on the group travel side convention were you know, there's there's a long way to go. I think it's going to be a couple of years until people really get back to traveling the way they used to if they get there at all. Lauren.
You look, I agree with Adam. I think the question from here though is many of those drive to Leisure assets, have appreciated, pretty materially. I think, you know, 18 months ago, 12 months ago, Adam and I might have been chatting and said, gosh, this is going to be this great opportunity for distress and the reality is pricing has accelerated because of the trends that that Adam reference. So now we look at, you know, is that fair pricing or the capital markets ahead of the fundamentals. And I think it just It depends by market.
Adam, I want to dig into something that you said, which is you're looking at leisure not necessarily business. So how do you know when you're catching a falling knife? If you try to go into some of the hotels, some of the convention Center's that big cities versus actually finding value. Given the fact that there actually is serious uncertainty about the Outlook.
Yeah, I agree. This listen is there is uncertainty but at the same time we are paid to unlock value and find Value. And you know, there are certain markets where in a normal environment. It is extremely hard to buy and hard to penetrate those markets. So, you know, as an example, we recently bought a hotel in San Francisco, which, you know, so far has been very slow to recover. That being said, Do We Believe San Francisco in the long term will recover. It's a hub of Technology. Do we think that there will be groups getting together? Absolutely. We think they'll be travel and we were able to buy something at
Basis that we thought made a lot of sense. So, you know, when you can, when you can identify an asset that you think is attractively priced discount, replacement cost. Sometimes you have to, you have to, you know, take that leap when when the market is not there and assume that the business will come back, which we believe it will. Laura.
I agree. It's really those moments where the market throws away, the baby with the bathwater. And for assets, in particular like hotels, where, you know, you're not buying this off of current income. It's all about sort of your perception of where rev are aware, income will go buying at the basis is everything. So, let's talk about the other areas in cities, in San Francisco. In New York, big cities that saw the office Market absolutely decimated. Lauren is this an area of opportunity?
You or is this an eye area of transformation that perhaps people have not fully priced just because rates have been so low in there. Has been such hot demand. Yeah, look, I think it's really not one size. Fits, all you're already seeing this wide dispersion and performance across different types of assets. Also different types of markets, but you know, there are certainly, you know, I'd expect that you'll see meaningful devaluation for commodity product in some of these markets. Markets that are more susceptible to work from home.
Certain segments those that are more exposed to functional obsolescence, where the capex needs are. So enormous that you're that you're real yields are, you know, frankly lower than they may look on paper and you know, expenses growing etcetera. So you can paint a bleak picture for certain segments. On the other hand, you know, in stark contrast, the best quality Assets in the, in the better markets are at all-time high rents all-time high values. And I think It's ultimately comes down.
You companies that are performing. Well, who want their employees back into the office are investing in high quality office space, and there are still a lot of companies that have strong performance in this environment, on are making that investment. So you really just see this barbell, I think in real estate, we spent the last I don't know, decade plus talking about sort of the bifurcation or bar Belling of A and B malls and I think we're starting to see that transformation and office as well.
Adam. Yeah, I agree. I mean, we do not believe that this is the death of the office building, you know, I think businesses and individuals get tremendous benefits from working together, not working from home, you know, collaboration the culture building the mentorship and training that you get, I think it's extremely important. I think employers recognize that they view their office as just one of the tools, they have to attract employees, you know, some people Talk about the technology sector where there.
Maybe showing more flexibility towards working from home. You know, that being said, Google does made a huge investment in New York City. They just bought a building that they haven't even taken occupancy of, for two point 1 billion dollars. So, they're clearly signaling that they believe in the future of the office. They believe in the future of New York City as the way, you know, the the whole concept of
Companies taking twenty, Thirty forty percent less space because people are going to work from home certain days. I don't really think that's going to happen. I think that, you know, people want to be together. They want to use the office as a focus for collaboration. Well, if you're going to collaborate and I'll come in on the same day. Well, then you can't rotate and squeeze out those efficiencies from sharing desks and rotating. So I just don't see it. I think, you know, when you look at office space as a cost for a Operation, their rent is typically in the range of five to ten percent. That's probably a
Typical level if you're able to squeeze, you know, 20% efficiency out of your out of your rent, you're talking about saving one to two percent on your expenses. Are you really going to do that? If it has a material impact on the quality of life with your employees? I don't really think so, but I do agree with lot more in terms of when, every real estate official every real estate official who I speak to our executive. They're all in the office. They all have been in the office. I will just say this for months, so I don't think it's a complete coincidence, but it is notable to me and your office. Is look great. What a move on to warehouses and Industrial spaces because that has been on really hot area.
I record prices people. Looking to transform sea level malls into warehouse space or something else like that. And I wonder if some of the value are all of the value is really been eaten up given the sort of competition and the Vogue Ness. If I want to use a Tom Keen has mm of this space. Adam. Do you think that it's overheated?
It is certainly hot, right? I mean, you know, and it's been driven by e-commerce. E-commerce is booming through covid, but not only that. I mean, you're seeing a lot of users of Warehouse sort of shift their mentality and sort of, you know, change from what was a just-in-time sort of supply chain process to maybe adjusting case supply chain process. Because, you know, with with the, with the, with the challenges that we're seeing on the supply side people want to hold more inventory. Stores, don't want empty shelves. And there is a
You know, you need a home for that for that warehousing and in the interim. So so we just see continued demand there. Every square foot that gets built. Seems to get least these days but pricing has been extremely high to your point. But again, you know, it's a function of if you think that inflation is going to come and you can reset those leases to Market rents, people are willing to pay low yields to capture that upside Lauren. Yeah, I agree. Look, I mean we Need to ask ourselves this question, anytime we see.
This magnitude of an acceleration and returns that you know, industrial Returns on an unlevered basis of increased by or 23% trailing at you know, trailing twelve. That is, you know, that's a staggering level. But when you dip below as Adam alluded to do a lot of that is the direct result of real strength and fundamentals, I mean REM stir up 10% plus nationally over the last year and in many of the coastal markets in which we Invest twenty to thirty percent. So you're seeing
Sort of real strength in the numerator there, but look, admittedly. I think the other thing you're seeing is that significant yield compression right, cap rates have compressed, you know, a hundred and ten basis points and when when cap rates are this tight, that's a pretty wide margin of compression. And I think obviously that's driven by a bet on the continued rental growth that we're talking about. But truly, I think it's also a narrowing of the universe of what Real Estate Investors want. So you look back in the 1980s for Sample and 3/4 of private real estate.
Smart was into office and Retail.
Not outside classes that investors want quite as much today, right? That is 50% today and probably trending down. So whenever you narrow the aperture of what investors want that obviously drives up liquidity and pricing for the assets that fit the box. So look, we've had huge conviction around industrial and it's been good. And I think to the extent or thing for us, what we like to do is position ourselves, or we can really create that product, manufacturer, that product is Sell into that deep. Well of liquidity there.
Okay, when you say manufacturer, that product you talking about converting, sea level malls. Are you talking about building new buildings? What are you talking about? Lauren? Yeah, sometimes it's often building. It's often repositioning Last Mile product. So upgrading it for modern tenant demands. It's look there's a lot of talk about converting see malls, but there's a lot of let's call it complexity to doing that in terms of how the Rights work with surrounding tenants and a variety of
Factors of re-entitlement. So Adam shifting to retail. Where is the value at a time? When you have a gradual shift away from retail, as Laura was describing internationally for Capital and is frankly. In some ways. We're redefining what retail is to more of a warehouse kind of hybrid model with some sort of pretty stir fry.
Yeah, it's a it's a very tough question. I think we're going to continue to see evolution in the space. You know what? The stuff that we've been focused on has been more necessity, right? We're staying away from things like, B and C moles. I think a lot of the, you know, the concepts are just not very interesting lead these days, so we don't really believe in the future there. You know what? We are seeing a tremendous amount.
Of activity in is what I guess. People are referring to as these dark stores and these are sort of these immediate fulfillment companies. You're hearing names like gorillas and go puff and Joker. These are stores that are leasing very small Footprints, but very accessible to population centers, their stocking, those facilities with 2,000 items compared to the ten to forty thousand items at a traditional grocer Woodstock, and they're trying to deliver those. Those in 10 minutes upon demand, you know.
A business model work. I don't know. They're leasing a ton of space right now in urban environments. So we'll see how it evolves. But, you know, for the most part we've been focused on sort of that that necessity segment rather than just the traditional malls and generic commodity retail strip centers. Is there more opportunity Adam in actually investing in an existing structure? Or is it more retrofitting? As, as Laura was talking about the Well, they're that is complex, but potentially could reproduce.
Dividends if the material is proved to be valuable because it's hard to get these things and divine building right now is expensive. Yeah. Yeah. Building is expensive. So I think the to extent that you can reuse, what's there? That's great. The problem is as we know and Retail there's just too much of it. There's way too many square feet per capita. And so a lot of the future of you know, that incremental retail space is going to be alternative use, right? Going to the residential or Warehouse, so I think what you got to focus in on is the sort of, you know, Supply.
And urban locations or those, those those key centres really accessible to the population. So you mention residential and I know both of you, do you focus mostly on commercial but one of the hottest areas has been rental, homes, buying up rental homes in bulk. And we've seen this talking about what's hot and what's not, that's very much. What's hot. So it's such a degree that it's become a growing presence and frankly push for the prices ever higher Lauren. How much do you get involved? How much do you set back? Is this a better time to buy or to sell?
In the rental home footprint. Sure. Look, we have been investing extraordinarily heavily in this space, you know, frankly across segments. So Class A down to work force housing and the bottom line is this is you know, these are the strongest residential fundamentals we've ever seen in many markets. You have Market rents above precoded levels. I think it's a 98 out of the top hundred markets. So this is a strong market and Yields have confessed markedly.
As a result of that, and as a result of the expectation of future growth, so now we sit here and say, okay. Well, how much more can it go? I think one distinction is, maybe unlike other asset classes, where tight cap rates at least from a u.s. Perspective, not sort of from a perhaps Japanese perspective, from a u.s. Perspective, tight cap rates tend to be an indication of an expectation of future growth growth, that's on the cam and I think residential one distinction I'd make is Is these low cap rates at least in part reflect Market?
That are already demonstrated. So lost to least right in residential you're signing new leases every month. And so you have more visibility into what the on the ground rents are that you can achieve. So we can debate sort of depth of demand at those rent levels, but I think you have a little more price Discovery. So with residential look Supply will catch up. You know, we've got a hole to dig ourselves out of having not delivered a whole lot of housing for this country coming out of the GFC. See, but inflationary pressures should be so.
Is there moderate good for residential rental? And I think the ultimate, you know, risk will be the sustainability of these rental levels because some of these markets are popping up against affordability constraints and that's real they are. But, you know the same time you look at the for sale market, right? And you're seeing home price appreciation of 20% year-over-year just staggering numbers. So whether you're renting or buying there really is no affordable option, you know. Add to that the fact that input.
Says to build our gone up right whether it's labor, Lumber, you know, steel depending upon what you're building. Everything is getting more expensive. So the rent to achieve an acceptable return on cost is going to go up. So it is inflationary across the board, whether it's for sale or for rent. When you talk about,
The rent being too damn High. I do Wonder though, you know, whether Adam first of all, whether you're investing in this market and second of all, if there are certain segments of this Market, I'm thinking of the Sun Belt that have gotten are perhaps a little over their skis, simply. Because people have counted on this, migration away from big cities to such degree that will take years to prove it out. Yeah. Yeah. It's definitely something we look at, right. You got to watch the income to rent multiples because trees don't grow to the sky, right? Right, so
What we've been trying to do to improve, our yield has been building the building more often than buying the apartment space because we're just achieving better yields through doing that and we're kind of, you know, we keep scratching our heads every time we finish a project and then go to sell it because the yields that people are paying just seem to go down a couple basis points. Every month. We just sold an asset in Austin, Texas at a sub 3 percent yield. It's brand new. The rents are at Market. You know, where is the Upside. Someone is betting on continued rent.
Inflation and the fact that, you know, they can Finance those assets, extremely. Well, the debt markets are wide open and real estate today. Borrowing costs are very low. So, you know, even if you buy an apartment complex at a three, you know your financing in the ones right, you're generating probably a mid to high single digit overall cash on cash yield before you get any inflation. The issue is going to be if you don't see that inflation and yields, interest rates, do move up. You can have some some challenges there. If you have to be a seller, if you have the ability to hold long.
And you're buying at these low rates and financing low, you know, it'd probably be okay, Lauren. What's your sense? No, I agree. And I think Adam brought up a point that maybe is not talked about, you know, quite enough which is Supply or construction cost increases right. In many of these multifamily Market. Some of the markets you referenced in the Sunbelt demand has intended to be the issue. The issue has been when supply has really Caught up and LeapFrog demand.
And I think the fact that construction costs have really skyrocketed to such a degree replacement cost has increased should be a mitigant on excess Supply which is supportive of asset values just real quick. Before we wrap up here. I'm wondering what kind of returns. Both of you are expecting in the year ahead, substantially lower than what we've seen about the same or more. Adam.
I would say lower than what we've seen but Lauren, what did you say 13 percent year-over-year growth, roughly. I think I said for industrial 23%. So 23. Okay. Yeah, I would say lower them. Okay so lower. But are you talking like 22% are you talking about? You know, we're gonna go I mean, you know again, right we've got ten year, treasury at one-and-a-half percent inflation running, whatever you want to call it high twos to 5%. Five percent is probably not. The Run rate is high Tuesday, run.
Probably we think rates are going to go up. I think the the the rental growth will inflate will offset. The fact that yields are going to go up multiples, go down. So I still think valuations are probably positive over the next year, but I think it's single digits. If you had to pin me to a number. Yeah, you agree. The last 12 months. I've had pretty stunning returns for industrial residential life science. We think that there's still positive return from here. I agree. High single digits types of birth. Turns, but I think you know some deceleration is
We have the right base, case assumption.
Adam. Thank you so much for taking the time today. We really appreciate it and have a rest of a great rest of the week and weekend. Take care. Thank you so much.
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