Private Markets in the Next Cycle The Reconfiguration of the Economy

Good morning everybody. Thank you for having me. It's a privilege to be here and share some perspectives about private market investing in that next decade. And I want to start with one big question which is what is the real gamecher in this new environment in this brave new world ahead of us. Is it a macro environment which is very different?

Is it geopolitics, supply chain management, things like that? Or is it labor dynamics? Or is it the next generation of technology? And our answer is very clear. It's none of the first three.

Why is that? They're very important. Don't get me wrong. You have to build your businesses very carefully around these factors. But what they have in common is that none of them is changing business models in a fundamental way.

And that is very different from the next generation of technology that will lead to a reconfiguration of winning business models. and a redistribution of profit pools. So let me talk about that. I will do this in two steps. One is talking about how we see that next generation um and economic transformation unfolding and then I will take a step back and look at what's the bigger picture of what's actually happening here.

If you talk about economic transformation, what I think is very key is to keep in mind is that these things happen faster and faster. We've seen this on and on with industrialization taking 100 years, 30 years for the service industry, 25 years from 98 to 23 from the for the first digital integration of processes and systems. And we of the view that we see the next digital integration towards autonomy is happening in 10 to 15 years. And the reason is very simple because technology adoption as you see on the right hand side here is just happening faster and faster. So how should we think about this world?

And of course no one has the crystal ball. We don't know exactly what's going on, but it's helpful to have a certain structure and have a certain hypothesis. So what we use is what we call an economic business transformation model. That's our internal model that's built on an observation that every economic transformation follows a very similar pattern where typically two things f forces come together in the first digital integration. was internet affordable computation power leading to information as a service and then unfolding the change in several waves and we see something very similar happening today with um AI as infrastructure massive computation power together this brings us intelligence as a service with again several waves that will affect the businesses the first wave is something that's happening today that's actually not that spectacular we call this business process transformation.

It's all kind of co-pilots that make you just work more effectively like for instance in supply chain analytics things like that. The bigger deal is what's happening next three, four, five, six years. Okay, that's what we call business performance transformation. This is towards autonomy. That's when these co-pilots become so effective you can use them as agents.

Okay, you can replace end-to-end processes. For instance, like at Nokia and Abu Dhabi does with some of their production and simulation um activities. We have a very similar business in our portfolio that provides for digital software twin for utility networks. So that's much more key because if you don't adapt to these models, the business is probably going to. But the big deal is actually not that.

The big deal is what is ahead of us in the third wave. That's business model transformation. And business model transformation is not another incremental step. That's when usually forces come together. Often this is driven by novel scientific methodologies that drive completely new ways of building businesses or products.

There's not a whole lot we see today because a lot of that will probably happen in the 30s 35 but what we see in certain areas is quite mindboggling. So for instance if you look at material science okay could be in organic or inorganic material science where these models have become extremely strong. We have seen the first anti-aging peptide developed by such a model last year. You can buy it in shop now. We have a portfolio business fair journey that developed antibodies using that technology.

This is a much bigger deal because that completely changes the engineering from in vitro to incilico. It will change the trials but even the distribution at the end of that value chain. So the whole pharmaceutical supply chain completely changes the next 10 years. The way we think about or have to think about these business model transformations is that there is an incredible amount of innovation going on. Okay, think about that.

There were about five million scientists about 20 years ago in the first digital integration but 10 million maybe five years ago. They use all AI and tools probably in a more effective way than even software engineers. Often I hear from my school it's five times, six, seven times efficiency factors. So think of it as not five million scientists but we have the output of 50 60 million scientists in the next 10 years. It's a tsunami of innovation where the shock waves of innovation they often travel beyond the surface below the surface of the water.

You don't see them. You only see them once they hit the ecosystems and then they will radically change these ecosystems. So in investing in these days, you need to think about the short-term margin enhancements through the process support. You need to think about the bigger deal on the actual performance transformation. But what you always have to keep in mind is where's the actual business model transformation coming from in your ecosystem.

If you take a step back and if you wonder I mean what's the bigger picture actually here? What's happening in this next transformation of the economy? If you look at some of these headlines, what they have in common is three things. You see a lot of tech enabled cross- sectors, new leaders that define new ecosystems. And the question is, is that only happening at the bigger scale of some of these large companies?

And the answer is clearly no. What we're doing in our portfolio is exactly building this next generation techled cross- sector champions in all kind of ecosystems. So give a few examples here. We see healthc care service and technology come together. Confluent is a large physiootherapy platform in our portfolio.

They bring together the physical and the digital experience for physiootherapy. You see it in pharmaceutics. I gave one example already. You see this in the trials and the whole value chain. We see it in agriculture where data and technology is coming together.

So a business like Robenza, we bought that as a fertilizer business a few years back. We moving into a biosolutions technology company. In a very similar way, you see manufacturing and software coming together. And software by the way will be much more relevant for most of the goods especially if you think about robotics where you see every few months an update and the update will be driven by software and not necessarily by technology. Very similar on the infrastructure services side.

We have a company called Rosen very active in this region here. They do a pipeline inspection. They say they send robots through pipelines while the oil the gas is flowing. They take electromagnetic resonance pictures a couple of billion. They use AI to actually look for cracks and corrosion things like that.

Is this infrastructure? Is this services? Is it technology? I don't know. But relevant is that's a relevant ecosystem.

And of course you have a lot of examples in computation services energy specifically here in Abu Dhabi. So where does this leave us as an investor and as a builder of businesses in this new area? You have to have a very deliberate approach to what we call transformational investing. You need to think about ecosystems and value chains and not sectors. Sectors is a thing of the past.

And you need to think about the margins that you can arrive in the first few years. But then you need to very hardly think about what's the winning business model in these systems in five to 10 years ahead. And you do this with these cross- sector teams. You do this with very active operators from the businesses, not advisers that spend a lot of time need a very large team, a cross- sector team for that. And for every business, there's just no exception.

The IT, the data, the technology strategy is incredibly strategic. So what I want to leave with you today is that there's a lot going on with geopolitics maybe new macro environment with a little bit of lower base growth in many many areas or regions of the world there's a lot going on in terms of labor dynamics in many places in Europe in Asia specifically but the big gamecher is the next generation of technology you need to be very deliberate because it's about building these tech enabled cross sector leaders that will define this new economy and the new ecosystems with a very active team in a very transformational way. No better place to talk about that than Abu Dhabi because this is really one of the places where exactly that future is being built. Thank you.