00:00Joining us now to talk all things SpaceX, its IPO, also the general landscape, Peter Singlehurst, head of private companies
00:06at Bailey Giffen.
00:07We just know, you know, SpaceX is a really important investment for you guys prior to the offering.
00:13Let's start there. You know, what does this, the biggest IPO in history, represent to you and to the firm
00:20and to, I guess, support the thesis when you first made the investment way back when?
00:27I think that the SpaceX IPO needs to be seen as the culmination of a trend which has been playing
00:34out now for 15 years or longer of companies staying private for longer.
00:40And this is something that we started to see in 2012 when we first started investing in private companies.
00:47Now, we didn't think that companies would get this big and stay private this long.
00:51But here we are with SpaceX going public at something like a $1.8 trillion valuation.
00:58That's 900 times larger and more valuable than Tesla was when it went public in 2012.
01:05So on the one hand, this is a story of a truly exceptional company which has compounded its growth at
01:12a very high rate.
01:13On the other hand, it's a story of a bigger structural trend of companies staying private longer and more and
01:18more returns accruing within the high growth private markets.
01:21And Peter, to that end, when you think about Tesla after it's gone public, it was a volatile ride.
01:26But it's 25,000 percent higher than when it listed.
01:31And so will we see a level of returns, do you think, in the public market?
01:36Or does that have to be, in some ways, pushed against?
01:39Are the meat and bones of returns going to have happened to private investors?
01:44I think mathematically it's very hard to see how you could see SpaceX delivering the same kind of returns as
01:51a public company as Tesla did.
01:53But I think what this speaks to is a requirement for investors to have exposure to growth in both the
02:01private and the public markets.
02:03The world has been set up to almost divide these things and say there's kind of private growth and there's
02:08public growth.
02:09And these things are different.
02:10And we've taken a different approach.
02:12We've sort of taken the view that actually if you want to do growth equity investing, you want to do
02:15it properly, you have to do it in the private markets and you have to do it in the public
02:20markets.
02:20And what our clients are and beneficiaries, who are predominantly pension funds, what they need and what they ask from
02:26us is that we give them exposure to the world's best growth stage companies, starting in the private markets, earning
02:32the returns that we can generate there, and then also earning those in the public markets from within our public
02:37funds to make sure that they're still capturing that growth even once companies transition into the public markets.
02:42Peter, I think it's important to pose the question, why is SpaceX going public?
02:46And when Elon Musk spoke to Jamie Dimon, he eventually got to the answer, which is they need capital for
02:52this growth phase.
02:54But what we are seeing outside of just this fixation on IPOs is a race for capital through equity.
03:00How comfortable do you feel as a firm at Bailey Gifford that whatever mechanism it is, raising money at that
03:07volume, but it basically then goes directly into capital expenditure?
03:11That's what's happening here.
03:15You want to invest in companies that are able to deploy capital at high rates of return.
03:19So I don't think there's anything wrong per se in investing in capital intensive businesses.
03:24In fact, what you want is a company that can deploy large amounts of capital, but where you can earn
03:29high returns on that capital.
03:31And ultimately, that's what separates a good business from a bad business.
03:34It's return on equity.
03:35And so when we're looking at a company, whether it's SpaceX or Anthropoc or any other company that we invest
03:40in privately or publicly,
03:41ultimately what we're asking is how do you get to high returns on equity?
03:45And it's building those theses that then leads us to invest in companies.
03:49And in the case of SpaceX, increasingly that thesis is going to have to rely on AI.
03:54Now, they've shown that they can invest capital at high rates of return in rockets, in Starlink.
04:00And of course, the next leg of that is going to be in AI data center build out, quite possibly
04:05in space.
04:06But that's where it becomes so fascinating, particularly, Peter, for Bailey Gifford,
04:10which in the private markets backed SpaceX on a thesis of space, backed Anthropoc on a thesis of AI.
04:16And now they're all overlapping in terms of business models.
04:19What is your perspective of commoditization or a winner takes all or is there room for all of these giant
04:25AI players to be winning in the technology as well as perhaps in the public markets?
04:30I think what your question gets to is this very important question of where does value accrue in the AI
04:38stack?
04:39Now, hopefully, lots of value is going to accrue to the end customers.
04:42That has to happen.
04:43Historically, we've seen value accruing to the chip manufacturers, initially with NVIDIA, but now increasingly to memory manufacturers.
04:50But I think what we're also starting to see is value accrue at the foundational model level.
04:54And I suppose with the Grok acquisition, SpaceX is making a bet not just on the foundational model level, but
05:01also on the infrastructure level.
05:02And I think what we're seeing with the deal that they did recently with Anthropoc is that they have options
05:07in terms of how they can monetize in the AI transition,
05:10both through their own models, but also, importantly, through the infrastructure itself.
05:15I have so many questions about this.
05:17You know, let's be honest.
05:19The hedge that SpaceX has put in place in the interim is to become a hyperscaler and cell compute.
05:24Played a blinder with that.
05:26We got the design or at least the renderings of Orbital Data Center.
05:30I think the team are going to put them up on the screen now in that presentation that Elon Musk
05:34made.
05:35We're like, there's the body, there's the solar arrays, there's the radiator.
05:39Which part of the thesis, Peter, is most important to you, right?
05:42It is a long way from the TAM of 26.5 trillion that they're basically packaging it as enterprise AI.
05:50And in the interim, this plan for Orbital Data Center, like it needs to work.
05:55That's what they're telling people on the roadshow.
05:57So there's absolutely no question that the Orbital Data Center sort of strategic moves that they're making widens the range
06:07of outcomes for SpaceX.
06:09On the one hand, if it works, it increases the potential upsides for the business.
06:13On the other hand, if this doesn't work, it's going to increase the downside for this company.
06:17And investing ultimately is about ranges of outcomes, it's about probabilities, and it's about payoffs in those range of outcomes.
06:23What we've seen with SpaceX over the years is that they have continuously tested and validated a series of outlandish
06:31hypotheses.
06:31The very notion of the business starting off as a private rocket company was itself an outlandish hypothesis that they
06:38validated.
06:38Then the idea that you could have reusable rockets was also an outlandish hypothesis, and they validated it.
06:44They did the same with Starlink, with satellite-based broadband.
06:49They've done the same with rockets on the scale of Starship.
06:53And the Orbital Data Center is the next hypothesis that they are seeking to validate.
06:59But everybody should be totally aware of the risks that are involved in this.
07:03It is unproven.
07:04In the event that they prove it, the payoffs will be large.
07:07But as we've already touched on, the amount of capital that is going into this means that in the event
07:11that they don't validate it,
07:12it's going to increase the scope of downside in the investment as well.
07:15And investors just need to understand the range of outcomes and the payoffs that go with that.
07:19Can I ask about payoffs, Peter?
07:21Because I don't want to go into the granularity of how much SpaceX exposure you have, etc.
07:25But how long do you think you'll hold it?
07:27And how much do you think it's a worry or an anxiety that all these other big public companies are
07:33selling equity into this market at the same time?
07:35Alphabet trying to fund its own capex in the equity market.
07:39Meta might be doing as well.
07:40And does that take oxygen out of the room?
07:43I think that's probably part of the thinking that's going on for these different companies trying to raise these large
07:48amounts of capital.
07:49They're sort of trying to soak up what available capital there is.
07:53But to your first question, different funds within Bailey Gifford are going to be in very different positions.
08:00For those funds that have owned SpaceX since 2018, since it was a $30 billion company,
08:05those funds have very, very large exposures and large positions in SpaceX.
08:10Now, it might make sense post-lockup for those funds to start selling down,
08:14even if they want to maintain a meaningful exposure, because ultimately we are beholden to our clients
08:20and we have to provide them with a level of diversification within their funds.
08:24And then, of course, funds that don't own it, funds that are solely public funds,
08:29they then are faced with the question of whether to buy it for their funds.
08:32So it might well be that you see different funds within Bailey Gifford doing different things over the coming months,
08:37and that will be a function of the history and the portfolio context.
08:40I think there's universal agreement that SpaceX has been an exceptional company.
08:44The real question from here is, what is the right price and what is the right position size in SpaceX?
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