Asset Abu Dhabi - Investing In The Economy

foreign [Music] future it's such a big title isn't it in terms of what we can expect and I'm going to put all the pressure on you John Paul first uh what do what do you see as the economy of the future everyone knows having uh predicting the future is quite difficult but if we look in the past we have some good direction during the past three centuries there were our world has been transformed and it has been transformed in fact by one thing which is knowledge Improvement of knowledge and technology and I think what most likely we as investors we should consider that it will continue like this and therefore what we but we have to try to appreciate is where the knowledge is being developed and then which is almost the second part which is uh in which human activity it will develop and the third part is as investor how we can try to to capture it or capture those those clients and that is even more difficult and it certainly something which requires that we we investor we look we certainly have to change the way we we look at markets we invest we are organized now there's one thing that we're sure of in the future and that's technology and something I'm not going to keep going along the line but but we can't talk about the future without technology but a lot of people are finding it hard to Value those tech companies because of all sorts of reasons we don't need to delve into now so how are you going to manage that access to Capital and promoting some of the you know there's obviously good tech companies out there how are you going to go about doing that yeah it's um it's a it's a question that we deal with fundamentally every day uh so process we're um Tech investors globally and we're operating in over 90 countries I think from our perspective when we think about valuations we have the luxury of taking a long-term view I look around the room here today I don't see anybody with a pager over the fax machine so I think generally speaking when we think about valuation we're thinking about businesses that fundamentally have the ability to change the way that we do business the way that we interact with each other and from evaluation perspective that's typically the approach that we take now innovatively speaking markets ebb and flow and we recognize that and at the end of the day we're always you know irrespective of what's happened over the past few years we when we think about valuation we think about a business's long-term ability to generate cash flow and its ability to derive value for customers so that's fundamentally how we think about valuation when we're thinking about tech and Alex I want to bring you in on this because with everything going on in the tech space it's easy to maybe become skeptical of certain things at the moment but you're saying digital assets are here to stay no I I I I maintained that and and perhaps to to your earlier point about it's difficult to think about the future without thinking about technology and you know I'd say careful it's about uh it's about what clients want it's about serving clients the way they want to be served the way they need to be served Technologies the enabler but it's kind of not the point and so so so thinking of business models and thinking of of what Society actually wants is absolutely critical as one of the societal themes that I think we need to address digital assets are here to stay um obviously Lots in the news in the in the last few days and uh and over the course of the last year it's been it's been a you know a uh an eventful year but digital assets are already part of our Lives um they're here to stay I'm not saying they're going up or down I'm just saying they're here to stay However in order for the adoption to occur on the sort of institutional scale that it would ultimately predict we will need robust infrastructure we will need conduct of business that is consistent with institutions and and we need forces for good to build that infrastructure operated at the institutional grade or the bank greatness that it takes to engender trust from everyone involved and this is becoming part of the conversation of force because we've heard it through everyone speaking here today the need for Partnerships the need uh to do good um it's no longer acceptable to segregate investment from perhaps the impact that that has on the environments as well and Rick I know you've been with me and cop we just got back late last night um and and within that theme as well I'd like to drill down on a maybe a more macro theme of people are concerned globally about de-globalization they're worried that people are starting to pull up the draw Bridges and and become because of Supply chains and various reasons bring things closer to home but you're a bit more optimistic on that front you still think that there's a lot of room for international cooperation between the um Global South and North divide yeah I mean you have to be a little bit careful about dividing what you hope for from what you expect to happen I mean deglobalization hasn't really happened but has certainly been a Slowdown in in the pace of globalization and as investors we were very concerned about that now maybe we were more concerned that we should have been and you know profits are still surviving but particularly when you think about the future economy the low-carbon economy uh it is essential that we get cooperation working particularly between the North and the South the South has very significant problems brought about by the physical effects of climate change and we need to find a way of dealing with that in order that globalization can can continue to work there is a risk that globalization may stop or go into reverse simply because we're unable to deal with the issue of climate change properly and particularly the the role of the South which is a very high carbon high growth part of the world but it's also one that suffered a lot of damage and and is in need of um you know sense loss and damage uh compensation if I can put it that way so I think Financial system needs to retool itself in order that can solve that particular problem as well as the ones that it's used to solving yes exactly and I think you want to add to that I was I was going to Echo some of your points straight out in and it's it's one thing to have companies operate sustainably it's another thing to have sustainability be the business model be you know at the core of the business model of a company I would argue that there's no Venture we should be building or investing in that does not operate sustainably today a number of Adventures we build on you know would go what I call Step Beyond which is the the explicit objective is to do well by doing good meaning the objective is net zero the objective is financial inclusion the you know and and that's part of reconciling banking financial services and Society at Large and I want to bring you Jean-Paul in on this because we talked about these big investment themes but then we need to get our money out of our pockets we need to start investing in them and thinking about them where we have the trends but where do you think we should be investing where do you think investors will be putting their money that's fine I think first we should look at what is the current structure of the market because the markets are reflecting our society I'm not making a speech in favor of efficient market theory but if I look at the world Equity market today listed you have 35 percent between I.T and health care and if you add the different companies which are very high content in a in research and so on roughly 40 percent of the current stock market in the world did our invested invested in a technology of the future so what we then the next step you can say can I go more granular can I do more but there's also the market is important to know that the markets are already reflecting the trends that we see in the society towards the and the inclusion of Science of knowledge in most of human human activities and it's if you follow in other Market is less clear those are asset classes but if you look real estate you have that you can invest in data centers in Towers in many sectors which are directly linked to technology or science and you can a building which is a transformed into Laboratories for for the healthcare sector if you look at private equities they have a significant portion between that scare and the I.T and particularly into software and so we and we we have a lot of choice already without being very granular and the next step is that being more granular but for that I think you need an organization a challenge in your organization well we're certainly in a region that's not scared of a bit of Technology here and looking at things with a fresh pair of eyes and acting quickly and talking about that technology we want to tie it together I'm going to come back to Sandeep in a minute because I know you've got a lot to say on that but but Rick um energy and Technology again a very powerful combination in this region to be it's an argument that's being slightly polarized dare I say in cop and you know to to re-talk about energy and technology in a way that keeps the energy companies at the table well I think the first thing is excuse me the the first thing is the energy transition that we're that we're talking about is a very long-term thing and now I know there's a lot of controversy about you know the amount of capex and where it should be going at any one point in time but what what we're heading for is a world where energy comes to a much larger extent from different molecules and from electricity and that gives us very different opportunities from a technology perspective and I think my argument will be there is going to be a much more interesting Renaissance of hard science technology particularly in Venture Capital but possibly in other areas as well because the payoff will be very different if you think about a system where you've got 100 terawatt hours of electricity capacity needed by 2050. the value of improving that by even 0.1 or 0.

01 is absolutely phenomenal from an economic value perspective so I think those uh hard science technology projects some of which are very far out in terms of the probability of success could have a very large impact so I think we may see a little bit of a swing not away from software but additive in terms of hard science technology because in many respects that's the only thing that's going to solve the problem and that includes things like more complex carbon capture and storage direct air capture all the things that address the issues that we're aiming at in a more Diversified way because I think there's one thing the energy transitions clear on that there is not one single solution we need to have a constellation of different Technologies but the payoff from getting them right is very very high so Sunday jumping back on technology as you talk about the big theme out there is these International Partnerships it's the energy transition but it's always always always been access to cash access to finance so when we think about that access to Capital how do you see that in an economy of the future yeah actually before access to Capital just to actually Echo one of the points that you just made you think about the the marrying of hard science with software we're seeing it today in Europe so inevitably hard science became Leaps and Bounds forward with EVS but today actually in Europe where there's a a complete increase in Energy prices the end consumer wants to understand what's the optimal time for them to actually charge their vehicle that's provided through software so ultimately that point we're seeing it play out day in and day out when we think about access to Capital uh we think about that in a few ways one we think about it I think there was a comment made in a previous speech around access to credit these days inevitably speaking with a lot of the software that is out there it has become incredibly different to underwrite a business model with the access to information that they're using with software day-to-day and we're seeing that in businesses that we're looking at be it access to traditional small medium businesses historically speaking have been starved for credit because the average lender is not able to assess their credit worthiness and now we've basically been seen with uh with in Partnerships with large e-commerce companies how they're selling we've seen that um the second component of that would be access to Capital Access to to markets for the average individual we think about access to equity markets so so we've backed a business in the region which is a a startup called funder which provides access to the equity markets for the average individual in the region we look at Equity Market participation in the US specifically it's in the you know it's in the high double digits access to equity Market participation in this region is three percent for the average retail investor from our perspective we're really looking to find out how we can increase that I can see Alex nodding his head there do you want to add to that all right I would Echo that I think it's very very well you know it's it's about access and and providing ecosystems and platforms that do provide that access perhaps a word on ecosystems which is uh which is a you know something about this place here and uh and uh and you know sort of with uh with uh with uh mixing up Capital various sources of capital across you know up and down in the in in the capital structure together with uh started the environment together with Academia research and uh and a number of other actors and creating that ecosystem in a very um deterministic way deliberate is what it takes to to provide that access you know that's I'm editorializing your common Community more and Jean Paul you said you know we've got all these choices out there you know we've got all these possibilities to invest in and then we've actually got to decide which ones to invest in how are we going to put the slide rule over all of that and actually say that's what I'm going to invest in because you know the investors are going to give you a lot of trouble if you don't get it right yes but I will say that if we look at the the big SEMA and you have clearly you start by your knowledge technology where the systematically implemented it is in the information technology sector it is in the healthcare and if you look at what those sectors are delivered over the past 25 years they have delivered something like nine or nine plus percent per annum which is a great design the market itself has delivered close to seven and we you have already select a part of the market which is which is attractive then you if you want to be of course within those big sectors you have a sub sectors which are doing exceptionally well but those one you need more structural different structure to capture them because you you have to be able to screen the market and you have to use in fact much more quantitative approaches to adapt for us the motto if you want to go really looking at the most attractive sub sectors you have to be systematic okay you have to be quantitative and you have to be very granular and all this means you have to be flexible because those subsectors don't last forever and we all know that when for example Healthcare is likely that it will it's a sector that will continue to go for the next uh unfortunately or unfortunately for the world but it will continue to grow for for decades and it's uh as long because what we have to do we as an investor that we don't invest in concept we don't invest in GDP we invest in earnings and cash flows and we have to see where those earnings and culture will come from right I'm going to put you all under pressure now we've got four minutes left there's four of you so I want one minute each from you in terms of the biggest challenge rather than make it biggest challenges which is a bit negative the biggest challenges that we need to overcome for this uh future economy what do you see as the biggest threats the biggest challenges that need to be overcome in the next 10 to 20 years I'll start at the end uh with you Alex you know I'll take a a specific you know perspective from Financial Services banking in particular which is uh you know I think the biggest challenge is that Society has evolved quite a bit and quite quickly and frankly quicker than the banking industry has been able to keep Pace with and and our challenge is to reconcile that disconnect essentially and come up with a business model Ventures new ways of doing things that reward the DNA banking in a way that addresses that Evolution and these needs Rick I think the biggest challenge is demographic and how we can ensure that those parts of the world that have young and growing populations are able to make a really good contribution in terms of wealth of their own country but also global economy at a time when those more developed countries are aging and maybe don't have the resources to continue to live in the way that they have so that really does bind together the global South and the global North I think it is it is a big challenge it's not an insuperable Challenge and it means we need to find a good way through to globalization being part of the answer Sunday I think the biggest challenge from my perspective is how do we incentivize the Next Generation to actually go out and build the Big Ideas they've seen inevitably the I'm surprised you say that actually well ultimately for the average person that's coming out of the market right now they're looking at the market or even the person that's at perhaps a highly valued or day I say an overvalued startup and they're looking and they're thinking about how how do they want to ensure that they're able to put food on the table for their for their families and from that perspective look we inevitably speaking we continue to see tremendous amounts of opportunity but to solve the problems of the future to build the economy of the future from our perspective we need people to ensure that they're out there solving those the smartest people in the world so from that perspective it's making sure that we continue to incentivize them Jean-Paul well maybe I will repeat that has already been said the main challenge is how the our societies is prepared to cope with those problems and how we we clearly see that we are in a period which is difficult when you have a breakdown between inside the different societies I did something that could deteriorate I am on the optimistic side I think that we it surface and then we will adjust but for me it really is a main challenge for investor it's a what's happening how the human societies is going to converge with and the same goals and accept accepted yeah and I'd add to that actually something we heard in in cop 27 last week is actually getting people to be well paid in green careers to sort of tick the boxes that you both talked about that I think it's so so important to make sure you know you don't have to have a life of poverty if you want to do good you can be well paid and awarded for it as well so I'll just add my little little bit on the end so gentlemen thank you so much for all your insights today I'm jean-paulvilla the director of strategy and planning department at you thank you so much for joining us today Sandeep actually head of investment at Europe for process and Rick clackai Executive Vice President Global head of ESG at State Street Round of Applause and Alex Manson he is the head of SC Adventures at bystander charges gentlemen so thank you so much for that Insight today very much appreciate it