00:05:42 · Peter Singlehurst
[00:05:42] S0: Rather than going public. Look. Let let me let me bring it to life with an example. So we were we were fortunate enough to invest in Tesla in 2013 when it was a $3,000,000,000 market cap company. It had gone public earlier. $2,000,000,000. And because we were able to invest in it at $3,000,000,000, the growth and the value that subsequently accrued up to, you know, north of $1,000,000,000,000, we were able to capture that for our... For all of our clients in the public markets. All all of those clients that had it in their portfolios, which was a lot of them. SpaceX... No. We... We've been able to capture the upside in that for our private clients, but so far, our public clients have not been able to capture it. Now we actually invested in SpaceX later than we invested in Tesla. We invested in SpaceX for $30,000,000,000 valuation, compared to three and Tesla. And so I guess the point I'm trying make is actually it's the same kinds of companies. It's just that, these companies are private rather than public. Now there are some clients that we have that can only do public market investing, and that's actually the bulk of our clients, within institutional asset allocators that are often quite hard and fast delineations between the public team and the private team. And so most of our business and our business that we've been building for a hundred and eighteen years is in the public markets. But we've had a handful of clients that have been able to kinda come on this journey with us, investing in these these high growth private companies, And they sit in a range of different kinds of funds. We have some blended public private funds. These are investment trust structures predominantly based here in The UK. And then we have some dedicated pools of private capital. Now one of those is an investment company structure. It's called the Schiehallion Fund. And then we have, a few more traditionally structured private company funds, that would look and feel a little bit more like what you would see in a in a sort of traditional private equity or growth equity managed fund. Ultimately, the journey we've been on is trying to convince our clients that, hey. If you want exposure to the world's best growth companies, you're gonna have to do this in the public... In the private markets as well as the public markets.
00:07:51 · Peter Singlehurst
And we've kind of built up this capability over the last fourteen years to do that. You know, we've been in private markets for as as long as... Well, private growth equity markets for as long as they've been around. And so now we're really starting to see more and more for... More of our clients saying they just can't afford to not be investing in high growth private markets. And because we have these long standing trusted relationships in the public markets, it's kind of translating quite naturally into working with them on the private side as well.
00:08:23 · Guillaume Moubeche
[00:08:23] S1: And one thing, you know, like, I'm curious to hear, like, your take on it. So whenever you invest in public markets, let's say, like, typically, I have, like, millions of dollars, like, that that are, like, invested in in public markets. Personally, I can leverage this to get debts and use this as a line on credit on many thing. However, in a private company, I probably have like hundreds of millions invested. However, if I want to put, you know, like my asset of private companies to get like leverage anywhere else, it's almost impossible or at least like very hard. So from the investor like you work with, what's like your view on this and do you think it's gonna evolve because you were also talking about the fact that actually right now if you look at private markets, back in the days, they were almost zero liquidity. Now if you take like and drill, and tropic, SpaceX or whatever, it's trading almost in a similar way that you can see in in public markets. So curious to, like, hear from your perspective as an investor, how do you see private market evolving so it benefits a lot more, like, the the investors and and potentially the people, you know, like your LPs in your funds. Yeah.
00:09:41 · Peter Singlehurst
[00:09:41] S0: Yeah. So I guess couple of questions in there. I'll I'll sort of take the leverage one first, and then maybe kind of how sort of secondary markets are evolving and some of those dynamics within private markets. So I think leverage can have an important but very specific place in portfolio construction and in finance. Where you have regular and predictable cash flows, I think that leverage can be amazing for bolstering returns, on equity. You know? And I'm I'm sort of talking here more probably from within businesses than at that kind of portfolio level and borrowing against portfolios. But, you know, if we are shareholders in a company that's very profitable, leverage can be an amazing tool. So take Bending Spoons for instance. It's a very profitable business. And they can use leverage very effectively to acquire new companies and delever very quickly as they start to get cash flows from those acquired businesses. However, if companies are not yet profitable or only at that early part of their journey in in in generating cash flow, I think leverage can be a very bad thing. So if... So most of our portfolio companies are not levered. Actually, even most of those that are profitable are not levered. But if a company is not yet cash flow positive, unless there's a very specific reason, they should really not have debt within them. They should be a little bit more patient. They should be using equity to fund themselves because, a little bit more dilution never killed a business, but debt kills businesses. And we've seen businesses be killed by debt. Companies that, if they had not taken on debt, could well have gone on, survived, and thrived. But for a variety of reasons, they geared up, took on debt, and that debt came to kill those companies. So where we see companies that are cash flow positive, we're fairly relaxed about debt, provided there's good reason for it. However, where companies are either not yet profitable or that kind of more nascent stage of their journey in profitability, we really counsel companies to avoid using debt.
00:11:45 · Guillaume Moubeche
[00:11:45] S1: Okay. Makes sense.
00:11:46 · Peter Singlehurst
[00:11:46] S0: On on the sec... On the sort of broader kind of private market dynamics, I think you need to separate primary and secondary, capital within private growth equity markets, because I think they're seeing two quite distinct pictures. On on the primary side, so companies raising capital, going to investors, you know, giving them full information and and selecting a small number of partners that they want to work with as shareholders in their companies. I actually think this part of the market has become much more institutionalized, much more professional over the last ten years. I would say, actually, specifically, really since 2020 and 2021. There was a lot of hot money in those years. There were a lot of hedge funds. And what happened in 2022 is a lot of those market participants got really badly burnt, and they left the market. And I think that's a really good thing. You want to see a rational, professional, institutionalized market in the growth stages of the private markets as you see in many parts of the public markets. And you can see this in the financing rounds of some of the most prestigious companies. So if you, you know, talk about Anduril, for instance, which we're shareholders in, if you look at some of their more recent rounds, they have skewed towards bringing in partners who are actually traditionally public market investors that are large asset allocators, that have been doing this for a really long time and have that level of sophistication. And because they get to choose who their investors are, they bring in those institutional investors, and they sort of say no to the, sort of slightly hotter money, should we say. So I actually feel pretty good about the standards, the level of underwriting, and the level of professionalization that you see within the primary parts of the private markets. Secondary markets are a little bit different. There, you do see, sort of slight FOMO dynamics. You will see people wanting to get access to companies where they actually don't even have information. So they'll they'll know about a business by what they read in the press, but I have no idea what the financials are of the company, which... Plus it's crazy. Like, have no idea how you could decide that you want to invest in x y z company. You've never seen a set of accounts of the business, let alone spend time with the management team.