00:00First off, I just want to get to the breaking news.
00:03Bloomberg Scoop suggesting that China is mulling new stimulus for its property sector.
00:08That's good news.
00:09Well, of course, China's the second biggest economy in the world.
00:12So a stable, growing economy is good for everyone.
00:16So what do you make of this stimulus?
00:18Because the property sector has been leg-loster,
00:22and that's part of the reason why it's been so difficult to reverse the economy and also the market.
00:27I mean, the Chinese economy is going through an adjustment, and it has been since COVID,
00:33and the froth has come out of the Chinese property sector.
00:37And that's probably appropriate over time, but managing that transition is important.
00:41A lot of the Chinese people have investments in property,
00:45and the wealth effect has an impact both in China and then on the rest of the world.
00:49So managing the economy carefully and steadily is a good thing for sure.
00:53And managing expectations is also another thing.
00:56We know that investors have been waiting for the stimulus for the property sector.
01:00Will this be enough to reverse sentiment?
01:02Well, I think everything helps.
01:06What would help sentiment in the US economy?
01:09Because I know you're among those who have pulled back from the US market
01:13because you're questioning the exceptionalism of that market.
01:18I wouldn't quite put it that way.
01:19I think the US is the biggest economy in the world.
01:22It's the deepest capital markets, and they've performed exceptionally for decades.
01:27On the other hand, it is by far our biggest exposure.
01:30It's almost half of the whole fund.
01:32And so for us, it's really about a risk reduction.
01:35The new administration, it's been in for coming up to a year.
01:40It's changing a lot of the rules, a lot of the things around trade, around capital flows, taxes, immigration.
01:47And it's just increasing risk for long-term investments because there's a bit more policy uncertainty.
01:53So we think it's prudent to reduce the exposure a little bit in that environment.
01:57If you reduce your exposure in the US, where are you adding your exposure?
02:01Well, that's the challenge, and a lot of people say there's nowhere to go, so I'll stay in the US.
02:06I think from our point of view, we're very interested in Japan.
02:10Yes, the valuations have increased, but there's a lot of interesting things happening there.
02:15Europe, I think, is picking up fiscal stimulus.
02:18In particular, Germany has a lot of policies.
02:20And actually, Australia is a pretty attractive case to invest.
02:23So we now, from our point of view, we're bringing money home.
02:28Let's unpack that, and I want to start with Japan.
02:31They are concerned about the stimulus package, perhaps a government that is willing to spend more than people would like.
02:38Would that perhaps impact the way you look at the market?
02:42Well, if you take a step back, Japan's really been de-levering since the bust in 1990.
02:47And it's reached the end of that cycle.
02:49So the corporates are now de-levered, the households are de-levered, and they're ready to start to take some equity risk again.
02:57And we've seen that put supply into the equity markets, interest rates have started to improve, inflation's come back.
03:06As long as that can be managed, all of that's a good thing in the long run.
03:09So, yes, there'll be bumps and adjustments along the way, but the broad trend here is that there's a lot of Japanese savings.
03:17Those savings are starting to come home, and they're starting to be invested in riskier assets.
03:22That's good for Japan, and that's good for the markets.
03:24So what's attractive in Japan?
03:26Well, we're seeing it across a lot of things.
03:28Such as?
03:29Not just the market, but private equity.
03:33There's some specific private equity strategies in Japan.
03:36Actually, we've started active Japanese equity strategies because not all the companies are run for the shareholders as well as they should be, but some are, and increasingly they are.
03:46And even in things like real estate and credit, there are interesting things to do.
03:49And realistically, what kind of returns can you expect from a market like Japan?
03:53We're looking for the same returns as we are everywhere else in the world.
03:57And in the areas we're investing in, we're getting those.
04:00And you talked about bringing money back home.
04:03What is looking attractive in Australia?
04:05So the ASX is certainly on the expensive side, but Australian infrastructure, private credit, real estate has bottomed and is starting to improve, and even private equity.
04:17There's a growing venture capital industry in Australia.
04:21All of that looks really interesting to us.
04:22But isn't private equity a crowded space now?
04:24There's a growing concern that it is.
04:26Well, in Australia, it's the banks that fund most small and medium businesses, and that's very increasingly hard for them based on the regulatory capital system.
04:35So other forms of financing of growing businesses actually helps the whole economy grow, and there's a lot of opportunity.
04:41If you take a step back and look at the private space as a whole, of course, there are concerns around private credit we heard from Goodluck expressing such concern.
04:52Do you share that view that Goodluck has expressed?
04:55I don't have a concern that there's a bubble in private credit or that it's going to blow and it's going to be a systemic risk.
05:03We do quite a lot of private credit.
05:05I think private credit is for sure good for the economy because banks are much more levered than private lenders, and there's more financing available for companies to grow.
05:14But you need to have strong credit skills, and you don't want to lever your portfolio.
05:18So the way we invest in that is through very strong credit-focused investment managers.
05:24Those sort of investments will be fine.
05:27But I do think there's a case for regulators to look at some of the outlier actors who are leveraging their portfolios, take undue risk, and are largely selling to retail investors.
05:37What signs are you looking out for before you start worrying the way Goodluck is worrying?
05:45Well, I don't think we can predict a correction.
05:48We don't pretend we can.
05:50So I think we're talking about building resilience into our portfolio, and we, in fact, put out a discussion paper on that earlier this week.
05:57There's so many uncertainties in the world right now because of the geopolitics, more populous politicians.
06:03Everything can turn on a dime, and we can't predict it.
06:07And so really we're thinking deeply about what are the wide range of scenarios that might happen, what would happen to our portfolio in each of those scenarios, and do we want to make adjustments?
06:18And I think every investor and really every business has to think about an uncertain future and how they can manage all the different paths that might arise.
06:27Rav, in our conversation so far, I've not heard India, and I've not heard AI.
06:31Why is that?
06:32Well, we're certainly a fan of AI.
06:36Is there a bubble?
06:37Well, maybe in some parts of the ecosystem, but it is going to change the world.
06:41We do a lot of early-stage venture investing, and based on what I see our portfolio companies doing, it's coming quicker and in a more impactful way than most people think.
06:51I think it will help corporate margins, but it will also help deliver better services to the average person, especially in areas like healthcare and education, areas where we struggle to get enough teachers.
07:04India is an important place.
07:06It's a growing economy.
07:08We keep a close eye on it.
07:10There are a lot of investments there, but they need to deepen their capital markets and deregulate if they want to hold themselves up to attract capital along with these big financial market centers that I've been talking about.
07:22Before we let you go, we had numbers from NVIDIA just shortly.
07:27I'm just wondering what you deem, how you view concentration risks, given that all eyes were on NVIDIA to dictate where the market goes from here.
07:36Well, I think history tells us that when you have a single dominant company, eventually they get disrupted.
07:44Sometimes they disrupt themselves, and let's hope that they do that for their shareholders.
07:49From our point of view, we want to spread our bets, so we do think about concentration risk, but we don't think about that just in terms of the US equity market or even the equity market.
07:58We're looking across the whole portfolio.
08:00And so we have a pretty manageable exposure to any individual company, including NVIDIA.
Be the first to comment