Good morning everybody. It looks very different from here. I've been sitting down there for most of the morning. So we're talking about private credit and alternative investments. According to KKR, the alternative industry is expected to grow to more than 24 trillion in 2028, that's from 15 trillion in 2022. So the global private credit market is at three trillion assets under management. So the question that we're going to be asking on the panel today is: where is the growth going to come from? What sector, what industry, what geography perhaps? And how's it going to fare in the changing context in which we all are living at the moment? So with that introduction, Josh, I'm going to start with you. You've been in this industry. And by the way, I have not introduced the panel because you've all got the app and you can look at it. So, Josh, here you've been in this industry, you're currently the founder of 26 North, you were the co-founder of Apollo, you've been in the industry for three decades. Say a word about its evolution over time and in particular, if you will, what that means for how you see the industry moving forward.
Yes, so first of all, I'm younger than I look, so just kidding. I've been around a long time. And I think that when you go back to the industry, when I started right, which was 1990, there was no private assets, there were no alternative assets. There was fixed income, there was equities, and then there was a group of people down the hall in an office no one knew what they were doing. They were investing in commodities, they were buying companies. And all of a sudden you fast forward to today and you have this institutionalized, you have an industry that's 11% of all assets. And there's a convergence of the private and the public markets in terms of liquidity. Private markets are growing substantially every year, public markets are shrinking every year, and so liquidity - there's a convergence. I mean private assets are still illiquid, but the reality is that over many, many years private assets have generated excess risk-adjusted returns. And so what's happened is institutions have floated in there and you've seen an incredible sea change in the industry. The big firms, the top six firms in the industry, take in now 60% of the capital. So today when you get to today, you have a maturing industry. So you have this big industry, it's allocated across institutional, and it hasn't necessarily done the best job - and I hate to be critical of our industry - we haven't done the best job of returning capital to our investors. And so the institutions are now saying, 'Wait, we want to really prove it, we want to see the capital, we want to see returns in cash, not just markups.' And so you have a bit of a shakeup in the industry right now. And that sets the stage. The big firms have done a great job of getting bigger and better, but they've gotten so big that a lot of the space below them is left for others. Like they, it no longer moves the needle when you're a trillion dollar asset manager to invest in a 5 billion pocket of capital. And so that creates a lot of space for new players like us, like 26 North and others, to come in below the big firms and to go back to alpha. Because if you're a public company, you're there to gather assets, not for the alpha, which is where the industry started. So I think as an industry we all need to refocus on generating alpha, generating excess return. If investors give us capital, we need to make sure that we give them back better returns than they could get in the public markets, and we do it in cash. And that, before we go out and raise the next fund, we deliver for the institutional community. And so that's I think a summary of where I would say the alts industry is.
Thanks for that, Josh. And I'm going to come back to you in a moment because I want to pick up something that the princess mentioned earlier, which is how do we invest for human... and how do you mix that idea with greater alpha? Right. Which I have to say to the audience, I didn't tell him I was going to ask him, I wasn't going to ask him, but I think it's a really interesting point given what you said. But Deon, I want to come to you. Talk to us a little bit about, again it's a similar question that I asked Josh: what are the factors, if you had to pick the top three or four factors that are changing the market over the next 2 to 5 years, what would they be?
So I'll answer it. So Insight's this is our 30th anniversary investing in technology, and I'll put it through a technology lens, but I think it's broadly applicable across multiple asset classes. When we started in technology 30 years ago, if you think about where most of the capital was, it was early stage venture. Why? Well, there was no late stage. Most companies were very small, and they were raising 5, 10, 15 million. Funds were very small. But as the industries matured over the 30 years, our first fund was 30 million, our current fund's 13 billion. And why is that? It's not just because we want to amass more capital, it's the type of opportunity has changed. So if you think about our market in particular, you have an early stage market, you have a growth market, those companies then go public, then they go private, so you have a go-private market. But the one thing that I think is really interesting, and Josh alluded to this, is that we and others have not been great at providing liquidity. And so the market that's really taken off, including in technology in the last few years, is the secondary market. And I think that market you're going to see continued growth in. And the other thing I'd say is everybody in this room, and certainly PIF, can get access to great GPs like the people on this stage, but most people can't. So just to use an example, we just co-invested in a company called Databricks at a $60 billion valuation. Their series A was probably done at a $150 million valuation. That was a lot of value that was captured in the private markets that most public investors, individual investors, don't get access to that gain. And so I think there's going to be more and more distribution of these types of assets through private wealth. Because if you look at 50 trillion of total global wealth, half of it is held by individual investors, and less than 5% of that is in alternatives. That percentage I think is going to go up, not only in technology but across other sectors as well. So as I was prepping for this, somebody used the word 'democratization'. So one of the trends that's happening potentially is the democratization of this industry. It sounds like my dad can get access to Insight because I work there, but most people can't. But I think that's changing. So if you look in our last fund, we had distribution through traditional wealth managers, Morgan Stanley, Goldman Sachs, and we're accessing that allows people to invest more capital. And if you think about it, private equity has compounded at double the rate - just not an Insight comment, just a broad comment - than public markets. And to leave that compounding effect on the table for a wide swath of society doesn't really make sense. And so I think you'll also probably see, there's been talk with the new administration as to whether or not you kind of redefine how credit investments work, you redefine whether or not these assets can go into retirement accounts. And they're well, these types of products are not for savings, it's not you can't day trade these products. And done right, with the right managers, can create a lot of wealth for individual investors.
So I want to thank you. I want to bring you in, George. George is the chairman and CEO of Neuberger Berman. George, say a word. I mean, we've talked a lot even over the last 24 hours about the changing context in which we're operating today. Can you say a word about how you think that changing context is actually going to impact this industry? What are the opportunities from that changing context? What are the challenges?
Yeah, I very much agree with the prior comments about the nature of the investor base changing. I think we've all had conversations with leaders of large pension funds who would note that their DB plan returns just dwarf their DC plan returns over time. And so as they think in the spirit of how do they deliver for their workers, accessing private equity, private credit, private real estate, things that have been available historically to institutional investors, will 5 years from now be available to individuals as well. So I think that trend is going to continue. There will be a series of bumps along the way, there will be regulatory changes and the like, but I think the broad trend is continuing. And if you went to a Morgan Stanley today and said I've got a million dollars to invest, they might advise you to put 20% of your capital in alternatives, but if you look at their book of business overall, it's closer to 2%. So that gap everyone is anticipating will close as people approach a more optimal portfolio. In terms of the world changing, banks have obviously pulled back given post-GFC and the challenging regulatory environment. Frankly, governments, particularly developed market countries, have real debt challenges, and so we're going to need private capital in ways that they haven't historically. And public markets have been challenged. And the last investment that Insight led, the Databricks discussion, for example, historically that would have been done through public markets, today it's only being done through private markets. And so the private markets, the private credit markets, need to grow or have the opportunity frankly to fill some of those spaces. And I think bring a lot of positive things, particularly on the governance front, where I think governance in public companies is challenged. But there will be bumps along the way.
So I'm going to come to you in one second, Matthew, but I just want to pick up something you said because I think it's important, which is the regulatory environment. The regulatory environment is changing for the public markets. What's happening on the private side, and what do you anticipate? For any of you in the US, the democratization of private capital, right, which is basically individual investors, that's a good thing. On the other hand, individual investors many times don't understand the illiquidity. Like when you sign up for a private equity fund, you know it's a five or six year fund, then it takes five or six years to sell the companies, some of the companies might not be for sale. So educating the retail customer that hey, you're giving your money away for 10 to 15 years, certainly you'll probably get if you pick the right manager you'll get two and a half times, right, you'll get a great return on that money, but it's locked up for many many years. That would be an example of disclosure that we need. If you ask me what I think we could all do better, it's all about handling the retail customer with a lot more disclosure about illiquidity, about valuation. Valuation is somewhat subjective, that can be good and that can be bad. So that to me would be the next regulatory hurdle we all have to clear and get right. I mean the banks are getting smaller, they're being legislated smaller, they're being legislated out of risk businesses, and so private capital is a better way to play risk assets. So I think anyway, I think those would be the two things I would talk about. I just point out that you don't often hear people talk about more regulation on panels, so I think it's great that the right regulation - we need the right regulation. But I want to come to you, Matthew. Self-regulation, interesting concept. Matthew, the founder of Tikehau Capital, you're based in New York but you invest a lot in Europe and more internationally. We've been mostly talking about the US market. Can you say a word about the European market? And perhaps, and I put this to all of you, the market in the Middle East, the market in LatAm, can you just say a word about how it's different?
Sure. I don't know if it's different, but certainly with the transition about regulation, we still operate in maybe a more regulated market. But thanks to the new president and last night, he made the point I hope that my jurisdiction will catch up quickly in deregulating. But you know what Josh was saying right now about retail, you know what Princess Rema was saying earlier on about investing with purpose. I'm convinced that only private capital can serve that in this environment, given the evolution of part of the public market that George mentioned. I think that if we all go passive, when you are a saver and you have a million, 10,000 dollars to invest, and if effectively you're only getting into some index tracking passive, highly concentrated into few stocks, as some of the other panelists were saying, you're not serving the objective of investing with purpose. Investing with purpose is to go into some verticals, what Lance was saying earlier on about healthcare, what we are doing in terms of energy transition, in terms of cybersecurity, regenerative agriculture. That's where we, the private market managers like we are here, can capture part of these savings and direct them into what will be a purposeful investment. So as far as Europe is concerned, post-GFC as you know, the regulation in the US lasted for 3 hours or maybe two days, and in Europe we're still following up with that. And banks as a consequence of that have been less reactive to adapt to this new environment that we've been discussing, which is in my opinion a great opportunity for private capital, which is still lagging in Europe. It's lagging because institutional investors would have maybe 5% of their allocation to our strategies, because retail investors, it's just starting. I'd like to tell you a small anecdote if I can. My father is a retired doctor in Provence. He reached out by email the other day and said, 'Have you ever heard of Blackstone?' And I said, 'Yes, Dad.' And he said, 'What is private credit?' I said, 'Well, Dad, that's what I've been trying to do for the past 20 years.' And he said because they're offering through one of the largest French banks to invest 25,000 euros, what do you think about that? And I thought, our world has changed. Because that's what people are going after now, and that's the big opportunity. Because it means that there is a global consciousness that we can effectively capture part of the savings to direct them in those verticals and to invest with purpose.
Thank you for that. And so let me, I mean we're always tight on time, but I love from each of you: what is the vertical, what is the sector, what is the geography that you're particularly interested in at the moment that you think has kind of potential that maybe some of the people in this room aren't aware of? Maybe start with you, George.
Sure. I would frame it differently, which is I think most of the discussions - I'll give you two things. One thing would be being a liquidity provider in private equity. So we're working through it, but as Josh alluded to earlier, DPIs have been quite low for a period, so institutions have not been receiving the funds back that they need to fund retirement payments or grants or whatever. And there's a that's putting real pressure on LPs who are in turn reluctant to contribute to the next fund raise. So there are a number of opportunities around being a liquidity provider into that space to help deal with that temporary log jam, with secondaries, continuation vehicles, capital solution type opportunities, co-investing. All of that I think is going to prove to have been fruitful in this period. The second I would say would be people looking at diversifying their private credit exposure away from either just senior loans to sponsors or just corporate credit to accessing a far broader portion of the private credit markets. And there we're really still in our infancy.
I'm going to pick a more of a - I'm a venture guy, so I'm supposed to say AI, but that's not actually going to be my answer. I want to pick a category of deal which is where we've been the most active in the last 18 months, and we call it venture buyouts. So there's been literally 20,000 companies funded over the last 15 years. The vast majority of them are not going to go public, the vast majority of them are going to have a very hard time finding a strategic buyer. One reason for that is their cap tables are very fragmented, they have 8, 10, 12 owners, nobody really cares because they overpaid for the asset, they're hoping to just get their money back, and there's not enough focus on those assets. So what we're actually doing is going into those situations and saying, 'We'll provide you a solution. We'll provide you the liquidity today. You might not love the price, but we'll provide you liquidity. We're going to take control and we're going to run it like we run a buyout control transaction.' We've done 50 of those deals over the course of Insight, amongst our highest performing categories. Obviously we're diligent in the underlying technology, but really what we're - it's no different. People take a company private because they think it's not run very efficiently because it's public and they're focused on quarterly earnings, or they're focused on something that's not driving shareholder value. Same thing happens in venture deals. And so I'd say that's probably been a category of deal - by the way, that category can exist anywhere in the world - and that's where we've been the most active the last 18 months.
