A Rising New Paradigm: Private Markets Versus Public Markets

[Music] hi everyone uh thanks for joining you know the last panel of um you know this this session I guess so we have a great set of panelists and I'll let them do the talking um so obviously we're going to talk about you know the private markets versus public markets and our panel is here will be able to help us under understand this trend globally and also we'll touch upon you know the GCC uh region the specific opportunities and challenges here so the first question I'll direct to uh LNA so can you give us an overview of the global market trends over the past few years and how does the new dynamic between public and private markets influence the investment community well um thanks for having us and I don't think this one's going to be as upbeat as the panel ahead of us so bear with us um maybe just to frame the private versus Public Market Dynamic uh I think the MC just mentioned there's a shift in the past few years with investing moving from the public market into the private Market the number of packed um companies globally has basically uh just basically basically mirrored the the rise of that mirrored the decline in the number of listings that we've seen fewer businesses are choosing to go public over time uh just as anecdote in the US back in 2000 you had about 12,000 listed businesses today that number is about 3,500 um this is driven by a number of reasons regulatory considerations access to flexible raises and more importantly hopefully higher returns and uh lower uh vol ility we've seen bout consistently outperform um private public markets on a longer Horizon with the exception of the recent underperformance to the S&P 500 but that has been predominantly driven by the concentration of an of the S&P by a number of Highly performing Mega cap um stocks which what we call them the Magnificent 7 that concentration of these stocks really indicates that there is a higher inherent kind of risk and lower diversification in that index itself so what we've been seeing in the recent kind of years on the private Equity side you've seen basically a significant decline in activity postco then we went into a reversal of that as the financing Market came through and macro kind of Outlook was positive probably record uh deal activity from a private Equity perspective that all came to a halt when we got into the early 2022 is basically lacking access to financing and an Outlook that was slightly more negative we've seen this year uh what I would call a slight Improvement as we started the year I think the US probably is in a better shape than Europe Europe still has some volatility we've seen secondaries kind of improve in the number of deals that being said the Divergence in valuation between sell side and buy side is still there which led in your and specifically to see a lot of take privates um happening 40% of the deal activity in Europe this year has been p2ps technically so that basically tells you what's happening on the public market so we have more take privates listings have been quite muted over the last two years we're see we're seeing early green shoots these days but it's worth mentioning that's probably a western kind of phenomena when it comes to markets here that probably looks incredibly different so looking just forward I think the fact that we had slowdown in the activity somewhat shut IPO markets means we're sitting on an unprecedented kind of backlog of deals in the private Equity World in Europe alone we have 800 businesses with a valued at around two plus trillion dollars that have an average kind of hold period of six years that basically means we haven't been returning Capital to our LPS there's a lot of influence there's a lot of emphasis on DPI without that we are not going to get fundrais fundraising moving going forward and even with that you have an unprecedented 2.6 trillion of dry Powers sitting there waiting to be invested so it might be a bit positive to say that we hope for better days in 2025 from De activity especially in Europe but definitely with markets kind of coming back that these factors at play and and credit markets coming back in a frothy way we hope for a good 2025 perfect um so next question Paul I'll bring you in your firm is headquarter in Montreal and you've done a lot of things in the North American Market can you share your experience with us yeah so our group overall administers about $3 trillion of assets and has1 trillion dollar under AUM uh I run the private markets side of that which is still very small 30 billion um but I think that shift is going to change massively and I see a few drivers of that shift one is I think the regulation around governance in public markets is becoming increasingly constraining for all the wrong reasons and so I think the ability to exercise ownership and um being an active shareholder in public markets is becoming more and more constrained and that those constraints don't exist in private markets and so we believe our ability to change outcomes via action uh is better in private markets there's also a major Trend in North America which is the retailzone flows are retail 70% of blue L's flows are retail the biggest initiative that we're focused as a group is retailzone uh in our uh and making privates accessible to retail I think historically pension plans have shifted you know to very high private allocations that's being followed by insurance companies and I think the big wave now is uh wealth markets and the broader retail markets and so we're looking to play a major role in democratizing that um and so you know I ultimately sit on the boards of public companies I sit on the boards of private companies every day of the week I'd rather sit on the board of a private company got it um yes so honing into the origion we're in Arvin from adgm um obviously how do you feel like the things stand in the GCC countries in terms of the you know development in private markets because LNA just mentioned it's a completely different situation here um so please share with us now thank you for that uh actually the mood here is a little bit different right especially in the public markets uh the UAE especially the region as a whole and UA in specific you know we've been going through a bit of a Goldilocks period so if you look at 2023 alone we had about $31 billion of FDI so there's Capital flowing into the country and if you look at the cap the total market capitalization of our two exchanges here they've crossed a trillion dollars so it's actually interesting that you're seeing flows both on the private and public side uh if anything today I would say it's most cured on the public markets uh and I think for the reasons you said Paul I think there's there's retail liquidity uh if you look if you look at all the issuances that have happened over the last uh you know year or so they've been they've been over subscribed multifold right so that that tells me that there is a lot of institutional but also retail uh demand uh on the private side uh if I can put on the hat is adgm you know we've we've always been out there trying to promote it right uh because you know we want to ensure that you know Market participants have different pools of capital that they could tap into uh depending on their stage of maturity um we are seeing players come in right so we've seen some players come in um you know both domestic and international uh investing into the region we've seen that over the last few years you know we've seen deals with with alar with adnoc with with multiple other participants you saw ICD in uh you know Brookfield investing in ICD etc etc so we are seeing private equity and private credit uh transactions International and domestic uh probably not at the same scale as probably what you've seen in other parts of the world uh but in general the mood is very buoyant public markets continue to do well uh you know I given the pipeline of transactions you're talking about you know potentially doubling of the market cap in the next couple of years uh so yeah I think you know the GCC is a little bit different at this point point right just a quick followup I I guess you know why is it important to develop private markets in this region to support the growth I think it's for the same reasons that you want to develop private markets anywhere in the world right because you want to give people choices uh why do people go to public markets right it's mainly liquidity right that's the Big Driver to go to public markets uh as the earlier panelist lbar and Paul said uh there has been a situation where there's been over regulations potentially in some other markets you know in the UAE in Abu Dhabi we pride ourselves on actually deregulating things right keeping things as simple as possible to make sure that we're open for business um and you know so the public markets are doing well why is private markets important it's because it just gives New Pools of capital right uh you know the banking Market uh I'm sure you know Sammy will talk about this more U you know with the Basel 3 regulations with IFRS the ability especially on the credit side is is is limited right and with the massive influx of new businesses but also businesses being set up in the region having access to those pools of capital I think e is very very important got it Sammy um you're just being called so with your experience you know what are the gaps you're seeing in uh developing private markets in the GCC okay um okay so starting i' just like to point out that there's some real very good positive enablers right one is the regulation that we have here through adgm and the IFC um around things like getting paid back you know bankruptcy um foreclosure things like that so that's a a big positive and the second thing that's a big enabler in this region is a very high um uh uh number of high net worth um clients that are looking to invest in in cash flow positive uh High return types of risk and so that those are two sort of um factors that are sort of creating if you will a desire to see more private Credit in this region um if one thinks about what some of the constraints are um I'll start off by we have to think about how we Define the perimeter so when you're in the working in the US market you become very specialized you Focus either on direct lending you focus on Venture debt you focus on um uh broadly syndicated loans and so on so forth if somebody comes to operate in this region there's not that sort of scale so one has to sort of be flexible any sort of fund that comes in to look at private credit needs to be able to function across all of these asset classes everything from mezanine debt to real estate to um to venture debt and so on that's sort of the number one so it's how you define the perimeter and whoever's coming here needs to have a broad perimeter um the second thing is how do you um originate so you know the the markets in the US are based to a large degree on lending to private Equity owned companies so all you had to do is sort of call up the private Equity company they'll tell you what 100 companies they have that might be in need for borrowing money and that's an easy way to access 100 different borrowers um I'm just simplifying it um but here it's much more challenging so how do you develop that origination capab how do you source that business in this local market when you don't have a footprint you know the solution potentially is working with local Partners we are exploring that opportunity with number of different funds uh globally and seeing how we as a bank that's well embedded in this region can be helpful in that regard the third is how do you anchor the demand for this sort of product in the local investor base and so we know that we have a whole gamma of of very strong and powerful Global Sovereign wealth funds that play across private equity and private credit across the globe but who else do we have in this market that we can use to Anchor deals and as I said part of that is access through a very strong private banking Network I think High Networth individuals uh that can have you know the opportunity to invest in sort of sort of cash on cash um returning Investments um will will will will obviously is is one of the Lynch to to success in this region and finally um I think one has to think about ultimately when one builds a business here is how do you sort of optimize your capital structure and so having access much as us funds and European funds have access to leverage in the US and in Europe how do you access that leverage here uh obviously you know having banking Partners in that regard is quite important and I think again that that sort of completes I think the the the the analysis thank you thank you for that um I think the audience would be very curious about you know what specific opportunities in the private Market in this region so um you know if I may call in LNO or Samy to mention about the you know any deals or case studies in the past few years that you can share with us yeah sure I think we we as carile probably came in a bit early to this region we we set up a fund in 2007 that was ahead of its time probably I think the one thing that we look for when we're kind of thinking about investing is exits it's the first thing you think about and the importance of you know a deep Market that can actually allow you that exit I think in the past 10 years and more rapidly in the last five the markets here have gotten far more sophisticated deeper regulated to some extent there's a clearer path there's certainty to how you can exit it maybe the private Equity side is still less developed so but you have public markets that can provide a really solid exit path so I think that alongside the improved governance gives like a good pause to it's time to come back there's a ton of opportunities where there's a lot of growth to look at we've we've invested from that Fund in a business business called elmar that was in the based in the GCC and it took us 10 years to exit it because the market like the growth was there we were growing we did incredibly well in the asset and we we exited quite well but when we came to exit the market was different it was a lot easier a lot more transparent also which gives investors like us a lot of comfort to go in we continue to look at deals as we said today we don't have a specific vehicle but we look at deals in the region and we look to do them in Partnership ship with good either Sovereign wealth funds or good families that we have had long-standing relationship with the part the partnership outs say in a region like the GCC is incredibly important Sammy yeah so let me start by touching on two different types of deals so so one where I think we're almost lead the way in this region uh I would call a structured minority interest transactions so this is where um large companies like adnoc aramco uh DP world have sold Equity minority equity in a in a structured format to International investors um each one of these deals has been between four and I think five and a half billion uh so these are significant transactions and I and as I said this sort of region in a sense is leading the way in those in those deals now what is the implication of that I think those sort of deals are definitely sort of being done for obviously Capital optimization for managing debt Equity um managing ratings and and and and other things like that but I think going forward I think one can see this sort of same technology being applied to sort of middle siiz or um other corporates uh in the region so that's sort of one area where I think um we can see a lot of progress and development um another area is if we look at a couple of um sort of growth Capital uh or growth companies like tabi and Tamara uh these are two by now pay later lenders um who've recently raised a number of equity rounds um as as they should um then they followed on doing what we call a or sort of Bank debt um uh secured by the underlying loans these byy now pay later loans and then they also secured mezzanine debt uh again through the sort of private credit sort of markets and these companies have uh preparing themselves uh ultimately for an IPO at some point and so this is the sort of uh and and there are many more examples like that in this region but these are two sort of you know good examples of how sort of private credit um has come to play and and and to benefit some of the uh companies in in in this part of the world thank you um coming to the final part of our discussion actually um I think people are wondering the Outlook and the drivers for the development of the private markets in the GCC so if I may perhaps I'll start with Paul um you know what what's your observation any any sectors companies you think we should look out for well firstly I want to say I totally agree with Sam what Samy just said we have a structured Equity Fund focused on financial services and you know and I also agree exactly what lumna said the biggest challenge when you're doing straight Equity is the exit and structured equity and credit actually solves that challeng challenge because there's a contractual exit and the door is predetermined at the beginning of the contract and so I think those are actually great Solutions and we're actively looking to invest in those areas in the region including in ASA back loans and the fex space I think one of the things that would get me very excited about the region is that I think all regions follow a natural cycle of capitalism when in the early stages of development capital markets are not that sophisticated and so ultimately families and holdings and conglomerates are the arbitragers of like capital and so if you look in the region you have a lot of Highly Diversified family groups that will change because ultimately to compete globally you need focus and I know because my family was a highly Diversified family group until we focused and one in financial services but we used to own ships and Pulp and Paper and we own 25% of Warner Brothers so we own a lot of random stuff um and we've focused and that's made us win and I think ultimately for a lot of families in the region here they're going to have to look at their portfolios and decide this is the company that we're going to bet on as a family and we're going to bring in private Equity partners for these other four things we're going to IPO this we're going to bring in professional management and we're going to totally simplify our structure and that may be controversial but I think if you take a 20year vision of where these economies are going to go it's going to be simplification of family structures that will cause private markets to deepen because one of the challenges for private Equity firms now if you go and you look to buy a company in Saudi you know you kind of feel you're playing an Insider game and you're not inside uh and so and so ultimately I think over time it's going to simplify streamline and focus and that will lead to the growth of private markets in a great way and ultimately the growth of public markets I see Arin please help us you know close this uh discussion you know adgm obviously is you know attracting people to base here what are your messages to you know the the the investors or companies um here no I think you know I agree with everything that they all said uh to start with if I were to just pick on two themes right um one is mid-market companies uh so it's you know as they go through as you have more companies coming on board new company startups midmarket then they go to midmarket it's important to have pools of capital that takes you all the way to the public markets right now those pools of capital typically could come from the banks in terms of debt it could come in terms of private debt it could come in terms of private Equity right and I think all of those pools of capital are very important you know for us to develop so as adgm what we've tried to do is set up a regulatory framework and build ecosystems that can allow for that right so we've got you know specific light touch regulations uh for example you know for Venture Capital we've got light touch regulations for private credit so we brought in specific Frameworks to look at those elements and then try to build the ecosystem around that so that's that's one part the second part is is the family office space right uh you know the the UAE is today 7 years of Independence uh you know and you know we're talking about third generation uh families in a lot of cases and I think it's extremely important you know from a from a planning standpoint uh whether it's whether you want to tap into public markets and a lot of them are looking to tap into public markets to raise to get the right governance the right structures Etc uh or you may want to unlock some value through private money markets right uh and I think governance as they said is a very important piece so again you know being biased from an adgm perspective I guess but from adgm perspective you know we've got adgm Academy that we set up as a knowledge partner right and what do they look to do is you know support on those elements so whether it's on you know supporting the family offices right and there's some very interesting things that they're doing in that space or whether it's in terms of you know governance you know and having the right governance in place as you start going down the path so yeah I think those are a couple of things so for us you know we believe the future is is very bright you know for the region uh you know for the UA and abudhabi and as adgm the most important thing for us is to have the right regulatory systems and then build the right ecosystems to make sure that that is possible got it um I think we're running out of time um but if I may because Paul just mentioned what gets him very excited about the opportunity is here just very briefly what gets you guys excited about the opportunities in the GCC what gets you excited oh what gets me what gets me sorry what gets me excited about the opportuni he is coming to an event uh like this one where I think I've spoken to probably 10 or 15 investors that are poking around the region looking uh some of whom are getting office space here some of whom already I identified teams uh to come and move to the region uh that are starting to look at this region I mean we do a ton of stuff outside this region obviously we help all the sort of the uh major Sovereign wealth funds Finance their us and European businesses but looking here is it's quite exciting to see investors from outside looking into this region L now just one well quickly I I invest in healthcare that's my area and there's a lot of change on the global kind of scene with regards to healthcare where where it'll be done how the US China relations kind of play out and there will be changes in the global kind of environment to who's playing what role and I think in that change you're going to need incredibly focused Vision speed of execution to kind of take advantage of some of these disruptions and I think you know places like here if and we've seen that in different area PE governments move very fast compared to other places to create ecosystems to support and I'm hopeful to see some of that on the healthcare Arena as well perfect thank you so much everyone to listening uh thank you our panelists thank you [Music]