The Evolution of Private Market Investing with Virginie Morgon, Chief Executive Officer, Eurazeo. Suzanne Streeter, Partner & Co-Chief Investment Officer, Partners Capital. Peter Gleysteen, Chief Executive Officer & Chief Investment Officer, AGL Credit Management. Thomas H. Lee, Chairman, Lee Equity Partners.
Moderated by Gerry Baker, Editor-at-Large, Wall Street Journal.
SPEAKERS
Virginie Morgon
Chief Executive Officer
Eurazeo
Suzanne Streeter
Partner & Co-Chief Investment Officer
Partners Capital Investment Group
Peter Gleysteen
Founder, Chief Executive Officer & Chief Investment Officer
AGL Credit Management
Thomas H. Lee
Chairman
AGL Credit Management
MODERATOR
Gerard Baker
Editor-at-Large
The Wall Street Journal
TIMESTAMPS
EPISODE TRANSCRIPT
Gerry Baker: (00:00)
Good afternoon. It's a great pleasure to be here. My name's Gerry Baker. I'm the Editor-at-Large of The Wall Street Journal based here in New York. It's a great pleasure, particular pleasure to be here in person after so many events that haven't been able to be conducted like that. It's great to be here in real life, IRL as my daughters would doubtlessly put it.
Gerry Baker: (00:27)
So thank you very much indeed all for being here. Hope you've been enjoying the session so far. It's great, particularly to see you all so wonderfully ready for a very interesting discussion. You all look particularly well presented, not quite as well presented as those characters at the MET Gala last night. I hope some of you managed to see that. And I don't see anybody, unfortunately, here wearing a tax-the-rich outfit as Alexandria Ocasio-Cortez was. Maybe that's to be expected of a hedge fund conference.
Gerry Baker: (00:58)
But anyway, we have a great panel, a great topic. We have a very ... We have a dauntingly broad topic, private markets. But I think we have a panel who can provide some real focus and some real insights into that. And I have some questions that I hope will provoke them a little to focus the topic down.
Gerry Baker: (01:20)
Obviously, private markets have been a remarkable expansion story for such a sustained period now, as you all know. I was just looking at some numbers. The entire private capital industry, according to Morgan Stanley estimates entire private capital sector accounts for about ... is carrying about $7.4 trillion. They estimate that it will continue to grow to 25 trillion by 2025 to illustrate, again, just another illustration of the scale of the extraordinary growth of all of the private markets, but of particularly private equity over the last 18 months since the pandemic hit.
Gerry Baker: (02:02)
The market cap of the big five private equity funds I checked today was at $80 billion in March of 2020 when the pandemic got underway, and it is now $250 billion, more than threefold increase. So it gives you a sense of this sustained increase.
Gerry Baker: (02:19)
So I want to get into the reasons behind this, whether this extraordinary growth can continue, differentiate obviously between the different types of private markets too because we've got a nicely diverse panel here who can talk about the various aspects.
Gerry Baker: (02:33)
So I'll introduce them. Obviously, to my immediate left is Tom Lee who's the chairman of AGL Credit Management. Thank you very much for being here. Virginie Morgon who's the CEO of Eurazeo in Paris, from Paris. Next to her, next to Virginie is Suzanne Streeter, who's Partner and Head of Private Equity and Real Estate at Partners Capital Investment. And on the extreme left, Peter Gleysteen, who we were talking backstage tells me that he's been in the field of private credit for just about as long as anybody, probably anybody any of us knows. He's the CEO and Chief Investment Officer of AGL Credit Management. So thanks all for being here.
Gerry Baker: (03:15)
Suzanne, I'm going to start with you. I'm going to give you, I'm going to quote something to you that Kewsong Lee, the Carlisle CEO said on an analyst call over the summer when he was describing the extraordinary performance of not only his company, but of private equity, private markets in general. And he put it like this. He said, "Deals are being completed on shorter timelines. Financings are being executed more quickly. Opportunities for exits are presenting themselves sooner. Funds are being raised faster than ever before. And accelerating impact from disruptive technology and changes from the pandemic are powering an increased demand for private capital across all sectors and regions."
Gerry Baker: (03:56)
I mean, being a kind of a cynical and contrarian journalist my response to that perhaps is to say, that sounds like it's time that things change. But is this as good as it gets? Can this ... Suzanne, sorry, can this continue?
Suzanne Streeter: (04:09)
Well, thank you Gerry. It's a great question. It certainly is an amazing time for private markets. The returns have been very strong, and all the data points that you mentioned are correct. And that's what we're experiencing and seeing ourselves.
Suzanne Streeter: (04:22)
I think there's no sign that anything is imminent. There's no change in sight. They also say that limited partners, people who are looking to invest in private markets are continuing to feel underallocated and are seeking alpha through private markets. So I don't see it as being a particular asset class that's imminent for decline or any significant risks. Obviously, even in the financial crisis, there were some bumps, but the asset class performed incredibly well. So we're still pretty confident that it'll continue for some period.
Gerry Baker: (04:54)
Tom, do you see anything to worry about given this extraordinary growth? Again, is it, are we just set fair for continued growth? Obviously, there'll be differential performance, but is the market overall, are these various markets from VC to private equity to private credit, are they just set fair for continued expansion on this scale?
Thomas Lee: (05:13)
Well, people like to say that private equity is the reciprocal of really bond rates for the values. And obviously, the rate on deaths, rate on bonds, rate on loans are very, very low. So people can borrow. Also, over many years, you will find that the private markets derive from the public markets. So you can't really separate them in terms of how they go. We think we can, but we can't. So as the public markets have had a strong rebound, so have the private markets. And right now things look very, very good.
Thomas Lee: (05:53)
Obviously, we're priced to perfection. Prices are very high. Prices that we're paying are very high. You'll see in the paper that in some cases, prices have gone at north of 20 times EBITDA, earnings before tax depreciation and amortization. So that's for a fast growth company, that's for a company with something possibly transformative happening, but we are in an extraordinary time. I'd like not to call it a bubble, but we certainly have to be sure of ourselves now.
Gerry Baker: (06:28)
Virginie, from a European perspective, and again, this boom has been global. There's been tremendous activity in Europe. UK is obviously not in the EU anymore, but UK has been very much a focus of inward in private investment. From the European perspective is this, these same conditions supporting continued growth do you think?
Virginie Morgon: (06:56)
Thanks Gerry, thanks for having me. Just to echo on both Suzanne and Thomas comments, I think the industry, so Suzanne was talking from an LP and allocator standpoint. And from a GP standpoint as always, an investor, we see also that industry growing very fast in the years to come and nothing happened by chance. We've professionalized. We're bringing more value add to our clients. The public market have been pretty volatile as well. So at least with private market, you get long-term alpha performance with significant operating support from the team. So the value add I believe is what really counts in how we've developed over the last decade.
Virginie Morgon: (07:39)
And to Thomas' comment, clearly prices are to be watched these days. Assets are more expensive. But if you do bring to the table value add transformation, buildups, operating leverage, ESG, responsibility, climate change, then you can potentially work hard on compensating the high price of your assets at inception and make decent and higher return than some of the public markets for your clients.
Virginie Morgon: (08:15)
As far as Europe is concerned, I think you find in some sectors better priced opportunities. Like if you take the tech industry, clearly something is happening in Europe. As we speak, finally, Europe is awakening, venture and growth, amazing entrepreneur, very strong academic level and training. And now, newcomers, significant money being poured into growing those companies, which are still less expensive than what you have in the US. I think that could be interesting from an investor standpoint. But overall, as you know, Gerry, the world is pretty global. So what you see in the US, you probably find in Europe as well.
Gerry Baker: (09:02)
Peter, we were talking about this backstage, I think it was Suzanne who pointed it out, but even if that Morgan Stanley forecast of $25 trillion for total private capital by 2025 is correct, that's still only a fraction of the total value of public markets, frankly, in the US alone. So that does suggest perhaps, you talk particularly from your perspective in private credit, but more generally that does suggest perhaps that there's plenty of headroom.
Peter Gleysteen: (09:30)
Plenty of headroom. And it's a huge opportunity because all of that private equity will be leveraged with private credit. And private credit in terms of the private markets, investing strategies and asset classes is highly complimentary because first of all, it's a cash income product. And this environment of virtually no yield in most products in private credit is still available. And depending on the strategy and the asset class could be available in size.
Peter Gleysteen: (10:00)
And then, needless to say, but as you just inferred, private credit is at the top of the capital stack of any given company. So it's safer. So you get a combination of income and safety, of course, depending on what the portfolio's like and how diversified and how low the correlations might be to other strategies. So credit is more popular, more interesting to people than it's ever been. And it has a long way to go.
Peter Gleysteen: (10:29)
I'll just add, there were some comments that were just made with how good could it get? Well, the world's changing. COVID is changing everything at a high level and a low level. And when that's happened, historically there've been a lot of business changes, have to be social changes and maybe political changes, but there's certainly business changes, which is fueling this record level of LBOs and MNA, which of course is financed with private credit. And these are new opportunities.
Peter Gleysteen: (10:59)
I'll also comment, you mentioned that I've been around the space a long time, since the '70s actually. I've never seen credit quality of new issue as good as it is now, and also well priced, meaning priced high, not low. So it's a very good time to be investing.
Gerry Baker: (11:15)
Tom, again, this growth has been going on for a long time. And as long as I've been a financial journalist, quite a long time, I've been reading articles saying that this, as private markets grow, they will be subject to diminishing returns. I mean, one of those kind of early drivers presumably of private markets was that still, especially in an environment of such low interest rates, that the drive for yield is such that there's been tremendous search for those opportunities. At some point, and yet again, as we've just been discussing this, the demand for private assets continues to grow exponentially it seems. Is the sector kind of exempt from the law of diminishing returns? I mean, can we expect this to go on?
Thomas Lee: (12:08)
Pardon me. Let me get very specific Gerry. In terms of return expectations in PE, in private equity, we always had a power or a standard, and that's that we should be returning a thousand over the concomitant public index. In other words, large cap buyouts really relate to in effect the S&P. If the S&P is say giving 8% a year over many, many years, so that large cap return should be about 18%. And therefore it sort of has been, look at the KK or Blackstone.
Thomas Lee: (12:42)
As you are going down into more of the midcap, okay, that return expectation goes up. Why? Because the smaller to midcap company is riskier. Okay? So that you as an investor need a higher return. So that return should be geared to the Russell say, and if the Russell was at 10 or 11, so then that thousand over is giving you into the low 20s. And so that has also been concomitantly true.
Thomas Lee: (13:10)
So I'm only saying that that's what the investor requires and that's what the market demands. And obviously, I think that Henry Kravis proved early on that if you can buy a really good company that's a really big company where the risk of failure is very low, that the LP, the limited partner is going to take a somewhat lower return than if you're in the more venturesome range, okay?
Gerry Baker: (13:39)
Suzanne, again, we talked about, you talked about low interest rates. How sensitive to the interest rate environment is the success of private markets? And if we did get some fairly encouragingly mildly benign inflation numbers today, but obviously, there's concern, continuing concern about rising inflation and ultimately minimum the withdrawal of all this credit from central banks and possibly high interest rates, how do you position yourself? What do your LP say about that? What's the sense of the role for private markets in possibly a changing interest rate environment?
Suzanne Streeter: (14:21)
Well, so we look at it as a limited partner in funds for most of our portfolio. And so it's really the first vintage year invest period, and sort of the whole period of the investment which is 10 to 12 years, and most companies are probably within the five to seven year range. So that's the fund life. And so if the interest rates rise during the life of the fund, your assets might be somewhat at risk because the opportunity cost of capital has sort of been damaged. But if you're over that series, that whole period, you may have a smoothing effect as well.
Suzanne Streeter: (14:56)
So we don't take into account much rising interest rates over a five year investment period because you're buying in along the way. And so it really does behoove the manager, the investor, to be focusing on operational value add versus just the financial engineering, which is what Partners Capital is always trying to underwrite.
Gerry Baker: (15:20)
Virginie, from your perspective, from your company's perspective, I think one of the things you've been seeing is a sort of a broadening of asset classes, right? And the idea of some of the private markets, private equity, well, becoming one stop operations for VC and private equity and credit. Tell us how that's developing, and again, what opportunities there are that you see from that development?
Virginie Morgon: (15:49)
Yeah. I mean, I see these and I'm sure this is shared by the audience and by my fellow partners on the stage. I mean, the growth of our industry, I think, is at least twofold. The first one that we've discussed so far, which is private equity, like equity investment behind entrepreneur and great management team, which is enlarging and growing. But also some complete new asset classes, which are being filled in, supported by players like us. I mean, think about private debt. The commercial bank have disappeared after the great financial crisis. At least I'm talking about the European markets where we, as private equity investor, we turn to private debt players, although it's more expensive, but it's more agile. We're really hand in hand as partners. So private debt as an asset class in private equity has emerged extremely strong over the last 12, 15 years.
Virginie Morgon: (16:48)
Think of financing the future, impact funds. Who is raising money? We are. Who is investing that money? We are. I mean, there's not that many source of capital if you want to invest in technology of the future impact climate, new businesses being concerned by climate and carbon neutrality. So think of us as not only growing what has been here for decades, but also inventing complete new way of developing and deploying resources, which you can't really find anywhere else, neither in the public market, nor through that many institutional financing. So I think we're filling some gaps with value add and commitment and real engagement behind some investment themes and belief.
Gerry Baker: (17:44)
Peter, on the interest rate question, private credit, again, you're a specialist and would seem to be particularly sensitive to that. How do you see that? How do you see the credit environment in the next couple of years and how it affects your particular sector of private markets?
Peter Gleysteen: (17:59)
Well, a traditional credit investing concern with interest rates is higher rates equals a higher interest burden on borrowers. So it's always been a historical credit concern. But in many, many years now that's really diminished because interest rates are so low and even any expectation of higher rates are still such low levels that given the credit quality of borrowers, the amount of excess cash flow that they generate it's not the concern that it once was. Interest rates are still relevant though, of course. And Suzanne said it's not about market timing. It's about averaging over time. With private credit, two comments I would make, and I'll come back to interest rates.
Peter Gleysteen: (18:37)
As Virginie was just saying, private credit offers a lot of opportunities, including for new types of businesses to get financed. In the US, private credits really breaks down to two big buckets. The traditional one, bank originated, broadly syndicated bank loans, the original form of private credit. Those loans are to private almost all, but not exclusively private, mid and large cap domestic US companies. If you want to have credit exposure to them, that's the only place you can get it. And that's a big part of the US economy and arguably the most stable. And these are not multinationals. It's the heart of the US economy, mid and large cap.
Peter Gleysteen: (19:17)
The other segment, which is new of course, is direct lending, which are small cap leverage borrowers, mainly private equity sponsored small businesses. That asset class is new though, and it's a result of banks for regulatory capital reasons pulling back from lending to smaller companies. So we've yet to see how that group of borrowers will fare in a '09 type recession, as opposed to a 2020 90-day recession.
Peter Gleysteen: (19:48)
This relates back to interest rates. It's a central for any investor in private credit because they're looking for yield. Now, the good news about private credit is spreads. Spreads have remained elevated mainly for market technical reasons, even though the underlying benchmark, which is currently live or soon-to-be SOFR is practically zero. So it's an attractive investment, even though effective there is no interest rate component to the return.
Gerry Baker: (20:16)
Obviously, it's been an extraordinary unprecedented in our lifetimes 18 months of this pandemic. I want to get an assessment from each of you on what your sense is of what's changing, what has changed, obviously, what's changed over the last year and a half, but I mean, what's changed structurally as you look out at the investing opportunities and the investing climate now over the next few years.
Gerry Baker: (20:40)
We've seen obviously extraordinary growth of technology, the use of technology. We've seen a very bifurcated economic performance between companies that have done extraordinarily well, accelerated in the last year and a half, and those that haven't. We've seen kind of a continuing hollowing out of retail, traditional retail. And I wonder, just want to get your sense of what of these changes that you've seen in the last year and a half are permanent, and again, how that affects your investment strategies, the way you look at the overall economy and the opportunities. Virginie, let's start with you. What's changed in the last year and a half, permanently changed?
Virginie Morgon: (21:26)
Many things, but a lot was already there before the crisis, wasn't it? So on the negative, and it's probably beyond just our conversation, I think the world, and that's extremely worrying, has become more indebted. There's this bifurcation with the happy fuse and the many left aside, education, women, child. So that's for another panel, I guess. And on the positive, which was already there but accelerated during the crisis, it's a more digital world, and thank God, it's a more responsible world. And I think, the election that you had at the beginning of the year in the US and the US rejoining the Paris Accord, all of this is going as far as I'm concerned in the right direction.
Virginie Morgon: (22:17)
So if you were pre-COVID a digital investor, you had digital talent in your team, you were technology driven, and if you were already committed and engaged into climate and carbon neutrality at whatever time horizon, and you had expertise in your team and conviction, you certainly came out of this crisis stronger than ever, because that's what client wants, that's what entrepreneur wants, companies in which we invest. And you would be astonished by what has really changed. At least, I'm testifying for Europe, which is the market I know best.
Virginie Morgon: (23:04)
But you are being chosen today by your clients and by the companies in which you invest you if you have that in your DNA. And that's very real. I mean, we are winning deals or we are winning clients' trust and support because many, many years ago, we at Eurazeo decided that we wanted to be acting responsibly long-term and having our own impact on society and climate. And this is now happening.
Virginie Morgon: (23:37)
So it's a thrill. If you have that expertise, if you have built that knowledge and those ... I mean, because this is heavy work. I mean, this is expertise. This is operating support. This is being a real ... an operator of diversity and change and climate. These are for me the big change. If you're a tech investor, I mean, you're winning these days. How long? I don't know, because it comes back to valuation. But it's for the long-term.
Gerry Baker: (24:03)
I want to talk a little bit later on about ESG and impacts in particular.
Virginie Morgon: (24:06)
Sure.
Gerry Baker: (24:06)
Some of the concerns that maybe have been raised by, hate to use the phrase, but greenwashing or companies posing as meeting certain environmental objectives while not actually doing so. But I do want to come back to that later. But Peter to you, what are your main ... What are the main lessons? I mean, we're still drawing them, obviously. What are the main lessons you've drawn from the last year and a half?
Peter Gleysteen: (24:31)
I think at least the two big ones are just, Virginie mentioned digitization, just how effective we've all been able to work remotely, but it's meant the further disintermediation of the non-knowledge worker or of the labor worker, which is good for productivity and company profitability that's arguably not a good thing for society. And it's accelerated. Those trends have been in place for a long time, but it's accelerated them and made them clearly structural. They're clearly structural and more potent.
Peter Gleysteen: (25:07)
And relatedly, with the previous administration, there was a heightened awareness of political risk, not only in the US but everywhere. And that, despite everyone's best hopes, that's not diminished. So if anything, I think we're living in an environment where political risk, both at the national level and international level's higher, which points to more volatility, certainly at the price level.
Peter Gleysteen: (25:36)
Now as a credit investor, as a long-term manager of credit investments, volatility is actually an investment opportunity. Depends on which, and certainly you would think that would be true also with private equity because these aren't ... We're talking about private markets, not public markets. But it does mean that the environment will be trickier going forward. It certainly is our expectation.
Gerry Baker: (26:00)
Suzanne, your sense of what are the structural changes that we are going to see as a result of the extraordinary events of the last year and a half?
Suzanne Streeter: (26:09)
Sure. I think I might echo what Virginie and Peter both said around productivity. One of the observations is just that everyone's captive. Everyone's sitting at home. Everyone's available. The number of management meetings that a private equity or venture capital firm can have are five times what could have been two years ago. The pipeline of deals that they're pursuing couldn't come to life because people are sitting home and having conversations.
Suzanne Streeter: (26:39)
I also look at it from the limited partner side and perhaps even from the, just the industry overall. It has become more inclusive because even small limited partners can access the general partner to have a meeting, to perform their due diligence without expensive time traveling to meet with them on their own ground.
Suzanne Streeter: (26:59)
So I look at it as a super efficient time. I think it will probably remain in place for a good period of time until animal spirits start to kick in and you have a lot of people running on planes and everyone else starts to feel left out. But in the meantime, it's been a really productive time, and you see it just throughout the industry.
Gerry Baker: (27:24)
Tom, your observations about the last ... the pandemic and its long-term changes it [crosstalk 00:27:30]
Thomas Lee: (27:31)
Your first premise was tremendously accurate. You talked about the velocity of change. Changes are happening at a rapid rate, changes all up and down the spectrum, so that we have to be very, very careful when we invest today because things are changing rapidly. I don't know if we want to talk about it now or later, but so often we're being asked to invest on a proforma EBITDA compilation of numbers that looks out into the future and that sort of calculates what the run rate EBITDA or the run rate profitability of the company should be or might be with a few things that are just happening during the next quarter. So anyway, that's something that we must be very, very careful of.
Thomas Lee: (28:25)
In terms of our own activities in this last pandemic period, and certainly Suzanne mentioned, the velocity, again, at which we are doing business is dramatically increased. The number of incoming transactions has increased the volume of work that we have, the volume of work that we have imposed on our own staffs. And having seen the Goldman Sachs revelation of, gee, we're working our younger people a hundred hours a week, and we looked around and said, "Oh my God, that's what we're doing too," and we just can't do it like that, because of course not having to travel into the office and so on and so forth, it became easier to impose on people. So anyway.
Thomas Lee: (29:11)
Information coming from companies digitally, the lack of travel, okay, compressed the timeframe of the receipt of this information and the digestion of the information and how we work with the companies, the number of acquisition opportunities that we are seeing. And then of course, if we're buying a company, if we're looking at buying, it isn't just us in a so-called auction. It's dozens of firms, possibly scores of firms, could be a hundred. Wow. Hopefully if we're selling a company, we're going to get that kind of result also. And that happens from time to time. But the entire activity level is very, very high.
Thomas Lee: (29:57)
Your very first question of the whole meeting is, is it indeed too hot not to cool down? But that's for another question. Thank you.
Gerry Baker: (30:07)
Let's talk about the broader climate. I want to talk about some of these ESG and impact and other issues too, in a moment. But, if you like, the kind of the broader cultural or political climate that we live in. I mean, again, one of the reasons, one of you has really talked about this, but one of the reasons private markets have been so attractive for so long is obviously because they're subject to less onerous regulations. And whether you're an investor or particularly whether you're someone who's considering going public versus staying private, the regulatory environment is obviously extremely important.
Gerry Baker: (30:46)
But we live in an environment where, especially here in the United States, we have a democratic administration. We have a democratic Congress, which has signaled its determination to take, if you like, a more, should we say, aggressive approach towards some business practices.
Gerry Baker: (31:00)
And I wonder, as private markets grow at these kind of rates that we've been talking about, they're obviously not going to, by definition they're not going to be subject to the same kind of regulatory environment that public markets are. But Suzanne, maybe I could start with you. Is that something we're going to see ... Are we going to see more pressure for regulation, for scrutiny than we have right now? Or do you think that's just ... that would just kill off the opportunity represented by private investing?
Suzanne Streeter: (31:33)
Well, regulation it's always been in the wings and the private equity industry's been able to sort of navigate it pretty effectively. I think, relative to public markets however, it's still really under the radar in terms of just the market to market risk of the portfolio, which valuations is probably the one thing that would come under the scrutiny first and foremost from a regulatory perspective.
Suzanne Streeter: (32:01)
But being a public company, you think about all the costs imposed on the company to address climate, to address various diversity inclusion initiatives, all really positive, but in a private company context, you can make rapid, aggressive investment to get those things accomplished without having the risk of public market earnings being a sort of the public stock price being damaged because your earnings are coming in below expectation and the smoothing effect. So, I sort of see the private market is still a real, an opportunity to actually take a leadership role in a lot of the transformation because it can really be effective.
Gerry Baker: (32:46)
Virginie, you talked a little bit about this, and Suzanne just made this very good point, too, that to some extent the pressure is coming from a kind of almost a self-regulatory or from the investors, to some extent themselves, we've seen these in the last couple of years, whether it's BlackRock and requiring certain ESG obligations on the part of its farm, on the part of its managers, on the part of its partners, companies like Goldman requiring certain composition of boards, gender, and racial composition of boards.
Gerry Baker: (33:26)
I'm wondering, to be cynical for a moment, is this kind of window dressing? Is it public posturing? Is it public relations in order to sort of forestall broader political intervention? Or is it something that is genuine and are private investors responding to it in a positive and favorable way?
Virginie Morgon: (33:45)
I mean, if I may I'll answer from the private market standpoint, and I'll go into-
Gerry Baker: (33:50)
However you like, from whichever perspective-
Virginie Morgon: (33:52)
... BlackRock and Goldman Sachs are announcing. I believe with the size and the power of our industry, we can make, and Suzanne mentioned, significant changes, because we're still quite small, but extremely agile and extremely powerful in terms of resources.
Virginie Morgon: (34:12)
So you think of a GP, like it's a thousand people. We are 350 people in my company, but we invest in more than 500 company worldwide. We have impact on the life of thousand and thousand of employees and people and families. So we have the power because we have the resources and the talent. So if you have the conviction, and if on top of this, there's an awakening. The clients, you will be amazed, Gerry, there's no due diligence today of any of our clients which doesn't start with ESG. It's completely the other way around.
Virginie Morgon: (34:51)
Of course, you need performance, you need return, you need financial performance because that's what you're here for. But it's not enough. You need financial performance for the long-term responsibility and have some impact through the companies through which you invest. So it's not about at all greenwashing.
Virginie Morgon: (35:12)
And if anyone in the industry is just trying to play cues, you are uncovered in half an hour because you can't talk about climate neutrality if you don't have expertise because it's extremely technical. Everything is valued and measured and published, and you go from step one to step two, you need expertise, and-
Gerry Baker: (35:40)
Excuse me. But can I be a little bit cynical for a moment and at least, say, I'll play the role of the cynical journalist and say, to some extent hasn't that been easier to execute in a climate of extraordinary financial success? I mean, with this low interest rate environment, the extraordinary bull market that we've seen, which some measures been going on for 30 years. So it's kind of easier with that rising tide to meet these specific objectives, whether it be environmental, social, governmental, or diversity, equity and inclusion. But if we hit some turbulence, if we go through another 2006, 2007, or we hit God forbid another bear market of the 1970s, are people going to cling to those goals?
Virginie Morgon: (36:31)
No, because you have to have another conviction, Gerry, because it's about a better performance. You have a better financial performance if you incorporate in the way you accelerate the transformation of your company, you are getting a better financial performance by taking care of diversity. Because if you are convinced that being diverse brings better decision-making and better efficiency, then you're back to step one, you are delivering a better financial performance. Wherever you are in the cycle, you better take those diversity and climate objective into your own transformation in your company.
Virginie Morgon: (37:12)
Now you're going to pay per tons of gas, CO2, it's 60 Euro per ton. It was 10 four years ago. So this is real money. So if you're convinced that this is real money, it's not about having a great momentum of high growth that you are then spending some time and some resources on diversity and climate. This is a must. This is embedded into your objective of being, providing better returns.
Gerry Baker: (37:40)
Tom, you're-
Thomas Lee: (37:41)
Much of our money is coming from the biggest pension funds and the sovereign wealth funds in the world. Okay? As in say, CalSTRS, CalP per as many, many others. They demand it. They want it. They require it. So it's been a good kickstart for us and we have gone with it. And ESG is important to us. So I can't tell you how something good starts, but it started this way and now we're all with it.
Thomas Lee: (38:13)
But back to your initial question was whether under the Democratic administration we see more regulation than under Republican. I can't say that really. I am sure there will be some, but returns are going to be the main driver. Because we're private and because we're asking the LPs to lock up for five to 10 years and they can't just sell our fund shares in one minute on the stock exchange. That's why we must give that high rate of return. So anyway.
Gerry Baker: (38:49)
Peter, just quickly on these new horizons of ESG and impact that [crosstalk 00:38:54]
Peter Gleysteen: (38:54)
It's critically important, and the point's been made several times. Tom was just making that you would want any company that you're investing, whether you're a creditor or an equity investor to employ best practices, do what's best for the business, protect all shareholders, all stakeholders, and be better.
Peter Gleysteen: (39:13)
The controversy though is, especially with the focus on ESG, are we talking about something that can move the needle 10% or 1%? So I'd say it's right now closer to 1%. So there's more awareness of it than substantive achievement, but it's all pointing in the right direction and it's necessary. And government needs to set kind of the guard rails, but the solutions are going to come from the private sector. And we're going to invest in that.
Gerry Baker: (39:44)
We just have a few minutes left. So I'm going to just give each member of the panel, just a simple question about what expectations they have for the way in which things may change. And Suzanne, I know you've been in the way in which you, the changing practices and trends in your business, and I know you said to me beforehand that very interested in the extent to which you've been working directly with LPs, more direct involvement by them, growth and working with emerging managers. Tell us what your priorities are for the next year or two.
Suzanne Streeter: (40:21)
Sure. We're just trying to seek the highest performing opportunity set, and what we at Partners Capital experienced and I think we hope too it will persist is venture capital. Companies are staying private for longer. And so there's just much more opportunity to benefit from the growth in that market. And I think that should be sustainable for a period of time. So venture capital is one.
Suzanne Streeter: (40:51)
Second is direct investing with our partners. So this is something that's been going on for many, many years. Many LPs are really interested in co-investing with their private equity partners. It's hard to execute and we've got a team that does it. So that's an area that we're leaning into at Partners Capital.
Suzanne Streeter: (41:09)
And the third is emerging managers. This is where we see a higher startup opportunity set, people who have been in the industry for a long time, trained at great story firms that want to go out on their own and really are looking for deals that are probably below the radar, off the run, smaller, there's more inefficiency, more opportunity for value add. And so that's an area where we're spending a tremendous amount of time and that's on a global basis. And those three areas have been quite creative to our performance over the last six years.
Gerry Baker: (41:44)
Tom, I'll ask you kind of what's your eye, what bulls do you have your eye, particularly what do you have your eye on in the next couple of years, either in terms of the way you work or in terms of opportunities? Just a sense of what your priorities are.
Thomas Lee: (41:56)
Well, first of all, just on a personal basis, we are so looking forward to getting back into the office, and we are-
Gerry Baker: (42:03)
Amen. Amen.
Thomas Lee: (42:04)
Amen.
Gerry Baker: (42:05)
We're not there yet.
Thomas Lee: (42:06)
And also, I must say we look forward to being able to spend time in person with the corporate management. While that seems like a very simple answer, it's something that we haven't been able to really do.
Thomas Lee: (42:21)
Certainly, we are working with managements of the companies that we invest in, in terms of helping them grow. Okay? We happen to be a firm that doesn't try to run the companies that we invest in, but we assist. And that's in many, many areas in terms of corporate strategy, development, and in terms of deal flow. So it's as if we've been on the outside of our portfolio, looking in, and we are so anxious to get back to business though. Basically it's a very simple, yes.
Gerry Baker: (42:59)
To something like normal. Peter, just quickly your priorities.
Peter Gleysteen: (43:04)
Certainly, our principal focus looking ahead is making sure that what we can offer and what we deliver to our investors aligns directly with what they're seeking and what their needs are, specifically their goals. And we're focused on getting better at doing that. Now, we're a credit investor. So what people want in credit investing is safety, stability, and an attractive cash income stream.
Peter Gleysteen: (43:29)
Now, the good news is with private credit, all the raw materials that do that are readily available, and our job is to do the best possible job that we can delivering that, and taking it to an even better and even better level.
Gerry Baker: (43:46)
Virginie, I'm going to give you the last word. As you look forward to the next, getting back to ... Well, you're obviously traveling again, which is a good thing. More human interaction. But, as you look at the next couple of years, what are the things that you're most focused?
Suzanne Streeter: (43:59)
I vote in favor of human interaction, for sure. We've been certainly very efficient in the last 18 months, but we need interaction to be creative and innovative. I'm fed up of working alone from my office.
Suzanne Streeter: (44:14)
Listen, venture and growth, I would echo Suzanne, in Europe something big is happening. So I'm glad that we at Eurazeo but other players as well, are there to support those great stories of leadership emerging, strong businesses in growth and venture in Europe. So that's something to watch I would say in the next five to 10 years.
Suzanne Streeter: (44:42)
I would say I'm a deep believer in making bridges and connection. Politically speaking, we're going backwards. So hopefully, as a private market player, we can strengthen those bridges. And I am representing very old and strong player in Europe. We are willing to develop our own strengths in Europe, in Germany, in Italy, in the UK, but also be present in the US and also be present in China, because the more you invest in small to midsize companies, the more they need a player who has connection across the globe to help them fast track their development. And I think that's quite a special alchemy of supporting midsize companies, but at the same time, being yourself, more of a global player with a good understanding of the US and of China, if you are a European player.
Suzanne Streeter: (45:42)
And then maybe the final words will be about women. And I would like to bring more women to our industry. It's not just about women. It's about more diversity, because that's what we need in order to be better at what we do. We need to be more diverse, more gender balanced. And there's still a lot to go, still a lot to work on even since from 2021. So I make that wish.
Gerry Baker: (46:08)
Thank you. Very good note on which to end the session. Ladies and gentlemen, thank you very much indeed for being here, for listening. I want to ask you, if I may, to join me in thanking our terrific panel for sharing their time and their insights this afternoon. So please, thank you very much.
Suzanne Streeter: (46:25)
Thanks.