CIO Insights at SuperReturn International

Descriptive Transcript

The entire video is set with Fred Pollock and Emma Walden sitting across from each other at a small, white, round table with a Berlin cityscape behind them that has a blue overlay

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Emma: Fred, thank you so much for joining us here at Super

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Return International.

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Fred: Thank you for having me.

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Emma: It’s uh, great to see so many of your industry here

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to talk about what we’re seeing,

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and I’d like you to tell me

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what trends you are currently seeing really in terms of, uh,

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private equity portfolios and,

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and how that’s influencing investor kind

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of behavior and strategies I guess.

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Fred: I think there’s two things we’re seeing.

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The first is investors are waiting

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to receive proceeds from the sales of transactions

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that they’ve made over the last couple of years.

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And so you have a decreased amount of activity,

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but uh, as soon as things start getting sold, they’ll,

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they’ll be interested in reallocating.

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I think the other, people now

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that rates are not zero anymore, people are scrutinizing

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how the returns are being generated in private equity,

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whether it’s multiple expansion

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or whether the companies are actually growing

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and producing more cash flow.

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Uh, and I think that’s good. I

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think it’s a return to normal.

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Um, you know, what we used to see in the nineties

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and the early two thousands

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and maybe saw less of in the, the late two thousands

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and 2010s, but I think it’s back to normal and it’s healthy

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Emma: And it’s actually more expertise required in a way.

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Fred: Uh, a hundred percent. So meaning managers have

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to be good at taking over companies

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and streamlining operations, increasing cash flows,

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increasing revenue, all the things that you would expect.

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But they were doing that,

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but they were also benefiting from the fact

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that money was cheap and

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they’re no longer benefiting from that.

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Emma: They have to be clever with finding those value

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creation solutions now.

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Fred: A hundred percent find the right

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opportunities and know what to do.

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Emma: Uh, talking about opportunities, private credit

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and infrastructure seem to be at fore at the,

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at the moment, are you seeing that?

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Fred: Uh, yeah, both are in huge demand. So private credit is in

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and a lot of demand just because people in a zero rate world

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didn’t have huge allocations,

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and now that rates are more like 5%, it means

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that private credit generates, you know,

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low double digit type returns.

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That’s really satisfactory for a lot of investors.

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And so they’re starting to increase their allocations

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and then infrastructure really because of covid

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and then also because of the inflation that we’ve seen,

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it really stood the test of those two things

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and produced the returns people expected from it.

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So it’s not, it didn’t surprise to the upside,

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but it did what people had long promised

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that it would do in those environments,

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and people were excited about that

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and continued to increase their allocations.

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Emma: We’re talking about two areas that seem

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to be at the fore there, but what do you think is,

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is crucial and, and intrinsic, if you like, in,

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in building a, a good portfolio and,

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and you know, what is

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behind managing the successful

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co-investments as well?

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Fred: Yeah ,I’m, I think the real trick is diversification

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and to be programmatic about the way

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that people deploy their capital in the illiquid space.

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So, you know, what we’ve observed over decades is that

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as long as people have a plan

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and they deploy their money, say over five years, even kind

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of radical portions over that period of time,

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and they’re working with the right people, they know

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what they’re doing, they tend

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to have success in the illiquid asset classes.

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I think the people get themselves into trouble when

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they get excited in a particular moment in time

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and they go into a new asset class

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or they put too much capital

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to work in one year or one vintage.

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Other than that, we really think people do pretty well in,

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in the programs and then co-investment,

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the real trick is sourcing, being able

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to find opportunities, um,

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and second being selective, meaning if you see a hundred,

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you really should be doing one or two

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and you need to be able to see a hundred to be able

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to have that selectivity.

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Emma: Can you provide insights into the growing popularity we’re

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seeing in, in separately managed accounts, SMAs

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and how would you say that trend shapes customization

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of investment strategies

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and portfolios going forward?

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Fred: Yeah, I mean the, the, the SMA, um, approach, kind

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of a custom account approach, it allows the clients,

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particularly big institutional clients

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to control their outcomes in a more specified way.

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They can design what types of investments they want to make.

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They can create guardrails around kind of size of company,

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geography, you know, strategy

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that’s associated with. The other thing,

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it gives them more control, um, meaning a lot

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of those accounts they can be shut down,

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you can change the pacing, you just have more control

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as an institutional investor.

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So I like to think of it

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as you’re taking a capability people have always liked,

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which is private equity or middle market private equity,

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and then you’re able to provide it

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to the institutional investor in a way

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that fits more like a glove rather, rather than, you know,

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previously where they had to take the one size fits all

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approach of a commingled fund

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and you just, it is what it is, take it or leave it.

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This is a way for them to get the capability

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and customize it to what their needs, their needs are.

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Emma: You talked earlier about this being a, a,

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a trickier climate than we’ve seen in the past.

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The, the expertise that’s required in that

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and what you described there,

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it sounds like perhaps more bespoke

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solutions that could be what we see.

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Fred: I think that’s right, meaning, and more niche strategies.

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You know, people who are an expert in finance

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or an expert in business services

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or an expert in a certain type of operation as opposed

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to kind of the age of the generalist

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where they benefited from the fact

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that they would buy something and the multiple would

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expand as rates declined.

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I think that’s passed. You know, they really need

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to have a lot of sector expertise, a lot of relationships

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to be able to source companies

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and they have to be people management teams

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want to work with and respect.

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So I, I think expertise is gonna be a

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real key in those niche areas.

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Emma: And do you think increasingly geographic expertise

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will play into that as well?

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Fred: For sure. I mean, if you’re not everywhere, you’re sort

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of nowhere in, in 2024.

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So if you aren’t able to sort of source

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through all the different opportunities

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and know what’s going on in all the different markets

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and way up the relative risk

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and reward of those things, uh,

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you really can’t play on a global scale

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in private equity anymore.

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Emma: Talking about global scales there, there’s 5,000

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of your industry here at super returning to national.

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How valuable is that to come to a place

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where you can share ideas like this?

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Fred: It’s, it’s very valuable

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because you basically, you, you can set up meetings

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with different people who ordinarily it might take you a

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month to set up the same amount of meetings.

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You could do it in two days or three days.

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The other thing, you bump into people you didn’t even plan

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to meet who you’ve wanted to meet.

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You talk to form relationships,

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you also find out things you didn’t know, right?

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There’s been, I’ve already had, you know, two

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or three meetings today where I found out things I didn’t

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know from people that were relevant.

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And there’s, there’s some opportunity that’ll come from

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that, either from the investing side or from a client side.

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I, I think both we’re benefiting from both,

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uh, and being part of the event. Well,

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Emma: Fred, I hope you continue

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to have a really valuable time here.

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Thank you so much for joining us. Great to talk to you.

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Fred: Thank you very much for having me.

CIO Insights at SuperReturn International

Descriptive Transcript

Absolute Return Strategies