- 2 months ago
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00:00I need like three hours with you trying to figure out exactly what's happening in the world.
00:04But governments in countries such as the UK, Canada and Australia are intensifying pressure on pension plans to actually invest more domestically.
00:12Are you concerned that your government will do the same?
00:15It's a topic domestically. As you mentioned, it's a topic around the world as countries around the world are thinking about big infrastructure buildups,
00:23which if you take a step back, that's a good thing for investors like us, investors like us who want to invest in long duration assets such as infrastructure,
00:34especially things like pipelines, toll roads, these type of assets.
00:39Ultimately, though, what needs to happen is competitive capital comes into these opportunities.
00:44So I think there's probably a lot of discussion about it.
00:46I think the noise is probably bigger than the reality with an understanding that the issue right now is opportunities.
00:53The first step is to start creating the opportunities and then the institutional investors will come in.
00:59And there's been a lot of talk domestically about what's the right source of capital at what stage of development.
01:04Pension plans aren't always the best source of capital for early stage development,
01:08but they can be there as a pretty reliable, trusted source of capital later in the development cycle.
01:13Are you looking at specific funds or places to allocate more capital in Canada?
01:19Canada is an important market for us.
01:20So the U.S. is our biggest market with respect to investment destination.
01:23And Canada is second.
01:26And we are invested across the public markets, the private markets.
01:30I think what we would love to see is more opportunities on the large-scale infrastructure side,
01:35whether that be data centers, whether that be ports, whether that be LNG.
01:39And there's a lot of discussions going on right now domestically about building some of this critical infrastructure,
01:44which we're encouraged by.
01:45Will it come to, I mean, do you need another team to look at it or how does it work?
01:50I mean, again, are there any thoughts about preempting or you're just treating it as all other investments?
01:55Like all other investments, and we don't need a special team.
01:57So we have pretty well-developed infrastructure energy teams.
02:01They invest across the globe.
02:03They invest in Europe and U.S., Canada.
02:05And they're looking, they're actively engaged in opportunities.
02:08Again, some of these, you know, at the early stages, they've got to work through the permitting.
02:11They've got to work through where government is really the right people to shepherd these projects early stage
02:16before some of the investors come in.
02:18John, many alternative asset managers are also ramping up efforts to basically attract retail investors.
02:23What does that mean for, you know, does it mean that retail capital will just take a lot more of the co-investment pie?
02:31And what does that mean for institutional investors?
02:32I think this is a big topic of conversation and one we spent a lot of time thinking through.
02:36I think with respect to retail, it's still early.
02:39It's still very early on how retail is going to play.
02:42I can see many scenarios where it's synergistic to the traditional institutional investors.
02:48But at the same time, I look back and take the private equity market.
02:51We've been investing in a very successful model where I think it's win-win for the general partners, win-win for us,
02:59where we invest in blind pool funds and then participate in fee and carry advantage co-investment and co-underwriting.
03:06It's worked for 25 years and it's worked for everybody for 25 plus years.
03:11And what retail does, I think, is still in the very early innings.
03:16So is there a point, and I don't know whether it will take a long time, that I guess the pool of co-investments available for institutional investors will shrink?
03:25Or is it something that you talk about but not worry about?
03:28I think we talk about it, but we don't worry about it in many ways because we see this, again, this relationship as being very symbiotic and have been very much win-win.
03:37And we've stayed through and stayed committed, let's say, to private equity through the financial crisis, through COVID.
03:44Even now when there's been kind of a distributions have not been where they've been historically.
03:49We're still very committed to the asset class, very committed to these partners that we've had for 20 years.
03:54And so we are confident that this model will be able to keep being win-win for both the general partners and the institutional investors.
04:01John, we've made it to the end of 2025.
04:03Congratulations to everyone in the markets because it's tariffs, it's inflation, it's Fed.
04:08We've kind of had it all.
04:09There's like, you know, every week there are worries about an AI bubble that never really come to fruition.
04:13Is it going to be, you know, most of the same themes for next year?
04:16Yeah, I think every year at the end of the year you reflect and say this has been the most volatile, challenging year we've ever worked through.
04:21This year may actually be it.
04:24But at the end of the day, when you take a step back and look at the markets, they've been pretty resilient and pretty robust.
04:29We continue to worry about valuations in the market.
04:34We have been knowingly underweight.
04:37The AI theme in the U.S. equity markets, which from a relative performance perspective is painful.
04:43But who we are, the purpose the organization has, we have not been participating in that.
04:48So going into next year, I think we would expect some of the same themes.
04:54But for us, what's important is to have conviction and to stick to your fundamental investment beliefs.
04:59Do you worry about an AI bubble or an AI data center bubble or AI infrastructure bubble?
05:05I think we'd worry about valuations, worry about valuations.
05:09And I think you have to separate, you know, the technology may very well fundamentally change the world.
05:15But it could still very much be overvalued at certain points in time.
05:20On the data center side, we are active in data centers around the world.
05:23And in many places around the world, the data center theme is as much about cloud migration as it is AI.
05:28So there's still interesting opportunities.
05:32It is actually a little bit location specific.
05:34And I think you have to be very thoughtful about where you're investing in data centers.
05:39I know you've also been very active in the secondaries market, which is a bit of a hot spot for investor interest recently.
05:45Do you think it's such a hot market at the moment because buyers want to flip assets to retail investors?
05:50Or is there just, you know, longer term opportunity?
05:53My personal perspective is the secondary market is an important market within private equity and within the private investments markets in general.
06:01I think about the stock and the flow and the stock being the existing portfolio and the flow being the new opportunities.
06:07A lot of focus and fixation on the flow and the new deals and the M&A.
06:12But we have a $140 billion Canadian PE portfolio.
06:17And there's a lot of pressure on the teams to manage that and to portfolio manage it.
06:21And I see the secondaries market as a very effective portfolio management tool.
06:26So we put a lot of emphasis on the secondaries market.
06:30And I'm always encouraging the teams to use the secondary market as a portfolio management tool.
06:34Can you talk to me a little bit about hedging U.S. dollar assets?
06:39Does that continue into 2026?
06:41For us, no.
06:42No.
06:42And we actually don't hedge U.S. dollar assets.
06:45We tend not to hedge that much currency, a view that over the long run, currency doesn't have a, over the very long run, it's not going to have a big impact on the short run.
06:55It can add a lot of volatility to the portfolio.
06:57But we actually largely stay unhedged with the view that hedging costs money and we don't have an expected return from it.
07:05So we wear the short-term volatility and with a view that it'll add long-term value.
07:09So U.S. dollar, I know a lot of discussion on U.S. dollar, we still largely have it unhedged in our portfolio.
07:15And you have to think about the Canadian U.S. dollar relationship, which is a little bit different than the Euro-U.S. dollar relationship.
07:21And that's never, I mean, your approach to it has not really shifted.
07:24It hasn't shifted historically.
07:25And as the plan matures, it's certainly something that we would revisit.
07:29But today we've largely stayed unhedged.
07:31What's your take on U.S. assets, full stop, and dollar into 2026?
07:36So we had at the year end 47% of our investments in the U.S.
07:42And we're a big believer in diversification.
07:45And diversification is an act of humility.
07:48Another way we invest the money is we're always invested.
07:51We don't tie markets.
07:52We don't pick up, we don't hoard cash.
07:55So we always stay invested.
07:57And every time we have a discussion around, do we want to sell geography A?
08:01Then the question is, what are you going to buy with it?
08:04Right.
08:05What are you going to buy?
08:06If we want to sell U.S., what do you want to buy?
08:08And right now there's no safe harbor.
08:11There's no place that you can go to that you can see as a safe harbor and is without risk.
08:17I think you can get yourself kind of worked up almost every geography and region in the world.
08:22But the U.S. continues to be the deepest, most liquid, most sophisticated capital markets.
08:29And I suspect most people will continue to be heavily allocated to the U.S.
08:33John, why do you think?
08:35I mean, you're right, there's not a natural, I guess, haven.
08:38Is it because things are changing too fast or we're redrawing our economies?
08:43Or what does it mean for markets longer term?
08:45I think there's a lot of reasons.
08:48Some of it might be geopolitical.
08:51I think historically people were able to invest globally, invest around the world with only a secondary consideration for political risk,
09:00a secondary consideration for geopolitical risk.
09:03Over the past five years, that's changed.
09:05And people need to think long and hard about how they invest in different countries in the world and how these regimes are changing.
09:12John, you've also been outspoken against the use of PIK interest in the past.
09:17Where are we on that now?
09:20With respect to pick interest?
09:21Yeah.
09:22Yeah, I think within the private credit markets, I know, again, another hot topic.
09:25I'm thinking about that.
09:26We're hitting the hot topics this December.
09:28Getting ready for 2020.
09:30Getting ready for next year.
09:32Pick interest is, I used to run the global credit business.
09:35Yeah.
09:36And pick was something we certainly had in the portfolio.
09:38And there's certainly times it makes sense.
09:41And certainly times it doesn't make sense.
09:42And certainly times where you would prefer to get cash interest.
09:47I think maybe just to comment out the credit markets in general, because I know it's been a hot topic.
09:52I think we continue to be actually reasonably constructive on the private credit markets.
09:56We think they play an important role.
09:58We think they actually help almost stabilize the broader credit markets.
10:01But the U.S. markets are pretty fairly valued.
10:04And if I look at our team and what they're doing, much more active in Asia and much more active in Europe than North America right now, where there's a lot of money in North America.
10:15Retail money has certainly come into the credit space.
10:18And we're seeing spreads pricing pretty tight.
10:21And we're seeing spreads pricing pretty tight.
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