The Next Wave An Honest Conversation

Good afternoon everyone. It's a big pleasure to be here uh today to discuss the next wave and key trends that we see uh right now in in private markets. To do so, I'm honored uh to be with two leaders of the industry, Paul and Azim. And uh with that we would like to start right away with clearly what is the name of the game in our industry which is fundraising and I would love Paul uh for you to tell us how you've observed the recent evolution in term of relationship between LPS and GPS.

Thank you for that question Mal Vto and it's uh we're really thrilled to be here. Um it's something that you know has been evolving and obviously we spend a lot of time thinking about. Uh we are a Canada based manager uh generally raise between5 and 10 billion a year um and you know the landscape is changing and if I think of our uh LP base I segment it between institutions and private individuals uh and I'd say in general all of them want more from their relationships. You know it is no longer a day of hey I'll send you a check and I'll talk to you again in 3 years. uh it's very much a relationship and as large institutional investors are looking to consolidate their relationship they're asking for more partnership and what does partnership mean I think historically it meant fee discounts uh but today it means co-investments it means insights uh it means kind of you know bringing the full resources of your firm to help those LPs and so for example some of the big Canadian institutions we've been helping them on AI adoption, thinking about technology adoption, whatnot.

In terms of families, what we're seeing is that more and more of them want, you know, direct access to deals. Uh we were actually talking earlier about the growth of dealbydeal uh uh sponsors and family groups. And so that is a topic that we are uh seeing more and more of. They want access to new ideas and technology. And so things like AI access, access access into the best AI funds or venture funds, that is something we we bring.

And so we focus on delivering niches in terms of investment products and then deep partnerships across technology co-investments and insights to our LP base globally.

Very interesting. Thank you, Paul. Am um I'd like to uh speak with you for a second about your new venture. You've recently launched Blue Five Capital at possibly one of the worst time for fundraising. So it' be great to hear uh the story behind the journey that success that you you had.

What was your game plan when you started? What were the biggest surprise you find along the way? Would love to hear your the story.

Very good. Well, good afternoon everyone and thank you for being here post your lunch break. If you fall asleep, no no hard feelings. Perfectly fine. So, first the question um how many private equity firms are there out there in the US and Europe?

4,000 in the US, 2,000 in Europe. Another question, does the world need another private equity firm? The answer is absolutely not. Okay, so that is the reality which uh I started with uh just about this time last year. the reality that I will be the 4,01 potential player in the market.

Uh so you know what the old game plan of leave and start XYZ Capital and uh create a very nice executive summary with your uh track record is not going to work. It's not going to work. Okay, we have to do something different. What is it we did differently? Number one, we sold a GP stake in Blue Five Capital Day one.

Who did we sell it to? 25 handpicked institutions and sovereign groups who we knew wanted to do something different beyond an LPGP relationship, investing in a fund. 25 names that we knew. We knew they had the capital, they had the intention to do something different and they had the trust in the team at blue 5 that we concluded very quickly. Why can you conclude very quickly?

No one is going to give you money very very quickly unless they know you and they trust you. And this is uh not an exercise that took 12 months to make. This exercise took 32 years and 12 months to make. And that is I think very very important. On the back of that we are able to make our LPs our cogps fundamentally in everything we do.

And in 12 months time we are today at $8 billion of assets under management. 50 executives and seven offices. Not a lucky start but on the back of a structure that made sense for these group of investors. Second of all, a differentiated strategy and our strategy is very much that south south focus and fundamentally and the most important thing is years and years of relationships of trust which we've been able to build with many of the LPs who are today our shareholders, our founders, our friends and also our investors and our funds.

Interesting. And was there any big surprise or things that you know derived from the initial plan compared to your initial expectations? So the big surprise um when and I suspect most of you in this room is the case um we all usually start our careers in the comfort of an institution a very big institution and um after a certain period of time you don't know is it people are reaching out to you because of you or because of that big logo on your business card and this is a fundamental decision fundamental kind of um I wouldn't call like inst security, but it's a it's it's it's a fundamental point for all of us as investment professionals. Are people talking to us because I've got a I don't know a uh an Ontario teachers on my business card or I've got a KKR on my business card or because of me fundamentally. My biggest surprise is the level of uh trust and support of individuals that when I moved from a big name to a zero name, just a my name.

uh and I suspect that one thing which I really want to emphasize is the biggest badge of honor by far the biggest badge of honor are uh the teams the people I have worked with over the years who have actually decided to join me and they make that group of 50 which is fundamentally 50 individuals who I have worked with in the past and there's no bigger honor when very smart talented people vote and come to join something which is just an idea on a piece of paper Fascinating. Switching gears now to Evergreen, which is been a big theme also for the the industry. Is it the way to go, Paul? How do you reconcile the objectives of your traditional uh institutional LPS and the one of your wealth clients? It would be great to hear you.

You've been quite active when it comes to to wealth.

And so, first a little bit of background. You know we as a firm really believe in the democratization of finance and one of our strategies uh called portage we are actually the world's most active early stage fintech investor globally we did more deals last year than any other firm uh in the region here uh most the digital brokers in the region here are built on our technology stack Baraka thunder Midas in Turkey uh many of the tur many of the Saudi platforms uh in Canada we built the Revolute of Canada which is the dominant fintech in the country and we still own 54% of it and it's one of the most successful venture investments in Canadian history. Um, and so that's the background for our interest in democratization of finance. By owning this platform in Canada where 50% of new trading accounts are open in the country, we had the insight of why don't we make our alternative investment products available to those these people. And so that's how we really started thinking about evergreens.

And once we started thinking about evergreens, we realized, wow, this is a totally different product. And it is not just hey you take your institutional product and you make it evergreen because evergreen products they need diversification and they need liquidity. Uh and so those two things are fundamentally different in terms of how you build things. And so we then realized we needed investment capabilities that create that diversification that we historically did not have. And that is in the world of private equity that's secondaries uh and that's co-investments and that's primary capabilities.

And so we went out and we bought three firms. We bought performance equity management in the United States. We bought UNESCO in Europe and then we bought Beck in Nice to basically bring those products together and create a suite of evergreen products in Canada, the US and Europe that meet those kind of uh investor needs which fundamentally is a very different product than what we make available to our institutions. As a firm, you know, our objective is to get to 100 billion assets in the next four years. We're at 44 today.

Uh the goal is to cap our evergreen and wealth products at about 15 billion because I do think that you know institutional capital long-term is really important for the stability of the business and we believe that the preserve returns for the evergreen investors you need to keep it institutional quality because I do think there'll be a pretty important degradation in the returns of the wealth products as they scale maybe a little too quickly. uh but I think uh I think you know by staying disciplined by staying niche and providing the wealth channel a complementaryary product to what a lot of the core managers are providing today I think we'll be able to build a very successful franchise

interesting and then I know it's also uh a client category you're targeting it would be great to hear you also on that

yeah I'll just add one thing which is particularly for those who are not from the region um retail investors it could be a family office it could be just an ultra high net worth individual in the GCC um have a very high entrepreneurial tolerance for direct investing and it could be across different strategies. It could be a PE deal by deal. It could be a real estate building. It could be some credit something or another. Um and this is not new.

um uh since since the early 80s deal by deal actually even the late '7s dealby deal private equity investments what we refer to private equity at a later point in time uh have been very very common and prevalent and that will continue it's not because of costs or because of fees or what have you there's a fundamental interest in these type of exposures as well as obviously LP commitments and funds and what have you how to address that and tap it into the GCC first and foremost most it has to be local presence uh local presence uh flying back and forth from New York or whatever it doesn't cut it um and I think engaging with those investors uh at the property level or at the at the company level is a very big part but it is a substantial pool of capital and uh in my um uh historically that number we have quantified on the private equity as much as $3 billion per year and as much as $5 billion per year GCC DC capital that is going into private equity or into real estate in the west US and Europe.

Great. If we move now to the investment opportunities, which areas do you find the most exciting at the moment both in terms of industries, geographies? Um that would be great to to hear you as well. I don't know if you want to continue.

Sure. So, I'll pick on three themes. Uh first of all, geopolitics. Love it or hate it, it's with us. We'll just might as well just embrace it and make the best out of it.

Um when uh geopolitics creates one of the uh uh cause effects it creates is rrooting of trade instead of trade going let's say from China to the US it's going from China to somewhere else instead of the US buying XYZ from China it's buying it from other parts of the world rrooting of trade naturally causes a rrooting of capital and we as investors I hope we will be there to capture that rrooting of capital. In my organization, what we try to do is significantly focus on that GCC Asia angle. And guess what? Capital is there. LP capital from both sides of the in the uh in the points from the GCC and from Asia is there for opportunities across that bridge.

That's the very first thing. The second uh two things which are very specific but an immense opportunity first of all um everything around Sharia compliant products and services. Sharia compliant products doesn't necessarily only mean financial products. It's across the gamut from makeup to blood thinners to insurance and leasing products. Uh this is an area that has not been as well um tapped into in the past.

Um there are 1.9 billion uh Muslims around the world. Not all of them looking for Sharia compliant products but a significant portion of their institutions are and that's why investment products around those areas are a very important thing. Finally I would say which is very specific to the GCC. GCC has grown too fast too quickly and that is why you look for very small countries of only a handful of couple of million populations have something like 10 or 20 retail banking licenses 15 insurance companies 20 leasing companies for a population of less than 3 million it doesn't make sense consolidation across financial services industry will happen over the next decade and I hope that for us and other investors will be one of the acts of participants in that consolidation play.

Interesting.

It's funny. We launched a Sharia compliant product in Canada and I was surprised at how incredibly well it did and so you've inspired me to probably do more. Um but I'll stick to three themes as well. Uh you know there's the famous line of software is eating the world. I think technology is eating the world between software and AI.

I think that is a massive investment theme that will continue. We as a firm are transforming ourselves with AI but also investing actively in fintech technology uh AI uh themes. It's a big passion of ours. Theme two is the middle market is beautiful. Small is beautiful especially in a world of geopolitics.

small local companies that have consolidation opportunities, buildup opportunities can be very insulated from trade wars and geopolitical fights. And on top of that, they have great exit opportunity. And so we found that liquidity in the lower middle market in terms of private equity is very attractive and it's something where we're really looking to be a global leader. Um and then third theme is being an owner operator or being an active investor in real estate and credit. Um you know lots of people invest in those sectors from you know towers and big cities.

We have always believed that we have to have distributed teams on the ground able to take the assets and really operate them uh from leasing teams to maintenance teams. And we think in the United States there's a big opportunity uh especially if you believe that rates might continue to come down. Uh you know we see a real pickup uh in the real estate market right now. This year we had the largest institutional demand we've ever had for our real estate funds. Um and and it's something we're very excited about.

And in the credit dislocation it's going to be the same thing. you know, everybody's talking about cockroaches, but uh it really helps uh to be in a cockroach full world when you're an exterminator. Uh and so and so ultimately our credit teams have deep expertise and workouts. Um and uh and we're really excited for more volatility in credit markets because you know we gain a lot from volatility as a firm.

Interesting. And what about GCC for you Paul?

Uh and the GCC we get very excited. I mean, we mentioned that we're serving a lot of financial institutions here with software. We just hired our first investor here locally to invest in fintech in the region. Um, we think there's an openness to transforming financial services here like few places in the world. Uh, I sit on the board of the largest digital broker in Turkey.

Uh, we're actively looking at investing in the space here. It's really exciting. I mean, some someone was telling me that between 400,000 and a million families are moving to the UAE annually. That is incredible. And in financial services, what may be perceived as a small the largest mistake venture capital does in financial services is they think of small markets as being small markets for financial services.

In every country, the financial services industry is huge. And so you could build multiple multi-billion dollar companies focused just on the UAE. Uh we've done it in Canada and I think the UAE's got a decade of creating incredible financial services companies uh that will be multi-billion dollar outcomes and we're excited to help and participate.

Great. I think we have few more minutes. Uh just to conclude very shortly you guys manage you know big organization. You have very strong ambitions as you just mentioned. What is the number one thing that keep you up at night?

Very quickly to conclude all

uh you know in my case it's cyber security risk. You know we we have three million Canadians that trust us with their savings. Uh we have 20 million Americans that trust us with their savings in our US business. Um you know cyber security risk is a real risk and if I were to think of something that could really hurt our reputation, you know we've actually had hacks. we've you know had data breaches in the last kind of two years those attacks are just increasing and so we as a firm are investing a lot in cyber security capabilities uh and with AI uh I think it's going to become even more important because I think cyber defense without AI is going to be impossible uh and so I think that is going to be uh really really important and so uh I I spent a lot of time thinking about that

interesting as

um so I'm going to be a bit um awkwardly personal. Um I'm always jet-lagged. I'm always traveling. So nothing keeps me up at night. I can sleep through any alarm, a sevenscale earthquake, so nothing keeps me at night.

However, uh the previous presenter, and I feel bad I don't remember his name, uh he had one his last slide, which I liked. He had a little sentence in the bottom um in his missions and what have you. And he said um do good with a good heart. I think that's what he said. Yeah.

Do good with a good heart. And so I so loved that sentence because I hope all of us here and I presume most of us are either investors or looking for capital giving capital. I do hope that every single one of us have a much higher purpose of what we our intention is in life for our organizations with our families with our children and that first and foremost needs to be do good with a good hearts and I think it is so well eloquently said by the previous speaker and I hope if there is one thing keep me up at night it is not an irratio on a deal what to bid it's got to be how to myself my partners parters and my firm doing good for the next generation and I generally mean it.

Great. Thank you very much.