Where Smart Money Moves Next

So, we thought after our discussion, didn't we, that we're just going to dive straight on in and lay out the stalls so that everyone in the audience can kind of see what your investment predictions are for 2026 and beyond, if you wish to take that. and Rajie, you're sat right next to me, so let's kick off with you first. How are you seeing the investment world for next year and beyond?

Well, we invest in private assets, whether it's private debt or private equity uh across the globe. Um, and I would rephrase the question. Um, there is of course still lack of capital on the planet. You just have to be local wherever you're investing. U and if you had to if I had to pick two dimensions, what geography and what assets do we invest in?

uh uh and I see promise in and would be one the US we'll see 3 4% GDP growth lot of government support over the next 12 months with midterm elections coming rates going down so so the US as the principal geography if you want to if it's where we are going to put in capital of course we have a presence in Europe and in India we'll and the Middle East will do that too, but more than half our investments dollars are going to go in the US. And the assets are very simple. Um, of course, you do the regular real estate and so on, but the key themes are the decoupling of the supply chains which are being controlled by China today. And those supply chains are rare earths the whole value chain mining separation refining producing magnets 95% done by China critical for US manufacturing the US needs 100,000 tons of magnets a year 95% it produces 3% today and that's bipartisan it's going to move to to the US. So, critical minerals, printed circuit boards, all that decoupling from China supply chain is a great investment.

Um, and and going in early, finding the right minds, the right magnet companies, the Solway is a great refiner. That's one. And second, the AI boom, people are focused on data centers and chips and so on. It's actually the picks and shovels that are going to be very interesting the [snorts] next three four years as the hundreds of billions of dollars go in transformers, HVAC equipment, u turbines for power plants, etc.

Yes, and we've been discussing that already a lot this morning as you can imagine people trying to get the valuation right on those. which Stefan in terms of the playground which countries and which assets

well I think to make the panel punchy I think we should also slightly disagree with each other so I think what Rajie outlined I obviously agree with but it's definitely a consensus view to be long US long AI agree with that but typically when you speak to pretty much anyone on the planet and everyone agrees with that long it's slightly frightening so allow me to uh give a perspective on Europe where we should recognize ize that this is a year in which European stocks actually outperform US stocks in local currency. If you look in dollar terms, we're sort of like 15 percentage points ahead. And we think that that story is going to continue because Europe is finally fulfilling like the long recognized potential that we have and probably implementing reforms, investing, you know, when you look at Germany release of the debt break, investments in infrastructure. So we continue to be very optimistic about Europe

and Alexander.

Well, I'm sort of in the middle between Stefan and Rajie. I think that the Chinese tech sector has a lot of mileage still ahead of it. If you look at the greater Bay Area, what is happening there is quite outstanding. You know, we have modern cities like Shenzen where the average age is 30 years, right? And you see big data and AI being really put into work in in day-to-day lives across traffic control, across healthcare, across public services.

And a couple of maybe data points on the back of that as well. I mean, if you look at data coming from the World Patent Organization, China is now the number one applicant of patents. And the other one that is also just happened sort of silently over the last few years. China took the 10 number 10 spot on the global innovation index. It actually took the spot from Germany.

So there's a lot of innovation happening in that space and a lot of people are talking about capex and AI. I think China is a good example where you have seen capex increase yearon year north of 50% but in comparison to uh the US companies you know it still stands at somewhere between 10 and 20% over the last few years so capital has not yet been deployed to the extent that it can so I think there's a lot of road ahead still for that sector

and you both all of you really have raised that long-standing question of how long is that offramp from China in terms of manufacturing and and all the things that you mentioned here today. Sandro, uh, what are you going to pick for 2026 and beyond? [clears throat]

I'm not going to say something very original coming last. [laughter] Uh, I honest I honestly think we'll continue to have a very positive view on on equities because I think everything is supportive in general.

Uh, and we think that economic grow will surprise on the upside in 26. When it comes to regional allocation, I think we a bit out of consensus. We think emerging market will do well and emerging market also on the back of some dollar weakness which will help emerging market to do well and the valuation spread is significant. So uh the point is that today my view is that there are not obvious uh mispricing in the market and there's a risk that uh I think in a way diversification should be kind of the rule of the game going forward because there will be I think the way to create value would be to uh I would say portfolio construction and some limited conviction path because there's no obvious place where you have mispricing and I think it's something that we need to keep in mind. Last comment I would make is that I think 26 will be a year of significant volatility as well

for a number of structural reasons. So an additional reason to have a properly diversified portfolio. But if I have to take a bat, it's going to be emerging market.

And we were hearing earlier on from Robin from the man group saying, "Yeah, we don't mind volatility, but we want the right type of volatility." And uh some of the moves we've seen in the market have been caused by some significant macro factors. And on the political fronts, I'm trying not to say exactly what that is, but there's no doubt there are challenges. And Alexander, I want to bring you in on this. What do you see as the sort of major challenges?

Uh, US tariffs were one of those that Robin talked about literally changing with an hour, I think. Um, how are you navigating those risks and what do you see them being in 2026 that Sandra was alluding to?

So, we see very sim similar themes. If I look back at 25, what were the main three topics? Um, the US dollar, but it's not just the headline US dollar risk. How is the US dollar imp sort of impacting the overall portfolio of our clients? So that was one.

The second topic was gold. Should you add gold to the overall strategic asset allocation? Yes or no? Why are some sovereign institutions adding adding gold to an extent that hasn't happened before? And I think the third one we sort of goes back to what Sandro says is portfolio construction.

And especially as you see private markets, you know, growing in allocation overall, having a better understanding about the interplay between public and private markets. If you look at it at the portfolio level, what is my exposure across sector industries? What is my exposure across you know investment factors? These are important topics that you know we have been discussing with our clients ahead of going into 2026. And then maybe just an addition of all new concepts are emerging total portfolio approach.

There are some superanuation funds in Australia and New Zealand that have come out with a new approach how to think about asset allocation. You know, food for thought for all of us to think about that further as well.

And we're hovering very much at the macro level here and and talking about diversification and dislocation in that market. So Stefan, what what are you seeing there as the challenges? Well, I mean, just like a smart politician, I'm trying to rephrase it and also talk about potential because I think next year asset managers can actually do their job of assessing risk in different asset classes. While 25 was much more about getting geopolitics right, right? I mean, when you think about the big drivers for some of the things that that Alex has mentioned like FF FX, I think tariffs, you know, what happened in early second quarter was kind of driving a lot of momentum in for a couple of months.

So while 25 was a year in which both central banks and markets were mostly driven by geopolitical affairs, I think 26 is the year in which you actually need to also to back to Rajie's point be quite domestic and regional in your comprehension of of market dynamics in order to add value or you know create alpha for your clients. And I guess for that reason we're seeing allocations that have been talked about such as aerospace in Europe being and defense being the big targeted sectors right?

Well defense is in vogue right now but defense will be but it'll take time for defense to build out. It doesn't happen overnight. It's not just defense as I said the big theme in my mind is decoupling supply chains in critical industries with China not for clothes and so on that doesn't matter um it it it'll be whatever that goes into defense people have to focus on whatever that goes into data centers uh what goes into defense are critical minerals are you know a a uh all your infrastructure needs which is as I said edge your uh which again requires that so you you cannot make drones without magnets uh for example so and that has to be decoupled because China has tremendous leverage there which the west has realized and will in in-house all that manufacturing whatever it takes and it's bipartisan. It's it's going to happen whoever is in power.

So Sandro, uh the passive active rebalance. So we've seen passive dominate for for decades now. Uh do you think we're finally entering that sort of phase where active managers can actually regain some alpha?

Very difficult to foresee the future. But I think look pass will continue to play an important role. Make no mistake. I think it's that the pressures on fees and cost for final investor will continue to be a dominant theme. But on the other hand, I think that I see a few reason why we might see active coming back over the next few years.

One is concentration and diversification. structurally by investing passively you have exposure to uh highly concentrated if we take the S&P the the max I think are 35% of the index today they were like 12% 10 years ago and passive is kind of valuation agnostic so there's a moment in which there will need to be some reconnection with reality and I think that's to be the one of the biggest risk in passive the second element is that in uh fixed income uh I think there's still a significant opportunities to add for active and there's a structural reason that a significant portion of act of fixed income investor are what I would call non-economical uh central banks insurance companies where they tend to take decision not the way we take decision at asset manager and that to me creates opportunities and there's a third one which is I think of a of a longer term we're really living in a world of what I call the the for transition demographics, digital uh demog geopolitics and demographics. So these are transition that will uh we're reallyisting observing a paradigm shift and at a moment of disruption it's probably the best moment for active for good active investor to make their job. So passive will continue to be a significant element but I start to see some opportunities for active going going forward. So, I can see Stefan nodding away and Alexander there.

I'm gonna I'm gonna pose something to you before you dive in, though. Are you all talking your own books there? [laughter]

Sorry, are you talking about

I said, are you all talking your own books there being the asset managers behind?

No, look, we I think I'm probably the smallest in terms of ETF compared to my colleague, but is a key area of growth and I think it's going to be a very important ingredients. But look, I think as usual, we tend to exaggerate and we go either 100% one way or the other. I think there's room for both. I think you need active and passive and the and the line of divide between active and passive is is also a bit blurred. Uh and with the active ETF coming, I think that's a good example of how the line is being blurred.

So fully agree with what Santo said and I I wanted to pick up on the last comment you made. I don't think that investors, especially retail investors, decided in favor of passive versus active. I think they chose ETF over mutual funds for a variety of reasons. I mean, if you buy products on digital platforms, um, you know, in that case, ETF is simply the only rapper like the only product you can buy. And I think now that all of us have recognized that and are wrapping active strategies in ETF, I think those investors who now have a choice know if they want to choose that rapper, they can buy active or passive.

And I think that's also going to give a boost to active asset management.

So I just want to dive in as well to to give you know we're 13 minutes in now just so people to give them some advice something for them to get their teeth in. You've given us some broad themes investment themes which are incredible useful there but to pull in some of those private markets that you talked well in that battleground for yield uh across of course as you mentioned fixed income we've got alternatives private credit infrastructure all the rest of it. Where are you all at? Maybe Rajie I can and start with that.

The quest for yield and private credit are the same topics along with active versus passive. Active is not just stock picking or picking the right lender. It's about getting the right leverage. It's about getting the right term financing. It's it's about sourcing.

It's about being there to see the opportunities before others see it. The key is and so to big picture to answer your question it's going to be a big theme because rates are coming down inflation is coming down. How do you beat uh real and risk-free rates by five 6 700 base points and that only way to do that and that demand is not going anywhere. Um and it'll be substantial. Retail is doing a lot more active private investing in the US and other places.

Now 401ks are opening up. Most of the large asset manage growth in assets is happening through retail high net worth distribution. So the quest and what the thought I'll leave you with the quest for yield and private credit which is the same thing is to focus where it is not broadly syndicated. If something is broadly syndicated, well then the borrower has more power than the lender. The borrower gets the terms they want to get and and you're not adding any alpha there.

The alpha is when you source a a private asset, a private loan, a a private financing where you do it bilaterally and you customize it in scale and it can be done in scale against hard assets where you define the terms which is a win-win. If it's broadly syndicated, you decide what the spread is, what the covenants are and there are 20 people competing to take that. So I believe a lot of lending will is is needed and will continue to happen against hard assets, against aircraft, ships, etc., etc. is happening against data centers and so on uh in in hundreds of billions of assets.

The key is not to participate in stuff which is auction where you're just a marginal investor going in and begging give me an allocation.

Alexander compelling adjusted returns where what's your call? Look, there's a there's an unsung hero in the fixed income markets uh who's been out of favor for I think three or four years, which is emerging market debt. Emerging market debt had strong performance in the last few years. If you look at the fundamentals, certainly versus developed markets, it has improved. So, arguably developed markets have deteriorated.

Emerging markets have improved. If you look at the strength banks from emerging markets, they have postcoid a better handle having um control of inflation. So I think there's a lot of factors that point to emerging market debt. You can pick up three points above developed markets and and I think it's a totally underallocated asset class overall. Whoever I talk to from our institutional client base allocations are very small also in part because supply of bonds in in that category has been rather limited in the last few years but supply is coming more.

So maybe that's an area people could explore next to the private credit angle

and Stefan there's been a big chat all morning on stage about private credit and we were just hearing about Blackstone saying you know that's one of the things in the market that they believe people are misunderstanding. you know there was a big worry about the how risky it was um so it's expanding it's still relatively small are we still in a high growth phase is it something that you favor yeah and for for a variety of reasons so you know when I joined the industry 25 years ago I I worked in Rajie's broader area um and what he taught us back then is to break things down into very simple convictions you have to have and I think for private credit and you know I would include infrastructure ructure debt um real estate debt so it's not just lending to corporates you know asset based finance um is obviously a key thing I think you know the two things which I think that asset class is going for itself is a massive supply demand imbalance where you have in Europe for example many midcap corporates that require growth capital that banks simply don't supply so there's like you know scarcity of that sort of capital which I think you know people like us can provide um similarly in infrastructure I When you think about what Europe wants to do, there's going to be significant investments in infrastructure. So a massive demand for capital which again I don't think traditional banks can actually provide in that quantum. So just from that perspective, I think it's an asset class which offers very attractive justified yield.

Sandro, something you're still focusing on as well, private credit.

Yeah, absolutely. And um it's still as we said it's still a relatively small allocation with investors and even within the overall mix of private assets private credit is still relatively small and there's a structural need to finance especially in Europe the growth in the economy there's a significant imbalance at a moment in which banks are somewhat retreating so there's a disintermediation element that will need to be fulfilled by by asset manager it's going to be interesting to see what will happen in US because probably some of the reforms will allow banks to do more in US and that might also create some uh some reversal trend but I completely agree with Rajiv. I think at the end of the day scale now make is is what will make a difference because is will give you access to deal sourcing completely different from being a small player. So selectivity is going to be key going forward and uh and the quality of uh and the concern the overall concern is about the imbalance of supply demand where you don't have enough deal to source and that's the where the selectivity comes into place and the bigger you are the more you're going to be in a position to set conditions which is where you're going to create alpha.

So Rajie you've already given us some great insights into where your mind is in terms of how how you're seeing the world. Is there any other points on private credit that you'd make or indeed other emerging themes?

Well, private credit is a big space as said I put it into uh two buckets. Yes, there is shortage of corporate bonds but anything that's you know you're you're getting paid in liquidity risk premium. So you you better get paid enough for that liquidity that you get that that you have. So in in private credit again there's there is a lot of demand and the demand will continue is my prediction as rates come down because if you look at the capital structure of a company you have debt you have equity you take debt which is at say 9% you level it up once you get to 15%. Is that the same risk adjusted return as equity?

Sometimes it's better that 15 is better than making 15 in a in an equity situation where you don't have an exit in a private company for example I would rather take. So you have to do your analysis saying where is my risk adjustable return better being in the equity or being in the debt and levering it up where the risk is even lower than the equity. The key is to have long-term leverage so you don't get taken out at the wrong time when the market's rock. Have term financing. And if you can get 17 18% return on a levered private credit sit situation, that to me is much more compelling sometimes than than equity.

U so that's the analysis one has to do because it's the same company with the same balance sheet. You're just taking senior liability, levering it up versus taking equity.

Now, we've got five minutes left and I'll get in trouble if I don't get myself off stage on time. So, that kind of leaves you just about a minute and a half each just under AI technology. Where where is your mind at in terms of technology as a catalyst? Maybe start off with you Alexander first.

Look, I think technology is going to change fundamentally how we run asset management organizations. I mean we are at the beginning really to deploy AI into the investment process. But if you think about the ability that we have to deliver better outcomes with our clients leveraging big data u you know machine learning I think for what we do I think this could truly be transformational and then you add to that all of what is happening in the last few years around digital assets. You know maybe the next generation of investors will no longer have a custody account. they will invest through their digital wallets.

So we need to be really fit and ready for the future to cater to what maybe is a an analog world still but we are slowly moving toward the digital world. Well as I said some investors especially the up and cominging they invest differently. Stefan mentioned ETF as a rapper and they might want to hold all of their investments in a digital wallet.

Yeah. So Stefan, sorry I'm I'm coming to you just as you're having a quick drink, but which part's the most interesting to you? I think both parts are very interesting for different reasons. I mean on the digital assets fully agree with what Alexander said. I think the financial plumbing that all of us got used to were like 10 middlemen between investor investment is going to be disrupted and I think once you represent ownership on blockchain well like that plumbing again is just going to revolutionize and plenty of people will need to look for uh for new things to do.

AI is going to have a very different impact on our industry because you know picking stocks and bonds based on publicly available information seems like a pretty obvious use case. Now I think from speaking to to smart peers here I don't think anyone has really cracked it beyond efficiency gains which I think you can you can get you know what we experiment with is companions that you know try to take emotional bias out of your decision.

I suggest you're questioning valuations. So that suggests you're questioning valuations on some

No, I mean it's more my my my point was specifically on asset management that I don't think that people have found or they haven't disclosed um really creating alpha with it. Obviously everyone is working towards it but I think what people are using it for is making sure that if you have investment thesis applying to the whole possible investment universe that you may not know yourself definitely um you know like correcting for emotional bias but I think at some point we're going to be able to say well instead of saying what's the most likely what is what AI is focused on what is the one unconventional question that has not been asked yet almost the inverse of AI and that's what we're experimenting with

okay do we have the answer yet?

Not yet, unfortunately. I'm working towards it.

Sandro, give me the last minute and then quickly Rajie.

No, look, uh, completely agree with Stefan. I Everyone is experimenting, but uh the news of human investor being replaced by by machine I think is greatly exaggerated at this stage. I think no one has found the code and I think it will take it will take a long period of time before we get there. Um I also think that the potential the most potential impact on our industry are going to be the tokenized assets and the and the blockchain because that would completely reshuffle the whole value chain in our industry. And this is the area where I think we're spending most of the time to make sure that we're ready for that.

And I think that's going to be massive and we're discussing that on this very stage here tomorrow. Rajie, only one minute left.

Yeah, let me say this. The impact will be much quicker than people expect what we are using it for. And I'll tell you where the impact is. It's in two places. Barriers to entry and scale benefits will erode.

That's true. because AI we are using for due diligence for analysis for portfolio maintenance and and and u reporting. So an asset manager which says we have 2,000 employees and we we have scale you should give us your capital that scale benefit is going to erode because 20 people with generative AI can produce the same output uh can do the same due diligence monitor the portfolio monitor the debt and the equity and all that stuff do a lot of investor relations reporting so scale benefit will definitely role a an asset manager with a 100 employees can do the same as a maybe 500 employees.

Brilliant insights, gentlemen. Hit the clock on the button as well. What more could we ask? Thank you. A big round of applause for my panel here today and thank you so much for those market insights.

Very much appreciated. Thank you.