Transcript
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We've invested behind a number of what we call
blue chip private equity and venture capital
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managers globally, but we've also tracked
thousands of other managers in the market over
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long periods of time.
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Some of these managers, we've had decades long
relationships on.
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We sit on over 600 advisory board seats for
these some of these funds globally.
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Again, that is the type of access that we've
had.
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Let's double click on India.
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What is the opportunity set in India over the
next several decades?
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India, I'd say, has benefited a lot from the
largest ever youth population in the world,
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much of whom is also English speaking.
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So I think by some statistics, about 34% of
students still pick STEM before their
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graduation.
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So India, as a result, has the one of the
largest STEM graduate population in the world.
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It's benefited from political stability in you
know, you would have seen elections happen
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earlier this year and an unprecedented third
term for prime minister Modi's government,
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which is quite valuable in today's complex and
often volatile world.
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This has really allowed the space for the
government to push through significant
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structural reforms on the economic front, but
also infrastructure development.
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To give you a sense of the pace of change in
India, India is today building about 21 miles
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of national highways per day compared to the
slow pace people complained about in the past.
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Kunal, I've been really excited to chat.
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Welcome to the Tonix Capital podcast.
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Oh, well, thank you for having me, David.
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Tell me about Pantheon.
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What is Pantheon focused on?
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Well, Pantheon is a specialist investor
investing across a number of key private market
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asset classes, including private equity and
venture capital, infrastructure, private debt,
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and real estate.
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We've we manage roughly about $67,000,000,000
in assets under management globally.
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We like to invest across the full cycle, so we
have 3 main products about how we do that,
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which is one is the primary fund investments
where we take on the position of a limited
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partner with general partners, so LP and GP,
like, as we call it.
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We also invest behind companies as a direct co
investor, which is where we partner up with our
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GPs in the market.
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And then we also do secondary purchases.
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So think of things like continuation fund
strategies or GP led secondaries.
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So Pantheon is a multi asset class manager.
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Why would an LP go with a Pantheon versus a
pure play like an Andreessen Horowitz or a KKR?
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Well, that's a good question.
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So if you wanted to invest behind some of the
names that you just mentioned, whether it's on
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the venture side or or private equity side or
growth equity or special situations, we have
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one platform that allows the our our clients to
be able to access all of those strategies
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through one commitment.
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It's a great way to get exposure across
different parts of the market and also
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different geographies.
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You invest in LPGP and direct and secondaries.
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Talk to me about the synergies between those
asset classes and why do you guys do all of
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those in house?
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With a long history and a deep roster of of
relationships in the market, we are able to use
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the entire Pantheon platform to create distinct
information and access advantage for ourselves.
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Let me bring this to life, once more.
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When you're pricing an LP secondaries
portfolio, we're able to access the best
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managers, in the market.
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And these remember, these portfolios are often
intermediated and offer time bound competitive
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processes.
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So in that time frame, we're able to use our
access that we have with the best managers to
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be able to generate insights from our knowledge
of their portfolios as well as a long history
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in many times of sitting on their advisory
board seats as well as our local knowledge and
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a deep data driven approach that we're able to
generate insights that helps us not just price
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these portfolios more appropriately, but also
be cognizant of the risk or inherent events
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that might happen through the portfolio.
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For a player who's just who's not focused on
the primary side or the core investment side
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and only squarely focused on on secondaries
might find it hard to get that that type of
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access and information advantage.
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Similarly, let me give you an example of things
like co investment or single asset GP leds.
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Now here, we are able to use, again, our team's
experience as well as our GP's experience in
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different parts of the world.
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So if you're looking at a particular sector in
one part of the world, we're able to leverage
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our network globally to get access to GPs who
have done investments in the same sector or
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very similar company in different parts of the
world to be able to really, again, price risk
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better, find embedded value, and underwrite
transactions with a lot more confidence.
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I'd say in Asia in particular, which is where I
sit, again, we have the unique advantage of
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also using the same investment team across all
of these fund secondaries and co investment
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products.
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So many times, it's the same boring phase.
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But again, it does allow us to be solutions
oriented to our general partners.
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When I talk to large asset managers such as
Pantheon or some of your peers, it seems that a
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lot of the opportunity sets that you guys go
after are relationship based.
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And how true is that?
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We've been around in the market.
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We've invested behind a number of what we call
blue chip private equity and venture capital
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managers globally, but we've also tracked
thousands of other managers in the market over
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long periods of time.
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Some of these managers, we've had decades long
relationships on.
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We sit on over 600 advisory board seats for
these some of these funds globally.
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Again, that is a type of access that we've had.
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Now when we look to fry some of these
transaction strategies like an LP portfolio, it
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may be a case where some of the managers in the
portfolio may be people that we have not
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invested behind.
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But many times, I have say that these are
mostly managers still that we've known for long
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periods of time.
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Very rarely do we come across, you know,
portfolios where there's a large portion of the
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portfolio that we have no insights into or no
access into.
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I think that's that's a rarity.
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Most time, we are able to, you know, either
have a direct relationship or we've known of
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these managers and seen their evolution over
time.
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Now that that is a distinct advantage because I
think, as I said, in time frames, that some of
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these competitive processes are run, it is
advantageous to have the relationship at start.
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You're not you don't have a cold start, GPs
value that as well.
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So you mentioned you have a focus on the mid
market.
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How do you define mid market?
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The answer to that really lies across which
will be different slightly across different
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strategies as well as different markets.
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So a mid market for markets emerging markets
like India in the Asian context might be quite
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different from the US context.
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But what we've done is is set across consistent
benchmarks internally.
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While we focus on the mid market, we invest
across different types of strategies.
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So think of early stage venture, late stage
venture, growth equity, buyouts, special
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situations.
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So again, while the mid market is is is a term
where we think where the best best risk
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adjusted returns might lie, we are able to
access the full stack of opportunities in every
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market that we are investing behind.
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Today, growth equity is a little bit out of
favor.
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Is that a time when Pantheon recalibrates its
portfolios?
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How do you think about holistically as a
strategy across different asset classes, given
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different market macro
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conditions?
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The way we approach things is that we've been
thematic in our approach to investments.
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And what we've tried to do is really find
drivers of return that are complementary to the
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expense of each market that we're investing
behind and the expense of the general partner,
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for example, that we're investing behind.
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So, yes, growth equity, in other parts in the
developed parts of the world might be something
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that people are in some parts some investors
are shying away from.
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But I think if you look at other emerging parts
of the world, growth equity still continues to
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be a bulk of of the private markets activity.
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Able to invest across cycles, across different
type of markets, catering to the strengths of
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each market, and really taking advantage of the
skill set that every general partner also
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brings to that market.
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Hey.
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Let's double click on India.
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What is the opportunity set in India over the
next several decades?
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That's an interesting question.
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India, I'd say, has benefited a lot from the
largest ever youth population in the world,
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much of whom is also English speaking.
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So I think by some statistics, about 34% of
students still pick STEM before their
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graduation.
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So India, as a result, has the one of the
largest STEM graduate population in the world.
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It's benefited from political stability in you
know, you would have seen elections happen
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earlier this year and an unprecedented third
term for prime minister Modi's government,
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which is quite valuable in today's complex and
often volatile world.
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This has really allowed the space for the
government to push through significant
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structural reforms on the economic front, but
also infrastructure development, a complaint
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that's been a common complaint from investors,
globally.
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Of the pace of change in India, India is today
building about 21 miles of national highways
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per day, compared to the slow pace people
complained about in the past.
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India today has about over 900,000,000 Internet
users, 230,000,000 online shoppers, and 7 out
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of 10 of these, shoppers actually sit outside
of the large cities.
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That has grown to an annual transaction value
of $2,300,000,000,000 That's larger than the
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GDP of many developed countries across the
world as well.
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So, you know, what this really all all of these
statistics and and, you know, growth, that I
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just talked about, what this really does is
provide us with a with a very attractive
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backdrop for investment opportunities.
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And, again, I should mention here that from our
investment strategies, we've invested in India
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across VC, growth, and buyouts, and across all
three of our products of investing into funds,
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into companies as a direct to investor, as well
as secondaries.
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You mentioned there's 21 miles a day in highway
being built.
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One of the criticisms of India has been
infrastructure.
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Give me an update on Indian infrastructure and
where does it stand today?
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Well, the pace of change is quite rapid.
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I have to say, I have roots into India, but I'm
based out of Singapore.
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But even every time I visit India, I visit a
city like Mumbai, I'm amazed to see the pace of
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infrastructure development.
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You know, from from one trip to the other, you
a new flyover would kind of come up.
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A bridge would make dramatic progress, and
you'd say, wow.
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That that's not the pace of change that you've
seen in India over the past.
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So I think that piece of change is what that
has really accelerated.
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And a couple of things have allowed for that.
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One is, as I talked about, the the political
stability, which has allowed the governments to
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push through the reforms.
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But, also, I'd say the digitization of the
economy has allowed digital infrastructure to
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be rolled out as well much ahead of time than
than other emerging countries have struggled on
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on some of these parameters.
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For example, the India's UPI, the the real time
digital payment system is mainly a case study
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for a number of emerging countries where India
has been able to leapfrog its sort of almost
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broken digital payments infrastructure in the
of the past to now use this interface to see
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the type of volumes that I talked about, which
is quite, you know, much bigger than many other
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developed countries as well.
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For
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somebody that might be listening to the podcast
and thinking, I wanna invest in India, how
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should they think about an emerging market in
the context of their existing portfolio?
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Yeah.
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Sure.
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Well, look.
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India's benefited from a lot of progress that
you've seen and we talked about earlier in our
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discussion.
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I'd say the benefit of of investing in India is
that the the drivers of return are often very
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different to the what you see in the markets
like the US.
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Growth being one key driver of return is always
obviously, almost a given because the kind of
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under penetration and tailwinds that many
sectors have seen.
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We feel that there is a long opportunity for
for growth to be a key driver of returns.
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We've also seen very little reliance on
leverage, which is quite different from any
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developed markets because, historically, the
cost of leverage was was too high or access to
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leverage was, because of either local
regulation or or or, you know, or sector sort
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of requirements were it was hard to access
leverage.
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And so GP's playbook have have really come up
trying to make real value adds to these
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companies, trying to make a real difference and
real change by having a playbook of value add
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and really going to companies and improving
their margins or improving the sales force
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effectiveness or improving their ability to go
into different parts of the country and improve
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the penetration of the market and gain market
share.
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I think those drivers have been more at the
forefront rather than debt or too much reliance
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on on easy capital on the on the credit side.
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bring in the very highest quality guests and to
produce the very highest quality content.
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Thank you for your support.
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So let's talk about 2 other markets in Asia
that are very interesting, Australia and Japan.
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What can you tell me about those markets?
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Japan is is in really interesting position.
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It's going through, I say, a bit of a
transition phase with the Bank of Japan
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starting to normalize monetary policy, after
nearly 2 decades of 0 or near zero interest
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rates.
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This has impacted global carry trade, but I
think there's still some further room to go,
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especially with the Japanese yen.
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Stock market, on the other hand, in Japan has
done very, very well.
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The topics has doubled in the last 5 years,
because inflation as as inflation rises, there
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is a need for higher returning assets, and and
that becomes more and more evident with rising
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inflation.
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But let's also remember that Japan is the 3rd
largest economy in the world.
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It's a developed market with a high GDP per
capita.
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So once you've heard me talk and emphasize a
lot of the growth and the under penetration
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investment teams in in markets like India, in
Japan, we've tended to see opportunities behind
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things like corporate carve outs, succession,
also public to private, teams as well.
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Regulatory, landscape and the corporate
governance reform that has happened over the
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last few years have really evolved to the
extent that you start Japan is starting to see
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a lot of shareholder activism.
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To give you an interesting statistic, 45% of
companies listed on the topics with a combined
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market cap of $1,500,000,000,000 trades below
one time price to book.
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So on the back of these themes, we feel that
we've invested behind the buyer theme in in
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Japan because you're able to access
opportunities that are still more reasonably
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priced in terms of entry valuation multiples.
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The cost of of financing and leverage and
access to leverage is much lower.
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There's been an improvement in return on equity
that you've consistently seen.
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And and if you look at the penetration of both
private equity and m and a as a percentage of
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GDP, that is much below what you see in other
developed markets.
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When you go in the market and you compete
against private equity firms like a KKR, how do
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you compete against them, and and what's the
differentiation?
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Well, some of these firms may be playing in
different parts of the of the market.
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They may be direct buyout shops, versus someone
like us who's able to access almost all parts
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of the market of private markets across
different asset classes, across different
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products.
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So someone like us will be able to provide
access to venture capital, which some of the
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examples that you quoted may not have as a
strategy or or growth equity or special
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situations or buyouts within private equity and
then other asset classes as well.
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So I think, look, you know, it's a competitive
environment, but that's where the history and
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the deep track record and the experience of the
team over decades, over a 40 year history
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really counts.
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Let's talk about a very underrated market,
Australia.
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What can you tell me about Australia?
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And what what are the opportunities in
Australia today?
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Well, look, if India was the high growth
emerging market and Japan, the giant developed
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market that's going through a transformation,
Australia is perhaps the steady eddy of Asia
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Pacific.
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It's a large country with low population
density, but they have recognized the
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importance of and contribution of immigration
to their growth and economic activity and
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availability of labor, which has provided a
strong base for economic growth and also
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population growth, which has been a driver of
just economy and and just general activity in
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the in the market.
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Interesting.
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Australia has gone through nearly 30 years
without a recession.
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And so when you combine that with factors like
a reasonable government debt as a percentage of
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GDP, a diverse economy, and increasing
prominence of of the technology sector in the
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market, you've seen opportunities slightly
across different sectors in the Australian
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economy.
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What we've invested behind is really taken
advantage of a range of themes in the market.
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So for instance, because of a stable regulatory
and legal regime, we're we're able to invest,
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behind special situations and turn around
opportunities in a market like Australia
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alongside growth equity and buyers as well.
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Australian VC is also amongst the fastest
growing parts of the private market landscape
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in Australia.
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And, again, you're starting to see a number of
demonstrated, you know, scale up of companies
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and a number of pre breakout companies,
companies like Canva and Airwallex and
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Atlassian that you may have heard of, who
really been Australian companies that have been
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able to go global.
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You focus on some very diverse markets, India,
Australia, Japan, the rest of Asia.
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Talk to me about how you calibrate your skill
sets for the different markets.
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And how do you go about learning from one
market to the other?
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That's a good question.
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I think, look, we are thematic in our approach,
and the drivers of return in each of these
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different markets are often driven by the
strengths of this of each market.
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And when you combine that, it helps you build a
portfolio that's quite complementary because
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it's not the same driver of return across Asia
Pacific.
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Right?
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So every market will have its own strengths,
different drivers of your investment thesis,
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and you're able to play each market to their
strength and really generate attractive returns
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for investors.
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So when you talk about these different markets,
what we're able to do is really leverage some
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of the playbooks and the GPs have adopted in
different parts of the market, but also our
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knowledge and of sectors.
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Right?
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For example, you know, consumer may be
different in different and consumer
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characteristics may be different in different
parts of the market.
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The trend we might have seen in, say, an
emerging market of consumers going online, and
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the kind of how that shifted the type of spend
they did is something that we might be able to
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apply to market like Japan as more digitization
happens and ecommerce grows there, we might be
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able to use learnings from each market to the
other.
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You've been at Pantheon for 11 and a half
years.
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What do you wish you knew before starting at
Pantheon?
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I came from a direct investments background
with a mid market GP and then moved over to the
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LP side.
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I have to say I've I enjoy the relationship and
the transaction nature of the job.
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But personally, you know, I feel that the way
transactions have been underwritten in the past
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may be different from the way we that we
probably need to underwrite transactions in the
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future.
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So, for example, while the importance of of
things like relationships in the market,
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access, knowledge, experience, is is always
important.
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That perhaps in the next decade needs to be
supplemented by unique data insights and
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machine learning and analytics.
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So at a personal level, I'm quite interested in
how we transition and integrate these old and
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new capabilities.
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So your question on what I wish a new well,
look, I wish alongside being an investor, I was
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also a data scientist and perhaps a programmer
as well in the new world.
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Well, Kunal, this has been a master class on
asset management and Asia.
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Thanks for jumping on podcast.
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Thank you, David.
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Thank you for listening.
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The 10x Capital podcast now receives more than
a 170,000 downloads per month.
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If you are interested in sponsoring, please
email me at david@10xcapital.com.
