00:38:40 · Peter Singlehurst, Guillaume Moubeche
And so there were actually quite rational reasons as to why, there wasn't, much demand for the shares. So lots of supply, not much demand. What happens? A low share price, low multiple on on free cash flow. We, I guess, were a fortunate position of having owned the shares for quite a while. We knew the company really well. So, of course, we have really good information rights. We spent time with the management team. And we sort of came to the view that, well, hey. Even if the worst case materialized around TikTok, and it was worth nothing and it was shut down, so, like, worst case scenario, we could still see a path to the company being very fast growing, very, very profitable, and still massively undervalued. And we could see these demand supply dynamics, and it felt it felt as close to an arbitrage as as I've ever seen. You don't see many arbitrages in growth equity investing. It kind of felt a little bit like one. It felt like you you were just being paid to take risk. You're being paid so much to take the risks that were inherent to the business, not to mention a geopolitical risk. They exist. They are there for real. But when we were buying shares at kind of four times free cash flow, it sort of felt like we were being paid to take those risks. And so we were kind of able to kind of step into the middle of these demand supply dynamics and quite materially top up our position. It's an astonishing business, and and it's it's... And it's so misunderstood. Like, people in the West think about TikTok. It's really not about [00:40:09] S1: TikTok.
00:40:09 · Guillaume Moubeche, Peter Singlehurst
[00:40:09] S1: TikTok. [00:40:10] S0: It's... Yeah. It's... Oh, yeah. It's about their their... Yeah. They're the biggest e con... The biggest online advertising company in China. They're on track to be the biggest ecommerce company in China, and they've arguably got one of the best foundational models in China. Yeah. So in the form of ByteDance, you have this company that is potentially Meta, Amazon, and OpenAI slash Anthropic all rolled into one, and you can buy it today for, as you said, about $600,000,000,000. It's, you know, it's on... You know, there's not much to put between it in terms of size with Meta, and Meta's, what, 1.5, 1,700,000,000,000, something like that. ByteDance is already 50 times larger than than Meta was when it came to the public markets, and it's still private. So I think ByteDance is a phenomenal business. I think it's drastically underpriced. I'm a very happy owner of it in the portfolios. I'm really glad that we're able to give our end clients exposure to the business.
00:41:03 · Guillaume Moubeche
[00:41:03] S1: And to build up on that, because I agree with you, like, I think everyone think it's about TikTok, but it's a lot more than this, and it's actually, like, really interesting that you that you mentioned it. Like, what... What's kind of, like, your your view as a as a global investor? Because if you if you think of it like from a pure like media perspective, I think like we know that the The US globally control a certain narrative. Like they have Meta, they have Google, they have LinkedIn, they have basically, like, every source of communication is coming through The US. I don't want to go into, like, a conspiracy theory or whatever because I think it's but it's it's just the fact that they own, you know, like how the messages is delivered. And The US is also like attracting a lot of capital just because, you know, they have like a a great public market. However, if you look at China, I mean, in many ways, they are doing things that are better than, you know, what what is happening in The US. If you look at robotics, if you're looking at at cars in AI, I think they are like very, very close and sometimes better in certain, like, so from a from a private investor perspective, like, how exactly do you look at China? Is it something where you feel the risk of the regime is is actually too high sometimes to actually go invest or... Because as you said, you know, it's driven by also supply and demand. And right now, the truth is the demand is always going to The US at the moment, at least for retail. So what's your view on it, and do you think that the mindset and the mentality of people is gonna evolve over time?
00:42:50 · Peter Singlehurst
[00:42:50] S0: Yeah. So I think the first thing to say is, like, we're we're a global investor, and so we will look for businesses, exceptional businesses, wherever they might arise. And, actually, our very first private investment was in China. Okay. Alibaba was our very first Good private start. Bad. Good start. Think there's a narrative that people have about China, which which is consistently wrong and goes something a little bit like this. It goes, well, we in the West or we in America, like, we can do x. X is really hard. China is not gonna be able to do x. Don't worry. Like, we've got this. And x could have been Internet companies. You know, it could have been... You know, if you kind of go back to the, you know, the two thousands. Like, China... China's Internet companies are never gonna be as good as America's Internet companies because, hey. It's just really hard, they'll never figure it out. Then there was... And even probably going back before that, there was a narrative about cars on that, and this probably came a little bit more from Europe. It was like, well, you know, China's never gonna be able to make cars because cars are really hard, and, you know, they're not gonna be able to get the sound of the door closing right or something, or they can't make internal... Yeah. Just some kind of basic nonsense. Right? But there was a narrative that China wouldn't be able to make cars. And then you know what? It turns out, actually, China can make really good cars, and they can make really good Internet companies. And that narrative currently today applies to AI and applies to semiconductors. And that narrative goes like, well, hey. China's never gonna be able to do this. It's just really hard. Do you know what? There's, 1,400,000,000 people. Like, they're smart. They'll figure it out. And so history tells us that any narrative that says China can't do x is wrong. And, you know, added to that, it's the biggest market in the world by people. Like, it's not gonna be long, and it'll be the biggest market in the world just in terms of, you know, economics. As a growth investor, think, like, ignore China at your peril. I I was out there in the summer last year, and I was meeting companies actually, you know, along the lines of what you were saying.
00:44:46 · Peter Singlehurst
There were a lot of hardware and robotics companies that were doing things that US companies have been trying and failing to do for years. They were doing them at scale. They were growing quickly. They were profitable. And Chinese companies have such competitive advantage doing anything in hardware because they're close close to the supply chains. And these companies were on really low valuations as well because a lot of international global investors just aren't looking at China right now. Like, I've spoken to a lot of people over the last few years, peers at other investment firms who said, well, you know, hey. We we... We've closed that China offer. This is something that's, you know, super difficult for us right now. Like, that makes me really excited. That makes me want to go invest more in China because I have no doubt that China will continue to create amazing companies. Is there geopolitical risk? Yeah. There's geopolitical risk. Do know where else there's geopolitical risk? America. Yeah. If it's... You're right. True. So so the question is not like, is there geopolitical risk? It's be... Are you being paid to take that geopolitical risk? Hendrick, who works with me on the private companies team, he's out there at the moment trying to find great businesses. He's finding loads of really interesting things. We have a we have a a a... An investment team in China. They they predominantly focus on public markets, but they're really tuned in into private markets as well. Again, we... They they help us source companies. They help diligence companies. And so I I think it's important to be investing in China. Like any market, would I want it to be an outsized part of the portfolio? No. We have to balance risk. We have to diversify. But I think it would be borderline negligence not to be looking in China if you're a growth equity investor.
00:46:22 · Guillaume Moubeche
[00:46:22] S1: And there's been a narrative, you know, like, about China that... And same on Biden's actually, you know, that it's very difficult to double check the numbers, like, they faking, etcetera, etcetera. Like, what's your what's your view on this as an investor? You know?