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00:00Before we begin, a few things you should know about Ueda-san.
00:05His business card says Apollo, but he is a newbie at the firm.
00:09Yes.
00:09Relatively speaking, only what, about six or seven months now?
00:12Yeah, seven months now.
00:13Before that, he was the chief investment officer at Japan's GPIF,
00:18world's largest pension plan.
00:20Now $2 trillion.
00:21$2 trillion.
00:22And previously, he spent three decades at Goldman in some of the firm's top
00:25trading positions in Asia.
00:27What else should people know about you?
00:30Yeah.
00:32First, thanks very much for the invitation, and it's a very honor to spend some time
00:37with you and the distinguished guests today.
00:39Yeah, I think the world demand for investment is very, very strong, because we talk about
00:48the demographics, but a lot of the retiree wave is coming around the world.
00:54So the investment demand for those retirees to prepare for their retired life is quite strong.
01:03Can we talk about that for a moment?
01:04For a moment, you used a word that I like, demographics.
01:07Yeah.
01:08And I think it's a useful lens or perhaps a macro layer through which to look.
01:21And I know you use it that way.
01:23Why are demographics important, not just for understanding Japan, but understanding the rest of Asia?
01:31Yeah, so I think uniqueness of Asia is really growth and demographics.
01:40I started with the economy and growth.
01:44Apollo started the Asia footprint 20 years ago.
01:48Back then, Asia GDP was a little over 25% of the globe, and Japan was the only country out
01:56of the top five.
01:58Last year, Asia economy grown to 40% of the globe, and three countries out of the top five are
02:08Asian countries,
02:09which are China, India, and Japan.
02:12So economy is growing fast.
02:15That means corporate finance needs to support the growth of the economy is growing very rapidly.
02:22So that's number one.
02:23Number two is demographics.
02:26Asia society is aging.
02:29I mean, look at what's going on here.
02:31This chart shows very clearly that Asian economies are in the wrong quadrant, right?
02:39You know, when it comes to birth rates.
02:42So society is aging, and as of today, the number of retirees in the region is a little bit above
02:48700 million.
02:50And it's going to be 1.3 billion in 25 years.
02:54So it's going to be double.
02:55So there's a strong need for retirees to invest in safe-field assets to prepare for their retired life.
03:06So Apollo's strategy is really rapid corporate finance needs in Asia, and also there is a demand for investment from
03:15retirees.
03:16Our strategy is to marry these two, investment opportunity and investment opportunities, investing needs from the retirees.
03:27I think there are, there is rather, for good reason, a large number of people in the room who are
03:35curious about your thoughts on Japan specifically.
03:38So let's talk about that for a moment.
03:40Sure.
03:40For the first time in decades, right, Japan is experiencing inflation.
03:44And with it, important to note, a groundswell of reform.
03:48Yes.
03:48So we have JGBs recently ticked above 275 basis points, and everybody knows the Nikkei is on fire.
03:56We all want to know, how will these exciting and at the same time destabilizing trends take shape?
04:08As you see things, how is this reflation story going to play out?
04:14So inflation suddenly started from zero back a few years ago and to 3%.
04:210% and deflation went on for 25 years.
04:25That's a very, very long time.
04:27But suddenly inflation becomes 3% and started to be stickier than people think.
04:33It's been 3% for a few years now.
04:35I think this fact changed all the mindset for both corporate and investors.
04:42So starting with the corporates, you know, they need to have a higher ROE with the push from the government
04:51to corporate reform.
04:53They need to deliver higher wage growth for their employees.
04:58And they need to invest more to the future, which is, you know, incremental CapEx needs coming.
05:06So all the corporate mindset has shifted to defense, from defense to offense.
05:13That's a big change.
05:15And now the nominal growth of GDP jumped up from 1% to 4%.
05:20On the investment side, this is an interesting dynamic as well, because there is a so long deflation continues.
05:30Only product available for these retirees and investors was public equity or deposit.
05:38So public equity is obviously like a 20% volatility product, and bank debt, bank deposit is 0% volatility,
05:48but zero return.
05:50And now inflation is 3%.
05:52People cannot park the money in deposit, which is yielding 0 to 20 basis point.
05:58So there is a strong demand for investing into safe yield assets.
06:04So as a result, you know, last year, government sold the retail JGB, roughly $40 billion, which is a 5x
06:14compared to three years ago.
06:16So a lot of the investment demand is increasing, but product never been provided well.
06:23To your point, investors got the memo.
06:27They understand that inflation is a long-term reality for Japan.
06:34Yet, they're largely reallocating to domestic assets.
06:39Yes.
06:39How do companies like yours, managers like Apollo, capitalize, right, on Japan's newfound appetite for risk when there are so
06:49many structural barriers to investing in global products,
06:53and in particular, less liquid global products?
06:56So I think the appetite to invest globally is quite strong, actually, because people saw the low growth rate in
07:08Japan,
07:09and suddenly, even though suddenly it goes up to 4%, still people believe that the longer term, U.S. economy
07:17is going to grow faster because of demographics.
07:20Again, Japan, right now, loses roughly 50 basis points, 0.5% per annum of the population, roughly 0.8
07:33% down with the natural bone and natural death,
07:37and 0.3% recovered by immigration.
07:40That's going to be accelerated to minus 1% per annum, roughly 10 years from now.
07:48So if the number of people, just working population is shrinking, it's not easy to sustain the same level of
07:58the growth as the growing population economy, which is the U.S.
08:01And also, I think the interesting point is the GPIO, which I used to manage the funds.
08:09The system is pay-as-you-go.
08:12So everybody contributes to one pool and gets paid from one pool.
08:17And a lot of retirees coming, and biggest population cohort is early 50s.
08:24I think it's 53 years old, where there's 2 million people per year.
08:30Now, only 670,000 babies are born these days, so it's already one-third.
08:36So a much smaller number of people need to support the huge retirees, and 80% of the people rely
08:46on just a public pension fund system,
08:48which is pay-as-you-go in declining population.
08:51So demand to invest outside the public pension system as a safety net is quite strong, because long-term growth
09:01perspective, people still believe the international growth could be higher than Japan.
09:06I think the investment needs for international assets is quite strong.
09:11That's where we can play.
09:14What we're talking about, or what we've been talking about, is a phenomenon called Japanification.
09:19It happened to Japan.
09:21Yeah.
09:21People now talk about the Japanification of China.
09:25Yes.
09:25Is Japanification the right word to use for China?
09:28I think there's a lot of analogies.
09:30And Japan hit the working population peak back in 1990.
09:36And China hit somewhere around 2014, 15.
09:40So there's a 25-year gap.
09:43But I believe demographics driving the economy.
09:48And everybody knows what happened after the working population hits.
09:52Both countries went to deflation.
09:55And real estate problems, non-performing loans, looks very similar to me.
10:02And also, Korea is a shrinking population as well.
10:06But Korea path is slightly different.
10:09Because the size of the economy is slightly smaller than Japan and much smaller than China.
10:17And a few number of very good companies can support the country's economy by export.
10:26So Japan and China has 10%, 20% of the export in terms of GDP.
10:32Korea has 44%.
10:36Japan's fatal mistake many decades ago was not recognizing bad loans.
10:45Yeah.
10:45And it created an industry of zombie banks.
10:49Yeah.
10:49Is China making the same mistake?
10:52It's hard to say.
10:54As, you know, previous, you know, or Korea said, I think China is trying to learn from Japan experience.
11:03Unfortunately, Japan, again, the fastest, hardest country faces this demographic change.
11:10There's a lot of, you know, tests and experiments.
11:13But China learned a lot from Japan case.
11:16So I think they can do differently.
11:18Are some of these outcomes inevitable, though, in the sense that, you know, the demographics are what they are?
11:27Yes.
11:28And in the absence of massive immigration, some of, you know, there's sort of a foretold future.
11:35Yeah, I think there's a lot of synergy, I mean, the overlap between Japan and China, for sure.
11:44But export can change the situation, as I said, about Korea.
11:50So I think that China's strategy for the next five years really pushed the industry to grow faster, not the
11:58consumer and consumption.
12:01We'll see how that goes.
12:03We will.
12:05I want to ask you a bit about India.
12:07There's a lot going on in India, world's largest country in terms of population, 1.4 billion people.
12:12And, of course, in theory, as the fastest growing major economy in the world, it presents enormous opportunity for a
12:20firm like Apollo.
12:21What excites you about India?
12:22What gives you pause?
12:25Fast.
12:26First, you know, it's the fastest growing economy in Asia.
12:30Second, the size of the economy is now number four in the world.
12:36So there's a lot of demand for corporate finance, new CapEx investment.
12:43We're hearing billions of dollars of new CapEx needs.
12:48That the banks can't satisfy.
12:49Yeah, so there's a lot of private capital to play in the country, which we pay a lot of attention
12:58to.
12:58But to be fair, still, I think capital market itself kind of in developing mode.
13:06So hopefully more infrastructure, regulations, all sorts of the info for the capital markets to be built and improved in
13:19the future.
13:21Let's return for a moment to demographics.
13:23Prime Minister Modi is fond of talking about India's massive population under the age of 65 as a demographic dividend.
13:34Will the demographic dividend be a reality in the age of artificial intelligence?
13:40Because there's clearly the potential for AI to savage a huge swath of the Indian economy, the IT services sector.
13:49And of course, the millions of people employed in the GCCs, the global capability centers, that firms like Apollo or
13:58JP Morgan or Goldman Sachs or whomever has throughout India.
14:01Sure, maybe we should ask that question to chat GPT.
14:05But I think AI themes is probably too early to predict in the future.
14:16One thing, you know, for sure, is with this AI disruption, especially in India, the CapEx needs to build a
14:25data center, energy plan, all sorts of related CapEx needs is increasing very, very fast.
14:32So, as you said, local banks started to be capped on the exposure to different projects, and there's a huge
14:45room for private capital to play.
14:48So, I think these AI disruptions create more CapEx needs for us, but it's very, very hard to predict the
14:59future.
14:59When you ran GPIF, you had a principal decision-making role in shaping the future for generations of Japanese retirees,
15:12a very prestigious and consequential world.
15:16How do you see yourself making a difference now that you're working at Apollo?
15:20So, I think the, I'm kind of unique because we talked about the demographics.
15:28The experience of me working in the pension funds, understand the retirement service ecosystem in the country, it was very,
15:37very helpful.
15:38Apollo is the biggest retirement service provider in the U.S., so there's a huge room for Asia countries to
15:48build the retirement service system, especially in Japan.
15:52So, understanding of all the retirement ecosystem in each country, especially in Japan, which, as I said, pay-as-you
16:01-go in declining population, there's a lot room for us to provide interesting service for the retirees.
16:09Ueda-san, a pleasure speaking with you.
16:11Ladies and gentlemen, a round of applause, please.
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