00:00We end the week on a high, but wow, have we been riddled with AI doubts.
00:04Where has your mind been at?
00:05Yeah, it has been a really interesting tape in recent weeks and months.
00:08I mean, the debate around AI, the return on investment around AI,
00:14around the quality of the balance sheets, the war on the model front, right,
00:18between ChatGBT and Google's Gemini.
00:21And I think moving forward, markets are realizing this is going to be less of a competition
00:26on just the innovation, although the innovation is really important,
00:30but also on balance sheets and, you know, the show me the money,
00:34this kind of desire for markets to really see companies with AI-tied cash generation,
00:41which is a tricky environment to be in because if you want to see growth from AI but cash,
00:48you might need to actually let go of some cash in the near term, right,
00:52to invest in some of these infrastructure build-outs to ultimately get the growth that we're looking for.
00:57I mean, investors being asked to be patient.
00:58The word I've heard time and time again this week is discerning.
01:02Is that what you feel people are starting?
01:03It's not all boats are rising.
01:05We're picking our winners already.
01:06Yeah, exactly.
01:07We had three years of AI providing this really powerful tide, lifting a lot of boats.
01:12And this year we've seen a lot more discernment, right, amongst these names.
01:17We think that that can continue.
01:19Now, it doesn't mean that AI isn't still this kind of rising tide,
01:21but we're now seeing the different markets here, the markets around models,
01:26the markets around cloud services, the markets around infrastructure.
01:29And now we want to see who are going to be the leaders,
01:31who are going to be the companies that actually capture the best economics in each of these markets.
01:36So it's not necessarily zero-sum, but now competition is really ratcheting higher.
01:42And balance sheets are starting to fray a little bit, right?
01:46We're tapping into debt markets, so companies are also seeing greater differentiation amongst themselves that way.
01:52You are a cross-out perspective.
01:54Should people be owning the debt of these big companies, corporate bonds as well as equity exposure?
01:59I mean, I guess it depends on what you're looking for.
02:01You know, I think the Fed is lowering interest rates.
02:04And, you know, if you see interest rates move lower more broadly,
02:07like there is going to be demand for this debt issuance.
02:10And we're expecting a lot of that.
02:12There's also $500 billion in dry powder and private credit, right?
02:15So I don't doubt that this capital will find, you know, at home.
02:20But I think the question for investors is to just make sure that you have some diversification to this theme in your portfolio.
02:27Because as extraordinary and transformative as AI is going to be,
02:31the last few weeks have reminded us that it's going to be choppy along the way.
02:35There can be surprises and unknowns.
02:37So you want to make sure your portfolio is built to withstand those choppier waters
02:41while still benefiting from the secular opportunity that remains.
02:44What almost has been the theme of 2025 is how dominant the private sector or private sector names have been
02:51on your maybe overexposure in your public portfolio.
02:55I think of a name like OpenAI.
02:56We think of SpaceX and its valuation.
02:58OpenAI potentially being $830 billion just to pip the post on SpaceX's $800 billion valuation.
03:04How much are you seeing your clients wanting more exposure to the private markets?
03:08And how is that going to translate to public in 2026?
03:11It's so key.
03:12And it's such a big difference from what we saw in the Internet era, right,
03:15when all of these Internet startups were just going public on day one.
03:20And today you have these AI-native companies reaching scale that we've never seen before in private markets.
03:27And, of course, there are the big model developers.
03:29But what's been actually most interesting for me has been seeing the explosion in AI applications.
03:35If you think about who are the companies that are really at the center of, like, end-user demand,
03:41selling to consumers, selling to businesses, it's these more niche AI applications.
03:46And they are growing at scales that we've never seen before, right?
03:49The average AI startup reaching $100 million in under 12 months,
03:53on average that's taken startups about roughly 10 years to achieve.
03:57You had Patrick McGoldrick here yesterday from our firm talking about this dynamic.
04:01So, absolutely, like, if you want some of that growth exposure,
04:05you're going to need a look in private markets.
04:07In our long-term capital market assumptions,
04:09we actually see that the long-term return expectation in private equity at 10.2
04:14versus large-cap public equities in the U.S., 6.7.
04:18A big reason for that is starting valuations in public equity markets.
04:22In private markets, you have that issue, too.
04:24So selectivity is going to be really, really important.
04:26But we still think there's a lot of opportunity.
04:28What about opportunities for IPOs next year?
04:30And those who haven't got the private exposure getting it when it goes public?
04:33Yeah, that's going to be really interesting.
04:35Because some of these companies, like OpenAI and SpaceX,
04:38at their private market valuation,
04:40they would already be top 15 companies in the S&P 500.
04:45So they're not even public yet.
04:46And when they do go public, investors, you know,
04:49we're going to see what the demand is at that time.
04:51But you're going to be getting into a company that already looks kind of like a mega cap.
04:54You know, and I think these companies are then going to have to stand against public market scrutiny,
04:59like the scoreboard that these companies actually have to really attest to.
05:04So it'll be really interesting.
05:05I think if we get these IPOs next year,
05:07it'll be a really powerful referendum on the AI ecosystem,
05:11which is an opportunity and a risk for the broader space next year.
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