The Democratization Of Private Markets | Iconoclast Summit 2024 - video Dailymotion

Forbes

The Democratization of Private Markets with moderator: Moira Forbes, President and Publisher, ForbesWomen and EVP, Forbes and panelists: Anne Valentine Andrews, Global Head of Private Markets, Manulife Investment Management, Suyi Kim, Global Head of Private Equity, CPP Investments and Bruce Lee, Founder & CEO, Keebeck Wealth Management.  Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript  Stay Connected Forbes newsletters: https://newsletters.editorial.forbes.com Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com  Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.

Transcript

00:00For the next conversation, the democratization of private markets,

00:04please welcome moderator Moira Forbes,

00:07President and Publisher, Forbes Women, and EVP, Forbes,

00:11and panelists Anne Valentine Andrews,

00:14Global Head of Private Markets,

00:16Manulife Investments Management,

00:18Sooyi Kim, Global Head of Private Equity,

00:22CPP Investments, and Bruce Lee,

00:25Founder and CEO, Keebeck Wealth Management.

00:29I feel like my brain has gotten bigger

00:31in just a matter of a few short hours,

00:34and it's going to continue to do so with my panels.

00:37My panel right now, I'm so excited because this morning,

00:41we've been talking about the transformative forces

00:44reshaping the landscape across the industry.

00:47And what I love is while there's definitely headwinds

00:50and some dark clouds and concerns,

00:52there's lots of opportunity as well.

00:55And today we're going to talk about

00:57the democratization of private markets.

01:00What are the forces at hand?

01:02Where are we in this process?

01:03And what does it mean for the different stakeholders

01:06really as we're in the nascent stages of this?

01:08And I love this conversation because we have leaders

01:11across a number of different areas of the ecosystem.

01:14So thank you so much for joining us today.

01:17Anne, I'm going to start with you.

01:18I'll reach over a little bit.

01:20Manulife Investment Manager,

01:22you're a leading global asset manager.

01:25You have a really diverse private markets platform.

01:28You're focused on investments through a sustainability lens,

01:31positive impact and the like,

01:33but you have also extraordinary exposure and depth

01:36in a number of different areas.

01:38To level set this conversation,

01:40I would love to have you share your perspectives

01:43on how the private market has evolved

01:46before we go into maybe some of the trends

01:48as to where the specific areas of investment opportunity are.

01:52But what are these mega trends?

01:53And from your vantage point,

01:55how do you see where we are today?

01:57Yeah, great.

01:58And thank you.

01:59And it's great to be here.

01:59I think the last time I was in this room,

02:01I was at an Australian-American ball.

02:04So it's great to be here and to see everyone.

02:06Thank you to Forbes for hosting.

02:08So I've been around for a while now.

02:10And the beauty of that is that you do see

02:13how much things have changed.

02:15And so the big thematics in the world of privates

02:19are a huge diversification.

02:22Things have really broadened out.

02:25You mentioned infrastructure,

02:28where the leaders in natural capital.

02:31But if I went back in time 10 years,

02:33most people were just talking about private equity.

02:35That was really the big game that was in town.

02:37Everything was private equity funds.

02:41And even the big private equity firms

02:43weren't very diversified.

02:45And so you fast forward to today

02:48and you think about all of the opportunities

02:51in the private markets.

02:53I always like to quote the statistic

02:55that there are way less companies in the public markets.

02:58So 30 years ago, there were 8,000 US public companies.

03:01Today, there's only 4,000.

03:03So if you wanna get access to where alpha is being driven,

03:06you wanna get access to the megatrends

03:08that we're gonna talk about,

03:09you have to participate in the private markets, right?

03:12It's essential to get access to these private markets.

03:15So the other big trend we're seeing is the democratization,

03:17which is obviously the panel discussion.

03:20Beforehand, it was just institutional investors

03:23who would be able to invest.

03:25I could invest because I worked in private markets.

03:28But if you were the average person on the street,

03:29you couldn't get access to all of these sorts of deals.

03:32So that's another huge trend.

03:34So expansion of asset classes, democratization.

03:38And you mentioned more of the megatrends.

03:41I think this is, you're gonna hear a lot about this today

03:44if you haven't already, decarbonization of the world, right?

03:48We need to urgently decarbonize everything.

03:50And it's not just the energy world.

03:52And energy is actually easy to decarbonize, right?

03:54Because you put up renewables and that solves that.

03:58But what about decarbonizing buildings,

04:01decarbonizing agriculture, decarbonizing meat?

04:04Cows are the worst thing on earth for the environment.

04:07So all of these different decarbonization trends,

04:11and then you add on AI, you add on digitalization,

04:16you add on how we're living, we work,

04:18we do everything on our phones, we shop on our phones.

04:22So just these huge megatrends are gonna continue

04:25to provide just private market opportunities, right?

04:29Because it's very hard if you're a listed company

04:31to invest in these early stage decarbonization measures.

04:36So I would say much more versatility,

04:38much more broad access, less public companies,

04:41and then also investing against these huge megatrends

04:46and that's what's happened.

04:48So things are changing fast.

04:50I mean, 10 years ago, we weren't talking

04:51about decarbonization at a conference like this.

04:54If someone said that, people would say,

04:56ooh, they're green, greeny people, right?

04:58That's just 10 years.

04:59So imagine where we're gonna be in another 10 years.

05:02And I would imagine that pace of change

05:03is gonna only accelerate.

05:06Suyi, Canada Pension Plan is one of the world's

05:10largest pension plans, over $600 billion Canadian dollars

05:14in assets under management.

05:16Huge scale, huge insight into this space.

05:19We were talking earlier about the private equity landscape

05:22and Anne mentioned just the sheer volume

05:25of private companies right now, lack of activity,

05:29a lot of dry powder and the like.

05:31How are you seeing this from your vantage point?

05:34How are you looking at private equity

05:37and where are the opportunities that may emerge

05:39for you all on the institutional side

05:42as the retail sector starts to open up?

05:45Okay, thanks, Moira.

05:47I'm really honored to be here.

05:48Thanks for inviting me for this session.

05:51I would agree with everything that Anne said.

05:53Lots of big trends that private investors

05:56can take advantage of.

05:57As Moira said, we have one of the largest

06:02private equity pool in the world.

06:05I manage currently about 110 billion US dollars

06:08of investments on the ground

06:11and that actually represents more than 4,000

06:14underlying portfolio companies.

06:16So I get to see big trends on what is happening

06:18in private equity markets as well.

06:21I would say that what I have seen in the last 10 years

06:24or plus is that this market has grown tremendously.

06:28So if you look at one segment of the private equity

06:30investments, buyout, which is one of the most active

06:33and high performing segment,

06:35it used to be a trillion dollars market.

06:37Now it's more than three trillion dollars.

06:40So that's one big trend that's growing really fast.

06:42But we all know that after the fast rate adjustment

06:45that we saw in 2022 and 23,

06:48private equity market is going through some adjustments.

06:51I would say that that is more like multiple adjustments

06:54that you need to see.

06:55It is natural because LBO model is run by

06:58your terminal value and multiple of EBITDA

07:01or multiple revenue that you're willing to pay for this.

07:04So we have seen for the last two years some adjustments.

07:07I am seeing now the activities picking up

07:09after some of those adjustments and lots of values

07:12of the private equity companies growing into the dollar sign

07:16with the fast growth that we're seeing

07:18for the underlying portfolio companies.

07:21One other trend, which is a topic of today's discussion,

07:23democratization of private markets.

07:25Yes, the retail investors coming into the private

07:29investments as well as private equity market

07:31is another big trend.

07:33When you step back and look at it, that's really natural.

07:36There are two big trends that you're seeing

07:38that enables those.

07:39One, I would say that lack of DPI.

07:42DPI is the cash distribution coming back.

07:46So one of the stats that I saw is that

07:49if you have invested $1 20 years ago in buyout,

07:54you would have received in DPI of cash back

07:57less than a dollar after 20 years.

08:00You'd be investing constantly, which generated good returns,

08:02but you haven't actually seen your cash money coming back.

08:06Venture and growth is even worse.

08:08You have gotten maybe, if you put $1,

08:10you have gotten 70 cents back as a cash back.

08:13So institutional investors need the DPI,

08:15money coming back to be able to reinvest.

08:18So where do you get the capital?

08:20It's natural that you look at the retail markets.

08:22So that's one big enabler.

08:24Second one is the technology.

08:26In the past, if you have a small ticket site

08:27to get into any private equity funds,

08:29you had to be $10 million at a minimum.

08:33Otherwise, you wouldn't take it.

08:34Otherwise, your fund will have too many investors.

08:37It will be too much burden,

08:38administrative burden for you to deal with.

08:40But with the technology that we have now,

08:43it is possible to have wider net and many more investors.

08:48I think that is making this possible.

08:51What does that mean for the institutional investors?

08:54We need to think about what our strategy is.

08:57With more supply of capital,

08:59it is natural that the return can get pressured,

09:02valuation could go up.

09:04Having said all those, I do have very firm,

09:06this is last point,

09:07very firm view that private equity has inherent advantage

09:12in a sense that it has the governance arbitrage.

09:15What do I mean by that?

09:17It's private equity has a very strong and motivated owners.

09:21They're really motivated to make two and a half

09:23to three times money in five to six years.

09:26And then they will find a way to make that work.

09:29But appreciate those thoughts of understanding

09:32from that vantage point, the retail investor.

09:35Bruce, you work with very high net worth families.

09:39And this is obviously a conversation, as you know,

09:42that's at the forefront of many of the individuals

09:45in this space.

09:46What's unique about high net worth individuals and families

09:49is they may have that multi-generational approach

09:51that allows them to maybe have a time horizon

09:53that's a little bit different

09:55from the retail investor and the like.

09:58When you're having these conversations

10:00and when you're looking at the opportunities

10:02for the high net worth individuals,

10:04where are they leaning into most?

10:07And what are the risks and the types of dynamics

10:10of this opportunity that they may not fully understand

10:14or appreciate yet?

10:16Well, first of all, that's a terrific question

10:17that really is difficult to just explain in a sentence.

10:22However, that being said,

10:25when you talk about generational wealth being transferred,

10:27so let's just go top down,

10:29and you think in terms of some $100 trillion

10:32that's gonna be transferred over the course

10:33of the next few years,

10:35that tailwind is so dramatic

10:38that you have to kind of take a look at the attributes

10:40of what that all means.

10:42And so when you have a patriarch of a family,

10:45they've built their wealth from 30, 40, 50 years ago,

10:48they're gonna have a completely different view

10:50on what they view as private markets.

10:53They might go into the standard buckets

10:54of leveraged buyout, structured credit,

10:56whatever those case may be.

10:58But then when you're talking about the second generation

11:00that is about to inherit these dollars,

11:03and then so if you think about this bottom-up statistic

11:06that in fact more millionaires

11:09are gonna be inheriting money

11:11than actually millionaires creating opportunities,

11:14that creates for very crowded spaces.

11:17So the dynamic that intertwines with both those parties

11:20and candidly, the younger generation,

11:22a little more aspirational, a little more risk-taker,

11:25but possibly as the old man would say, so to speak,

11:28hey, we gotta have outcomes that drive results,

11:32KPIs, whatever the case may be.

11:34Whereas if you take a look at the genuine disruption,

11:37the younger generation says, ah, I have an idea,

11:39and they're gonna go for it.

11:40So it's between those two dynamics

11:42where you have to create the discipline

11:44in order to create those outcomes,

11:47but you need to also have the idea.

11:49And that to me is where that dynamic tension exists.

11:52And so that's why you're seeing

11:54not only democratization of private equity,

11:57I personally think that although I believe these verticals

12:00from everything that we've been speaking about here

12:02in the panel are gonna continue to grow,

12:05it's the attribute of who's also gonna be an investor,

12:07which then is kind of what I think

12:09is the most undervalued space is women.

12:11And women are gonna basically take over that particular,

12:15well, okay, I'm here with.

12:16We are right now, Bruce.

12:18I have two daughters as well,

12:19so I'm literally surrounded by all women.

12:22But I find that there are different types of investors.

12:26And so as opposed to just talking about

12:28the democratization of private equity,

12:30it's the style in which that disruption is going to occur.

12:34Then you put on top of it AI, digitization,

12:40and these technology platforms.

12:41What I've been noticing, and I've said this before,

12:45back in the 80s and 90s when I was first an investor,

12:49you would just drop money into a large bucket

12:50and you'd drill deeply.

12:52Today, I view it as financial fracking.

12:54You have to go over a wider base, a longer path,

12:58shorter, more capillary type outcomes,

13:01not to suggest that if you're up the vertebra of investments

13:04that you're not gonna buy these larger funds

13:06because it's necessary in any important diet.

13:08But then when you start taking a look at the demographic

13:11and the disruption of that,

13:12you're talking about a market that could potentially

13:16possess a $10 trillion to $20 trillion market opportunity

13:20over the next 10 years, 20 years.

13:22That's gonna be predominantly, in my opinion,

13:24controlled by women.

13:25And a market opportunity where still wealth exists right now

13:28but isn't necessarily, there's a huge investment gap

13:31as it relates to women's participation

13:33in these opportunities. Gigantic.

13:35And you bring up a good point

13:37in terms of these larger macro forces,

13:39including who's investing and what their priority is.

13:43Anne, you talked about the importance of sustainability

13:47and this focus in terms of really the positive outcomes

13:51for the world in terms of the core pillars

13:53that you all are invested behind and the like.

13:57Can you talk about where you see those opportunities exist?

14:02You talked about timber, infrastructure, real estate.

14:06There's sometimes some misperceptions

14:08as to where opportunities exist within those sectors

14:12and where you see the greatest growth and dynamism

14:15the market may not appreciate right now.

14:18Yeah, I know.

14:19And again, at Man Your Life,

14:20we have a very broad platform, over 100 billion,

14:23across all of those sectors,

14:26credit, PE, real estate infrastructure, and timber and ag.

14:30We are the biggest leader.

14:31We are the number one leader of natural capital,

14:33which is taking care of our mother nature, so to speak.

14:38So trees are the original carbon sequestration tools.

14:43So it's important to think about that.

14:44And I don't think enough gets talked about

14:44in relation to that.

14:45But taking a big step back,

14:48I think the world has become much more complicated

14:52given the rate increases,

14:54given the DPI stats you talked about, right?

14:56It used to be, back in the day,

14:58private equity was very clear.

14:59It was much higher returning.

15:01Infrastructure, real estate, lower returning,

15:03and credit was down here.

15:05Now with the megatrends, decarbonization,

15:08digitalization, demographic, all of the things we're seeing

15:12and also just this change of interest rates,

15:15things are becoming a little bit more harder to discern.

15:18So I like to think,

15:20and given private markets is growing so much,

15:23I like to think that we're becoming more attuned

15:25to sort of thematic investments, right?

15:27Because as private investors,

15:29we can't trade in and out of a deal very quickly, right?

15:32We have to put money in the ground today

15:35and then someone's gonna buy that in 10, 15, 20 years.

15:38So I wish I had a crystal ball

15:41that's gonna project everything, but I don't.

15:44And frankly, I'm always interested

15:48that everyone thinks very, very close term, right?

15:52Like, oh, rates have gone down, rates have gone up.

15:53But the best thing is to be very diversified

15:56and get access to a lot of different asset classes

15:58because I don't care who you are,

16:00no one exactly knows what's gonna happen in the future

16:03apart from investing against these very large trends.

16:06Bruce, you just mentioned one,

16:08women are gonna become more in charge of capital,

16:11but also we know that the world needs to decarbonize.

16:14We know the world's growing in Asia

16:17and emerging markets more than it's growing here.

16:20We know people are getting older.

16:21We know people are living less well when they're old.

16:24I mean, all of these big trends,

16:25that's how I think about putting money against it.

16:27So we talk about decarbonization,

16:30investing into renewables, investing into storage.

16:34We invested into a company that builds battery storage

16:38in urban areas here in New York.

16:40Why?

16:41Because the wind doesn't blow and the sun doesn't shine

16:44always when you want it, right?

16:46And the grid is unstable at best.

16:49So we then need to have storage

16:51so that we can all turn our power on on days like today

16:54and not worry about brownouts.

16:55So all of these really important trends that are out there

16:59that we all know about, as a private markets investor,

17:02we're putting money behind.

17:03Same with natural capital, right?

17:06We wanna invest into sustainable forestry.

17:09We wanna invest into sustainable agriculture

17:12to be able to make sure our children and their children

17:15are gonna be able to live in this world

17:18and make money at the same time.

17:19I think that's the important point, right?

17:20None of this is charitable.

17:22So to me, that's the important thing,

17:25like putting money where we can make a big difference,

17:28but where we can also create value for our investors.

17:32And that is the big trend, right?

17:34These thematics that we're now investing against.

17:37And that's not green, that's just good business.

17:40And we believe that sustainability is good business.

17:45And those thematics,

17:46I think what I appreciate what you all do

17:48is that you create the products

17:49and the opportunities for access

17:52for retail investors and the like

17:55to be able to start to have entry points

17:57in these areas that are really important.

17:59So it's these themes that we're investing against.

18:02It's whose money is being invested on both sides,

18:05both in terms of wealth creation for women,

18:07but also in terms of women at the helm

18:10of these really significant institutions

18:13deploying capital such as yours, Suyi.

18:16We were talking earlier,

18:17when you look at your purview,

18:21you're not moving a ship, you're moving a freight car.

18:23I can't even describe just the size

18:26of the type of institution and opportunities

18:29that you're shifting and the scale that you have.

18:33I would imagine that there's a lot of opportunities

18:36to sort of make big bets, but as an aggregate,

18:39it may not move the ship necessarily.

18:41That being said, what are your perspectives

18:44as you're sitting in your chair right now

18:47that you think will have the strongest

18:49or likely have the strongest performance

18:51in the next 12 to 36 months

18:54that is shifting your perspective

18:56than maybe if we had this conversation five years ago?

19:00You can say that I'm biased,

19:01but I'm biased for private equity.

19:04Again, I have a huge faith in private equity asset class,

19:08and it provides, I would say just to settle down

19:10to two things.

19:11One is it provides a diversification

19:13and access to the part of the economy

19:16that you cannot access through the public markets.

19:19I talked about how many companies we have

19:21as an underlying portfolio companies.

19:22It's a huge part that unless you invest into private

19:25and private equity, you won't get that equity access.

19:28Second thing private equity provides

19:31is a long-term outperformance versus public markets.

19:35Despite the size that we have, $110 billion,

19:38we have for the last 10 years generated

19:40more than 16% net returns.

19:42That's net of all the operating costs,

19:44net of all the allocated costs, everything.

19:46So it, hands down, beat the public market returns.

19:49So this is an asset class we continue to firmly believe

19:52that will outperform.

19:55There are multiple strategies within private equity

19:58that I think at any given point that will do better

20:01than other type of strategies.

20:03Under me, there are all type of private equity strategies,

20:06whether it's a buyout,

20:07whether it's gross equity investments,

20:10whether it is Asia markets or the European markets

20:13or U.S. markets, whether it's a secondary,

20:15secondaries including LP secondaries

20:17or GP-led transactions, fund investments, all of that.

20:21I have all of those strategies.

20:22For example, for the last two years

20:24and including this year as well,

20:25the secondary business has been very active.

20:28And it provides very attractive risk-adjusted returns.

20:31And secondary business is a strategy

20:33that provides liquidity to the private equity industry.

20:36So given what I said earlier, that's natural.

20:39So I think that opportunity will continue to last.

20:42And I think the opportunity to buy very attractive businesses

20:45and then compound your returns

20:47for the private equity owners continue to be there.

20:50It's helpful to see where those openings

20:52and new windows are emerging.

20:54Bruce, as we wrap up, again,

20:57you work with family offices,

20:58high net worth individuals and the like.

21:02I would love to get your perspective

21:03on what this means for portfolio allocation of the future,

21:08the traditional ratios that family offices have approached

21:13and where you see them placing the biggest bets

21:17in terms of the types and breadth of opportunities

21:19that now exist in this space.

21:22I think the standard 60-40 model

21:24is something that's been so ground down

21:26over the last 30 to 40 years.

21:28You don't really even need an advisor for that.

21:30There's plenty of surrogates out there

21:32that you can pay literally no fees

21:34and accomplish those goals.

21:36So I think from the perspective

21:38of where advisors are going with their clients,

21:41as the panel has been speaking about,

21:43alternative investments are becoming

21:45a much, much greater discussion.

21:47But I think it's being camouflaged

21:49by talking about how these alternatives are equity-like

21:52or fixed income-like.

21:54And so there are some correlative aspects to it.

21:57And I think the most challenging thing,

21:59and I'll just kind of wrap this up for my theory,

22:01is the Federal Reserve was primarily subsidizing

22:05a lot of the risk for over the last 20 years.

22:07And today with an inverted yield curve,

22:10what we're seeing is a look and a view

22:13that makes most people feel uncomfortable.

22:15I think everybody is waiting for that next shoe to drop.

22:18I don't know when it's gonna happen

22:20and no one wants to be left holding the bag.

22:22So when you have an inverted yield curve,

22:24a Federal Reserve who really, really wants to lower rates

22:27but can't because the U.S. is so strong in its economy,

22:30the key isn't is alternatives the best place to be,

22:33which I agree with the panel it is, it's when.

22:37And so the discussion then revolves around

22:40what do we do to take less risk over a longer period of time

22:44and how do we monetize that risk

22:47for the next five to 10, 20 years?

22:49Because everybody knows if you invest pre-08,

22:53versus post-08, those outcomes are vastly different.

22:57And so I think that is where we are at this moment in time

23:00and I think that's where

23:01I think the conversations are revolving.

23:03So a new framework for approaching this.

23:05Well, thank you all for your insights

23:08and the optimism in terms of where the opportunities exist

23:11and what's ahead.

23:12Thank you.

23:13Thank you.

23:14Thank you.

23:15Thank you.

23:16Thank you.

The Democratization Of Private Markets | Iconoclast Summit 2024

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