00:00So I think on the near term, there is a high risk of a shutdown. And I think the questions investors and the markets are really thinking through is its duration and its severity.
00:10And I do think, as you noted, historically, when you look at medium to long term impacts to markets, it's not pronounced.
00:18But I do think, again, every shutdown is different. It's details, it's reasoning, it's rationale. And so I think what the markets and investors are really focused on, again, is its duration and its severity.
00:30So anything in access of one or two weeks would prompt you to reassess where and how?
00:38Yeah. Again, I think, obviously, the U.S. labor market is facing some headwinds.
00:43And, you know, kind of what's at stake here is, you know, a lot of the implications of federal employees and things of the sort.
00:49And so I do think it's yell can be pronounced, you know, and again, the duration will be very important, right?
00:56And the ultimate calculus on how markets react and, you know, price in this risk.
01:01What's the biggest concern here? You know, like perhaps when it comes to the data that the market needs to, you know, hazard a guess whether or not
01:10and the Fed will continue with its eating cycle, how deep, how far?
01:13Sure, sure. Yeah. Again, I think these are all, you know, things that are, it's difficult to be processed around, you know, today with what we know.
01:22I do think, you know, the path to, you know, kind of a good outcome in the near term, you know, seems less probabilistic.
01:30But again, I think these are kind of the components of the markets and investors are focused on.
01:34So, yeah, this is not shifting the needle for you, right?
01:37Because for you, there's no alternative to the U.S. market.
01:40This is the market you are fully invested in.
01:43Yes. And I do think, you know, ultimately, while we certainly pay attention to short-term market signals and noise.
01:49And again, this is not, you know, this is an important issue.
01:53But ultimately, we are investing, you know, for the 5, 10, 15 plus years.
01:57And so, you know, where we're really, you know, focusing more time on, you know, we're studying our, the structural long-term forces that are driving global markets.
02:05And that's really where our team is focused on.
02:09So, where are you invested? What's attractive? What's the theme?
02:12Yeah, no, absolutely. So, again, I think the three major structural drivers in the next 10 years is demographics, it's technology, and it's geopolitics.
02:22And where our team is really focused on, you know, are on the five megatrends of digital transformation.
02:29Obviously, AI is something everyone's talking about today.
02:34You know, obviously, COVID and geopolitics has exposed the fragility in global supply chains
02:39and also just the need for nations to build resilience and reshoring, right, into the calculus of their national agenda.
02:47Obviously, energy modernization is a huge thing, right, as you have AI exploding, just the need for energy, right?
02:54There's businesses like utilities that was not very interesting for a very long time that has suddenly, given the 40% surge in power demand, has become very interesting.
03:02And lastly, on, you know, financial empowerment, right, you know, obviously, the financial market is still early in its digitization transition.
03:12And this is also a very big story in Asia, right, around financial democratization, you know, providing more access to broader populations.
03:21And so, you know, these are kind of the longer-term trends where we're really focused.
03:25And, you know, so why aren't you in Asia in a bigger way?
03:29Because when you take a look at the themes that you mentioned, like demographics, technology, you find them in Asia, perhaps at a, you know, at a cheaper level.
03:37Yeah, no, absolutely.
03:38And, look, I think you're absolutely right.
03:40I do think part of the reason I'm here, you know, in Singapore is really to study, you know, kind of how does the Asia story, you know,
03:48you know, asking to, you know, to these five megatrends, you know, that I just shared with you.
03:52And I do think there are, you know, I think the broader, you know, the broader story, you know, Asia will contribute to global growth in a very big way, right.
04:00And it's also important to study the Asia companies and markets because, you know, about 30 to 40 percent of Fortune 500 companies, their end markets are in Asia.
04:11And it's amongst the highest growth, you know, portions of their revenue.
04:14And so I do think it's important to be here, you know, to be students of these markets.
04:18I do think holistically on an Asia private market standpoint, you know, obviously India and Japan aside, we're closer to maybe a trough than a peak, right.
04:28And so I do think, you know, kind of really studying this market at a time when not a lot of investors are, you know, laser focused, I think, could be a good opportunity.
04:36How about China?
04:37So as a, you know, as a tech space investor, we are not investing in China and Hong Kong, you know, obviously this is, you know, another component, you know, of geopolitics.
04:49I do think, you know, prior to COVID, you know, many U.S. investors, you know, including Adama Foundations, you know, pension funds, et cetera, you know, they were able to generate very strong returns, you know, in China.
05:01But, you know, obviously just given just this, you know, neck and neck, you know, competition, I do think, you know, as a U.S. investor, I'm no longer allowed to invest in China.
05:13Right. And in terms of asset allocations, have you made any adjustments given geopolitics, given valuations?
05:22Sure, sure.
05:22And, you know, how are you assessing the attractiveness of public and private markets?
05:27Absolutely. I think most institutional investors today have, you know, kind of quite robust, you know, public markets portfolios and concentration is a huge issue.
05:36Obviously, with the Mag 7 and things of this sort, I do think, you know, in the past two years, public markets have really outperformed private markets.
05:45And so it's been more of a challenging time, you know, with higher rates and slower growth for private companies.
05:51But I do think, you know, I do think against that backdrop, I am still a very big believer in private markets returns in the next 10 years.
05:58When you have control-oriented operational intervention in a company, you're able to really generate alpha.
06:06And also, in the venture-backed, more innovation economy, there is a creation alpha, you know, where you're creating something from zero to one, right?
06:14You know, there is alpha there still to be had.
06:16And so, you know, I do think a lot of investors, as they continue to grapple with, you know, kind of their ballooning, you know, public markets, you know, portfolios.
06:23You know, obviously, I think the excess returns going forward is probably narrowing a bit.
06:29But, you know, we're really focused on, you know, really upgrading and really solidifying our private markets portfolios across private credit, across real assets, and private equity going forward.
06:40If you're a big believer in the private space, are you looking to allocate even more?
06:44I know that in terms of private equity, you've already upped it from 16, I think 16, to 30 right now.
06:49Yeah, so we increased it to 20, our target is 20, and our allowable band is up to 28%.
06:57And so, you know, again, I do think the median returns in private equity is probably coming down long-term because you don't have the tailwinds of zero rate environments and what I would call unearned multiple expansion.
07:12But all that being said, I do think for the top quartile managers and for the best companies, they're still able to generate returns that are less correlated to public markets and really generate outsized returns, right?
07:25The delta between a median private markets manager and a top five percentile manager is still 1,500 to 1,800 basis points.
07:33And so, the winners still keep winning in a big way.
07:36I think what you saw in the past 15 years is Tier A, Tier B, Tier C investors all generated Tier A returns.
07:43Now, you're going back to a more normal market where only Tier A investors will generate those Tier A returns.
07:49If you're looking at returns, you'd be kidding yourself if you didn't hold gold.
07:53You know, some say it's not just about being a hedge anymore.
07:56You have to be invested in the yellow metal.
07:58Your thoughts on gold investments.
08:00Again, I think the fiscal situation of many, you know, large developed economies is a serious concern.
08:07And I do think many investors are very focused on different ways to hedge against, you know, kind of depreciating currencies and things of the sort.
08:15So, again, gold has been probably one of the best performing asset classes this year.
08:20That was hard to forecast, you know, precisely sitting here in January 2025.
08:25But I do think, you know, again, I do think as one of the key points is I think volatility, dispersion and change is here to stay.
08:35And that's good for skilled, active investors and managers, right?
08:39And I do think, you know, obviously the spike in gold prices is a result of increased, you know, volatility, dispersion and just viewpoints on currencies, right?
08:49And so, again, I do think that's good news for investors who are willing to get up every morning and really double down on their themes, pieces,
08:57and really be thoughtful about their tactical allocations and tilts.
09:01But, again, for the passive investor, it might not be the best.
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