00:00Does the war in Iran as it stands now change the calculus for you in terms of the PE space?
00:06I think I'll look at it from two perspectives. One from the perspective of the LPs, that's the
00:11investor of funds, and the other one from the perspective of the funds itself. I think for a
00:17fund, you can't really change course so drastically in the middle of your investment periods. You have
00:23pre-baked investment mandates, unless you have a lot of approvals from your LPs or you broadly
00:30interpret your mandate. But for an LP who's already committed to a fund and LPs who are looking to
00:36invest in a fund, I think the key thing in the general rule when there's a lot of volatility
00:40is around looking at resilience. And by resilience, I mean funds who have clarity around the business
00:48models that are economically and macroeconomically sound. But of course, if the sentiments are long
00:56term around the sustained volatility, there is a question about whether LPs might want to
01:01still put their money in or have appetite in long term investments in the private equity class.
01:09Having said that, my perspective is that the volatility plaguing our private equity sponsors
01:15in Asia are not new. The Iran war is not new, even though it's heightened in the last nine days.
01:22The energy volatility is not new. It was volatile after a Russian-Ukraine conflict. I recognize there
01:29is a lot more heightened intensity now with the developments in Venezuela and Iran. We remember
01:37the interest rates uncertainty in March 2022. FX volatility has been a thing. Indian rupee dropped 20%
01:45in 2013 and even recently as well. And so my perspective is that inherently the private equity
01:51funds thesis already takes into account these types of volatility. Are you even saying that investor
01:58psyche has not been affected at all? Well, we haven't. To be fair, I haven't had investors call me
02:06narrowly about the Iran war in the last week. Not yet anyways. Not yet. I think people are looking,
02:13waiting and seeing what happens in the next couple of weeks. Our very active trade team, though,
02:19has been fielding questions from their clients about the combination of risks and uncertainties
02:27around a series of high-impact, high-profile events. The trade tariffs, the China-US relations,
02:37the upcoming C and Trump meeting, the Venezuelan situation, and of course the heightened Iran war
02:44now. But I'm not saying it's not a problem. It is a problem. People are looking at it. But I
02:51think that
02:52the private equity funds are resilient and they're more disciplined around how they look at the
02:57business models. There is a focus on supply chain resilience, a focus on cash reserves, a focus on
03:05stable revenue, and a focus on structures which are inherently protected against downside risks like
03:13ethics and more energy independence focus now too. Then what would it take for investors to rethink
03:20deal-making, deal-making and valuations? What about the Iran war that would make them reconsider
03:26their base case? To be fair, a number of our clients have already tried, to the extent they can,
03:35to limit their international trade and delay their commitments, particularly to the Middle East,
03:41to try to shore up their own inventory and supplies and preserve their cash.
03:48I think in the long run, if this were to continue, everyone's going to reopen their contracts and
03:56their commitments. We're going to re-look at it to see if there's room to walk away, what we call
04:04extenuating circumstances, force majeure. Will it stop your suppliers from fulfilling its obligations to
04:10you and vice versa? Will it stop your suppliers from terminating the contract for a variety of
04:20reasons? Again, for extenuating circumstances, for convenience, i.e. no reason, or for default?
04:27Would it cause a price renegotiation? All of these questions are what we're going to have to look at.
04:33And in fact, we have already started looking at this post-trade tariffs going so high last year.
04:40We've been doing that with our clients already. So you can, if the Iran war extends to four to six
04:46months, how would you advise your clients to position themselves? Well, I would say a few things. The first
04:56one is that it's not just the Iran war. I think we're in a world of a lot of instability
05:02and a lot of
05:03volatility. So it's not just the Iran war. And in the past few years, my trade team's been working
05:10with companies and creating a matrix. They call it, how do you operationalize uncertainties? They
05:18essentially go in to understand the business models. They look at the type of trade, try to identify the
05:24risks, the trade risks that apply or could apply, and also try to foresee how this is going to go
05:30and
05:30apply a risk allocation to it. And what comes out of it is plan A, plan B and plan C.
05:36So one of the
05:37advice is to have contingency plans with finesse, depending on the risk profile. But are there
05:43geographies which are more attractive now than before? It's hard to tell because every geography
05:49is going to be affected by this. Clearly, the Middle East is a little bit more affected than others.
05:56There is going to be a question about whether Singapore could be a beneficiary because Dubai
06:01is no longer as safe as it used to be when investors would tend to look at Singapore or Dubai
06:08as an
06:08alternative. And how about places like Hong Kong, for instance? Well, the capital markets in Hong Kong is
06:17pretty active at the moment. And I think that China does present itself with a lot of opportunities
06:23as well. I know there's been obviously a lot of issues around the ability to invest in China. Is it
06:30in vogue or not? Because of the US outbound restrictions on investments, restricting investments
06:37by US citizens into certain sensitive industries in China, for example. But this presents itself as a value
06:46to some investors too, where we've seen large amounts of money from the Middle East investing in China,
06:54Middle Eastern sovereign wealth funds, buying up LP positions from funds, from LPs who cannot hold these
07:03assets or are restricted from holding these assets. And I'm seeing privately held corporations who do not have
07:10these pressures or restrictions going in and double downing on Chinese technology.
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