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- [00:00]
A
Artificial intelligence is the most important transformation going on in the world right now. It could be bigger than the industrial revolution. It really could be one of the biggest transformations, if you think about it, in all of human history. I mean, the arrival of a new form of cognition into the world doesn't get bigger than that. When I wrote my books about hedge funds and venture capital way before AI was a factor, really what I concluded in those books was that the most successful investors were super adaptable because markets change. Something which generates a lot of Alpha in the 90s doesn't generate alpha in the 2000s because it's been arbitraged out. Let's say you were doing macro trades and you could short currency pegs, attack currency pegs very profitably in the 90s. But then the central banks get wise and they don't give you currency pegs anymore. They go for flexible exchange rates. So these kinds of things are constantly happening, and you have to think up new sources of alpha. So I'd say that the adaptability, quality, which is very closely related to the relentless curiosity, relentless desire to learn new stuff, to update yourself, refresh yourself, that just becomes even more true in the age of AI because now you're not merely trying to keep up with changes in markets about where the alpha might be hiding, but also changes in the method because you've got this amazing new cognitive tool. But I think, deep down, curiosity is the common trait in all of the history of investing, and that hasn't changed.
- [01:37]
B
Welcome to Capital Decanted. In this show, we say goodbye to tired market takes and superficial sound bites. Because here, instead of skimming the surface, we dive into the heart of capital allocation, striking the perfect balance and exposing the subtleties that reveal the topic's true essence. Prepare to have your perspectives challenged as we open up the issues that resonate with the hearts and minds of those shaping capital allocation. We've enlisted the wisdom of visionary leaders in the industry, and just like a meticulously crafted wine, will allow their insights to breathe, unfurling their hidden depths and transforming our understanding. This is season three, Episode six, six the World Rewired. I'm John Bowman.
- [02:24]
C
And I'm Aaron Filbeck.
- [02:25]
B
We are your hosts for the third year in a row. Our title sponsor is once again our friends over at Alternatives by Franklin Templeton. They have been a constant in supporting our efforts here at Kaya to bring compelling educational content to life. With over 40 years of alt investing and over 260 billion of assets under management, Franklin's specialist investment managers have expertise across six different asset classes real estate, private equity, private credit, hedge strategies, venture capital, and digital assets. And of course all of them operate with the client first mentality that has always defined Franklin Templeton to help prioritize investment outcomes. So thanks so much. Alternatives by Franklin Templeton all right, Aaron, we always do a little bit of storytelling, but I feel like today is even more storytelling than normal. It's a story that admittedly begins fairly innocuous, even pedestrian, and it ends up with a little bit of hyperbole here as an epic with all kinds of twists and turns. And this is the innocuous part. This adventure begun quietly with my appointment to CEO last year and I think, as with any new leader, a natural desire to tease out, perhaps validate in some cases, but mostly to cross examine a set of assumptions that have undergirded Kaya's historical strategy and activity. And I call this just a natural desire because I think it's a fairly common practice of new CEOs. As I mentioned, there was nothing groundbreaking in this initial insight. It was just a traditional priority. As I mentioned, you head out to your stakeholders, you go on a listening tour and through the patterns that emerge you adapt and tweak your organizational mantra to of course, better position the organization for the future. That was the initial idea. So there was nothing special about this approach. But I will say that I did have a little bit of urgency and burden to at least consider rethinking our business. I don't pretend that these were unique thoughts, but I felt there were some early signals that traditional approaches to allocating capital were growing antiquated. And that begun with our leadership on tpa, of course, but it progressed beyond that. New investment hubs were emerging with you might call, unfamiliar rules and models. New products were debuting. We'll get into this a little bit at unprecedented rates. And I would say ahead of proper communication, education technology was invading the back, middle and even now the front office of investment management firms through AI applications tokenization experimentation. Meanwhile, at least in my view, again, this is early in the narrative the foundations meant to enable that progress. Regulators, policymakers, academic institutions, and yes, professional associations. That's including Kaya. We've been struggling to keep up with that pace of change. And let's just stay locked in to that mirror for a moment here. There are hundreds of credentials and certifications targeting investment professionals around the world, and while well intended, I would say that most have been prisoners of the past. You only have to spend a few minutes looking at some of the websites or marketing Campaigns of all of us, the calls to action, they're a bit stagnant. They tend to ring hollow. The business, I think, is built for a bygone era of lifestyle learning, preferences and knowledge pursuit. So as a result, again, I felt like we needed this agent of inspiration or we'd forever be trapped in this incrementalism movement that was just crawling along. We owed it to the industry and their clients to build a bit more durability into Kaya, in particular through purposeful innovation and what you might call embracing the avant garde or counter positioning against the status quo. But as I said, it was also clear to me that this pursuit must not be done in isolation, in the proverbial ivory tower. So that's why, as I said earlier, we hit the road organizing exclusive leadership forums in eight global financial centers, L.A. toronto, New York, London, Riyadh, Mumbai, Hong Kong and Singapore. Aaron, you attended a few. I don't know. Was this something that you had experienced before? Any initial thoughts as you think back to some of those moments and interactions with those leaders?
- [06:38]
C
I've never done one of these before. I had the privilege of sitting in three of the eight. It was fascinating just to hear from some of these leaders, different geographies, different perspectives, but I think even more so, a lot of times you get these groups together and maybe it's the like minded or similar type of role where they're all CIOs, of LPs, asset owners or get the asset managers together. But the way we designed it this time was that it was a cross pollination of different backgrounds, perspectives and so on. So it was just really interesting to just sit back and be a fly on the wall and listen to some of these people speak to one another behind closed doors and share some views that may not always make their way to the public. So it was just fascinating for me,
- [07:20]
B
as much as I'm suggesting that this is nothing particularly groundbreaking, the idea of a new CEO going out to talk to stakeholders to learn. I was really inspired by a CEO years and years ago named Jeff Dearmire that did this when he first joined CFA Institute. And I actually called him upon my appointment and said, tell me a little bit more about how you constructed that. So I think we only did three or four back when Jeff took the helm at CFA Institute. But as Aaron just alluded to, let me bring you into the room a little bit. They were intimate invite only settings with the C suite. I say that explicitly because these were CEOs of asset managers and GPs CIOs of LPs and managing directors from some of the world's largest asset owners, asset managers, GPs, consultants, wealth managers, general partners and thought leaders. And they all were convened to what we ask them to do, which is collectively prognosticate and demystify the future. Very easy job. But obviously as you sort through a lot of the noise, consensus seems to ultimately emerge. So at each of these I had maybe five to six questions or so in my back pocket, but I always opened with the same one. And it was a simple but somewhat wide open intentional inquiry. And it was simply what topic or challenge has co opted your boardroom, your investment committee, your leadership team? Bring us in to your discussions. As you can imagine, CIOs, CEOs, GP, managing partners, when you get this cast of characters with that pedigree, with that responsibility in a room, the conversation goes where it goes. These people are used to being the loudest voice, the most influential seat in the room. But across each, I would say, when they're surrounded by their peers, we ended up deliberating and grappling with regulatory trends, client preferences, operational dilemmas, competency needs of the future, professional macroeconomic regime change, and much, much more. It was just a gold mine. There were nearly 20 hours of dialogue across these eight discussions and those debates were all enlightening. There were certainly consistency in some of the themes, as we'll get to in a moment, but they were all a little bit different with different nuances based upon the geography and the composition. And as you might imagine, the mosaic of substance, reflection and predictions from approximately 120 executives all in was just an amazing gift, not only for Kaya, but I think as I listened to the feedback from all these individuals for all those that participated too. So I think it really was a win win for everybody. We catalog those findings and themes and then we tested them with our 14,000 global membership bodies. So overall, and very intentionally, as I hope you can pick up here, we had the beneficial gift of a wide cacophony of voices speaking into these subjects. But that mosaic was not just gold for informing this marginal reshaping of KAI association that I begun with. The patterns and threads that emerged ultimately demanded something much more profound and that was this shift or elevation from what you might call strategic planning to something that had been dropped in our lap that changed our view of what to do with this information. And so what rose out of this year long conversation with the global industry was not just a laundry list of isolated trends or advice, but interdependent themes pointing to, hence the name of what this report is going to be called that I'll mention in just a minute. It ultimately resulted in what we are considering a deep rewiring of the capital market system. It's like, Aaron, that we went fishing for trout and we caught a great white on the end of the line because the conversations progressed well beyond just acknowledging these pockets of disruption that we kind of already knew and had seen, but rather purposely rebuilding a future fit profession. We're going to get into a lot of the detail here, but if there was a single through line in the dialogue, it was this, it was that. The world was no longer rewarding conformity. The institutional edge now lies. At least this is what we heard in uncommon wisdom. The courage to hold a long view, you might say, to revisit outdated beliefs and to empower humans to do what machines can't. So this is all about challenging orthodoxy that all of us have lived and breathed for many, many years. The quote, end of history mindset, which is what one participant in our Singapore roundtable called it, this idea that the stable equilibrium we've all enjoyed over the last several decades has ended for good. And in its place is emerging this new age of experimentation relearning where governance and people and philosophy matter as much as the process and the performance. And to quote that individual in Singapore a bit more explicitly, historical lessons, risk models and economic orthodoxy feels less relevant. The cycles are faster, shorter and deeper. End quote. In an LA session Los Angeles session, one participant said again on the subject, quote, the velocity of capital moving into private markets, product development, geopolitics and shifting capital markets have made navigating today's investment world the most complicated moment in history. End quote. I don't want to sound naive and I think I speak for all the individuals across the 120 folks that were in there. I've been around a minute. Many of these individuals have been around even longer. History has seen seismic shifts before the Industrial Revolution spawned a new era of founders and mass production, comparative advantage, ultimately global supply chains that we've come to enjoy. World War II redefined a new geopolitical order for nearly a century that is now very clearly being tested and unwound in many ways. Today the Internet, Web 2.0 shattered boundaries, democratizing information and E commerce, forever changing how we live, shop, invest, mobile, of course converted our Walkman, or at least Aaron, my Walkman, camera, news and digital communication to pocket size, transforming broad social behavior. But all of those previous inflection points feel different because today's disruption at least to this gathering of global leaders has this unprecedented and interconnected speed that is turning the current system upside down, rebooting itself. And as I mentioned earlier, we believe that it's outrunning its support structures. What started as something again to kind of summarize this whole story from innocuous to epic, was it started as a very standard inclusive strategic planning process and it morphed into this narrative that we felt obliged to share with the world. And that brings us to today. We have dropped the day that we're dropping this same podcast and recording our new seminal report called and I've already hinted at this, the world rewired from signals to shifts the decade ahead for Capital markets. This new signature thought leadership piece is a compendium of all those signals, themes and trends that threaded through our global listening tour. And together they not only heavily shaped Kaya's new strategy Vision 2035, but much more importantly, they began to crystallize a blueprint of what we should expect of our industry in the next decade. And we are convinced it has much to say on our and your if you're listening, organizational designs, talent development, product sets, investment processes, and ultimately, of course, most importantly, client outcomes. So in today's episode we're going to be unpacking, disaggregating, talking through each of the three major shifts that ultimately I think wrote themselves. The more we kind of studied all the feedback and together these three shifts form a new strategic compass for global investors. Aaron and I are going to tag team through this and wandering through each of these shifts, leaving some breadcrumbs and fun quotes from the in Person roundtable and the member survey along the way. So just to introduce those as we kind of lay out our waypoints over the next hour or so, those three shifts are the following. There is, number one, the macro shift, changing geopolitical relationships, new centers of capital, and the evolution towards a multipolar world. The headline here is that geopolitics has moved from background noise to the principal axis around which capital flows are reorganizing. It's a big statement. We're going to pick that apart. Second Shift industry the growing convergence of public and private markets and as a result, the redesign of product architecture in a world of digitization. So privates, as we've said often on this show, are no longer alternative and they are more deeply connected within the fabric of the global economy than ever before. And that is creating this collision course, you might say, for asset classes, products and technological innovation that is really unprecedented. So you have the Macro shift, the industry shift, and then third and finally the organizational shift, the internal transformation of investment organizations themselves from setting a new cultural order to developing the next generation of talent. Skills training is giving way to systems thinking, agility, judgment. Multidisciplinary investment professionals will populate, or they should populate, the successful firms of the future. So to help us explore these range of tectonic shifts, we have asked several firms that were on this journey with us at these tables to join us to kind of animate much of what Aaron and I are going to talk about today. These guests will insert themselves at certain times to editorialize a bit more on the topics from their own perspective. Those four guests are Yingwan Chin, partner at Auburn, who joined us in Hong Kong. Stuart Wrigley, who runs 6th Street's Asian business and all non US capital formation. 6th street was a participant at the New York City roundtable. Munira Aldostery, CEO of Franklin Templeton, Saudi. Munira joined us at our Riyadh discussion. And we also, I should mention, had executive representation from Franklin, also at our LA and our London forums as well. And finally, Sebastian Malaby, senior fellow at the Council on Foreign Relations, and somewhat selfishly, much more importantly, one of my very favorite authors on the investment industry. He wrote some of the books that you might recognize on venture capital, hedge fund asset classes, the Fed, the World Bank. He's got a forthcoming book on AI that we should check out. Sebastian joined us at our London roundtable. So by the way, while you're going to hear clips and sound bites from each of them as we share these shifts, as I mentioned, I I should also note that we'll be releasing each of these guest conversations in their full length and context. So check that out too. So, okay, Aaron, I am going to scoot over to the shotgun seat, become the color man, you might say, as you guide us through these shifts. So take it away, Captain. I will pass to you.
- [18:28]
C
Thanks, John. And yeah, I definitely want to pull you in to some of these. I had the privilege of sitting in on three of these, but there's a lot of things that I think you can add some color on. So John introduced the three shifts that we've put into this piece. Throughout each of these, there's a bit of a tension that exists of this evolutionary continuation of what's gone on in our industry all the way up into this point. Does that continue or do we move into this more revolutionary step function where things are being completely rewired, redone and rethought and those Three shifts that we just walked through, macro, industry and organization. I view these visually as three concentric circles, distinct, but they all relate to one another in some ways. And so there's a lot of interaction points that you'll hear as we go through each of the different shifts. When I also think about this evolution as well, it impacts you at different parts of the industry. So asset managers are thinking about these differently than perhaps asset owners who have a very different mandate. So you'll hear some of these trends, and some of these may apply to you, some of them may not. But there's a systemic issue at hand in terms of rewiring this entire profession. So some may move faster than others. Some are happening in real time as well. If we start with macro, macro is probably the furthest away from your desk. If I think about these concentric circles, it's the furthest away in a lot of different ways. But it definitely has an impact both on the industry but society as a whole. Timely in the sense of geopolitics is kind of risen here in 2026 with Venezuela, the Middle East. We're recording this in the middle of the war here in the Gulf. But also we've talked about China in the past. Think about our old China episode that we did, Russia as well, parts of Latin America outside of Venezuela. So this whole idea of geopolitical unrest and unraveling this period that we've enjoyed for multiple decades of globalization, synchronized growth, central banks all working together, and governments working together. John, you mentioned, you know, being around for a minute, you came into this industry in the late 90s during the tech bubble. I came into this industry in the period of quantitative easing, post gfc. Everyone's trying to work together to kind of get ourselves out of this crisis that we had. The first half or longer half of my career was during this peaceful period, and all of a sudden that shifted aggressively. I think about the investment professional that is coming into this post, Covid, and an environment where interest rates are volatile and inflation is volatile. A lot of us haven't experienced this, and there are people coming in and experiencing it for the first time. I think geopolitics is something that we identified pretty early and frequently throughout these conversations as being much more in the forefront of the investment process than maybe in the background like it used to be. But as someone who's been in this industry through a couple of different cycles, I'd be curious, from some of those conversations that you had, how do you kind of build a literacy around this? This is new for so many of us.
- [21:40]
B
I've been around a little bit longer than you. Like you said, mid to late 90s. But let's just be honest, the new order was already well in place by the time I entered. Cold War is effectively over. With the fall of the Berlin Wall. Even I, which was earlier in the existing model, admittedly still I think benefited from and am a product of the existing model. And that's kind of our whole point here. I think investors, when I talk to them still misunderstand this. And I mean that respectfully because literally for 40 years, so I've maybe been in the business for 30 years, but for 40 years, 10 more years beyond the scope of my career, investors have had this luxury to kind of look through. They often say politics, you know, I'm long term. We think about multiple cycles. That's the excuse to kind of treat this stuff or look away as near term disruption. And if you've looked at some of these studies, every geopolitical event for over the last half century, if you bought the dip or you just held tight, I think after six months is typically the period that most of these studies looked at, you did make money. So those individuals have been right, I want to be clear, but maybe for the wrong reason, because what if geopolitics now does matter long term and we've just been in this same model for that same period of time, so it just felt and behaved like it was tactical and short term noise. I was reminded as I was thinking about this, the famous 1986 Brinson paper that we all cite, that we all studied in both our academic and CFA and pursuits, was this idea that over 90% of return variability is due to what is due to asset allocation. I think it's an interesting question to ask, using that as a corollary. What if geopolitical beta now became the dominant force in determining long term returns versus just short term trades? The early 80s, the Reagan and Thatcher errors brought in supply side economics, deregulation, privatization, laissez faire government, it's sometimes called, and this hot pursuit of globalization, of supply chains. And it provided a backdrop, beginning as I said in 79, 80 that unleashed this torrent of global economic growth. Low inflation, cheap cost of capital that was funded and continued to be fed by the Fed itself. And so this worldview, while it was designed in the laboratories of Capitol Hill and Whitehall, it was exported around the world and it became the working model, the assumption for all economic theory. And it was the only school of thought for 40 years. And by the way this was, regardless of who was in the White House, there were certainly a spectrum of how you applied it, but there was no departure from that worldview. So what happens now is, what I'm getting at is if there are now multiple pockets of trade alliances and regional conflicts and wars and localized economic progress and a variety of leaders that no longer buy into one or two competing worldviews, how do you sort through kind of the, as we often say, good guys and bad guys, the US and them. Everyone's pursuing their own nationalistic and self absorbed policies. There are no more white hats and black hats, as I think that earlier worldview suggested. Ian Bremmer, the founder and president of Eurasia and one of the most prominent, listened to voices in the investment industry on geopolitics, said this recently. He said, quote, there is no diplomacy or armed conflict for that matter, occurring based upon a shared set of narratives, information or even facts anymore that create guardrails that lead to confidence in resolution. One of our LA roundtable participants argued that the whole world is Balkanized. That's kind of the current state. There was a ton of back and forth debate throughout the roundtables on this, but that was the summary of this model shift that I think many were both equally concerned about and struggling to define how to implement their new process within this new world order.
- [25:46]
C
So John, I thought Stuart articulated this really well during our conversation. Since he runs Six Streets Asia business and their capital formation outside the us he's quite literally living this every single day. And he had a really specific example on how geopolitics has moved from the background noise we mentioned to something that's not baked directly into the underwriting process. Let's listen to him here.
- [26:10]
D
If I look back to let's cool it pre Russia, Ukraine, the us, China, tensions growing. Geopolitics used to be something that you used to read about at the weekend and frankly was a little bit more driven by intellectual curiosity than necessarily through an investment lens. Now it's absolutely part of filtering for investments, it's part of the underwriting. And we're finding that firms like ourselves and our LPs are looking to bring more geopolitical resources in house. Just last week at 6th street, we announced the hire of a gentleman called Sir Richard Moore, who's joined the firm as a senior strategist. Sir Richard, previously his last role was the head of MI6, which is the UK's intelligence service. He wasn't James Bond, he was James Bond's boss. He's really joined us to help Us think real time around these geopolitical issues and frankly make us a better investor. There was no foresight to bring him in a week ago, but even in just this kind of week or two we've been working with him. Having this real time insight is just hugely, hugely powerful. Then if I look on the LP side, some of our LPs, particularly the larger ones, are finding their own resources, but they're increasingly relying on managers like ourselves to actually help them with that. When people think about manager selection on a go forward basis on best top quartile returns, stability of team, things like that are table stakes. But LPs are increasingly asking like how can you help our broader investment process beyond just returns and geopolitics, technological shifts, the advent of AI, all areas like that. I just think that they're drawing upon expertise for ourselves and our peers.
- [27:58]
B
In addition to Stuart's points, I think Manira had something to say about this too. Again, Manira is the CEO of Franklin Templeton Saudi and was a participant, very active, helpful participant in our Riyadh roundtable and she described exactly the same shift from the client side, particularly from her seat in Riyadh. Let's listen here.
- [28:19]
E
We discussed during our roundtable the sheer change in the companies and the sophistication of the clients. I think this is across the globe, maybe in my personal experience in Saudi Arabia. So I have witnessed that before Geopolitics was part of a very big presentation but toward the end of the presentation it's like a tick a box thing for compliance and risk purposes. But today it's actually at the front of the conversation. If you sit on an investment committee or a board. The geopolitic discussion is very, very important and it is extremely important for us as an asset manager to provide our clients our LPs with insight. And that's I think very important value add that we can add to their journey for them to accomplish their investment objectives and create alpha as well. Because again I think in every situation we have seen that over years and decades that there is always a bull market somewhere. So you need to know where to allocate, we need to know how to de risk and we need to give our client this advantage. Maybe in our case as Franklin Templeton we have a unique position because we are a global asset manager. We have exposure across the globe and we don't rely necessarily for our intelligence on a third party reports. We don't send our client third party data. We do operate on the ground in most of locations across the globe. We have Strategists, researchers, analysts, intelligent people that can come to our client and share with them our thoughts. And that is a huge advantage to the client as well. Support our CIOs across the companies that we are dealing with. As you know, our clients are some of the most sophisticated clients, so they expect that from us and we are very proactive in that way.
- [30:27]
C
If I can go back to three capital of the candidate episodes, I was thinking about this, like how do you actually invest in a geopolitical climate like this? For the reference of the audience here, we had an episode on China which had a big talk or focus on venture capital investing. We just talked about infrastructure in our last episode. And then obviously my favorite episode was the one that we talked about space. All three of these require a long term view. You're locking your money up either because of the structure of the investment like venture capital or the physical constraints infrastructure, or you're building rockets or satellites that take a long time, they're very expensive to make. And you have to think about what's the local government regulation going to look like, not just now, but in three, five, even 10 years and is that asset still viable? On the venture capital side, we talked a lot with Ed on exits. You invest in venture capital for maybe 10 plus years, but what does the exit environment look like on the other side? And that's a capital markets question, but it's also what does the regulatory environment look like to enable some of those different investments? So to your point John, that whole geopolitical beta may be driving 90% of the returns. You have to think about this stuff in a top down context as opposed to just bottom up, which you didn't explicitly say this, but every manager I spoke with was, we're bottom up investors. We're not focused on the macro, we're trying to find good companies. But now those geopolitical considerations go into the underwriting process of those companies. So it's an interesting thought. It's important to consider it, especially these long term investments.
- [32:10]
B
Well, I had one more capital decanted assignment to your homework list which was all the way back in season one. We had Marco Papich, of course now with BCA research, similar to what we heard in London. There was one of the leaders there that claimed that political considerations are now moving from the background to a defining constraint for the whole portfolio construction process. This consensus view that this is no longer about trading against trouble any longer or hoping to avoid exposure to theaters of disaster, but the institution of a new framework and I think that's where this understanding breaks down is not just being more mindful of what's happening but it's actually elevating geopolitical worldview to the highest macro level of your investment process. What Marco would say and I would encourage you to listen to that whole episode. We actually added an entire reading in the Level 2 curriculum based upon this. But a framework unlike avoiding short term disruption. It takes a view on the long range trends similar to my Reagan and Thatcher opening statement of national relationships, alliances, political worldviews that defines the arena. Not short term disruption but the whole arena going forward. The sandbox that you operate in. And as we've discussed especially in those rare moments when the world order is transitioning to a new super cycle as it might be now. This is what's called geopolitical beta and it's the most important element to get right. Assessing the global game of risk and the leaders that sit in each seat. It's not macroeconomic theory or policy preferences. Sometimes even the personalities of the policymakers or the leaders can sometimes confuse us into thinking what might happen. But it's really the constraints and this is the really hard part. What are the boundaries and the guardrails with which that leader is operating. And this is a really challenging value based effort is Aaron. You have to be somewhat morally indifferent to outcomes. It's really hard because in the old days again that kind of good guy bad guy thing, particularly in the west, it's easy to play that game and you structure your portfolio around what you hope might happen because ultimately good always triumphs over evil or whatever your view is of that. But you have to keep yourself from rooting for the good guy. You have to remove this sense of what should happen to what could happen. You start with a simple and clear review of the system in which policymakers operate whether it be global, regional, local. And the goal of the geopolitical framework as Marco would argue is to identify that geopolitical beta which adds to the growth and inflation expectations in developing expected returns on various assets. And it's an necessary tasks now probably more necessary than ever for the long term investors. The most prominent and important thing that came out in this paper is clarifying what we've been hearing and feeling over the last four years and kind of sharpening our view on what to actually do with this challenge.
- [35:11]
C
Marco and I had an interview. It's on our YouTube channel. I think it's our most viewed interview because one Marco's hilarious but two is also very informative. He made a comment on Local governments. When you start to de. Globalize, there's this bump in R and D and productivity at the local government level because they're duplicating efforts that used to be shared amongst the global economy. And so maybe back to that China episode, you had chips and innovation, electric vehicles. There's a whole parallel universe in places like China where these companies are ones that we don't even see here in the US or there's some duplication in some of those efforts. And so that creates opportunity, creates some innovation and some competition that might lead to some good outcomes. So it's not all bad necessarily. It's just a wider opportunity set that takes place. I'm a huge fan of the Geopolitical Cousins podcast that he's a part of. It's hilarious, very informative. I don't understand half of it, but hey, that's how you learn. The second thing that I thought was interesting on macro, which I'd love your thoughts on, John, was maybe combining two things. One is the new centers of capital. So places like the Middle east, places like China, Africa, Latin America and so on. But I think maybe a broader conversation around the role that emerging markets has played in this whole regime change and rewiring of being bigger contributors to the global economy and global innovation. But maybe even going a step further for private capital. There were a couple of anecdotes, and I don't know if this was shared across all eight of these, but the large gps have largely set their shop up here in the US as these new centers of capital come to fruition. And again, places like the Gulf and China and broader parts of Europe and Asia, they're exporting their capabilities from the US into some of these local economies. And that has talent development implications. You're basically training a whole group of people to think like the American gp, if you will. And then there's knock on effects of you leave eventually and you set up your own shop and there's this local versus global competition that takes place. But maybe from your vantage point, how do you kind of see the new centers of capital rising? Where are they? And how do you see emerging markets playing into this whole soup of macro shifts?
- [37:33]
B
Yeah, I think multipolar worlds means more centers of capital, more dispersed activity than historically we're used to or comfortable with or was convenient for asset allocation. You kind of alluded to it, but we heard a lot about this, what we call dual track private market development. I first heard this in the very first roundtable in Mumbai, in India, but we heard about it in my travels up in Tokyo, we heard about it in the roundtable in the Gulf, as you've already said. But this idea that if you've got huge pools of capital in these emerging markets, most of these are sovereign wealth funds of course, who are they allocating capital to? And as you mentioned for the formative years, it's a lot of the Western gps, a lot of the big Western gps that have set up these offices in these growing developing markets that have opportunity for higher risk adjusted returns and new risk premia that have somewhat been exhausted in the west, riding the wave of higher economic growth of these earlier stage economies. Unfortunately, what that means is that you're crowding out or you're slowing, you're constraining the local ecosystem from developing, that GP ecosystem from developing specifically. We heard a lot about this. As I said in India, with the local PE market still very much in its early stages, the VC market interestingly has outpace the buyout, the mid market and the buyout in the gcc. I think we've seen better integration. We see this in China too, as you mentioned, of state initiatives, state investment and the development, creating an environment where entrepreneurs and capital can kind of all benefit from infrastructure development, creating new champion industries like you mentioned in China, where they really are dominating across a lot of that new economy industry. I think we've got to watch that. While these developing markets will say it's really helpful to kind of import intellectual capability and best practices to kind of exploit expertise that's been doing this for a much longer period of time in the west, that ultimately though we want that to transition to developing our own ecosystem. And this flywheel I think probably has been most prominent or that transition has been closest to finally taking shape in the Gulf where they've moved from a capital exporter. You get the big sovereign wealth funds that were allocating to the very much salivating private equity firms and private credit firms that were there visiting once or twice a year from the West. And now there's this legitimate global financial ecosystem that has developed just in the last few years that's taking shape. I realize the irony of what I'm saying in the midst of this war in Iran. But the long term prospects I still contend are absolutely outstanding. Which is why we're, as you know Aaron, we're doubling down as Kaya in some of those trends. So there is this appreciation but tension as it matures that their own markets ultimately need to be able to be self supportive and benefit from this new growth in private capital.
- [40:48]
C
Yeah, And I think you've seen the large primarily American gps that had the size and scale to be able to move into some of these markets. But then on the local level it seems like some of the local sovereigns, the governments are funding through private capital, like true public private partnerships in order to achieve some of those different objectives. So you may have this parallel, as you said, global versus local private capital experience, but there seems to be a true support from a lot of these local governments to support the economy, support the local gps, support local private capital so that this ecosystem is a little bit more diversified. So pretty interesting Aaron.
- [41:28]
B
Well before I build on that a little bit further, Yingwen brought a really important APAC perspective on this Middle east and Asian sovereign as the idea of them being new centers of capital and what they're actually asking for when they show up as LPs. So let's listen to what Yingwen had to say.
- [41:47]
F
From a perspective of the GP raising capital, the Middle east undisputed is the new market that pretty much all gps around the world have been rushing into to raise capital from. And they are very eager to back innovation. They are also very eager for capital that is going to reinvest back into the Middle East. I think the Middle Eastern especially the sovereigns or sovereigns related, they do have strategic goals around it, around data centers, around improving their own ecosystems. We're seeing capital that comes with a certain level of conditions from that poll, I think especially the sovereigns out in Asia. We are also increasingly seeing various Asian sovereign funds coming up with programs that are very similar to what the Middle Eastern LPs are doing. There is a national strategy that some of these sovereigns have to either build out a certain subsector or to build out VC ecosystem. They do have capital and they are willing to invest. And what's interesting and what is different between the Asian sovereigns and the Middle Easterns is for the Asian, some of these Asian sovereigns they are even willing to back first time funds provided you are perhaps from the same country or you have some affiliation to that country. They are very willing to take that level of risk which you don't really see with the other LP groups that in turn a it's been good for the market in the sense that you have a lot more activity. You have gps who are willing to come out and say okay, you know, I'll set up a strategic fund for this or I'm happy to set up a tailor made mandate for this which then in turn drives founders willing to start businesses or businesses Elsewhere they are saying, okay, now I'm happy to come to your country and set up a factory or set up an office as part of my Asian expansion. It does attract both business or corporate activity as well as financial activity. That said, it's still relatively early days. We're still seeing them in a deployment phase. It does generate a certain level of buzz in the local economy.
- [43:52]
B
Speaking of diversification negation, before you leave shift one, there was one other kind of striking pattern that emerged, particularly outside the US in these round tables. And again, this is this idea of the primary center of global capital and economic footprint is in the US this idea of US exceptionalism, as we often call it. So the US dollar is the reserve currency, US treasury is as the risk free rate that we all use in our models. The general idea that flight to safety is in U.S. assets, that they're the preferred trading partner, there's less black swan tail risks, the rule of law, justice, all this stuff that is defined the US certainly coming out of World War II and I was in the Toronto Roundtable, very interestingly was three days after Liberation Day on the tariffs. So you can imagine that all my questions around AI culture and some of these other topics that I wanted to bring up were completely minimized and outweighed by this idea of geopolitics and US exceptionalism. But I would say even in Hong Kong, so much later in the year, this is now in October, Hong Kong was probably the most frank about this. The summary of the roundtable discussion on this topic in Hong Kong was that there was this growing consensus that the era of US dominance in global trade was waning. And yet many Western investors remain unwilling to even entertain the possibility of a regime change. The Hong Kong roundtables were not necessarily predicting it was going to happen. They were just confused and baffled and a little bit frustrated at the arrogance. Whether it was fear or naitivity or nationalism that didn't even allow the conversation to consider it. So this cognitive dissonance was creating strategic blind spots they felt in portfolio planning and risk management. I'm not making a meritorious judgment, nor were they. They were just saying, can we at least talk about the possibility? Because as you know, the greatest I think risk to any investor's approach is when they're not humble and open minded to all scenarios. That is when you want to sell a manager or pull out. Is that when they are so confident that they are right in the future?
- [46:11]
C
One final thing, and I promise I'll move on to shift to but I can't remember her name because I'm doing this on the fly. But there is a senior economist from Yale that just testified in front of Congress and she described the US dollar or US debt as like the lazy boyfriend in a Hallmark movie that's in the big city. You're dating them because they're there. It's convenient. But you're about to go home to your small town and you're going to meet that farmer who you know is sensitive and kind or whatever, and you realize you've got other options. Her argument was basically the US dollar and our debt, our government debt, is the boyfriend in New York that once we find an alternative, we might be jumping ships. So we're not even prepared for that potential possibility because it's been so central for so long.
- [46:59]
B
You're literally telling the Sweet Home Alabama plot story. But Hallmark follows that script all the time too. You're right.
- [47:06]
C
They're all the same, John. They're all the same. All right, Shift two on the industry shift. This is much more about new participants, new business models. We've covered this on previous episodes of the podcast around this great convergence of public and private. John alluded to it in his opening remarks. It was the central theme to our content agenda last year. A lot of the stuff that we were talking about which I think charged the industry up. I've seen great convergence everywhere since we shone some light on it. The idea that the lines are blurring between public and private, both from a business perspective. Large asset managers buying and building their capabilities in private markets, product proliferation. This all has to do with the industry shifts. There's a tension here. And John, again I'd be very interested in your view on this, but as we were writing this part of the paper we identified this tension that we observed between the old rails and the new rails of product proliferation. So around half a trillion in assets are in these registered semi liquid funds. The four main food groups, interval fund tender offer fund, BDCs and non traded REITs. That's where a lot of the focus has been in the headlines around getting access for wealth management for individual investors to get into private markets. You're basically using the existing infrastructure to get investors in to these asset classes that they historically have not had access to. So removing the binary choice of fully liquid ETF mutual fund versus your operationally complex drawdown fund type of structure. So that's on one end. I don't know if you knew this, but tokenization has been obviously a topic for many, many years. But the assets under management of tokenized Funds are almost identical to the semi liquid fund structure. And so we have almost two parallel universes going at the same time of existing infrastructure. Lean on the existing apparatus to get access to these new vehicles. And then this whole new world of tokenized access, digital rails and more efficient types of trading to get access to private markets as well. And these are things like real estate, private credit, private equity. We've got this macro question of great convergence and what does that mean for the business? But then there's a secondary question of what does it mean for the vehicle and how people ultimately get access because they're both trying to do the same thing, they're just doing it very different. Maybe based on some of your observations during these conversations, where do you kind of see the implications or some of the anecdotes from some of the conversations around this great convergence and how might that flow into product in the future?
- [49:51]
B
You've written a lot about this recently and we've had almost on an alarm clock every couple months one of these media blow ups on liquidity and gating from these liquidity mechanisms for these semi liquid funds. There was this tension that was kind of held in every one of these rooms that pitted education and revenue incentives or product development against each other. By the way, I would say the overwhelming consensus, and I would take this view too, that everyone felt like more choice, more risk, premia access, more opportunity, fairness and equity as far as getting access to this world that is growing and too big to ignore anymore of private markets is a good thing. But the investor education that has to go with it seems to have taken a back seat to this pressure from the GPS of first mover advantage, revenue maximization, etc. And this was very common in LA. There was a quote, have we gotten over our skis a bit in the short term, we're moving too fast. In New York they said something similar. This speed of product development comes at a cost. Investors and product providers alike noted that the firms are solutioning too much. At least that's the word they use in order to win mandates, sometimes prioritizing innovation at the expense of rigor and appropriateness. One participant went so far as to say future disappointment is going to be sold on past returns. As everyone is trying to get in to this wealth management game, many firms are rushing to fill the shelves, the proverbial shelves, as quickly as possible. And it's a mindset that suggests that delivering product to wealth management is this zero sum game. But this market is massive. The feedback was like, what is the rush? Why Are we behaving like we're running out of this burning building when we've got to get the messaging, the communication, the education, the product structure correct, or we're going to create a lot of this misalignment and miss selling, or at least the optics of what looks like miss selling. I think there was a cautionary tale. One GP in New York even said they're pulling back. They just feel like this has moved too fast and the game's too crowded, that you're forcing people to get way behind in the queue, knocking on the door to get in. And like I noted from LA that we've gotten over our skis a little bit, these things have gotten out of sync.
- [52:14]
C
The 401k conversation I think plays into this and you alluded to some of the stuff I've written recently. The competition first to market, trying to be competitive in this space, I think has caused solutioning to run ahead of what the purpose of these vehicles is, which is to get access. But we're trying to get these investors to be long term, have them stick with these strategies during difficult times. We say all that as an industry and then we open up the floodgates to retail. Anyone can access these things. Well, retail is even less educated on this stuff than professional buyers might be. The product structure as well I think is flawed. And I wrote about this in an II article where of that half trillion in the semi liquid funds space, 75% of the assets have discretion when they allow for liquidity or redemptions, whereas the only one, the Interval Fund, is the one that requires it. Yet the vast majority of these funds offer that repeatable quarterly redemption window just to be competitive with the Interval Fund. And so maybe getting up on my high horse a little bit, I'd love to see us flip that conversation a little bit and focus more on let's get people access, let's open up that risk premium that we talked about, but do it in a way that is not going to create behavior or incentivize behavior to flee when things ultimately get tough.
- [53:39]
B
Your recent op ed hit the nail on the head. The way that this is being communicated, these liquidity mechanisms, the quarterly redemption opportunities is playing to the worst portions of investor psychology. People will often say locked up patient capital saves yourself from yourself. And I'm not suggesting liquidity is fundamentally bad, but it's also not fundamentally good. Barring an extraordinary situation that most retail clients, particularly retirement assets, should be thinking way long term and should not be looking at their 401k much less even considering tempted to draw anything out. So why are we so consumed with these liquidity opportunities? I think you're right that it's not necessarily the structure that's wrong, but how it's positioned and how we articulate why these things are there is fundamentally wrong. I think there's a lot of work to do in just how we communicate these semi liquid capabilities. And the jury's still out, by the way, whether we even have solved the structure in itself. We've got to get away from this. Replaying to our earlier point, the same movie and debate on social media every time one of these things happens.
- [54:53]
C
The tokenization argument of let's put this on digital rails, I think is getting at the best of what these vehicles offer, which is that operational efficiency, tax reporting, a ticker, if that's useful for people. Let's separate out the operational benefits of semi liquid from the liquidity conversation because I think those are two separate things that have been conflated as one. So I don't know which one's going to win out of the two. I'm a bit of a skeptic, maybe on the digital assets side. I do think that there's benefits to the operational side of this that it's ultimately trying to solve for. Maybe talk more about this broader macro. Great convergence that we've certainly talked a lot about at Kaya, but I think you heard this over and over again on some of the roundtable discussions, widening
- [55:42]
B
that aperture away from kind of the wealth management race to this general idea. I would call it kind of an arms race to build out a supermarket of strategies. There is no longer these two parallel worlds of traditional asset management and then private capital GPS that most of our career, 80s, 90s, 2000s kind of grew up and the entire value chain ran in parallel, right? They are colliding in ways that we have never expected. And this is occurring, manifesting itself in M and A, perhaps more than anything. In the Toronto Roundtable, for example, this acceleration of the M and A activity, bidding up different assets and GPs to kind of plug into your stable of thoroughbreds, as you might call it, they felt this could exacerbate the power law as there's less and less GPS and choice, all the value tends to converge around just very few people. That's something we see in venture capital, but not so much in the rest of the private capital stratification. So with fewer gps and this aforementioned eroding returns, LPGP relationships will become even more valuable to ensure access to. As I said earlier in the Private wealth context, the front of the queue of the most desired private market strategies. That's going to get harder. So it used to be the willingness to write a check, a big check is what got you access to around and now it's being replaced by this partnership mindset. We talk a lot about this in the context of TPA. GP's now need to be seen as solving problems, reciprocating solutions. Solutions in the proper sense, not in the sense we just talked about them a moment ago for LPs or they're just going to be commoditized to a great degree. New York City built on this, but they were a little bit more frank as New Yorkers like to be. The example that seemed to really resonate and generate lots of discussion at that particular conversation was this shakeout in the middle market. The middle market has long been buoyed by capital inflows because it had this idiosyncratic alpha that was very attractive, that sat in the middle thread the needle of large traditional buyout and vc. Many felt that that was likely facing a reckoning because it sat in this messy middle. So without scale, specialization, professional leadership, many may be swept into consolidation or even obsolescence. One participant again in New York noted that this convergence and evolution has led to a breaking point in that middle market. The fragility of the industry has never been greater, was this person's quote. And in fact they argued that many GPs who sat in that middle and are not equipped to make this transformation are likely already dead. They just don't know it yet. So very, very, very frank. This M and A capability. It does seem to be fair to have slowed from a couple years ago. I think that's because GPs and LPs frankly are so distracted by what we've already been talking about in the first shift. But I don't think that that trend is going away. I think we've seen a slight pause. What that means for choice and power and one stop shopping and most importantly alpha opportunity, which LPs get access to. What I think is very much up in the air.
- [58:59]
C
I was in the New York session and one of the questions that we asked them was, I think you may have asked one of the LPs in the room, does it actually help you that one of these organizations becomes a one stop shop? If One of the GPs or asset managers has seven strategies instead of one, does that make your decision process easier? And I think the answer was, well, not really. I mean, it's convenient that I have this person. I can call on but it doesn't mean that I'm more likely to invest with them. So it really seems like more of a economies of scale or just a mind share within the asset management organization, but may not necessarily have the impact on some of the more sophisticated investors that are deep in the manager selection process.
- [59:41]
B
So Stuart shared some thoughts on this. Now 6th street has been living this integrated multi strategy model for some time now that it seems that everyone is now rushing to build. So I think his take on why bigger doesn't automatically mean better is worth hearing.
- [59:59]
D
There is clearly like consolidation happening amongst private market managers at the moment. And I think there are a couple of driving forces forces behind that. One is frankly demands of the LPs. LPs are looking to do more with fewer managers at the moment and that can be driven by resourcing on their side. It can be driven by the economic incentive that comes from doing different strategies with the same manager. So they're often looking for managers who can deliver a broader breadth of strategies. And then there is also frankly a resourcing question as we've entered kind of a different part of the cycle where it's harder to generate returns through areas like financial engineering. And you've got to actually think about value creation. You need. We've just spoken about geopolitical resources, funding. All of these resources is harder for the smaller gps. The challenge around this is what does it actually mean to have different strategies and whether you're really getting a benefit there. Because many of the private market firms started life, and I'm going to give a crude example, started life as a private equity firm. They then built a real estate business that they bolted on. They then bought a private credit business and they've built by brick by brick. The way we've done things at 6th street is different. We were a multi strategy investing firm from day one. So we will invest in all of these asset classes per se. But typically when people allocate money to 6th street they're asking us to think about the allocation between these different strategies frankly based on where we see the best risk adjusted return at any point in the cycle. I do think there is a huge benefit for being larger and being multi strategy. But that is not just piecemealing things together. That's when you can look across the different strategies and use that to your advantage. The final thing I would say on this is larger is not necessarily better. And I think this comes a little bit to that bifurcation you were talking about as some managers get larger, often as they Go public, their North Star becomes AUM Growth. How that feeds into fee related earnings, how that drives share prices. We think at 6th street we found the right ground, we're of the right scale to be relevant and be able to do the larger transactions. But our North Star is still purely investment returns and delivering those to our LPs.
- [62:22]
C
Maybe it comes down to install institutional versus wealth. I know there's a lot of multi asset partnerships that have been announced. If you look at Blackstone and Vanguard and Wellington, there's a couple of organizations that are launching interval funds that have multiple asset classes in ones, but that's much more wealth oriented. Whereas maybe the institutional, that could be the bifurcation. But yeah, time will tell in terms of the strategy. Let's wrap up with organizational shifts. And so again, if you imagine the concentric circles, you've got macro, which is the furthest away, probably the broadest, biggest challenge industry is in the neighborhood. For a lot of people, organization is probably the most personal. This is where you're at your desk and you're observing some of these shifts and business decisions and org charts being changed. You know, it has impacts on careers. A lot of what we talked about in these roundtables and in the paper was the impact of technology and how decisions are being made, your hiring practices and the types of roles that are here today that may not be there in 10 years. So John, I've got a pop quiz for you because I was inspired by this article when I was thinking through this. If you rewind 40 years ago, what were some of the most common jobs in the United States at that time?
- [63:40]
B
Manufacturing roles. It was very much a labor economy versus service economy, or at least that transitioning was just beginning.
- [63:49]
C
So machine operator was one, Farmer and secretary were the big three at that time. So there's a really, really good substack article and it identified in 1978 those were the three most common jobs. And the whole piece which we'll link in the show notes talked about the impact of automation on these roles. And it was focusing on the secretary because at that point it was a very manual, in person, clunky process. And I wasn't alive at the time. But you'd walk into an organization and the senior staff would all have a secretary. They each had their own secretary and they call the secretary in and they dictate what they wanted typed into the computer that was then printed off and mailed to whoever the person was. It was a very manual process. Well then the personal computer came along and the role of the secretary over five years or so declined quite a bit in terms of numbers. But a lot of the responsibilities didn't go away, they just got distributed. So rather than a dictation of I want you to type up this letter, the CEO or the senior staff would do it themselves or the secretary would be in there handling some other business task that existed. And so a lot of the roles that we have today and the tasks that we have today may not necessarily go away, but they might be distributed in different ways. You might absorb some of them as a person, you might delegate them to a machine. But the idea that the responsibilities and the skill sets that are needed for the investment professional or just an employee of the future is going to look radically different I don't think is too far off because we've seen historical analogs before. So there was a lot of talk around what AI means for entry level positions, associates that are doing the grunt work and where does that work go, how does it get distributed? The desire for more systems level thinking around the organization and being able to piece things together and use judgment. It's less about the technical skills and more about the interpersonal skills, your ability to communicate, convince. So there's all sorts of discussions and I think both on the opportunity side and obviously in this transition, some of the fear that it means for talent development and so on. So John, again, you were in all of these meetings. I was in a couple of them where we talked about this. What did you take away in terms of just talent development and skills and what's needed for that professional to adopt to this future state?
- [66:19]
B
Before I answer that, Aaron, I just want to get back to Yingwyn at Auburn again, who by the way lives and breathes Pan Asia private equity venture capital. And I think her team's experience is maybe the most practical and grounded version, or at least it provides the ability to answer this question perhaps more in a thorough manner than anyone else we heard on the whole listening tour. So she's not theorizing about the future analyst. She's actually living and hiring this recruiting process right now. So take a listen.
- [66:49]
F
One of the beauties of working in a alternative specialist firm is by default you are going to be faced with new products, new strategies, relatively frequently for the analysts that are at Auburn, you kind of learn that it's not a fixed asset class or even within a fixed asset class. The way a manager could play a strategy could be very different. The managers could be really creative when it comes to it, could be structuring, it could be the way they invest could be the way they hedge. There are all sorts of new strategies and structures that come up that even at my level, oh, wow, okay, I've never seen this before. I've got to figure out how this works. Where's the risk? When a manager presents it, it always sounds so risk free. Okay, what could go wrong and where could it go wrong and what's the damage if it goes wrong? For our firm, just by natural selection, because of the asset class that we're working with, this adaptability and ability to just learn new things has always been a core tenet that we're looking for. And in this new world of AI, where there are all these new tools and disruptions, this feature becomes even more important or more prominent in terms of how you do your work. When it comes to AI, I would say a lot of people talk about, I don't have to hire junior analysts anymore, right. I could just jump straight into experience. Hire. The truth is, the AI agents, at least today, their output is only as good as kind of how you input or how you question. How you come up with the questions is still very much driven by the individual. There are some folks who have tried to experiment with reverse prompting. They kind of give the LLM say, I want an answer to this question that makes me sound, you know, intelligent or inexperienced. How should I ask that? There have been people who tried that, but it's still not exactly ideal. Ultimately, you still need to find analysts or train them enough that they have a very, very firm grasp of the basics and then they build from there. So. So what I do, like you pointed out earlier, is cross discipline analysts that come with varied or diverse backgrounds, those are interesting because they look at problems in different angles. Because if all of us came from the same school and with exactly the same training, we're going to tackle the same problem with more or less the same side of the equation. But having someone that came from something drastically different, they could bring a fresh perspective. So that's something that we do look at when we are hiring analysts. I think judgment is something that it's going to be chicken and egg. When I looked at my first fund, I was like, oh, this sounds amazing. Like, best strategy ever, best fund manager ever. And then by the time you meet your 10th fund, you're like, oh, okay, everyone sounds great. How do you determine, like, what's the difference in Asia? All too often we get asked like, oh, I'm looking at Pan Asia Manager B. How do they compare to Pan Asia Manager C? Aren't they the same? The reality is actually no, but you really have to look under the hood because on paper, on labels they could look very similar. But once you really dive deep, then that's when you notice a difference. So I think one quality that we do look for is that level of intellectual curiosity. You cannot just be satisfied because someone handed you an answer. There is a lot of trust but verify and then try to kind of dig deeper.
- [70:06]
B
I mentioned the geopolitics got the most volume in minutes. I would say the most emotion came through this issue of AI and talent. Let's park that for a moment because systems thinking is agitated by the AI thing. The root of that is more about where we started, which is all these things are colliding in different ways. That's forcing the future investional to think differently, to have different DNA and skill sets. If I zoom in a bit on AI, you know, it was at the Sequoia blog I read once that AI gives you this warehouse of interns to your point, but the 1978 most popular job. So as we build out the future org chart is probably going to include likely going to include humans, agents and some automated workflows or augmented at least workflow. So these org charts that we call now eventually are just going to be workflow charts that have assignments for those three types of workers. Big quote around it again, some are going to be best allocated to humans, some are going to be best delegated to agents or or just even automated processes. So this coexistence however, is really what got the emotion and the ire going anxiety, frustration concerning downstream implications of all of this. So I would say our two Asian roundtables to your question were probably the most thoughtful and circumstant on the risks here. So in Hong Kong, this risk of digital dependence was not being talked about enough for the younger generations. So many felt that younger professionals may paradoxically regress in their critical thinking and judgment if they have relied too heavily in school and in their earlier careers on AI. So talent development must strike a balance, they argued, between enhancing roles through technology, yes, but still preserving this human accountability and intuition that seems to be at risk if you completely automate all those lower level roles. So one participant was adamant, particularly about private markets. In particular, they said AI can't think yet. And he went on to say it dries funds towards a common wisdom groupthink. But private markets require uncommon wisdom that reward those who resist this algorithmic herd. End quote. Which I thought was just a great quote in Singapore again I said it was the two Asian ones. So in Singapore they doubled down on this talent conundrum, you might call it. So universities are beginning to respond. But participants in the roundtable voice concerns that Gen Z lacked the commitment to broad experiences or the grit that comes through incremental learning. So part time work, internships, rotational programs, these are all staples of kind of my generation, even yours. Professionally, they're disappearing from resumes and artificial intelligence compounds that problem. These entry level analytical roles or the heavy labor intensive machine oriented roles that you alluded to historically these were the proving ground for future allocators and now they're being automated out of existence. So this question looms large. If the lower level of our org chart as we've called historically, is going away, where will tomorrow's investment professionals learn the ropes? If there is no training ground, no one just shows up at the mid level of an organization. If there's no place to learn and to pay your dues, as we once said. So I think this is a real dilemma that leaders, it's not that they're not embracing AI, it's that they're struggling with what this means for their future talent development and competency set.
- [73:53]
C
I think it gets even tougher when Claude has been announcing all sorts of updates on you can now use Excel and you can build models and all the things that were the technical grunt work skills based tasks that you were handed as an investment professional can be done by AI. But at some point you've got to learn the context in order to deliver on this. I can use AI for Excel because I understand how the mechanics work, because I went through the labor of understanding it. But if you are now making decisions on it, well, I've got this tool or I can, you know, hire this person. I think that's where we heard a lot of the tension from some of the different roundtables and discussion. I hate to quote him because I'm not a big fan, but Peter Thiel recently said that it's the math people that will suffer and it's the words people that will succeed in an environment like this. Now, huge caveat that he also said he didn't think humans should win the robot wars. So we'll take what he said with a grain of salt. But I think there is some elements to that where if you understand the guts and the technical expertise, the skills, but you're able to articulate it and know what you're trying to solve for, those are the ones that really stand apart. But it does leave this kind of open question of where does the talent ultimately learn some of this stuff? Is it in school or is it in the workforce? Perhaps? To answer my own question, Manira described this as well, she actually has a story that I thought was pretty interesting on both talent development, but also how you use AI in the boardroom, which was one of the more memorable stories from our conversation with her. So let's listen to her now.
- [75:32]
E
They always take. Actually it's especially for the younger generation. It's much competitive though, as I mentioned before, our industry is growing on a very, very strong trajectory. There is so much opportunities, young talent in Saudi, there is a high supply. This is a global thing. I discuss it also with my colleagues. I always tell them, you know, something worrying me personally that there is the use of the AI make it maybe even more challenging for the fresh graduate to find opportunities because we usually use them in that job. And I feel that is important responsibility for us that we need to. Because at the end of the day we will not stay in our jobs forever. There will be a day that they need to replace us and we need to create that supply. But for us to create that supply, we need to guide them. We need to also lead by example. So the thing that I guide my young team members actually before I guide them, when I recruit them, I recruit for different skills. Today it's not the intelligence and et cetera. I look for someone soft skills. I want someone who use AI. I don't want someone who say no, I don't use AI because at the end of the day, if I encourage using AI because that will increase the efficiency. But again, I want it with governance, I want it with credibility, I want it with curiosity. So what is the soft skills in that case? Relationships. That's something that you cannot assume that AI will be doing it in your behalf. And again, when I said credibility, what does that mean? You actually need to work with the AI and not let the AI work for you. Because at the end of the day your job is to deliver the best delivery and you'll be judged for it. At the end of the day. It's really interesting discussions. Always when it comes to recruiting or growth and job or competition with AI, you know, it gets limited to the fresh grad and younger population or generation. But in reality it competes with all. Had a very interesting conversation with a great writer who wrote a book about AI called Human Magic. His name is John Ross. And we were a group of CEOs sitting there and he said if an AI agent sit in the board, he will be Better than all of you. This is what he said. What happened in that discussion? The whole room was silent completely and I said immediately he can be the chairman. It was like a dark joke but what I meant because it would be feeded with all information, with all the company filings, with all the news and industri intelligence and yeah it's there for us to use and to benefit from and adopting I think this is by would be the very important advice that I'll give to young generation. Always adopt change, embrace it. Don't think of it as a threat that how you will grow and if you don't do that you will be behind.
- [78:49]
B
Let's talk a little bit about the makeup the assembly of the future investor professional because I think that's what you're getting at more broadly again as I said a moment ago, AI is agitating this but I think this was already starting to happen through this collision of all these other disruptive elements that we kind of preface this whole report with. So in Singapore there was a strong statement that the era of skill based training is over, suggesting that this technical competency, this is the math people that Peter's talking about alone is no longer sufficient to navigate a regime that rewards system thinkers. Adaptable governance in Mumbai so this is our first our Indian roundtable. We were challenged from the panel that the industry and educational bodies, that's us as an extension are too single minded on job ready skills. So we must complement proficiency in things like accounting and asset valuation with competencies such as leadership, communication, negotiation, influence and let's just be honest, our industry has never been particularly good particularly in the formative stages academic professional credentials developing those skills they are learned on the job. The first time I often say this I ever heard of leadership development was really after I left the investment industry moved to the other side of the table and moved to the kind of the professional bodies. In my career in Singapore there was this great quote Soft skills are now the new hard currency in Toronto. I think at best, I think this was the most wholesome discussion on this. As the world shifts towards this bipolar or multipolar dynamic, as I mentioned investors you should anticipate higher average volatility tail risk demand for liquidity compared to recent decades. I think we argued that in the geopolitical conversation. But as a result what the Canadians argued is that this therefore required more creative and modernized approaches to building teams that can more easily adapt transition across markets. So in this environment things like resilience, courage, agility, strong communication skills become critical attributes for investment Firms and teams. Here's this phrase again. Multidisciplinary systems thinking lateral competency sets were emphasize versus again our industry's tendency towards the siloed expertise vertical career paths that have really been a staple of financial services and investment growth over the decades.
- [81:15]
C
And John Sebastian actually had a very specific view on what the actual demands on leaders looks like. Because it's one thing to say that you need multidisciplinary thinkers and it's another to completely restructure your organization around that process and that reality. So I think it'd be interesting to hear what he has to say on this.
- [81:37]
A
The key thing is to have leaders at investment firms that are willing to experiment with AI applications, trial and error iterate, figure out how they can be made to work the best for you and then be really ruthless and tough about restructuring the organization around what you discover and then potentially restructuring it again 18 months later because the AI has changed and you need to change the org again. So I think it's relentless. Adaptation is going to be the watchword. You alluded to something else which sounds right, which is people who can work across disciplines and synthesize things. Of course that's good. But I'm always impressed when I use the models, they get better all the time how much they can do that. They can think across subjects, they can make analogies. One of the best exercises I think you can do with a large language model in my experience is to say, well, I'm a US citizen and a UK citizen, I pay taxes in both places. Compare and contrast the two tax systems. Tell me how the following tax question would net out across the two. So that involves being an expert in two things at once. They are excellent at that. Because humans there's only how much they can have in their head. The machines are almost infinite. I think that is less unique than the toughness of being willing to kind of constantly update the org chart.
- [83:09]
C
So John, is there anything that I missed on any of these three or anything that maybe anecdotally came up that we didn't cover?
- [83:16]
B
I think the only two things, Aaron, that perhaps were embedded in that big second shift were this issue of regulation. Just as I think we made clear that in our conversation with the Mirror, as I mentioned, that professional bodies have not kept up the supporting structures I mentioned have not kept pace. Policymakers seem a little bit paralyzed on how to kind of lead through this brand new model versus just a linear evolution. Regulators too, some were noted as being better than others. I think the Saudis and and some of the Gulf industries, Singapore have been better at keeping pace with some of this digitization and new innovation. But I think the developed markets ironically are a little bit behind in moving that direction. The only other thing I would mention that I just hinted at is the tokenization itself. Now this I think relates to our discussion around wealth management because I think in one sense tokenization, blockchain capabilities allow for liquidity mechanisms and secondary movement of asset ownership, fractional ownership you might say, of off chain assets that is very, very compelling and allows access and exposure to private capital and private assets that never could have been imagined or structured through traditional drawdown were fund vehicles. But again, I come back to where we debated is creating liquidity, even real time liquidity through tokenization and exchanges, very easy, zero friction trading. Is that a good thing when it's a mismatch against the underlying asset like a big building or a power plant or even a portfolio company that is still in the midst of its restructuring and optimizing. So I'm not convinced. While I think the technology is very, very appealing and I'm a huge believer in this new digitized Rails and what it can do for the industry, I'm not convinced that simply opening up the floodgates of liquidity through tokenization is going to be a good thing for private
- [85:23]
C
capital access tokenizations, like trying to ETF the private assets industry. And we've seen, you know, the holding periods for a lot of ETFs go down to days when it used to be, you know, months or even years. So it might solve one issue of operational simplification, but it doesn't solve the behavioral desire to sell when things get tough or to start tactically trading some of these things.
- [85:49]
B
Aaron, thanks for leading us through those three. Again, all of you, I would encourage you to get your hands on this paper which has dropped online. You've heard us talk about a lot of revolving, noisy takeaways here, but the overarching theme I just want to come back to to bookend this conversation is profound, but it's simple in its essence, which is the industry sees a future. The leaders of the world in this industry see a future that is much more interconnected, technology driven, geopolitically constrained than the systems and the skill sets of yesterday were built to handle. So the shifts identified in the report now demand new governance models, new educational pathways, new systems of collaboration across public, private and policy domains. And I would say from a very value based perspective, they call for humility, adaptability, stewardship, mindset. Our colleague Aaron, as You know, Georgina, I love how she likened this in the report to the current moment, to your choice of either continuing to invest in legacy models. So imagine investing in fax machines a year before email or Betamax, before VHS became the mechanism that really dominated or ski resorts, she says, on a melting glacier. That is the model that we currently sit on because you have to have the courage, we would argue to instead of reinvesting or hoping things stay the same, to navigate this new policy shaped terrain and deploy modern product and technology stacks. And this idea of converting speed and flexibility into durable alpha it is way more easier said than done. We are past this idea of incrementalism, I think is the bottom line as I begun this episode just to finish off. We started on a journey to seek help on redefining our organization. But just as with KAI association, every firm, what we learn actually is facing a clarion call to reimagine its new path among this rising tempest or set of tempests, you might say. And these crucible leadership moments, just like with us, for all of you, they call for supernatural poise and decisiveness and boldness to overcome strategic atrophy, convenience of what we've experienced the last 40 years. So we of course would love to be a small part in contributing to partnering with each of you on your own journey to kind of reinvent that system to prepare for this new reality. So, Aaron, it's been a lot of fun. As I said, more storytelling than even normal decanters. I hope you enjoyed it and I hope you enjoy the report even more. I don't want to sound like I'm exaggerating here, but I'm not sure we've done a report this important. We've done a lot of cool things that I think were on the leading edge, bleeding edge of what the market is thinking and what we felt like they needed to study a bit more. But this one, I think is more deeper and profound than anything we've published. So again, I hope you enjoy it, I hope it's helpful and we will see you next time.