Welcome back to The Rate of Change with York
Wealth Management. As advisors to some of the
wealthiest families in the country, The Rate
of Change is a podcast designed to help you in
the pursuit of building long -term wealth through
the insights of some of the brightest minds in
asset management. Today, we are joined by someone
who's been on the podcast before, Jason Coggins.
He has been ahead of the curve for years and
essentially in asset management and private credit.
Jason has advised many institutions and currently
works with some institutions, family offices,
and fund managers, and has helped them manage
multiple cycles and consistently identify turning
points in credit quality, liquidity, market structure,
well before they're obvious. Bit of fun. Many
listeners will remember 2020 when the markets
were a bit rattled. Jason said private credit
would hold, and he was right. In today's podcast,
we're looking at the real state of, you know,
AI, large language models and the dramatically
accelerating business creation that's happening
and what's happening with the legacy that's come
before it. And more importantly, the debt, the
private credit, you know, which has been one
of the largest booming sectors in the States,
but it's also underpinning, you know, what's
going to happen essentially with that debt. So
in saying that, Jason. Great to have you back
on. I always love chatting to you on the air
and off the air. But for many listeners who are
familiar with your work and those who are not,
I do just want to give a bit of an overview of
who you are, what you do, and the types of groups
that you're currently working with. And, mate,
feel free to plug them away because there's some
pretty credible institutions and family offices
you're currently working with. yeah thanks man
i really appreciate being given the opportunity
to come back on and absolutely echo the the uh
i enjoy speaking to you uh it's great debating
ideas uh this industry is all about sharing information
right so uh i spent probably the longest part
of my career in private wealth and so providing
advice to advisors and their their clients uh
both families individuals and charities uh before
that uh i worked at big banks and zed i worked
at consultancy firms After my decade at Coda
Capital, I decided I wanted to take different,
right? I thought there has to be something different
that still leverages my skills. I love investing.
I love markets. I'm an economist. I want to be
involved in that, but I wanted to do it from
a different angle. And what was so fortunate
is that I didn't really know what I wanted to
do. So I stuck around Coda for a little while
and then people kind of offered. consultancy
gigs to me and i thought this is interesting
maybe i don't need to go to a full -time role
i can just work with a bunch of different people
who don't compete necessarily but where i can
almost have one plus one plus one equals six
right uh because i can share the insights from
different organizations uh today what i'm working
on and i'm gonna do an alphabetical order because
i don't want to pick favorites but i work with
a group called aura So Calvin and Eric's business,
private markets based in Singapore and Sydney.
I love those boys. I think they've done an amazing
job and super intelligent. The industry only
produces great investors every decade, and I
definitely think they're one of them. I also
do strategy and I manage their balance sheet
for Aura. Elliston Capital, very long legacy,
huge intellectual capital in this business. Elliston,
you know. long legacy of the Packer family office,
Ashok Jacob, who is one of the best, if not the
best investors in the marketplace. I help those
guys on strategy and also distribution on how
they should message what is probably the best
small cap team in the market and an amazing private
markets platform. I also work with a group in
the US, IBEX Investors, which is a technology
hybrid fund, public and private. And then I'm
very fortunate to have been invited by Chris
Cuff, who's one of the godfathers of the finance
industry. I help on the investment committee
for Australian Philanthropic Services and also
ThirdLink. So there's a few things going on,
but they all kind of work together in a strange
way. Love it. The other interesting thing we
should discuss is very interesting in our industry
is I've found when I was in the industry, you
know, people think as employees a little bit.
So, and I found a lot of advisors historically
just recommend things, but then you look at their
own portfolio, it's completely different to what
they're telling their clients, right? We've discussed
this, you know, at length. And what I quite like
what you do, Jason, is a lot of those firms which
you mentioned, would you agree that, you know,
It speaks to, you know, how you feel about markets
and how you're investing in your own cash. So
essentially your money is where your mouth is.
Would you say that's a fair statement? Yep. A
hundred percent. And look, I didn't want to bring
up some of the advice firms that I said on investment
committees, because obviously you're an advisor.
So I didn't want to plug those guys, but I still
enjoy, I still enjoy working with great advisors.
And if you look on my LinkedIn, you can see who
I work with. And yeah, like I think there's a,
there's this huge issue in the marketplace, right?
And, you know i think paul heath the coder really
drummed this into me quite well is if you're
recommending product if you're recommending strategies
to families and to individuals then you should
probably invest in those yourself and i think
there is an inherent conflict in the industry
that there's a lot of people who recommend stuff
don't put their their own money in a product
so um every one of those firms i work for i invest
in their strategies because i believe in them
and i would probably you know you know, say if
you have an advisor, you want to ask them, where's
your money? Like when I look at a fund manager,
the first thing I ask is, well, how much money
do you have in your own fund? I also ask them,
another good question is, if you weren't putting
more money in your own fund, what's another fund
that you would put money in? And it's amazing
the kind of good ideas you get from that. So
true. Couldn't have said it better myself. Well,
why don't we get into the guts of it today? There
is a lot to cover here. Where should we start?
We always start with private credit. So why don't
we start with the fun stuff, right? There is
a lot moving with the acceleration in AI, these
large language models. There's the boom, I think,
that's happening in the crypto space, right?
And what's happening with this space? Because
I think some of the friends that you've been
talking to, what was it? Sorry, I won't steal
the thunder, but one of your mates was saying
that a software as a service business, how long
did it take for him to build it? And now these
AI models are here and what they built in three
months or something crazy. So what's happening
with this space? There's so many parts to that
question. So let's think about just the basic
macro around private credit. There's a lot of
noise around private credit and some of it's
justified, but so long as there's two massive
tailwinds supporting that sector, you know, the
desire for people to have income, you know, as
we move from accumulation in superannuation to
deaccumulation, people will want more income,
right? The second other aspect is that banks
are not lending as much in non -traditional areas.
They're too powerful tailwinders that are not
going to change. Now, absolutely, ASIC has a
role and regulators around the world to stress
test this as a class, but I'd debate anybody
who says there's a systemic event occurring where
there's broad brush defaults. Yes, we've had
some fraudulent activity. Yes, we've had some
highly aggressive funds blow up. But by and large,
this is not a systemic event, right? So I think
the private credit thematic is still playing
out and it will continue. The real question is...
You know, it's very easy to write a loan. How
do you enforce a loan? How do you protect capital?
How do you get your money back? That will differentiate
good managers from bad managers. But anybody,
you know, journalists love writing about this
stuff, but I would say the risks are valid, but
I think they're definitely overplayed. Now, to
your question where I'm spending a lot of time
trying to understand and speaking to way smarter
people than me, like in tech, right? you know,
that's our role as researchers, right? Associate
ourselves with smarter people and ask for insights
from them. I am getting deeply concerned that
there's large parts and it's not just private
credit, it's private equity, particularly in
the US, right? You've got a lot of these legacy
SaaS businesses. You've got a lot of legacy business
service businesses. You made that point about
months, right? To create a business, you know,
a SaaS business. I don't know what the metric
is, but maybe to get to a million dollars or
a billion dollars of annual recurring revenue,
it would take 33 months, right? So just nearly
three years. To do that now with AI -enabled
companies, it's like one quarter of that time.
Now, I asked the private equity manager, what
does that mean? They're like, oh, no, it's fine,
that's fine. All of our companies are going to
start using AI. So I said, well, that's not the
question I really asked. If you can rebuild these
businesses, at one -tenth of the cost, they outcompete
you. And these legacy companies that are held
by large private equity firms and some private
debt firms, these are legacy SaaS businesses.
These are legacy business services businesses
that are going to be disrupted. Now, I'm not
saying that's a systemic event for private equity
or private credit, but the pace of change that
you will see from a sector perspective is going
to be nothing like we've seen. in the past. And
so that has to shape how you invest. That has
to shape where you invest. And you've got to
be cognizant. AI is going to fundamentally change
industries. And if you're not prepared for it,
your portfolio is going to be at risk. It's just
so vast, this AI space. Elon Musk discussed it
as well. It's like a black box. No one actually
knows. And who was it, one of your mates was
saying as well, he reckons like, what is it,
nearly 80 % or 85 % of growth, all growth in
the next 10 years. Like more millionaires and
billionaires are going to be made in the next
10 years than ever before. Like, you know. Yep.
So there's always, yeah, what I really want to
get into, yes, there's the opportunity. Everyone's
excited. Let's go bang, bang, bang. But there's
also the dirty underbelly as well. That's what's
going to get left behind. like if look at like
we're chatting with eric right eric's been on
the podcast great guy right and he was even discussing
it you know they've got the fun you know which
is going after you know uh finding ai legitimate
you know ai businesses that actually provide
a solution to a problem meanwhile he's you know
he's fending off all these other pitch decks
where their legacy business is trying to add
on something that is ai then coming across as
ai like I don't know where to start with this,
mate. You're better at this than I am, but this
entire space is so interesting. The opportunity,
but then everyone's trying to catch up at the
same time. Yeah. I think there's two parts to
that. So if you think about AI and the importance
that that has for an economy, I honestly think
when Trump came in in the second term, he realized
with the tech bros that they were behind China,
right? So China spent a lot of time. building
cheap energy, which feeds data centers and feeds
this new industrial complex, right? And so I
think there's a collusion between the private
and public sector where the public sector has
said, we'll back you, but you got to spend the
money and you got to win, right? And it's similar
to the 1980s with chips and Japan, right? There
was a collusion between the private and public
sector in the US to out -compete. japan and they'll
explain one and ai is really this winner takes
all market in my views so i think the us saw
that they're behind uh eighty percent of the
sixty to eighty percent of their gdp now is linked
to capex related activity in digital enablement
and data centers right so they this is the thing
like you go well should i be overweight the us
well you know this this thematic is going to
play out over another two to three years right
and i think the us is is looking at this and
going we may blow up the economy in the short
term uh over invest uh inflation but we want
to win the ai war for the next 30 years right
so again that throws up how the hell do you invest
now to your other question on seed right seed
investments i do think that ai uh and the changes
it's it's it's a winner takes all market right
uh like a lot of sectors uh i don't know if that's
regionally like i think china us separate systems
but you know within a lot of these these markets
will be a winner takes all market for ai and
so the only way you can get exposure efficiently
uh to to to this change is actually in seed investments
in my opinion uh if you're in later stage you
know really later stage ai tech then you're you're
probably going to be overpaying and competing
against really big gps who can pay you know at
any price the great thing about seed is that
you they're really early right um and you know
you only need a couple of winners so again the
changes here are you know there's a winner takes
all market i think in this whole thematic The
US wants to win AI. I'm not sure they can. I
think China's as good, if not better. And they're
definitely further ahead in feeding this. And
then seed. I think if you want to be part of
this investment thematic, it's really the best
way to get exposure to it. Let's unpack the seed
part. right? Because remember everyone loved
an IPO back in the days. Mate, I was a stockbroker
15, 20 years ago. It's all the rage. But these
days, what, past three, four years, it looks
like nearly every single IPO that's come out
has pretty much lost money to an extent, right?
Don't quote me on that. Go check the boards.
But I think a very, very high percentage, you
know, has been down the other side. Do you think
that's predominantly because the markets have
just been, you know, it's a hard market? Or do
you think the... the comment we've heard thousands
of times which is you know stay private for longer
the good businesses are trying to stay private
for longer and then they just get bought out
by an absolute major is that what you're referring
to by you know if you want to get into these
ai businesses no one knows which one is going
to be like you remember like after pay and zip
and who the hell is going to be the next one
nobody knows right it's russian you know there's
20 companies you know fighting for a piece of
the pie that it may only take three businesses
you know what i mean so like Is that what you're
saying? Like, you know, how the hell do you know
you're better off kind of buying up, getting
in early with seed, getting a basket and see
what happens? So, yeah, look, when I say seed
is potentially the option to get exposure to
the sector, I'm not saying go put 50 % of your
portfolio in seed, right? I just think it's,
you know, a famous investor, he started a tech
business in Australia. He's probably one of the
older tech guys. He's not in his 30s or 20s.
He increasingly is using seed funds to hedge
the risk on his later stage SaaS businesses,
right? And he said, Jason, I just don't understand
if these businesses will be around. his later
stage SaaS businesses, he says they're going
to be out -competed by new companies. They're
going to be out -competed by, and I use this
example, but I get sued for defamation, but like
Grammarly, right? Or Grammarly? The last raise
they did two to three years ago was $19 billion,
right? USD. There's private equity firms in there.
I'm sure there's private debt in there as well
to fund these businesses. Does Grammarly have
a future? when chat gpt can do that for free
like this is the kind of pace change that's a
19 billion dollar company right uh you see all
their advertising on youtube all the time um
but 19 billion dollars with chat gpt and claude
and all the others uh the the ai tools do that
now for free um so it's the pace of change right
it's so fast in terms of the ipo market i think
there's still an indigestion problem uh If you
look at the US market, the number of private
companies that need to be IPO'd is extreme. Australia
should be the best IPO market. We have the lowest
cost of capital in the world. What I mean by
that is there is a huge amount of superannuation
money that just feeds into the system every month.
companies should trade on higher multiples here
smaller companies not bigger companies but smaller
companies because the market is so starved for
growth uh but i still think the quality of companies
have been listed has not been that great uh and
so you know we you know small caps have performed
extremely well like up until this week there's
been a bit of a sell -off but small caps are
the best part of the market you know 10 earnings
growth gold was shooting the lights out uh but
we still haven't had that big ipo push Lower
interest rates should support that. Obviously,
we have a huge inflation problem in this country.
Inflation is diabolical in this country. Our
maximum growth before inflation kicks in is not
high, and so we need to address some of those
productivity improvements. I know I'm going around
in circles, but if you're in a low -growth economy
with terrible productivity... and high inflation,
I think the only way to make money is smaller
companies. They're less linked to what I call
macro beta, right? So banks or the insurers or
the supermarkets, all they've got going for them
is cutting costs, right? That's the only way
to grow earnings per share. And I think you'd
be surprised if you look at the top 50 companies,
how many from an earnings per share basis are
still behind 2007 levels, right? Before the financial
crisis. I think the only way to generate growth.
It is, number one, thinking about AI and its
implications, and two, investing in small companies
that are capital light or labor light and are
not GDP linked. It's easier said than done, right?
Like, to your point, you know, Grammarly is huge.
Like, how many businesses have the same scenario
like Grammarly? Like, you know what I mean? How
many are out there, you know, with this potential
debt overhang and then potentially are all in
these... manage funds that people are investing
in you know across the masses and then people
aren't like how do you know essentially and how
can you you know risk manage and you know try
to defend against the potential you know debt
cliff and you know all of a sudden you wake up
in the morning and someone's created a copycat
or you know improved upon your thing at the fraction
of a price and then your business is now now
defunct so you know if people are like they're
listening to you you're going yes now is probably
the one of the most exciting times to hit small
cat companies they're going to go but you know
like how do you pick which one because it's just
just just changing so fast it's changing so fast
and i think the companies like you know i'm going
to use an example and show like myob or zero
right very sticky very sticky it's too hard uh
to to change services right um i could Thinking
nothing worse than trying to understand how I
would untangle my business from my upright. So
I think those businesses are fine, but there's
a whole bunch of other businesses, you know,
in business services and SaaS that can be replicated,
like you said. And so I think my role is to stress
test the managers and ask them about this. And,
you know, there was a manager that I saw a couple
of weeks ago and I just said, like, what are
you thinking about this? And it's, again, they
hadn't even thought about it. Now, I think the
next 10 years is going to be some of the most
significant change we've ever seen. And if your
managers aren't on top of it, you're going to
have some problems. Like, I don't know how, like,
I use, you know, yeah. Sorry. No, that's all
right. Let's stay on the AI side. So from what
you've heard, you know, what, like, people listening
are going, AI, it sounds great, but what the
hell is AI? You know, how does a business incorporate
it? Because Eric discussed it as well, right?
What is a very good example of using AI to essentially
create a service, to essentially create one of
these businesses? Yeah. What's a good example?
Yeah, I think a very good example is the initial
work in accounting, in legal, in all these repetitive
kind of tasks, right? If you can automate that.
you know i think that's going to change a business
now i was speaking to a business in canberra
a consultancy business and you know ai and consulting
is not a great i think with the the delight issue
but what they said was ai will be great because
it's not ready to displace our consultants but
we'll definitely know the the consultants who
are using ai to improve their productivity versus
those who do not use it to improve their productivity
so i think the industries Most at risk are definitely
those repeat industries, accounting, legal, even
to some degree investment management, right?
Like there's a lot of that can be automated.
But, you know, if I was a kid now, I would be
wanting to understand how I use AI to get ahead
because a traditional, like an analyst, right?
I was working with one of the advice groups I
work on the investment community, right? And,
you know, investing is art. and science right
the science aspect is just collating the information
and putting a table and looking at the metrics
right that can be all automated uh the art is
the experience of investing right and looking
at that and going well the ai actually went a
bit crazy that's not right right the the science
aspect will be completely automated the art will
still be required now the problem is that if
you don't train people to do the science how
can they get to know the art So, again, that
transition period for the next 10 years is going
to be fascinating because the traditional path
to be an analyst or the traditional path to be
an accountant or the traditional path to be a
legal professional is going to fundamentally
change, right? It's not going to be the same
path of experience, grunt work, because the grunt
work will be done by AI. That's so true. Like,
think about the schools. It's all essentially,
you know, ticker box, questionnaires, you know,
wrote, learn, you know, punch it out. But these
days... You know, if you use ChatGPT, I use ChatGPT
all the time or Grok or some equivalent. Everyone
does, right? The art of using these things is
how do you code? How do you feed information
in that's accurate so it doesn't spit out nonsense,
right? And then it's practically a comprehension
exam, right? The ability to inject, understand,
interpret, and ensure that it's actually achieved
the right outcome. And then in doing so, instead
of taking eight hours, you can punch the thing
out in 30 minutes or an hour. Yeah, it's just
mind -boggling about, you know, how much this
is going to boom. And the other thing, actually,
we went to the oral conference, was it on Tuesday
night, which was great. That was brilliant, down
in Botanic Gardens. And I think one of the main
things they were discussing there was how this
COVID generation. All these young people, they
don't necessarily, you know, like the idea of,
you know, working for a major anymore, you know,
being an employee. They're all about the job
economy, you know, being an entrepreneur. You
know, do you think that the boom in this essentially,
you know, so it's called AI or tech space is
really driven by the underbelly and essentially
the kids getting into the workforce because they're
not getting into the workforce. They're like
carving out their own little part of in their
room or a bunch of friends and kind of having
a crack. And companies like, you know, Squarespace,
you know, what's it called, Stripe, all these
companies, you know, are really benefiting from
this. Do you think there's a massive, you know,
wave of, you know, academic, you know, powerhouse
punching into these markets that will essentially
support this, you know, push that we're seeing
in this part of the market? I think there's different
ways to look at that. I think there's definitely
the risk of displacement, right? but I'm quite
optimistic that the world changes and changes
for the better, right? But if a kid's sitting
there thinking that the traditional path of what
their parents did to get ahead, it's just not
going to work, right? And so we, again, I go
back to that point, the next 10 years is going
to be extremely challenging, but there's going
to be huge opportunities. You know, there's plenty
of pathways that this AI and adoption of AI can
go, right? It can improve productivity around
the economy, you know, the global economy by
a massive factor, but it can also cut. large
parts of the labor market out. And you are starting
to see wobbling. And the data in the US is not
great because of the shutdown. But you are starting
to see some kind of commentary around job losses,
particularly in that early part of someone's
career. I think it was JP Morgan or Goldman Sachs.
They have a ratio of senior managing directors
to junior staff. And they're going to halve that.
so that's half the number of jobs for junior
analysts in those in that business i think it
was jp morgan it could have been goldman sachs
but i think it's jp morgan so you're starting
to see ai's impact on the employment market uh
and that's an accelerator i mean i saw you know
there was an article like it was an article that
i read and i thought you know it was like written
like a month ago and it was actually written
two years ago and it just like a completely underestimated
the impact even two years ago on what was going
on. And this article was talking about that 25
% of jobs could be lost, existing jobs. Now,
obviously, there'll be new jobs created, but
25 % of all jobs in the US economy are at risk
of being out -competed or replaced by artificial
intelligence. That's crazy. But if you think
about historically, right, everyone said the
same thing after the Industrial Revolution, you
know, the internet came along, you know, Nokia
was, you know. Nokia existed, now it doesn't.
There are numerous industries that come and go,
but essentially people still manage to survive.
But I suppose this really gets into cycles, right?
And let's get into the fun part. You and I love
discussing strategy, the cycles, the whole point
of the... My podcast name, The Rate of Change,
is essentially identifying the cycles because
essentially money doesn't vanish. It just kind
of cycles up. Everyone makes a lot of capital.
Then it leaves one asset class and then essentially
one door closes, another one opens, and then
essentially enters into another part of the asset
class. So right now with the cycle, where in
that cycle do you think we are? Yeah, I think
there's debating this with one of my close friends
who I worked with at Coda, Bridget Leckie. And,
you know, we kind of probably started October
thinking there'd be another melt up. Obviously,
there's been some wobbles and the market's not
really pushing ahead higher and higher. It's
going, you know, kind of bubbling around. I think
people are starting to look at valuations and
going there's a lot of good news priced into
markets. But I go back to that point, like the
CapEx boom in the US, which is on the basis that
the US wants to win the AI war or come close
to winning it, that's going to help the market.
That spending is not going away. So I think we're
in the cycle. I think, you know, it's hard. Like
on any fundamental basis, markets, particularly
in the US, are not cheap. uh they're going to
be funded for growth through this capex boom
and ai boom and so i wouldn't discount there's
still potential for a melt up in markets uh you
know large caps in australia like these these
are really really awful organizations right they're
not growing the top line uh they are at the front
and center of the productivity issues in these
economy in this economy and the only way these
large companies can grow earnings is uh by kind
of costs so look the cycle is an interesting
one but every cycle is different you know my
approach to investing is you know just keep searching
for new ideas find fund managers that are in
a very niche part of the market where they have
some type of repeatable competitive edge in sourcing
in originating in managing you know i would probably
be cautious on kind of a broad index based approach
at the moment Yeah, so we need to be digging
this. I want to get into the private credit side,
of course, but just whilst we're on the growth
topic, everyone's been reading the news, essentially.
People that aren't X, you kind of can't see it.
The States is an interesting one, right? You
know, it's funny. Love him or hate him, Trump
essentially said he was going to do a thing and
then did a thing, right? So the tariffs have
come through. right so i'm just curious in your
opinion what's been the main impact of the tariffs
uh the doge team has identified all the fraud
and essentially stopped a whole bunch of money
coming through it was one of the main reasons
for the government shutdown trying to stop the
funding of the you know in those blue states
you know have the means to essentially give you
know illegal immigrants you know 10 000 gift
cards and put them up at the best hotels they're
trying to kill all that you know love it i hate
it so that's happening but meanwhile you also
have you know money coming back into you know,
over in the US, like trying to feed and build
up the middle class, which is what the Chinese
have done phenomenally well for the past 30,
40 years, right? They've built up their middle
class. And then you can see the benefits of that.
You know, that's all come through to Australia.
That's not really happening in Australia. And
then the other thing as well, which is very interesting,
you know, even his son, Barron Trump, they are,
you know, their entire network, they're really
building out this digital asset space. right
but meanwhile if you look over in the uk and
other areas they're trying to do it to control
people meanwhile the in the u .s market they're
trying to build out the digital space because
they know there's so much debt there they're
discussing potentially paying it back with digital
assets you know what i mean so i'm just it's
very interesting that we have Many different
thematics happening on a global scale. So I suppose
why I'm asking the cycle question is some people,
like one advisor is running a lot of money, like
$800 million, great bloke. He's sitting half
in cash because we know that this market runs
up and comes off. You know what I mean? So he's
sitting in cash because he's looking at one particular
part of the market. Meanwhile, a very large part
of the market is doing incredibly well. Other
parts are suffering. You know what I mean? Some
are mid -stage. I don't know how to answer this
question or where to dig into it because it's
not just two speeds. It's like a five -speed
economy happening on a global scale. I think
always be sceptical, be a contrarian. If everybody's
chasing flashing new lights and the new thing,
that's probably a risk. I think it's dangerous
sitting in cash, right? It can be very dangerous.
Markets, on average, go a lot over the long term.
Also recognise that the drawdown can be pretty
severe, but you've got to constantly learn. What
I love about my roles now is I'm involved in
different organisations. You know, the Aura guys
are so integrated into Asia and the local VC
sector here and also private credit. Elliston
has got their fingers everywhere, right? They
see a lot. They've been in markets, you know,
for 40, 50 years. The IBEX guys see technology.
uh both in the us and israel um so i see a bunch
of different things right and you just gotta
keep stress testing and keep learning and um
don't get too caught in some of the biases that
some investors have right um and just be be like
accept that you can be different right you don't
have to follow what everybody else is doing and
also challenge like you know this We spoke about
private credit before. Again, you know, and I
say this, I know the journalists who write these
articles. Tell me where the systemic risk is
and don't point to me to outright fraud like
Shield or, you know, some really, really risky
funds. Tell me where the risk is. Like, I don't
care what the paper says. Where is the actual
risk? There definitely needs to be more transparency
on that sector and there needs to be, you know,
a lot more information provided to clients. But
tell me where the systemic risk is. I mean, I'll
be honest, like 35 % to 40 % of my portfolio
is in private credit. I'm not seeing it. Now,
of course, when you're earning 9 % to 10%, of
course, there's going to be individual loans
that don't go so well. That's why I'm earning
9 % to 10%. But I'm not seeing broad systemic
risk. And just remember, 2007 and 2008 and 2009
was very different. That was leverage credit.
That was, you know, collateralized debt obligations
with 2 % to 3 % subordination, but very heavy
industry concentration in home builders, in second
tier banks, in Icelandic banks, right? You know,
you had 20 times leverage. That's not what you
see now. I think what's also important, and I'm
not going to say what I think is better or worse,
but, you know, the Australian private debt market
is very different to the US private debt market,
despite what the media is saying. I mean, the
media is saying, oh, Aussie is worse, Aussie
is worse. Well, actually, we have better creditor
rights. Way better creditor rights. We don't
need to go to courts to enforce a loan, right?
In the US, you have to go to a court to enforce
a loan. That results in extremely low recovery
rates, right? The Australian market is also very
short duration. It is a bridge. uh financing
market right so the average loaner is six to
twelve months uh the us market is to typically
direct lending cash flow lending right to corporates
to corporates that are highly leveraged and owned
by uh uh private equity firms uh what also is
a very different characteristic is a lot of the
funds in australia for global private credit
had leverage in them Like we're talking about
fund leverage one -to -one, right? So not only
are you buying private equity companies with,
you know, a lot of leverage, the fund has leverage.
Now I'm not saying it's bad or good, but it's
not apples and apples. So, you know, stress test
what you're hearing in the marketplace, constantly
trying to learn about these asset classes and
be prepared to be different. Let's get really
into that because I love this private credit
stuff. Well, in my background, currency, I was
always taught from an early age, follow the money.
If you follow the money, then essentially you
can see the outcome before it potentially happens,
right? So with private credit, what's actually
happening in Australia now? There's been change
to regulation. Some people say that you don't
even need a license to do it. But the other thing
is, it's just patterns. It's the same thing over
and over again, right? You know, you have a new
industry that opens up. When I was in foreign
currency, I was 20 years too late. You know,
it began with the spreads of 2%. You know, it
all began, same thing with private credit, like
foreign currency. It was a bank -based product,
you know, only. And then essentially said the
banks didn't want to do it anymore or they opened
the door to private markets. Then you see the
first wave, which is predominantly the people
who left the banks, set up the things, then off
they go. Then you get the middleman brokers realizing
how much money is it. And then, you know, it
keeps going and going. But as that happens, just
naturally with every single business, competition
increases, margins compress, right? The boom
explodes. Then you have less supply in the market
of quality loans. And then people start chasing
things. And the other thing... What's interesting
from the GFC, people aren't familiar with this
and we discuss it at length. The thing that nearly
killed everyone in the GFC wasn't necessarily
the banks going under. It was the insurance company
AIG, which nearly had, don't quote me on this,
was 80 or 85 % of the entire market's paper.
If they went under, every single loan. that was
written on isn't worth the paper that it's written
on and then meanwhile you had the blatant fraud
with moody's which is potentially happening now
not saying it is but in the afr they're discussing
it with you know asking they're having a big
look at it where these um not ratings agencies
but these valuation agencies right you know what's
happening with the conflict of interest yeah
christ it's just a rabbit hole it's just in it's
it's interesting what you're discussing at one
point you have you know ai growth markets are
hammering you would say that it's This credit
space is really matured, right? But people are
discussing now that there is some form of an
underbelly like reminiscent of 05, 06 starting
to poke its head out. What's currently happening
with the Australian market? Here's one for you,
right? Now, I'm a believer in technology and
I'm a believer that AI will change. the entire
world for the better in most parts, assuming
that employment market isn't destroyed in the
meantime. But, you know, let's just say I'm wrong,
right? Let's say I'm wrong. And let's say that
the trillions of dollars that the Mag7 are investing
in AI ends up worthless, right? We're talking
about, you know, seven of the largest companies
in the world potentially throwing. money down
the drain right they're now raising debt so i'm
not saying that that's the base case but there
is a plausible scenario that in 10 years time
we look back and go holy hell that was like the
biggest scam ever like you don't know the next
crisis right we didn't know what 2008 would look
like yeah debt was going up um there was some
sexy creative structures, there was a lot more
leverage in the system. But leverage is increasing.
Now, again, I believe in AI and I believe in
the technology change that will occur. But let's
say, you know, there was a great chart that says,
you know, for every billion dollars of revenue,
how much does Meta need to spend? And it's like
literally going like that now. So I think like
an economist, right, decision trees and probability
tables, right? It's not a 0 % probability that
this is all worthless, right? So I think we need
to consider that as a potential risk that the
amount of money that's being spent is not efficient.
But then I got to that point about having to
win. I think the US, when Trump came in and said,
we have to win, it was like the railways, right?
Just spend as much money as you can. I don't
care if the economy goes into recession for two
to three years. We are playing a 30 to 50 year
game and we want to beat China. And so I think
that they will pump and dump this CapEx boom
and there'll be some point where it definitely
blows up. The US is not worried about having
a recession for a year or two. They want to win
the 30 -year game that is AI. So how does that
– yeah, I understand the growth side, but on
the private credit front with where we are right
now, how does that – because, okay, we're discussing
off -air, right? You know, you were saying essentially
private credit bridging lines, the Australian
method. happy days as long as they're asset -backed,
right? But essentially, you're just starting
to question, even though there's fantastic lenders
out in the market, we know them very well, you
know, that work directly with businesses. But,
you know, if that pop does happen, which one
will potentially get hit first, you know, an
asset -backed loan or essentially a business
loan? So for me, and I'm going to ignore the
domestic versus global, everything's in the capital
stack, right? So if there is uncertainty... in
markets, then I'd rather be higher up the capital
stack. So again, I go back to that point before
the two tailwinds for private credit, people
want it, the banks aren't doing it and the economy
needs it. But also in a period of high valuations
in markets, being higher up the cap stack is
actually quite attractive. But in saying that,
of course, there's going to be some segments
of private credit that don't do so well, right?
We're going to have instances of fund managers
that don't do so well. And we're going to have
instances of individual loans not doing well.
But, you know, by and large, I think private
credit still remains a nice place to sit, you
know, for a large part of the portfolio. Like
getting your 8 % to 9 % to 10%, maybe 10 % is
a little bit more aggressive, but your 8 % to
9%. And, you know, I've been criticized time
and time again in 2021, 2022, Jason, why don't
you have government bonds? You need government
bonds. It's like, why would I buy government
bonds when the duration is like seven to eight
years, interest rates are 1%. There's no upside
there. What have government bonds done over the
last decade? Like zero, nothing. And on an inflation
adjusted basis, that's terrible. So, you know,
yeah, we were early in private credit. We have
received a lot of criticism. Thank you. Hybrid
notes gone. Everyone like, Jesus Christ, you're
at a stockbroking house. They used to pump the
CBO pearls and all that type of stuff. You know
what I mean? They're gone. So the question, I
suppose this is actually a very important question.
Like, you know, there are investors out there.
I can't remember how many billions of dollars
are now in private credit, right? And how many
billions of dollars are in superannuation? How
much, sorry? I think it's 220 billion. I think
the media talks about local market being about
$220 billion, which is not super. Private credit,
private credit, and maybe three or four trillion
super. Well, let's get down to real home economics.
Like real home economics, right? Everyone says,
what's the inflation rate now in the threes?
But if you look at true inflation, like what
it costs you for fuel, food, like the real stuff,
electricity, wouldn't you agree? And so you've
told me this, that it's actually property inflation.
And what's property inflation for the past 20
years as an average? Unfortunately, it's not
just property inflation now. You know, our governments
are spending way too much money. We don't have
productivity growth. You know, we had a 1 % increase
in the Tremaine measure, which is the preferred
measure of inflation, takes away the volatile
aspects, 1%. So it's like, you know, you're talking
about a 4 % core inflation rate. Like that is,
that's probably something that keeps me up most
at night because, you know, our governments are
not, and, you know, a big part of that is infrastructure.
spending uh probably the last decade in new south
wales uh now a bit of you know queensland and
victoria uh but inflation's pretty bad and that's
just remember like inflation impacts inflation
is regressive right it hurts the the bottom half
of the people more than the top half of the people
right so yeah but the mainstream is the thing
right inflation formula they're saying is you
know four right but when you're looking at with
houses, all that type of stuff. Like, you know,
this has been, zone changing happens, right?
You know, we've discussed it before and other
people, you know, think that essentially it's
property inflation. And where I'm going with
this, right, is that if you're a retiree with
2 million, 3 million, you go to home, you know,
you just need a plan for the next 20 years, you're
75 years old, you may live to 95, right? Well,
simple math. If property inflation is hypothetically,
say, 8 % over 20 years, right? You can't make
four because you're 4 % behind every year compounding.
So theoretically, you need to find an asset class
where you can generate, you know, after fees,
8 % just to be standing still. Is that an accurate,
you know, just, you know, simple man test, reasonable
man test, you know, observation? Because this
is how a lot of these families are feeling. Like,
you know, and the other thing as well is that,
to your point, government bonds don't work anymore.
They're good old, you know. The old way of doing
it, you stick money in a turned deposit, doesn't
really work anymore in order for them to essentially
sustain their lifestyles. This is not personal
advice, by the way. We're just discussing the
thematics. Yeah. This is going to change tack,
but kind of answer the question in a different
way. Again, I was just off a phone call, right?
And I sit on an investment committee for a credit
fund, right? And one of the stress tests that
I want to talk about, like we're talking about...
you know the the you know the expensive and uh
prohibitively expensive cost of living and houses
in australia right but don't underestimate change
right like you know auckland uh property prices
you know felt nearly a quarter right 25 percent
uh toronto 18 percent and new zealand she banned
foreign money coming in though no auckland was
all about supply Toronto and Vancouver, population
growth was stronger than Australia post -COVID,
and they still had property prices decline. One
of the concerns that I think you'll see, particularly,
it's probably the only piece of reform this country's
had, is the transport -orientated development
legislation in, I don't think it's actually called
that, but TOD sites in New South Wales, where
you can effectively bypass councils, right? If
you're within 800 metres... of of a transport
hub uh you can build like duplexes without without
uh any council approval and if you're 400 meters
near these these these tods uh you can build
towers right now that kind of is what happened
in new zealand uh where you know you're allowed
to just increase supply massively so the one
outlier risk that i think in australia is that
house prices particularly in new south wales
where you're seeing this massive amount of supply
like you go around like all the eastern suburbs,
Mossman, all these areas, they're consolidating
these houses and putting 100 apartments in. So
I think the supply aspect could really throw
a spanner in the works around property prices.
I don't think property prices will always remain
expensive because we've seen three very similar
markets, Auckland, Toronto, and Vancouver, all
fall by up to a quarter, right? So again, like...
Being an investor is thinking about the future
and how it may change, not what has happened
and what we're biased to believe in will continue
to happen. Stay flexible. Stay frosty, everyone.
Stay frosty. I don't understand the Vancouver
and Toronto. That was policy and some macroprudential
policy, but that's a big drop, right? That's
a big drop for a country that... You know, you
think that, you know, population growth was strong
in Australia over the last three years. Like
Canada was on another level. And still house
prices fell a lot. Yeah. So with the Australian
market as well, you do have Brisbane's booming,
hot. Like they keep expanding out east which
way, soaking up all that farmland, expand, expand,
expand. But to your point, the Sydney market
with the LMR. you know the family offices i'm
with like i've even you know disclosed as well
personally invested in one of these things the
numbers are nuts like we was literally like 10
days before it's worth x and then on the next
day you know the uplift was insane just on paper
right you know people are cashing in but the
people where people were speaking with it's almost
as if the booms happened People sold for the
prices that they wanted. Now, true numbers are
starting to go, okay, does the valuation make
sense? Just like probably with Nvidia, do the
numbers make sense? Valuations start to soften
and supply hits the market and then everyone
looks and goes again. It's the same cycle for
every single asset class. It's just understanding
where we are in each particular cycle and where
we should be allocating. Absolutely. And I think
there's no shortage of good ideas, right? Again,
I'm very fortunate to work with some amazing
people. And, you know, while markets are high
and, you know, there's a lot of concerns around
valuations, there's still an extraordinary number
of ideas that are coming across our desk, right?
Like the Aura Boys, they bought this payments
business, this HR payments business in the Philippines
and cash generated growing at 40 % per annum,
paid a tiny multiple for it. Great asset. You
know, the Ellison guys, you know, they obviously
did the big Firmus cap raise. What was that one
doing? Do you want to walk through that deal?
Yeah. Data center. So it's a data center in Tasmania
that has very, it's like a core weave technology
where it's much cheaper in terms of power costs
and also energy costs, right? Contracted revenue
with NVIDIA. So, you know, it's almost de -risked.
You know, these are the managers I like working
with, and both Aura and Elliston get access to
deal flow that's quite interesting. The industrial
growth side of the business in Elliston, they
just bought infrastructure. We talked about Brisbane,
right? They bought an infrastructure service
business, CSEE. Tiny multiple, right? But growing
fast, obviously the Olympic boom. And so there's
still ideas out there, right? There's still ideas
out there. You know, the risk for single asset
deals is obviously, you know. it's easy to get
in but how do you sell them right at the end
that's what's the exit if you think exits are
hard on um on private equity funds when you've
got a single asset it's even harder But when
I look at those three deals, like they're all
super interesting and they're all leveraging
not just the great business that we're investing
in, but the people, right? The people. So the
Ellison people, the Aura people, they're great
originators. They're great. They've got a lot
of structural protections in there. And, you
know, particularly for the C asset, S -E -E,
and Giftaway, which is the Filipino HR Giftaway
technology, they're cash generative. So that's
great. Like owning cash, I'm not so worried,
right? So there's definitely still ideas out
there. This is the type of places that family
offices want to invest in. So despite markets
being at record highs, my approach to investing
is I love buying stuff that's cheap, right? I
love buying that stuff that's cheap and can go
up a lot. And I'm also willing to go against
the herd. So it takes a while to be proven right,
but, you know, I don't need to follow the greatest
fad at the moment. Like there's so many ideas
out there. And, you know, my idea is that, you
know, slightly off topic but you know alpha is
available but if it was truly easy then you know
you wouldn't be there so you know to actually
generate alpha you've got to be different and
you've got to be looking at things when other
people are not looking at them and if everybody's
talking about you know a similar thing then it's
probably not the place you want to be in and
that's why i look you know i think you know again
i'm going to plug one of the groups i work for
but like VC in Australia, for example, I've had
limited exposure in the past, but I think this
cycle at the moment for VC spending back to that
seed kind of focus and being able to harness
AI, Australia also produces some fantastic...
you know uh companies per dollar are spent so
i think uh bc in the australian market is actually
gonna be an attractive investment over the next
five to ten years and there's some fantastic
tax benefits as well like there's not many free
lunches in terms of tax in australia but um australian
bc funds are generally uh if they meet certain
criteria are tax -free both from capital and
income So I think you got to be different. You
can't, you know, the best investors can change
tact and, and just, you know, do things differently
and recognize when the market's changed. Yeah.
It's like, I feel like if we don't touch resources,
then we haven't hit every single Australian asset
class. That means it is. One of the interesting
things at the Aura event was, you know, One of
the questions came up and one of the guys goes,
there's no way in the world it's ever going to
hit net zero, right? You know, so climate change,
you know, is real, but essentially this whole
net zero business and they're charging us for
it is a bit of a joke. So in saying that, while
I'm bringing this up, we're talking about, you
know, cycles of markets, you know, like what's
happening with essentially the resource space
here? Like we look at a lot of the investment
managers we use and you like them as well. We
are heavily in the renewable stuff, which is
great, but it's just kind of, hurts australia
where you have like the fourth largest deposit
of natural gas in the world and greenies are
kind of giving you a hard time for it like do
you think that you know the resources space is
also going to hold up quite nicely in australia
which also supports everything else yeah i'm
horrified that uh our country uh openly wants
to uh to to hurt or uh disadvantage uh one kind
of competitive edge that we have right uh it's
like an own goal right we're letting uh africa
and latin america compete against what you know
we have a more stable jurisdiction uh better
legal rights but we still feel the need to attack
uh something that we're globally competitive
in so um you know there's a huge new this huge
new idol of our minds being opened in africa
and guinea like you know it it's horrifying um
You know, the net zero thing, look, this is going
to be controversial, but, you know, we do. That's
why we're here, Jason. Controversial is our friend,
right? We think we go against the grain without
pissing anyone off, of course. We, you know,
of course, we, God, this is, it's been a long
process, but we, I won't say where it is, because
then it will be highlighting the manager who's
actually done an exceptional job to recover value,
right? But this power plant, you know, part solar,
uh part gas uh it's in an area where it rains
a lot so you can't just have solar um it's also
not in the like kind of the main energy grid
of you know queensland new south wales victoria
and south australia which is actually one energy
grid and the power price goes up a lot it goes
down a lot you know it can be negative and that's
horrible to invest so we're actually in a really
stable jurisdiction um but we haven't been able
to connect it for 10 years because the intermittent
nature of power uh the grid stability um the
idea that we can just open renewables and connect
it to the grid is is yeah it just it's not realistic
um you know and a lot of people say oh look you
know my power price is going down because i've
got solar and it's like it's not about the household
it's about the widget maker or the the industrial
company um and the wholesale cost of power uh
if you're in a low margin industry competing
globally it is a massive competitive disadvantage
energy prices in this country um and you know
we've spent a trillion dollars on on renewables
uh our grid is less stable uh energy prices particularly
for wholesale are at their highest so there needs
to be an honest debate around how much more money
is required um and you know is net zero possible
with renewables you know the wind is not blowing
and the sun is not shining We need to actually
really get into this because this is actually
a very, very important and interesting part.
You have all this growth and demand and money
back, which starts the finance side, the growth
of essentially the AI, but it's picks and shovels,
just like we're mining. Nvidia, these companies,
they take so much energy, right? And even Elon
Musk on the Joe Rogan podcast came out and said
that the... in the states is the the structure
um it can't sustain it it can you know california's
having brownouts you know to your point you have
this fantastic asset in australia you can't even
plug the damn thing in right meanwhile was it
last year you know we hear stories of essentially
a major was it apple like i remember who it was
purchased a data center right next door to a
nuclear power station. So it's completely socially
acceptable for these big institutions with huge
demands for energy to essentially get access
to the only nuclear power stations that are allowed.
But we can't build a nuclear power station with
the technology so much better than what it was.
in order to sustain the ever -growing demand.
What the hell is happening with energy and the
actual support of the critical infrastructure
we need to sustain this level of growth? What
the hell is happening, Jason? It's no coincidence
that our productive capacity to grow, our economy
used to grow at 3%, 4%, right? We're one of the
fastest developed growing countries in the world.
We can barely grow at about 1 % now. right and
that's with you know strong population growth
so you know we've had consecutive quarter on
quarter declines in per capita income so there
is a fundamental problem with how the economy
is operating and a big part of that is energy
right it's also the crowding out of the the private
sector the government has become bigger and bigger
where almost all of the jobs created have been
in quasi -government roles like the ndis and
that kind of thing like the economy you know
I don't want to be too negative because, you
know, we have fantastic kids who come out of
university. We have a fantastic migrant contribution
to the economy. But to run a business here is
hard. And so, again, I go back to that point
and I look at my own portfolio. I have no large
cap exposure. I just think they're a beta proxy
to those issues. They're a beta proxy to weak
economic growth and poor government policy and
the crowding out of the private sector. But I
definitely still believe that our... kids, particularly
our migrant population and our early stage kind
of small cap, VC, smaller company side, they
can grow because they're less, they're labour
light, they're capital light. And they can also,
like the great thing about, and again, plugging
some of the groups, you know, there's a real
opportunity to take an Australian company that's
really good in a field. take it to the market
like the us and grow rapidly right and that's
one of the theses that really uh the vc team
at aura uh and uh focus on so you know perfect
example was there you know they were the first
investor in catapults before it was listed right
and so i still am optimistic about our economy
at that kind of small company and that that that
that kind of early stage but in terms of the
big you know macro For Australia, it's pretty
depressing. Yeah, but it's hard. It's so hard
to start a business. Yeah, but it's hard. Who
was at Aura? Who was the lady there from the
– who was the minister that was presenting at
Aura? What was her name? She was the – yeah,
from the Liberal Party. So she was the nighttime
economy minister. Yeah, so she was even discussing
– you know, that they definitely want the growth
and all that type of stuff. But then another
gentleman there even mentioned that Australia
is one of the hardest parts to essentially do
these startups. And I'm actually just wondering,
you know, whether or not energy is one of the
main problems. I'll challenge you on that. No,
startups is actually very good in this country.
There's grants, the science and the universities
is very strong. No, the startup ecosystem and,
you know, they hate using the statistic but australia
actually has the most number of unicorns per
dollar spent right really so i would say the
one thing that yeah what the one thing that australia
does very well is that early stage right we always
heard about it like we'd be very good at science
right but we could never commercialize it um
i still think that's okay so we're really good
at that early stage scientific discovery uh you
know backing winners or picking winners um My
fear is not around that part of the economy.
That's a small part of the economy. Remember
that. My fear is that we're now in this kind
of low growth rut of one and a half percent,
you know, maximum GDP growth and living standards
going down. You know, GDP per capita or GDI,
gross domestic income per capita has gone backwards.
I don't know what it is up to now, but it's probably
approaching nine out of ten quarters, right?
It's abysmal. And what policies do we have to
address that? We don't. Like, you know, we were
going to tax unrealized gains, for God's sake.
So that's not a way to encourage investment.
Like, we need to make it easier to set up a business.
We need to make it easier to grow. We need, you
know, less impediments. And we need the... public
sector to be less of the overall economic pie
because it is crowding out genuine growth by
the private sector. So the crowding out, it's
not spoken about a lot, but the government policies
over the last decade have increasingly crowded
out entrepreneurial activity in the larger companies,
right? Larger companies can't grow. They can't
hire people. So from my allocation, I'm entirely
weighted. I think the private debt markets here
around the circle are really good because of
the credit rights. You control everything. I
definitely, and I know I keep stressing this
point, I back entrepreneurs and small companies
and the VC landscape and our universities and
our kids and our migrants. They just have a disproportionate
positive impact to that ecosystem. I'm a very
macro thinker. I love macro. When I studied economics,
I love the macro and I love investing. I don't
think you need to take an overly macro approach
to everything, but you need to understand the
big trends. You need to understand the big trends
before going to an asset class. What I love doing
is mixing that macro view of the world and where
I invest with the opportunities that result from
that. Yeah, macro is the best. One thing we haven't
touched on, Yeah, what are the big macro things?
I suppose where I'm going with this is that we
had a conversation a while ago. It's funny, as
a financial planner, you know, there's a ticker
box exercise when you're looking at a retail
client where it says you must allocate, if they
say they're high risk or medium of growth, you
must allocate a percentage based on the textbook
into Australia, right? We actually, you know,
verbally challenged that. I still have to do
it, you know, legally. What's the point in investing
in Australia, to your point, where essentially
it's returned half the amount that essentially
the state has? Meanwhile, there are very good
fund managers out there that still have a mandate
to invest anywhere in the world where it's a
good company, but it appears the only decent
company they see that's in Australia has been
CSL for years, right? So it's like one of the
only companies which they actually hold in these
portfolios. Doesn't that speak volumes for what
people perceive to be good businesses? Look,
I mean, the ASX20 is never really, it's hard
to get too excited. It's boring. Like if I want
to buy the ASX20, I'll buy an ETF, right? But
when I look at, you know, my small cap managers,
and you know my small cap managers, and obviously
one of them is Elliston, I like the companies
I see there. They're growing. They're expanding.
They're run by founders. They're aligned, right?
There's all these characteristics. So, you know.
The US market is obviously a very entrepreneurial
market. And again, horrifies me and it makes
me very sad that, you know, Australia is going
one way, making it harder to grow large businesses.
And the US is going the other way, which is making
it much easier, cutting regulation, you know,
lower energy costs, you know, government getting
out of people's business. It's good, right? That's
how companies grow. So, you know, I think we
need to... a real discussion. I mean, we had
a productivity, like government had a productivity
discussion, right? Like a year ago, two years
ago, nothing came from that. Nothing came from
that at all. And I'm not saying it's this government's
fault, like multiple succession of governments
that have not improved the productivity challenge
in this economy. Well, lastly, finish with Europe
because we haven't touched on there and find
Europe very interesting. Look, personally, this
guy's using a fund manager where he allocated
quite a lot. He's been doing incredibly well
the past two, three years. But like Lloyds Bank,
Barclays, you know, the UK has just been hammering
in the banking space. You know, meanwhile, Australia
has been, you know, Australia. Then you're also
seeing, you know, fast -changing GDPs. Well,
Greece fixed up the property in the black money
problem, right? You know, you've got Hungary
and Poland. Everything's exploding. So what's
currently happening, you know, in the European
market if, you know, listeners, you know, have
exposure to some of these? On the European side,
like Spotify, what's happening over in Europe
right now? Look, I don't follow Europe massively.
Like the Greece story is phenomenal, right? What
a fantastic change, right? From the weakest member
to now being one of the strongest, right? So
the reforms, the difficult reforms, being in
almost depression is impressive. Look, I think
personally, Germany and France are structurally
screwed. The French will never change. The German
situation is a little bit different. They're
obviously, you know, new government, spending
a lot of money on defence, you know, really re
-leveraging that economy. But still, what are
they really good at, right? Like, you've got
to be good at something. And I'm not sure what
the competitive edge, apart from being nice places
to visit and scenic, I don't think a lot of these
countries are good at many things. um look i'll
be honest i'm i'm more excited by asia to be
honest i see you know young population i see
you know that digital enablement of of uh progression
like just think about like look at africa asia
but look at africa the i think we spoke about
this last time and this is why i like frontier
countries i think frontier and asia are really
interesting places to invest you know digital
enablement through bank accounts and phones like
if you think about the industrial uh industrialization
process the path that these countries are taking
is is much shorter so where a typical country
would build some factories build this it would
take like 30 years to industrialize these countries
in asia and these countries in in in in africa
can leapfrog that technological kind of that
process and so You know, yeah, Asia is getting
old, but there's so many opportunities there,
you know, particularly in a market like the Philippines
and, you know, valuations are cheaper. You know,
Africa is interesting as well. Very young population.
India is very interesting. And then even China,
despite all its problems, you know, aging population,
debt levels, property market, China is still.
uh an innovation hub that i think you know everybody
underestimated and you know it would be a hard
uh a hard bet to make to say is it the us or
is china going to win this wall because i don't
think it's clear -cut and i think right at this
point i think that china is ahead um and that's
why we're seeing 80 of gdp in the us being linked
to capex in data centers and digital infrastructure
because they know that they're behind so a lot
of interesting markets out there but when i look
at europe just not much right not much um way
better opportunities in asia um and obviously
i still like that kind of small cap space and
that that bc space in australia and then obviously
you can't ignore the us it's still a you know
economic powerhouse With Asia, Asia is a very
interesting one. There's a couple of fund managers
we know to get access, but not many people know
how to safely access the Asian growth story.
I don't know if you want to make any comments
around that, but I suppose from a risk management
perspective, how do you access the growth without
potentially blowing yourself up? Yeah. So I was
on a panel for Aura Group, so their private equity
business is based in Singapore, right? It's kind
of awkward because, you know, someone asked,
you know, what's the allocation to Asia PE by
Australian super funds? And I'm like, it's negligible.
Like, it's virtually nothing. They all gravitate
towards the bright lights of the New York or
London -based managers, right? And they said,
well, what has to change for that kind of, for
super funds to look at Asia? I think, you know,
the return profile, you know. I think the vintages
in the US and Europe are probably not going to
do as well as anybody expects. It's like this
kind of digestion issue of companies. So I think
there'll be a resetting of expectations around
returns at the US market and what Europe have
offered. Because remember, a lot of these companies
were bought in zero interest rate environment.
That will force people to look where the growth
is. And I think even if economic growth in Asia
is lower than what it was 10 years ago, I want
to be involved in a manager that... has less
competition for assets, has feet on the ground.
You know, you can't invest in the Philippines.
You can't invest in Taiwan. You can't invest
in Vietnam or Indonesia or Malaysia based in
New York, right? You need people who are in those
locations. India as well, right? You've got to
be in these locations. Now, for me around risk,
it's risk in my head. Like when I go into an
investment, I know that it can go down. But the
one risk I feel that I can manage is valuation
risk, right? Now, you know, unless I'm selling
an asset, I don't want to know that my PE fund
bought an asset and there was four people in
the room and my PE fund got it because they paid
the higher price, right? So a seller absolutely
pay, you know, get the highest price possible.
What you see in Asia is there's just less competition
for assets. So the valuation and the entry multiple
you're getting in is... you're stronger. Other
ways to mitigate risk is structuring. When you've
got less competition, you've got more control
around structuring, put protections in, get preferential
rights. Also, the group I work with, I mean,
a lot of their assets in Asia, all of them, Anytime
Fitness, Gift Away, they're all cash generative,
right? They're generating cash as well. So you
can call it a less stable region, but that also
creates opportunities, right? If there wasn't
instability, uh there wouldn't be opportunities
so when we had uh the thai border situation you
know the thai market sold off pretty heavily
but you know if you can look through that noise
these countries always have been a little bit
less stable um that instability Number one, keeps
some investors away because they're too scared.
And two, it keeps valuations in, you know, you
can get a nice attractive entry point. So I think
investors have to look at Asia. I think investors
have to go back to China. I think investors have
to look at India. And I think that's going to
be the great rotation, I think, the next decade.
And I remember back in my early stage of my career
when emerging markets were flying. Well, emerging
markets had a really good year this year. But
still, over the last decade, they're significantly
under developed markets. Mark my words, the next
five to 10 years, we'll see a rotation out of
very expensive US large caps and out of the ASX
20. And institutional investors and family offices
will increasingly look at emerging markets, at
frontier economies, and also China. Fascinating.
Thanks for bringing up Asia. I nearly forgot
about it, but it's so true. And now my favourite
question always to ask you is, look, you speak
with these family officers, you speak with these
big families on a regular basis. What are they
thinking about the risks and where to allocate?
What's on their mind and how are they dealing
with their investments? I think everybody's,
you know, family officers have a natural competitive
advantage, right? They've got time on their side.
And they've often seen a lot of cycles. There's
a few thematics. You know, I think families like
to do what they know. So, you know, you all know
this very well, property, then they're probably
going to do a lot of property. Technology, then
they're going to do a lot of technology. I would
say one of the most interesting, and I saw this
at Coda, but I didn't appreciate it, but I appreciate
it a lot more, is the idea of having a legacy
and giving back is a very strong theme. um very
very strong theme uh private markets uh it is
a big theme uh succession planning um you know
australia is the you know one of the youngest
uh you know billionaire population in the world
right i reckon it's probably uh you know second
to silicon valley right the average age of a
billionaire in sydney is very young right and
so succession hasn't been a huge issue how do
you get kids involved how do you get them trained
up uh i actually work with an amazing uh individual
on and off uh joanna sun and she does a lot of
the succession planning right and while bringing
kids uh into the business training them up uh
giving them giving them a small balance sheet
uh to take risks um that transfer of wealth uh
is gonna be massive right and i don't think the
country's ever gone through that i mean we obviously
have some uh second or third generation families
particularly in melbourne but by and large it's
a very young population uh for wealth um and
so outside of everybody just trying to find good
ideas it's that giving aspect it's a succession
planning um yeah it's a lot of things going on
Look, comment about Joanna's son. If anyone's
got a family office or looking at legacy planning
and how it's bringing the family together and
you've got issues within the family, which we
all do, right? Look, please reach out to Jason
or myself for an introduction because, you know,
Joanna, if you're out there, you're amazing.
Love what you do. You've been great for all our
clients and friends. But on that note, Jason,
is there any other thoughts you want to leave,
you know, listeners with? Anything that comes
to mind? Be flexible. Talk to as many people
as possible. There's always ideas. And, look,
I'm just very, very fortunate to be involved
in this industry. It's like a privilege. You
know, I've had some great mentors and some great
people involved in stuff. So, yeah, it's a great
industry. It's a fantastic industry. And, you
know, I guess the next 10 years is going to be
phenomenal. It's going to be challenging. The
pace of change is going to be like nothing we've
ever seen. That will come with opportunities.
It will come with challenges. But it's going
to happen whether or not we like it or not. Thank
you very much, Jason, coming on the Road to Change
with York Wealth Management. I'll catch up with
you soon. Definitely going to have you on again
because I love chatting to you, Jason. Always
interesting. Awesome. A lot of fun. Thanks for
having me. Bye. Good to see you. The Rate of
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