Murdoch (00:02.547)
Chris Moss, welcome to the rate of change with York Wealth Management. Thank you Murdoch, pleasure to be here with you today. Fantastic. Why don't we kick things off and telling us a little bit about yourself and how you got into financial markets. Sure. So I am currently a managing director with with Partners Group. I've got about I think it's going to be 18 years of industry experience. I started in investment banking in Europe.

And after a couple of years in investment banking, where I worked in M &A transactions and equity capital markets, I joined the private equity industry, focused on Europe. And at Partners Group, I've been particularly focusing on investments in France and some of them in the health care sector. So.

Partners Group is a very, very large global firm. So can you do you mind painting the picture for everyone about, you know, how big is Partners Group? How much money is currently under management these days? And how many people and funds? You know, how big is the Partners Group empire these days? It has become a very large company, you're right. We manage about $150 billion today of capital on behalf of our clients.

And we have about 1900 employees that are scattered around the world. 20 offices, but the big hubs that we have, historically, the one that we have the biggest one, the headquarters are in Zug, in Switzerland, that's not far away from Zurich. In the US, we have Denver, and in Asia, it's mostly out of Singapore. And then 20 offices in total around that.

Murdoch (01:57.235)
And then you go to Sydney. And then we got Sydney, we've got Paris. So I'm from the Paris office. We've got a small office in Paris. We've got an office in Japan, office in New York, London. But the three big hubs are the ones I just mentioned. All right. So look, for everyone, I have had a very good relationship with Partners Group for probably half a decade now. I'm very familiar with the strategies and how it works. But for someone potentially that's just hearing about Partners Group for the first time.

How would you best explain at a high level what is who is partners group and what do you do? So we're a firm born in Switzerland with a focus really on private markets, right? So if we pick equities as an example, a big part of the equities market historically has been known as public equities stocks that are listed. Partners group has been focusing on

only on the private side. So private companies that are not listed as investment opportunities. That's the common denominator across all the strategies to date of Partners Group. It's been focusing really on the private side of the economy, not the public side. Today we have strategies, investment strategies, that are really focused on trying to build businesses.

Basically, most of the returns we've been generating and returns we generate today for our clients are based on trying to transform assets, businesses that we own for a period of time to make them better before we exit them. That's the whole spirit. We see ourselves as business builders. And this is why we are in places like Denver or in Zug instead of having this...

center of main interest into the largest financial capitals of the world, we are a bit more Main Street than Wall Street, if you will.

Murdoch (04:06.611)
So would you say in a nutshell on the simplest way, you're looking for say a business, I love this analogy where you're looking for a bit legacy business has been around for a long time, got a great following, but they still have a fax machine. And then you're looking to that business, you're going, you know what, if we pick up that business for X, we can over a five year period, using modern technology, we could probably improve that and improve the efficiencies, make them more profitable.

with a couple of changes and then potentially do some bolt -on acquisitions around and then exit out of that position in a number of years. Is that in a nutshell? So you're onto something, absolutely. In simple terms, ultimately, that's the aim. And that's how we've created our returns in the past, is looking for opportunities where we can transform a business by applying some of those levers that you've just mentioned. But the only nuance I bring to this is that instead of,

starting to look for a business, we usually start by looking and researching market sectors where we see big transformation happening in the next 10 to 15 years. We love change, we love transformation. We see transformation as an opportunity. So when we find areas and sectors in the economy where we think for the next 10 to 15 years, there's gonna be a big change that's gonna drive growth.

that gets us hugely really interested. We do research on those and once we've identified those sectors, then we look for the companies that you've just mentioned. We look for companies that are going to be exposed and that are going to be driving that change. And we'll try to own that company and help it drive that change and grow during that period of time. So during COVID, I did recall that Partners Group was one of the largest owners of

solar technology in South Australia, I believe. And if you want to talk around that transaction, because I think that's exactly what happened was a pre COVID, didn't you pick it up? Like, I don't put numbers in your head, you picked it up for an amount. And then after COVID, when all the valuations, relatively substantially, when everyone thought hope was lost at one particular point, and you managed to exit out for a very, very large multiple. So that's exactly what you're saying, Craig, do you want to talk around how that happened? Or maybe something a bit more interesting? Or?

Murdoch (06:30.643)
No, no, absolutely. I think this is a good example. And this is more on the infrastructure part of our business, because as you've mentioned, Partners Group is pretty large and diversified. And the investment you're referring to is more on the infrastructure side, but still very much the same model of identifying.

a trend and a transformation in our economy. And here it's the transition in terms of energy, the energy transition, where we see fantastic opportunities to invest into certain types of companies in the next few years and having made a transaction and transforming a business before selling it. On the private equity side, so thinking more about the corporate world,

We have been owning businesses, coming back to your example a little bit about the old school archaic business models where you didn't have any computers, no digital tools. We've been owning a business, for instance in France, that does property management services. And when we bought that business back in 2016, this was a company that had.

most of its operating model that was relying on either huge piles of paperwork and an old set of PCs and old software that would take hours to generate anything that would be of use for the company. And we bought that business with the view of completely transforming it and digitizing that business. So we...

took control of the business in 2016. What was the name of the business? So the business at that time was called Foncien. And some of the numbers around it, how big was that business? So that was a business already in France. It was probably about 1 .8 billion euros of enterprise value. So a reasonably large business. It was running multiple hundreds of agencies around France.

Murdoch (08:42.747)
particularly focused not on the transactions in real estate, but more in terms of the block management, right? Everything that relates to the admin of block management of buildings. If you've got multiple apartments, you've got to make decisions on who's, you know, should we change the light bulbs? Should we change the operator of the, and the maintenance provider for the lifts? Should we vote on replacing the roof?

all those kind of decisions in a big building where you have multiple owners owning apartments in France, that's a regulated industry where you need an admin body that will usually take care of all those tasks. And when we acquired Fonciat, the business was still very much using requests based on paperwork and an old system in terms of software.

And we thought that this was a sector that was going to get disrupted. There's going to be some kid coming out of school at some point, and he's going to digitize completely that industry. And there was a risk. It was a risk for Fonciel and for other businesses. But we took this as an opportunity to transform the business. And instead of waiting for someone to disrupt, we thought, let's do it ourselves. Let's run the whole digitization of the business and of that industry.

And so at that time, we made a pretty bold decision. Instead of deciding to use an existing software, because you have some ERP softwares out there that you could buy or take a license, we instead decided to do this ourselves. So we recruited a team of software developers and software engineers, about 80 of them in France. We attracted that kind of tech talent.

So you ran a startup in a legacy business. Exactly. We ran a startup in a legacy business, which the brand name at that time was not really very appealing for those young guys and girls joining from the tech industry. So we had to actually to attract them, we had to put them into a very nice building right in the center of Paris, make sure that you've got foosball tables, PlayStation fives, you know, the same kind of gig that you would find in the Silicon Valley.

Murdoch (11:05.683)
And for about a year and a half, a couple of years, they worked days and weekends on developing a new ERP, on developing a whole technology backbone, some applications that you can have on your smartphone. And that saved us a huge amount of costs, made the business much more productive, and removed the paperwork. And we did this over our ownership period, which has really allowed us also to scale the business.

So interesting. And then there's so many other questions there. How do you incentivize that team with a startup? You get equity? Was there a revenue share? Actually, I kind of want to know, like, how did you, obviously, there's the, there's the, you're running things, but then you have the managers because they're the creatives, right? And you know, you want to incentivize people get involved and everyone wants their name to be on the book, which they create. So how did you incentivize that team? Yeah, you need, so the alignment of interest is a key tool in private equity.

in particular in our strategy at Partners Group because whenever we own those businesses, if you want to transform those businesses, you need to make sure that everyone is rowing in the same direction, is incentivized on the same outcomes. So that means that our clients who invest into the products, into the programs and the funds basically are rewarded if you generate a good return. If you generate a good return, then the investment team who has done

that investment should be aligned and get incentivized on that return. But also the management team of the underlying portfolio company should share also in this upside. So the top managers in some of those teams, some of those employees to attract them and to keep them motivated need to also have some plans which allow them to share on the upside. It can be some stock plans, some option plans, but that is a key driver of...

alignment of interest and incentivization for that type of talent.

Murdoch (13:05.203)
So your main strategy is you get this built, you get it up and running, it happens for five years and you're looking for an exit. Is that the plan for all these businesses? Because what I'm hearing with that particular business, what was 1 .8 billion, correct? By the time you're done after five years, what was the value? And more importantly, what was the profit margin? And sorry, two probably really important questions. What was market share? And what was the market share and the profit margin in the beginning and by the end of it, what was market share and the profit margin?

So in the case of this company, at the same time as we were digitizing it, we wanted to scale the business and grow it. Because the digitization itself makes it more productive. And you can see the profitability margins increasing by about 10 % thanks to this. But that doesn't necessarily help you grow the business. It makes it more productive. To grow the business and to scale it up, we've

adopted in this specific case, a bit of a platform strategy where in the company itself, we created an integration factory, a team of about 40 people that was only focused on looking for and acquiring small agencies so that we could run a bit of a buy and build, a platform play and...

small agencies that we would integrate to the platform. And as we scale this up, and as we had this kind of digital tool in the background making it more efficient, we've been able to round this up to about one and a half acquisition every single week. So that's a business today that in a normal week will integrate one and a half other businesses. And that's been growing the scale of the company quite massively over the years.

So just to summarize, bought a legacy business with a phenomenal brand that's been around for ages that required help, proceeded to run a startup tech business to improve the efficiencies and then improve the scale by a series of bolt -on acquisitions at an average of one and a half a week and the integration required to do that. So after that was all done, when was this done? 2016. Has the business been sold or you still own it?

Murdoch (15:27.731)
So we still own it and we still control it. But what we did is at some point in time, we sold part of the business, a minority stake to another financial investor who wanted to join the journey. But we still own the company as of today. We still control it. And what we've done in a kind of second step is, and that's why the company is not only called Foncia today, Foncia is its French legacy name.

But we have now started really internationalizing that business. And what we've done successfully in France, we're replicating this now in the UK market, where we started with two significant acquisitions in the UK market in England. And we're going to be using this as a platform to expand the business more and more in that part of the world. So the other question which we have is, in 2016 was a very interesting time for

these types of businesses, there was value to be had before money got printed and things kind of got out of control. So what do you do in say 2024 or the past couple of years when, you know, valuations may not have looked as attractive. So how do you deal with, you know, looking to buy businesses now, when valuations have just gotten out of control, even though they come back and bid, they're still quite high compared to where they used to be. How do you deal with that? So we've actually,

We've actually seen fewer transactions. If you look at the past, call it 18 months, the volume of transactions in private equity and the number of transactions that we've done ourselves has really come down sharply. And there's different reasons for this. One of them is the fact that the credit markets were not as supportive. It was difficult to finance transactions. But one of the key reasons is actually just what you mentioned is a bit of a mismatch on the valuations.

where us as a buyer, we're not finding the multiples, the valuation multiples that we were comfortable with at transacting compared to sellers who still had expectations for selling their businesses that are back in the old world two years ago where we were at the peak of the market. So today we would only transact at a valuation which we feel is fair and represents the new environment.

Murdoch (17:56.083)
which typically means a lower valuation. And there's few transactions where the sellers are ready to transact at that level. It's going to take a bit of time for everything to readjust and for the seller and the buyer to find a win -win on valuations.

Yeah, that's very interesting. So you mentioned as well that you see thematics and then changes. You look for the thematic first, then you look for the business. So where do you see the direction now? Where's the opportunity now you're currently seeing? So we find that there's a lot of opportunities across all four sectors where we invest in. We invest. So the four sectors that we focus on in private equity are health care, technology,

goods and products and services. And across all four of them, our teams will research very specific thematics where we can get some convictions. And there's plenty of opportunities, right? Because we know that for the next 10, 15 years, the world is going to change massively. So if I pick some examples in pharmaceuticals, let's say, we are very interested in all the changes that are happening on the outsourcing side.

in pharmaceutical. If you look at the pharmaceutical industry, it's an industry where the big players, the big pharma players, over the past 20, 30 years, increasingly have been outsourcing certain parts of the value chain. They don't do everything themselves anymore. It's become too complex, and they prefer to focus on some kind of core competencies that they have and then delegate or outsource other parts of the value chain.

And some of those parts we see very attractive growth rates, especially if you have companies that have a niche specialty. And it can be something relating to the production. It can be around the packaging. It can be around the research side of things. Those companies are not only enjoying the overall growth of the pharmaceutical industry as a whole, which is attractive in itself, but they're also on the receiving end of all those outsourcing.

Murdoch (20:11.635)
which makes the growth trends sometimes north of 10 % per annum.

Murdoch (20:21.267)
So in the pharmaceutical, how much of the portfolios is in pharmaceuticals? Like what's the... So if you look at some of the recent transactions that we've done, so there's two that fit very well within that thematic of, we call this speed to market and outsourcing trend. So we've made two portfolio investments on the control side in that kind of thematic.

One of them is in the US, a company called PCI, which used to be mostly focused on the packaging side and has since then really gone up in terms of the value chain. And the other one is a European business that we acquired a couple of years ago called Pharmathon, which has somewhat of a unique technology where they're one of the few companies in the world that can convert an injectable into a long acting injectable.

So what does that mean to try to put the, you know, not be too theoretical. Certain treatments today, for example, Schizophenia had treatments where the patient needed to get an injection on a daily or weekly basis historically. So you need to go to the doctors, to the nurse and get an injection once a week. Pharmathin is able to use that proven molecule,

that has been proven for now years and is actually at the generic stage. But instead of having it into a formulation where you require a weekly injection, it can have it into a formulation which is a long acting injectable, which it will spread in your body over a period of two, three, or even more months. So as a patient, you get the same treatment, but.

instead of having to go to the doctor every single week for an injection, you can have an injection once every quarter. And that presents a unique kind of benefit for you. We're getting into the weeds a bit, but this is actually quite interesting. There's a drug that's been running around now called Ozempic, the diabetes drug. It's practically, you can't go anywhere without someone talking about it or a mate that used to be 120 kilos is now 90 kilos. I've heard about this. I got to try it out. I don't think you need to, but yeah, there's a...

Murdoch (22:44.019)
Yeah, but you have to, it's literally diabetes drugs. So you know, pill form, also cream or you have to stab yourself. But that's daily, I had a friend that do it and the source was used to get. So the pharmaceutical drug, it's just fascinating the innovations they have in this particular industry, but say something like that, would you potentially utilize that product and then combine it with say, or Zempik and then something that takes more daily injection, you can have a once a month and it goes through for a

Is that how that works? So yes, there is. There's definitely something there that is of great interest to this portfolio company that we own. We've actually made a move in that direction. Usually, so that kind of treatment is based on what is called peptides. And we've recently acquired this company of ours, Pharmathon, made an acquisition to acquire a peptide API.

producer. And we've been able to also announce a partnership with a big pharma company where we will, our intention is to position ourselves exactly in that area of obesity treatments once the exclusivities run out so that we're ready to offer an alternative and an alternative type of formulation and treatment that could be better for the patient.

So that's definitely in our pipeline of funny. It's just you say this in my brain. So thinks that and they are here. That's the deal that we're doing. That is 100%. And it's funny, you mentioned peptides, like I've just got into do it. You did so you way too much Joe Rogan. And, but yeah, you know, when you're 37, you notice fears used to be you tweaking elbow, you're doing a you're out and then but I keep listening to two peptides. And yes, some of them are legal and some are good. But I've had a few friends do them and one did it.

I'm not a doctor, not advocate for anything, you know, please speak to your local practitioner. But you know, your idea is you can strengthen your muscles and a gentleman I know did it. Particular course he increased his strength and weight by like eight kilos compared to his frame and then proceeded to retain 60 to 70 % of the strength he'd gotten from and then just doing normal body weight. But then because of that, he's had less injuries.

Murdoch (25:08.275)
So what I find quite fascinating about peptides is people get injured quite quickly. You do muscle damage, but it has the capacity to heal you faster. It blows my mind. So, but yes, again, it's something which you have to take, you know, daily or a couple of days apart, which is a bit of a pain in the ass. So linking these two different technologies, what a fascinating opportunity. And again, so we touch upon a lot of different things here, but you can sense that, um,

There's a lot of change happening in that industry, right? And you've mentioned Lozenpec. We see great growth opportunity in the longer term. Now, we, with a company like Pharmathon, and just generally, I think culturally, where we invest, we don't like binary risk. So we're not going to take a risk on a treatment that has not been proven yet. We'll only focus on treatment that has been proven.

that has some history. Pharmathena only focuses typically on generics that have multiple years of records, but it changes the formulation and it acts as a partner to the big pharma players to make them a bit more efficient. But just looking at that side of things and with all those changes that we see in the economic environment, in our societies, in the next few years, there's a lot of areas where you can invest as a private equity investor.

and a lot of companies that are not in the public space, but only available in the private space. And that's where we focus. Private markets. It's very, very interesting. Now I'd be remiss if we didn't touch on the private debt side for a little bit. I know your specialties and the direct investments, but I wouldn't mind just getting a bit of the lay of the land. I was speaking to one of your colleagues and they mentioned that...

there's a number of loans coming through to maturity, especially a lot of, you know, corporate corporate property loans. And there's concerns out there in the market that you know, the period up in the 2028 might be a bit rough. But what stances partners group taken on that, because my understanding is you're seeking to sell a number of the assets that have loans coming up to that maturity date and then retaining. Do you want to do one giving a bit of color around that? Yeah, no, I think it's it's so if you look at the past,

Murdoch (27:33.809)
year and a half, it's fair to say that we've seen the credit markets contracting and lenders not necessarily being out there and as available as debt was 24 months ago. So it's more difficult to secure debt, to finance your investments, and the terms of that debt can be a bit more expensive. So I think it will at some point, if I look at the

private equity industry, but it's also true for real estate. It's also true for infrastructure. There's going to be a period of time where some of the investors or owners of assets who have debts with those assets will face a maturity and will need to do something about it. And either it will be at a point in time in the coming years where the debt market is back and is available and the terms are relatively favorable and they'll be able to rearrange that financing.

Or the risk is that it's not available or not available for that type of credit. And that will trigger those investors, those owners to do something with their investment. They're going to need to sell potentially some of their assets, some of their businesses, because they don't have the tools to refinance that company at that time. If I look at our portfolio, and again, I'm going to switch back to the

private equity portfolio at Partners Group, which I know best. Today, we're not facing this wall of refinancing and maturities. If you look at 97 % of the debt that we have in our portfolio companies and businesses like Pharmathon or like Fonsia, 97 % of that debt has maturities that go well beyond 2025. And actually it's more than 60 % that goes beyond 2030. So I think we've been...

quite proactively managing that refinancing risk and that maturity risk. And what we see is as we own assets and as we transform them over the years, typically those companies generate more and more EBITDA, more and more earnings. And that means that the leverage actually gets, the debt gets reimbursed or gets to such a level that it becomes really a small part of the capital structure.

Murdoch (29:57.939)
So by the time the maturity will reach, there's not a big worry today that we will have to sell assets just because of the debt issue. Not something that we feel is a concern as we stand today. Well, let's actually touch on that, the psychology of investing. That's one thing I've always found quite interesting. You have the capacity to have the patience and then you're actually executing the patience whilst you look at some American.

investors or institutions, they run by the quarters. So you know, you have to do something by a particular date. And then that can lend to some poor decision making. How does it work with timelines, deadlines, or you just see a great asset, you hold on to it until it doesn't become a great asset? Like, how does it work? No, I think the beauty of the private ownership is that you usually can take a longer term perspective.

You're not, your agenda is not dictated by quarterly earnings. You're not going to be making short -term decisions to please the market. You know what, you know, you know the direction you want to take that business into. You know, the initiatives you want to be rolling out. When I mentioned, for example, the digitization of Foncien, this is a multi -year project. It's not something where you can deliver results quarterly. It takes transforming a business fundamentally takes time.

and you need to give yourself enough time. Now, obviously, it's not quarterly, but there are other drivers in terms of time frame that will come into effect and have some influence. We usually, when we make a new investment on the private equity side, we give ourselves usually about five years as a rule of thumb to run this transformation of the company and sell it.

Is it going to be exactly five years? No. There's businesses that I remember selling within four years. There's some, it's taken us six or seven years. There's not the same rush to sell them. We'll usually keep some companies for an extra few months if we feel that there's compounding return opportunities. But at least there's not this kind of short -term agenda, which makes you make short -term decisions that could jeopardize actually the longer -term transformation potential.

Murdoch (32:20.435)
So when you buy these companies, how do you work with them? Are these generally founder led companies? Does the founder or the gentleman or the lady who's running the business, do they still retain a role or is it purely you take over and your management team, how does it work? There's multiple ways of doing it. So we've had some founder businesses where the founder of the family stayed involved and

not in a control capacity, in a kind of minority capacity, but stayed involved, have also helped, usually taking a board of director position and continuing to guide a bit the business with us in the control. And we've had also opportunities where the former owner completely disappeared, right, and moved on and the page was turned and then partners group was the only one in control. But the governance part,

is key to get things right. If you want to transform a company, let's say in five years, you need to make sure that the governance framework that you put in place is effective. Who makes what kind of decisions? What are the decision -making bodies? How frequently do they meet? And who actually makes those decisions? You need to have the right people there. And you need to make sure you have an alignment.

So the way we create the alignment, I mean, we've discussed about it in terms of compensation. There's also an alignment around the strategic direction of the business. Everyone needs to be rowing in the same direction. The management team needs to be on board with the plan. The investment team needs to be on board with the plan and also the board of directors where we sometimes have some external seasoned professional that joined the board of directors. So that's how the governance framework is usually put in place.

But it is essential. If you don't have the governance right, you're not going to be efficient in your decision making process. And you might actually make mistakes. So that's on the internal side. But how do you deal with external factors? And I suppose this is always the good old, what are the risks? And how they play out. But since you're from the Paris office, well, the Champs -Elysees isn't what I used to remember it to be. Probably a lot of people don't remember it the way that it currently is right now.

Murdoch (34:41.107)
But with external factors, how do you deal with that? And what I'm currently referring to is if you rewind what a decade ago, a bit longer, the European Union wasn't putting the controls on the local people of France that they are currently today. And I think I read somewhere in the article that a number of those horrendous terms that have been pushed onto the farmers has been overturned just, I think, this week. So does this partners group take a view?

or a standpoint on any of that side of politics? Do you invest accordingly? Like how does that work with, you know, thematics external to kind of what you control, but they're literally dictating the direction of where the country is going, which you're investing in. And then hence the companies, how do you deal with that? Yeah, I think, I mean, there's parts of, there are things that are out of your control and we try to minimize this. So we will, when we invest and when we select our thematics,

and we select the businesses that we invest in, we like to have opportunities where we feel that the destiny of the investment, most of it is in our control. And that's why we, for example, don't like to invest into sectors where there's big influence of commodity prices, let's say, or of regulations that can change overnight with us completely losing control of the destiny of that business.

So we try to limit this as much as possible. So I'll take another maybe spin at what you just mentioned, because regulations are a key part of our thematic thinking. And we try to identify actually thematics where we take a 10 or 15 years view in a sector, in an industry, and where we feel that regulations are actually going into one direction.

And they're going to actually be helping that sector and helping the growth and the resilience of that sector. So I'll give you an example of a recent thematic that we transacted in. For a number of years, our team that focuses on services has looked at the inspection services for critical energy. So think about oil and gas pipelines, for instance.

Murdoch (37:04.891)
Oil and gas pipelines, if you look at 40, 50 years ago, you didn't really have tools to inspect them. So you could face a situation where one day your pipeline cracks. There's a crack, there's a metal corrosion, and then you've got a terrible leakage. Today, you have a number of proven technologies that allow pipeline operators to get a service company to do a full audit and inspection of their whole pipeline network.

And regulators have been then imposing on the pipeline operators to carry out those inspections every three, five or seven years. So we see the regulatory framework in that specific sector only going in one direction with people becoming much more focused on the environment, wanting to mitigate the risk of leakage and spillage. The regulators, we see them continuing to impose more and more frequent inspections.

So we see the regulatory tailwind being more of a help and growth driver for an industry like inspection of oil and gas pipelines. Yeah, it's quite interesting. I don't want to get too much into the politics of it, but I kind of can't help myself. I've always found with markets that the best thing, just like with politics, is everyone actually wants the exact same thing in the middle, but everyone kind of goes left and then goes right. And then after their entire journey ends back in the middle, there's just different ways of doing it.

The other thing which I found, you probably found the same thing with markets is that when one thematic gets pushed too far the other way, a lot of people get hurt, a lot of industries get hurt. And then the opportunity in that is just pushed so far down like an elastic band that snaps right back up into the middle. So there's a big opportunity. And what we've seen recently is exactly what you're discussing is that, well, again, the European Union and many other things, you know, green by 2050, obviously it's good for the environment, but various things that we need to survive like gas.

Gas is a requirement across the entire world to survive, not just to heat your homes, just for there is numerous, there's some products that you can only create the with gas, which is the bedrock of our society. You can't get rid of them. You need these things to exist, but they've been pushed so far down that it's created an opportunity for other companies like in Australia, you've got the Northern Territory up there and the Beataloo base and the Americans that come in. And then they've just come right up to the other side. And then you're discussing as well, like with the pipelines, yes, technology.

Murdoch (39:29.171)
come in, but those pipelines wouldn't exist if you didn't have the commodity to begin with. So again, yeah, any of it sidetracked here, but I'm just finding it interesting. Since you're dealing with private markets, how you deal with that level of risk, the risk. So do you see these events play out as opportunity to invest or would you avoid areas because it's too much politics?

Yeah, it makes sense. Like, what's the policy with the do you get into the weeds when it comes to this noise or? No, we definitely would avoid areas where we feel there's part of the destiny of that business, some drivers that are just too much out of control and where you can't really predict where things are headed, right? And where a political decision or regulatory decision could overnight completely change the business model. That wouldn't make us comfortable.

We hate binary outcomes. But we can take a view on some of the trends behind some thematics that can be helped by regulations and where we see regulations going in the next 10 to 15 years. But that's not going to be the key area where we're going to bet. We're never going to make a bet just on regulations. I think it's...

helpful and provides comfort to know that you've got a regulatory framework that can generate resilience and growth of demand. That's only part of the equation. Well, let's play the fun game. We're in Australia. Obviously, we've seen many thematics play out in the past couple of years. The fun game is what is going to be the next thematic for 2024. What's going to be the next one? Come on, get your crystal ball out. What do you reckon the next thematic is going to be? Yeah.

For Australia specifically? Why not? Why not? A lot of Aussie listeners. I mean, to be honest, I'm based in Paris. This feels like really far away for me to be able to make an educated guess. It doesn't have to be like specific Australia, but where do you like, obviously, most people who speak is now like the launch of the artificial intelligence, like it's amazing. And then it's just

Murdoch (41:50.963)
so interesting about human beings short memories, as in we'll push so hard one way during COVID times. And then it's as if everyone just COVID what? It's just forgotten unless you know people got hurt or injured, etc, etc. There was just so many, it's just been such a volatile period for the past five years. There's, it's been like Melbourne, four seasons in one bay. So I'm just curious as in, you know, you're making investments, you know, long term with long term.

thematics in mind in private markets. I'm just curious where you see the opportunities coming. Yeah. So artificial intelligence is definitely something that everyone has on their minds. And we look at it, I think, there's kind of two ways that we look at it. You could look at this as an area to make investments, right? So acquire a company that focuses on developing solutions that are just AI -based solutions.

That is not, I would say as of today, that's not necessarily an area where we're spending too much time, right? Because we feel that AI is probably in its kind of maturity curve that is still a little bit at the early stages. And a lot of the companies will need to be proven and established over time before they are stable enough for us to get the comfort and investing to AI as a standard on product.

But we can also look at AI across all our portfolio companies. And every single new investment that we make today, we look at, could AI disrupt it? Could it be used actually as an opportunity to make that business more efficient, more productive? And there we're applying a lot of, I would say, operating knowledge also that we have internally, or having recourse to external experts to help our portfolio investments.

really leverage AI as a tool in the future, in the value creation journey. But coming back to your question in terms of thematics that get us excited in 2024, I'll pick one, which is going to sound really boring, probably very boring. But we've looked at the pest control. Pest control. Yeah, now for quite some time. And.

Murdoch (44:14.643)
And I think we'll do something in pest control in 2024. The reason why we find this, I mean, it sounds really old school, but the reality is that pests have been here for centuries and they haven't disappeared. And we see increasingly new technologies being able to reinvent a little bit the way that you manage pest control. You can have now an investment into units,

that can scan an area, a much broader area, and instantly, by way of connection to the internet, give you a centralized input of whether a pest has been detected, a pest risk, so you can mitigate and address that risk almost on the spot on the day, instead of having to wait for a week before you detect it visually.

And there the problem has become way bigger. So kind of laughing. I want you to continue, but I would love to ask what do you define as pests in this scenario? The reason why I say that is you ask anyone in Australia what a pest is. But right now, if you go to California, a couple of the beautiful government officials up there said, oh, we love the best. Don't kill the bears. But guess what's happening? A lot of people's dogs are missing. So the bears are coming down from the mountains and they're hungry. And now the bears are considered pests. And then, you you, you.

You go to some parts of Southeast Asia, tigers are considered pests. You go out the bush, there's a couple of guys I went to boarding school, they'll tell you the pigs and the kangaroos are pests because they just get into their crops. So that's why I'm kind of having it laughing to myself is what do you define as a pest? So one example, especially taking a European hat, because we're looking at this mostly in Europe, I mean, rats would be a good example to be using here.

And so that's where we see, I mean, we see resilience because pests have not disappeared and rats have never disappeared and will continue to be out there in Europe. We see an opportunity, historically it's been a market where pest control in Europe has been very fragmented. You have a lot of independent small companies that deal with pest control.

Murdoch (46:30.931)
but we see an opportunity to actually consolidate some of this and create larger platforms that can invest into those new technologies and new tools to make it more efficient and to address those issues a bit more proactively. And so that's a thematic which can sound a bit under the radar. You wouldn't really think about it when you're talking about AI or the latest generation of peptides. We're talking about pest control, which has been something going on for years or centuries.

But where we believe that there's an interesting transformation that could happen in the coming in the coming years and where we could lead that transformation. That'd be interesting. Just don't tell my daughter she likes the movie Ratatouille. Pest. That's um, yeah, that's quite fascinating. I suppose what we should also just touch on as well. Um, kind of forgot about it.

We need to touch on the performance. People are listening to this guy and this sounds quite interesting. So how does this translate into, if I work with partners group, what does this translate into? And what's the level of volatility you're seeing in the portfolios? Let's talk about the one that I'm familiar with the most, the Global Value Fund. So how's the performance been with that? And how does it deal with bearish markets and bullish markets?

So I mean, the performance has been actually pretty consistent over the years. And I'm not sure if I'm allowed to cite performance figures or at least precise. Oh, no, you are. That's why we got a disclaimer at the end. And then don't worry. If anything's off, I'll fix them up and stick you in the introduction. No, but you're talking about net performance figures that are in the kind of 11 to 13%. So that's the performance of the...

That's the kind of net returns of the program with volatility, if you compare it to especially public markets, that is actually much lower, very low volatility. The other way to look at, and especially as an investment professional, the way we also look at performance is much more focused on the growth in earnings of our underlying portfolio companies, because ultimately that's what drives the financial performance.

Murdoch (48:53.523)
And if I look at last year, the portfolio companies, so all those individual companies that we own into that program, the earnings have been increasing by about 12 .5%. Now, a year like 2023, even though that average growth in earnings remains very healthy and consistent with the past, 2023 was still a difficult year. And so what you see when you look through

the average is that you have a bit of a bigger dispersion of results. You'll have some of our portfolio companies and investments that have completely outperformed and have been growing at 20%, 30 % rates. But you also have some of them that have been a little bit less, a bit more affected by the recent environment where growth, especially for example in retail, has come down a bit compared to prior peaks.

Yeah, it's um, it's been very interesting to see whenever I look at the chart, it kind of just looks like a staircase. And then I believe 2020 was quite interesting. That's actually one thing I want to discuss as well. A number of people that potentially seen what happened when the partners group listed fund listed, you know, in 2020, that was difficult. And some people understand the different relationship between a listed fund versus an unlisted fund.

And I believe you've partners group. Is this still listed? I can't recall. Would you say that the business model that partners group has is probably better in an unlisted environment or due to the volatility we're seeing? No, no. I think so. The underlying companies that we own are private. And we want them to ideally continue to be private because

This private framework allows us to carry out this transformation and give ourselves the kind of five years we need and the control that we need to carry this out. But then when you think about the programs where our clients invest to get access to that investment content, those evergreen programs, the semi -liquids, the listed strategies to get access to this make a lot of sense for some of our clients. And I think that's where we've been a pioneer for many, many years.

Murdoch (51:20.403)
on those kind of evergreen vehicles. And if anything, we expect the growth of those types of products to continue being pretty significant in the coming years. Yeah, with listed ones, it's always interesting. I find that people don't understand unlisted assets that much when they're listed. And then if something happens, they end up trading at a gigantic discount of NAV, which is fantastic if you have a bunch of cash.

across the board. That's quite interesting. Before we, you know, chew off for the afternoon, since you have come all the way from Paris, I'm just interested for my own what is exactly what exactly is happening in Paris, we're seeing a lot of headlines with the farmers. And I believe there was a resolution that just came through recently, what is exactly happening there? And how is that essentially affecting companies in Paris, or France in general?

I mean, there's always a risk if you come and visit Paris that you'll come in the middle of a bit of a demonstration and some people being a bit upset. So, if I remember correctly, about a couple of years ago, I was receiving all those pictures from friends around the world, sending me pictures of garbage being lit on fire in the middle of Paris because we had a strike on the garbage collection side.

When, and these days over the past few weeks, you're right. It's been mostly farmers that have been disgruntled by some of the recent changes in policies and the difficulties they're facing to sell their products versus when certain products are being imported. And to communicate this, you know, this, this issue and to try to make things move, we've had a lot of farmers.

getting on their tractors and then coming up to Paris to try to shake things up and try to get out of that situation. I think that has kind of progressively died down and they've been heard and measures are being put in place to change that. But there's always a chance when you'll come and visit or when you'll read their newspaper that you'll see something pretty that looks pretty wild going on in Paris.

Murdoch (53:44.467)
But when you live there every day, either you get used to it or you know, you, I get sometimes surprised by the pictures I get sent from people because I didn't even realize that things were getting as bad as this. That's why I just had straight to rooms. Um, well, I was going to ask you what keeps you up at night, but it looks like the, you know, farmers not so much because it gets a paced, but what, what keeps you up at night and what gets you out of bed in the morning? Um,

What keeps me up at night? Probably my kids. I don't see them often enough and they'll usually ask for some good entertainment in the evening. But no, I mean, in terms of concerns,

I think we're seeing an environment where there's been a lot of changes in terms of macro changes over the past few years. I think a lot of that has stabilized a bit. The big kind of question marks are either you have some of those surprises, geopolitical surprises that pop up, unfortunate events like what we've seen in the Middle East or

or between Ukraine and Russia that you sometimes can't really predict and you get surprised by this and you never say never, right? Some of those bad surprises could pop up again in the next few months, in the next few years. And otherwise it's just more generally about the growth in the environment, the growth in the economy. We've had still a few years where we've seen pretty strong and sustainable levels of growth, but difficult to see if...

if that might come down a little bit in the coming years. So that would be, growth is probably the one thing which is key. I think all the other parameters, to be honest, we can adjust. Higher rates, we can adjust to it in private equity. Inflation, we've been able to adjust to a higher inflation rate. Supply chain disruptions, we've also been able to adapt. But once you have the growth engine,

Murdoch (55:55.091)
generally that starts coming down, everything becomes much more complicated. So that's probably the one parameter where I see a bigger influence and potential impact in the future. And what wakes me in the morning, what gets me really excited is all those changes that we can drive in the portfolio companies, is working on projects where we're going to be able to help.

businesses open up new factories in the US or help some of them tour China and be able to find some new points of presence over there. So all those kind of strategic projects where we can really help businesses get transformed and have a real impact on all the stakeholders, not just

the financial shareholders, but also the employees that work in those businesses, the clients. That's really exciting. Yeah, it's pretty cool. Pretty big world out there. Well, Chris, it's been really nice having you on. If anyone wants to learn more about Partners Group, what's the best way for them to get some information? Well, if you're in Australia, please come visit us in Sydney. We've got a nice little office over here.

You get our website and yeah, if you come by Paris, I'd be really happy to, I mean, it's a bit risky to say this. I might get a lot of emails for lunch, but a good lunch in Paris, even though there's always a bit of chaos around it, that's something that you can't miss. I just realized, what is your top two favorite restaurants in Paris right now? Oh, Jesus, I need to say three. What's your top three favorite restaurants in Paris right now?

I'm going to have to come back to you with a private list. I don't have anything that comes up there straight in my mind. All right, Chris. Well, thank you very much. It's been a pleasure having you on and I hope you have a great day. All right. Thank you, Wernick. Ciao.