IQ-EQ Crossroads 2021 – The rise and rise of private capital

Speaker 1 Lady MC (00:00:04):

Good afternoon. Welcome to IQ-EQ Crossroads. Please welcome to the stage, your host, IQ-EQ group executive chairman, Serge Krancenblum.

Speaker 2 Serge Krancenblum (00:00:18):

Ladies and gentlemen – especially ladies today, as you will see in the announcement we will make during this conference – I'm very pleased to welcome you to the third edition of Crossroads. We created this event four years ago, but last year, as you can imagine, nothing happened. The aim was to bring together very high profile speakers to spark discussions on key industry topics. Learning lessons from the past 19 months, we decided to opt for a hybrid event format, leveraging technology to bring Crossroads to a larger audience. I also would like to welcome all of you who’re following us via the live stream media. We will be delighted to hear about your feedback and insights on the different topics via the Slido comment box. 

We are extremely pleased this year to present the new theme, The rise and rise of private capital. Indeed, we wanted to understand the drive of asset owners to invest in private capital.

In ‘15, the private capital investment industry had total assets under management of about $3.5 trillion. By the end of 2020, it had doubled. Within the next four years, it is estimated to double again to about $13 trillion. Nomura and IQ-EQ have commissioned Barton Consulting to work on a global study. They consulted a global audience of private capital investors from professionals working with family offices or financial institutions to private high net worth individuals. They were all asked for their views on the private capital landscape, their areas of interest, trades of focus, as well as what is most exciting and most challenging to them about investing in the private capital industry today. The report has shown that confidence in the private capital industry is solid for the immediate future. Winston Chesterfield, the founder of Barton Consulting, will shortly present the key findings of this study. And finally, I would like to thank Nomura once again, who are partnering with us on this fantastic event as they did last time. And I'd like also to thank our esteemed speakers who will be sharing their insights, presentations and key takeaways on this topic. Winston, the floor is yours. Thank you.

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Speaker 3 (00:03:31): WinstonChesterfield

Thank you Sergevery much indeed. It is great to be here today at Landing 42, not Tower 42 (easily confused obviously) and also to be presenting to people online. My name is Winston Chesterfield. I'm going to take you through the summary of findings from the insights study we led.Now we conducted this survey with as,Serge quite rightly points out, a collection of professional investors and private investors. And we asked them a range of different questions. One of the things we asked them about, which Serge alluded to, was this idea of sentiment: How do people feel about the private capital market?Overall,there was a slim majority of investors who have high confidence. And when you look at this data here, you can see that those last three green boxes you're looking at there: 20%, 17% and 15% at the top - 8 to 10.

That's pretty encouraging! Often, we see sort of very middling scores in different sectors and anything over half in the top three boxes is pretty healthy, and lower percentages down the bottom. We also asked them about specific parts of the private capital industry, as you can imagine. And actually over a third of those invested in venture capital are very positive on the prospects within the sector. So, if you look out on the right-hand side 34% figure, and as you go down that sort of top positivity ranking comes down through infrastructure, real estate, private equity and private debt and family businesses. 

We also asked them about locations that they were most confident about and most optimistic about in private capital. And, as you can imagine, Asia came out top on this as one of the most exciting areas in the world for investment in every category almost, particularly for people to invest in private capital. As you can see from these figures here, you're looking at the, on the left-hand side, Asia is this sort of purple one, well ahead of North America, which is placed second, Western Europe, Eastern Europe, Latin America, Asia Pacific, and the Middle East. But particularly in areas like private equity, you can see family businesses and real estate.

Specific areas of investment, where it was another area we asked these investors about in private capital, particularly different industries that were exciting to invest through private capital means. And interestingly, we found that one in two ranked bioechnology businesses and information technology businesses as one of their top three most exciting industry sectors. 

You can see from this next chart. What you're looking at in the purple one is the number of people who ranked in their top three. You can also see that the green bar there represents those who ranked it as their first most exciting industry sector. So almost a third ranked biotechnology first, as their most exciting industry sector within private capital.

We then asked them a series of questions on jurisdictions, structures, and types of investment. Firstly, about which jurisdictions they favoured first for structures, holding structures, and private investments.

And on this USA came out top. If you look at this chart on this page here, you can see those that are ranked first, ranked second and ranked third, according to the colour code.After the US, UK, then Singapore, Hong Kong, Switzerland, Dubai, Cayman, Luxembourg, British Virgin islands,and Bermuda. But apart from that, you actually think about, this is actually quite fragmented. So, there isn't a huge concentration in one particular location or another, but overall, the US came top. 

We asked them about ownership structures and overall direct ownership is the most preferred structure, but LP scored the most for other mentions. So, if you take a look at this thing here, limited partnerships, other mentions second and third choice at the top, but direct ownership overall is the preferred and majority, the rest of them, as you can see, going down through limited liability partnership, open-ended investment companies, limited liability companies and private investment trusts.

In terms of types of investing,we asked them about direct investing versus co-investing and LP investing through a fund. And as you can see from this, direct investing andco-investing are the most attractive forms of private investment. So, if you take a look here at these figures LP co-investing 11% direct co-investing, you've got there, at 23%, and then direct investing at 56%.

We asked about deal sourcing and how they access and get through their deals. And one of the things we asked them about was what was the most important to them in accessing deals and getting to new deals within the private capital sphere. And the most important thing for them was actually being able to access deals quickly and in real time, as the most important factor.If you take a look at this chart here, you can see the top-ranked areas that are a priority or are very important: 53% said that being able to access deals quickly was very important, further 7% saidthat was the priority,so that's 60%. And then internationally in real time, you have 32% saying it’s very important, 15% saying it was a priority.

We asked them also about what they're planning to do in terms of looking for more deals and better deals over the next 12 to 18 months,and actually around the world industry events,as you can imagine, after a pandemic, are things that people are keen to do more of over the next year to better source deals. 

And you take a look at this chart here, you can see 52% said they're going to do more of it, 40% said about the same, and only 8% said they’d do less of it. Different areas of things like deal flow management processes,there was 39% who’d do more of that, 43% being part of a couple of investors, and 45% being a digital community -but the standout here was definitely that people are interested in doing more of attending worldwide industry events. 

We asked some questions about monitoring/reporting of these individuals and private investment individuals about how satisfied they were, particularly with their monitoring systems and their reporting systems.

Now the greatest level of satisfaction that people have was within in-house portfolio monitoring systems as you can see from this data here, and you can also read in the report.So, you can see from this study, 7% very satisfied and 35% somewhat satisfied for in-house systems.Drops lower to when it's an external service provider and third-party software portfolio monitoring, drops even a little bit further still in terms of that very satisfied group.However third-party software and portfolio monitoring you can see overall still has a healthy number of people who are somewhat satisfied with it.In terms of reporting,less than half are actually fully satisfied with the level of reporting they have and 54% consider it to be average. So, this is scoring three to seven.If you take a look here, the figures here for satisfactory, not satisfactory, a very divided group of people in this regard, with some people saying something's neither satisfactory or unsatisfactory or satisfactory. Normally, we'd expect a little bit more diversity here, but that suggests there is work to be done for a group of people.

A lack of single platform for the whole business is a problem for four in 10 investors. And you can see from this chart here, these are some of the statements we ask people to rate and record.Also, platforms not being user friendly was an issue as well as platforms not being sufficiently secure. We asked further questions on another theme of these individuals on thetopic of environmental, social and governance investment (ESG). And for this group, we asked them about what kind of role ESG plays for them. Now in ESGwe asked, you know, this sort of level of importance it has, but we also asked them how important it is going to be going forward. So, bear in mind some of these responses. 

So ESG plays a major role for under a third of investors currently.For the rest, it's a guide or a minor factor. Now you might think that actually flies in the face of a lot of stuff you've heard about ESG and the way it's going ahead. But you'll see from a later chart that actually, even though this is the case and itonly plays a major role for this 29% group and acts a bit of a guide for 31% and then for the rest of them, it's important, but not adhered to and it's a minor role, that this is actually changing over time. 

And to take a look at this:for example, for 85% of investors, ESG has become more important or priority over the last 12 to 18 months.So, taking a look here, at this chart here, ESG has become a priority for 21% and has become a more important focus for 64% and only 15% saying it hasn't changed at all. 

We also asked them abouthow important ESG was in doing due diligence on firms, regarding ESG reporting and their track record. And when carrying out due diligence on firms to invest in, 70% viewed a strong track record on ESG reporting as important.If you take a look here at this, we also had a significant proportion of people saying that transparent reporting of ESG was important as well as a clear ESG policy and approach. In addition, smaller amounts for evidence of ESG policy implementation.

But there are concerns regarding ESG and the biggest concerns of all are around the regulatory framework for ESG. So, the lack of a single regulatory framework is, overall, the most concerning thing for these investors. So, of great concern around a quarter of these said that was the most concerning thing of all, 32% of that, of concern,and very few people said it was of little concern.

After that you had the constantly evolving regulatory framework and then the difficulty of managing reporting on ESG KPIs,and then also greenwashing, the lack of transparency, coming in last.

When it comes to reporting on ESG, the greatest satisfaction was with in-house ESG portfolio monitoring systems.To take a look at this chart here, you can see in the green bars, this is very satisfied in that the top bar, the biggest bar, darker green, and then after that, somewhat satisfied in the pink. So slightly confusing in terms of the colours, but you can see there, the biggest proportion of those who are very satisfied are using in-house systems. And then after that you actually have third parties’ software portfolio monitoring, with a very big chunk,they were somewhat satisfied, maybe not very satisfied,but somewhat. And then after that outsourced portfolio monitoring.That concludes the presentation. Thank you very much.

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Applause

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Now to hand over to Guy Hayward-Cole from Nomura who you can see.

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Music

Speaker 4 (00:15:25): Guy Hayward-Cole

Great,well, thank you. Thanks, first of all, to all the participants, both here andwho are online. It's actually lovely to be doing this in person, I haven’t done that for a while. 

I'm delighted that Nomura is a sponsor, to today's event, not only because IQ-EQ is a very important client of ours and as well as such an important partner to so many of our clients in the investing world, but also because the private capital markets is one of the most important aspects of Nomura’s strategy for growthin the next few years. And by way of introduction for myself, it's also incredibly important for me because I run the advisory business for Nomura here in EMEA,andthe private markets are completely central to what we do. When I started out in corporate finance and God forbid, that was over 30 years ago, so, you know, it was back then the public markets that dominated our deal flow -the public company takeovers, the IP rights issues.The private equity community was almost sort of non-existent in terms of how it touched our activities. It was more like a venture capital type business for startups. We were too young to access those public markets and, you know, goodness how much that has changed in that period since, and indeed how much is that trend accelerating. 

And if I can just maybe get the first of my slides up. And Serge you touched on this, it's just theextraordinary rise in the assets under managementin terms of private capital. And the top line is that the infrastructure funds, it goes down to real estate, private debt and the dominant one at the bottom there, the private equity guys. 

People talk about the dry powder, which is uninvested, this is as of a year ago, 2.9 billion. It's probably nearer to being something like three and a half trillion now, which is uninvested. 

So, you know, if you just think about the, you know, as in a typical LBO - where I don’t know – you can leverage that one-to-one, you know, that's talking about dry powder of about $7 trillion of investment capital, which is needing to find a home to invest. 

And it's not just the private equity community where there is dry powder. And I'll take one example because I'd like to give it just a little  example of why I think this phenomenon is occurring. And then I shall turn to the infrastructure funds at the top, which is the pink line, where there's been an enormous growth, in terms of their funds as well.

Until a couple of years ago the infrastructure funds were spending their money investing mainly in utilities, water companies, toll roads, ports, that type of activity. Now the hottest sub-sector is actuallythe telecoms sector and telecoms assets. And this is where it's quite interesting. I mean, in the stock market, big integrated telecom companies have all like BT, DT, Deutsche Telecom, or Orange, others like that have been always traded at around about five to six times EBITDA. They were always heavy investors in their own infrastructure, which they thought gave them a competitive advantage.

That investment though,and hence the lack of cash returns for their investors, has definitely held their shares back. And a sea change has taken place because of a massive pricing arbitrage, which has opened up between these public market valuations of the telcos, and the private market valuations.

So, you know, I am/we are now seeing privateinfrastructure investors prepared to pay regularly in excess of 20 times EBITDAto acquire telecoms infrastructure, whether it's the towers or the fibre in the ground, because they're solving for yields at around about 7 or 8%for the capital they invest, versus the five to six times that the whole company is valued by the stock market. 

So, it's difficult for any CEO to resist that pricing type, but that sort of level of pricing arbitrage, because quite frankly, if they do resist it for too long, our friends in the private equity community (there at the bottom of that page) will be knocking on their doors and helping them to try and see the light through a take-privateapproach. So, you are seeing this massive shift going on in the investing world (you'll see it on the right-hand side there) where the assets effectively as measured by the NAV over the last 20 years has grown at annual growth at around about five and a half percentage of the global stock markets and over double that into the private equity markets. 

So it really is quite a phenomenon. And then let's move on to my next slide. What has that actually resulted in, if we can go to the next slide, at the top there, you can seethe take-private themereally has been a very, very strongforce here where the number of listed companies you can see, this is in the US actually, has been coming down over time.

The number of companies held by private equity has gone in the opposite direction and in a much faster race and rate. And look, when people ask me what's going on here. And I think, one of the reasons is because the cost of capital to fund a take-private has become ever lower. This is mainly because of the credit markets and the cost of debt. Basically, as we know, since the global financial crisis of 2008, there's been pretty uninterruptedmonetary stimulus by world central banks pumping money into the system, meaning that the half of a typical LBO funded by leverage is coming at a cost of debt that’s around 3% or even less - so hardly high yield as we used to call it. And the other half of course is the private equity money that used to target 25% plus returns for their cost of capital.

But now, not always, but a number of those funds might in a very competitive auction be targeting something like mid-teens to high-teens type returns on that capital.So on very simple maths, the cost of capital when you put those two together could be actually for an LBO, be say 9%. And then in theory that makes the stock markets actually quite vulnerable you know, to these privates, because still today institutional investors are targeting sometimes a higher return to hold public stocks of say 10 to 12%, then what is actually what is always thought a risky asset class in terms of private equity with very high leverage who could actually be trying to solve for a low return than the public institutional investors.

And you could see why that arbitrage has actually caused that phenomenon there. And you can therefore see underneath there, which is what's caused, you know, a lot of what has followed of course is the increase of allocation of funds into the private markets. And that's reallywhat I see as the heart of the sort of rise and rise of the private capital markets. And it really is, I think in my mind, it's a permanent phenomenon. It’s not a flash in the pan. It's become way too big to reverse itself now. I mean, sure, there's going to be ups and downs,like there are in any markets, butthis is not going away. So, for an investment bank, such as Nomura, it really is a crucial focus for us and it touches every aspect of our business, you know, investment banking.

We're lucky enough to be one of the leading players in the leveraged finance markets, as it were the people who provide the fuel to ignite the dry powder of theprivate equity funds. And, therefore, we and others play a very important part in greasingthe system and the engine for making those leveraged buyouts happen. The other end of the spectrumfor smaller companies, the private capital markets play a very, very important role. And this is for companies who quite often are very high growth, whether it's in sort of EdTech, HealthTech, FinTech, particularly post COVID, some real winners of remote, you know, quite frankly, a lot of these companies neither have the time nor the appetite to take themselves public, to tapmarkets for their development capital.

They don't have to now because there's a very activeand deep investment pool, through the private placement market, who are funding on a regular basis. Now, these companies, which are growing at a phenomenal rate, which may eventually find themselves onto the stock market, but at the moment, as I said, don't wish to stand still while they go about that. And there's a very deep market and there's a very deep market where investors particularly (and I'll come onto this later) in Asia and Japan who are particularly interested in investing in some of these amazing companies in the US andhere in EMEA.It also touches across our wealth management businesses, our own Nomura asset management business, which is frankly also following the trend to switch more and more of its allocations to private and alternative assets.

So, add all of these up and you can see why it's so important. In fact, our CEO of Nomura, Okuda, in our recent capital markets day went out on in public saying that he expected revenues derived from the private capital markets activities at Nomura to increase by around about 50% in the next few years. So, it really is incredibly important, and that's why it's an absolute pleasure to be sponsoring the event this afternoon. So thank you. Serge, I'm going to hand back to you, I think next, to introduce our much more important keynote speaker.

Speaker 2 (00:26:05): Serge Krancenblum

Thank you, Guy. So, I'm very pleased to introduce Diana Noble. Diana is a non-executive director of the Bank of England. She is the founder of Kirkos Partners, an advisor to leaders of the Private Equity ecosystem. Diana's background is in private equity, venture capital and international development. Schroder Ventures (known as Permira nowadays) for 12 years and she founded e-Ventures and Reed Elsevier Ventures. Diana was the CEO of CDC, a small player with five billions under management, from 2011 to 17, a very big period for transformation and impact and growth. And she had joined CDC after five years with the Clinton Foundation’s Health Access Initiative, where she was Executive Vice-President Operations responsible for only 43 countries and five global teams, giving children equal access to HIV Aids care and treatment that was available only to adults before. Today, she will discuss on a topic which is very close to our hearts, especially at IQ-EQ, this is gender diversity within our industry. Diana, warm welcome.

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Applause followed by Music

Speaker 5 (00:27:50): Diana Noble

Thank you very much, Serge. That's great. This feels both strange and wonderful - to be in front of a live audience again, and also combining it with all of you watching. So, bravo IQ-EQ, and also all the organising team that's got us together today. The topic today is gender diversity and it's obviously important because our industry doesn't actually have a lot to celebrate and there iis much to do. But let's start on a slightly more positive note about how far society has come, since 1969. And it is worth it if you can read the text, quite funny, but also pretty shocking in our lifetime. And if you think that NatWest was bad, the Bank of England was actually no better.

So this kind of patronising discrimination, it existed everywhere. It actually existed in my family, too. My father, who was a product of his time, scolded me for being unrealistic when I said I wanted to have a secretary – not be a secretary. And it was back then as we, a lot of us, know a very hierarchical world. You kind of had your place and you should know it. So again, in my family, people like Billie Jean King and Muhammad Ali, who today we celebrate for agitating and pushing forward for change and recognition in those days were kind of frowned upon for not accepting their place. And I often compare the incredible opportunities that I've had in my career. So that was very kindly highlighted to my very brilliant mother who was born only 30 years before me, but on leaving university, which is pretty rare in itself at that time, became a governess and then a mother.

And you think about all the wasted talent that was unappreciated and unvalued at that time. So there's definitely that progress since then. And, I think it's rare today, to find anyone who believes that white males are inherently more talented or more ambitious or that their wives and daughters shouldn't have all, you know, that world of opportunity open to them. But there is a clear thread that runs between those days and where we are today. It's just that the unfairness is sort of more subtle and harder to root out. 

So, let's now focus on your private capital sector, and especially I'm going to use private equity as the sort of proxy for the whole market, because the data is very good there, data particularly from BVCA and Level 20. I'm going to draw on their research, but also personal experience over 35 years in the industry and I also chaired a court review at the Bank of England into ethnic diversity and inclusion that took a year and we published it in July. 

Now, ethnic diversity inclusion is a perfect proxy for gender, but there's lots of read acrosses, and we really sort of dug into the root causes of slow progress there. So, I think we all know the most important statistic in private equity which is that only 10% of senior investment professionals are women. And I'm going to focus on that particular stat, obviously there's lots of different issues you could focus on, but I've only got 15 minutes here. Level 20, who have been pushing this agenda very well, aim, as their name says, to get it from 10% to 20%. Progress as has been called out in their report is stubbornly slow.

When I became a partner at Schroder Ventures at the end of the eighties - similar sort of time, I think, as Guy entering the industry as well - I was one of three females in a partnership of 11 at Schroder Ventures. So, it hasn't moved forward a lot since those days and PE also lags FTSE and other industries as well. At the Bank of England, which also prized itself on attracting the very best talent, they started from a really bad place 10 years ago. I mean, they would have said ‘We are diverse. We hire from Oxford and Cambridge.’ But they have put real effort into it. They now have 32% of their senior management as women, and they have an ambition by the end of Andrew's governorship to get it to 44%. So not far short of the diversity, , parity that everyone's looking for here.

So, I don't think anyone in this industry should sort of feel comfortable about where we are, whether you're a primary investor or a secondary investor, you know, LP, but as the title says, why does it matter? Why is it so bad and what should be done about it? 

So, let's start with why it matters. There were lots of well-rehearsed arguments about equity here, and also that diverse teams drive improved performance. I'm not going to rehearse those again. That's kind of the carrot for doing this, but where's the stick? I think this is a really big risk, and a precarious position for both the industry and for individual firms as well. And politicians love criticising private equity and the lack of diversity just gives them an open goal. And then LP’s management teams and the best of junior intake are increasingly using a diversity lens to make decisions and to choose about who gets the money, who gets the deal mandate, and who gets the best junior talent.

And so that’s not great for the 12% of firms that still have all management investment teams. So why is PE doing so badly? I think in my view, it simply hasn't been enough of a priority. You know, delivering alpha performance has been the priority, and the hyper-focus. And boy! Private equity has done really well in that! And that is what's fuelled the growth in the industry that we've just been hearing about from Guy and that we're celebrating here today and frankly, all of us benefit from it. But it's no longer enough. And the times definitely are changing this kind of one-dimensional picture of a PE senior professional - can't just continue to be that sort of sharp, tough, tough-speaking, ENTJ white man. So what are we going to do about it or needs to be done about it?

I'm speaking here obviously to GPs, but also to LPs because of your influence which can be used not just to scrutinise the stats, but also to really question and understand what is being done to improve things and use this as a basis for commitment decisions. So, I'm hoping here to give you some tips on what to look for under the hood, and which, as we all know, takes a little bit of prising open at GPs. 

And so I'm going to talk about four areas that I think more could be done in and going a bit deeper into root causes than the published studies do. These themes all fit rather nicely actually into IQ-EQ’s tagline, which is IQ, the know-how, which for me is kind of the practical steps, and EQ, which is to know you and really understand the person - sort of combining the two.

So, to just summarise the four themes I'm going to talk about are firstly, more tailored efforts to retain women after they start a family. Secondly, leadership setting the tone and the culture. Thirdly, making fair key decisions, particularly around promotions. And fourthly, investing and building the comp, and protecting, importantly, the confidence of your female investors. 

So, let's start with maternity leave. So the leaky pipeline where women drop out between joining a firm and getting to the top, is greatest we all know when they start a family - and maternity policies are the start point for this. The most enlightened companies have shared parental leave benefits that include emergency childcare support. But policies simply aren't enough because they treat each woman the same. And the experience of having a child is unique to every single woman. And that can't be predicted ahead of time, either.

I think back to my own experience, I laughably asked for a bike to deliver work to me every day at home after I had my first child. When it happened, I literally dropped the work in the bin every day. I could barely get myself dressed by lunchtime. So, you can't ask a woman before they have a child, what what's going to happen. And it's a really discombobulating time when you, everyone is forced to rethink their priorities. But of course, as a woman in a hard driving culture, you don't want to admit it. Okay. So it takes a lot of empathy to pull that out of someone, and to tease it out. So, the best thing a firm can do is to reach out regularly, to listen, and to empathise with each woman's individual path.

And it's even better if that's done by a senior woman, who's been through this and can talk about their own path and compare it.. There's going to be a whole spectrum of needs here. This is, as I said, this is not individual. And it's often highly dependent on the trust that the new mother has in whatever her childcare situation is. Some people will be desperate to get back to work, into the structure, into the pace, into the affirmation that you get at work. Some will need more flexibility. Some will want a deliberately slower period. Some you won't hold on to, you just won't hold on all your great women. But at that time, we all want to be told we value you, we'll fit around your needs. There's a great long-term future for you, even if in the short term, your career path flattens a bit.

There's also delicate messaging in all of this, in that leaders have to be sensitive. They've got to navigate with ideally with some honesty because women resent ending up behind men that they started at the same time as but on the other hand, men resent women who were out for months and yet are still on the same level as them. So, this is kind of natural in a sharp elbows culture, but leaders should ask themselves whether they can do anything to soften that culture and help that both ways resentment.

So, then moving on to leadership and I'm really now talking to the leaders in the audience to be really clear. It's your responsibility to improve gender diversity.  A red flag for me is always when this issue is just handed off to the women to sort of solve themselves, that's placing the burden of change on those who were on the wrong end of any unfairness. Showing leadership means making it a strategic priority like any other business priority and really caring about it.

And incidentally, on that theme, I understand from the BVCA that the response to the survey this year was that out of 750 firms sent the survey, 118 filled it in, but doesn't give a great impression that it's a strategic priority. The best thing though a leader can do is to talk warmly, openly and honestly about his, mostly his, own childcare commitments and concerns, and not hiding the times when he has to rush home unexpectedly early. That’s culture, that's leadership. That helps to break down this sort of mono-male blokey culture, which sort of says to women, you got to fit in with us rather than the other way around. And it's a generalisation but most of the 10% of women who have got to the top are the ones who can fit in with the mono-culture.

The next topic is at four is to look at how important decisions are made. These all obviously include, and key are promotions and partnership but equally who gets the chance to work on the most interesting and high-profile deals because they are the ones that obviously put you forward to get these promotions. Research shows that the most undiverse organisations still think they are meritocracies because they think that the best get to the top. They're in denial because there is a myth in this. Think about the definition of best. Research shows that promotion decisions between equally qualified candidates with equal potential will be skewed by what's called affinity bias, which means I will prefer the candidate, even if they're equal objectively, who is more like me and who I feel more comfortable with. We've all done it, I've done it. I've used the word fit, loosely and lazily, plenty of times in the past to explain a way that affinity bias preference and generally with no awareness that I was squashing diversity.

So again, it's up to leadership to be aware of it, to call it out and change that. None of this though is about promoting lower performing women over higher performing men or making token promotions. That's doubling down on unfairness and it's good for no one. The aim is to make sure that the deck isn't stacked against women in these key decisions. And then the final tip is about positive action. Now, positive action can be taken, although this is the area where people are the most tend to be the most hesitant for fear of upsetting the majority. Harvard Business School has done great work in this area. Their issue was they were hiring great objectively equal male and female junior professors but once they track them, their career paths did this. So, very similar proxy for private equity. The women did that. The men did that. So, they then looked at it and said how do we make these promotion decisions? They use two objective criteria - how much research do you publish and how well students rate your lectures. Women were getting worse scores on both. So, rather than accepting the generalisation that perhaps women were inherently less able, and nothing could be done, they looked deeper at the root causes. So, on the research side, the amount and quality of research that was getting started was exactly the same, but women's research took a year longer to publish on average. They learned that this was happening at the peer review check stage. Men would submit their research for peer review when it was about 75% done, wanting the input, whereas women would polish it and polish it and polish it, and it would be like 120% done.

That on average took a whole year longer. So, Harvard gave the women a mentor through this phase to give them confidence that it was ready to go out there to a third party and the gap completely disappeared. Then on classroom performance, they started recording the lectures for the all the junior professors to watch back so that they could think about that performance and improve it. Funny enough, this made things worse. But men, obviously I'm generalising here, but the men on average, they realized that the men loved watching themselves like I'm really good and I can build on all the good things etc. The women hated it and obsessed about all the areas where they were falling short. So, to address that again they gave the women a mentor who watched it on their behalf. They didn't show it to the women at all.

The mentor would then say, you did a great job, just a tweak here and there or whatever. And again the gap disappeared. So, this is how they got their progression of women and male junior professors to be equal over time. So, the read across here to PE I think is female confidence. Research shows that on average and of course that's bell curve here and the bell curves overlap, women tend to think they're less good than they actually are. And men tend to think they're better. Confidence in backing your own judgment and convincing your colleagues to back your judgment in highly competitive auction situations where you've got to go that extra mile to win the deal is kind of at the core of the PE’s skillset more than any other industry I know. And also, over a long career, any brilliant investment professional will make a howler at some point, no one has a hundred percent clean track record, but because men's bedrock or confidence is stronger, they can ride this out better than women.

I often think about what I call the C curve, which is if you're confident and build on that, it leads to conviction. And if you have conviction and build on that, it leads to courage. These are the qualities you really need in this industry. And it's harder for women to get on that curve and to stay on it. So, the point of the HBS story is to show that you can treat the sexes differently to invest and lift up women, to enhance their confidence so that they have an equal chance. So, these are my four practical tips. I'll just go through them again. Go well beyond basic maternity policies and understand each women's individual needs to encourage them back within whatever constraints they may have with long-term potential in mind. Secondly, leaders must genuinely care and lead themselves, treating it like any other business priority. Thirdly, leaders must call out and fight affinity bias in promotion and deal allocation decisions to promote diverse choices. And finally, they should invest in building women's confidence by especially recognising praise and great work and supporting them through the difficult times. 

So, to wrap up, I'm delighted that IQ-EQ are launching their own programme, supporting women in PE. I've talked about how you climb the difficult ladder within firms, but of course, great women would be fantastic if they had the opportunity and the support and the confidence to go and launch their own firms, which is what's going to be talked about next. There's a lot to do and everyone here can play that part. The whole history of PE demonstrates that if anything becomes a real priority for this industry, it will be done brilliantly. We're all a competitive bunch. It must rankle to be so far behind the corporate and professional services world. We also frankly need to be more ambitious. So, I look forward to Level 20 getting that 10% quickly to 20% and then renaming themselves and finally to a day where the industry is fully diverse, and it's not needed at all. So, thank you very much for listening. I'd like to introduce Justin, the next speaker who's going to talk about the IQ-EQ programme here. Thanks a lot.

Speaker 7 (00:49:11): Justin Partington

You started your presentation Diana with the talk about the sixties and knowing your place and sort of pushing against it. But I'm happy to say, I know my place, it's right over there with the drinks and the cakes and I'll hopefully see most of you in the room after. Not people online, obviously, but that's for all of us in the room to enjoy. Thank you, Diana, for a really insightful presentation. Really enjoyed that and we take a lot from that. What I'd like to link that through is the initiative that we're launching today and thank you all for taking the time to join us today as well. The topic for this brief intro is just around obviously the industry-wide issue on gender equality and driving us in a positive direction of change. We all know that women are underrepresented amongst investment managers.

You touched on it in your 10%. We also know that women are also underrepresented in the leadership of companies invested by private capital. So, this trickles down through the entire ecosystem, we know that achieving a gender quality will benefit all of us. We know that also that we need proactive leadership. At IQ-EQ, we've made a commitment and Serge has led that commitment to in our business for diversity and inclusion within our organisation. And we're seeing firsthand the benefits and the opportunities that our effort has created. For the last year, we've been working on ways that we can have a broader influence. We know that this is not just a moral or a gender issue. The McKinsey Global Institute estimates that 28 billion could be, sorry, 28 trillion could be added to the global economy, which is effectively one and a half-United States,

if women participated in the economy in the same way as men, it's a huge opportunity for us all. And we also know that studies have shown that diverse fund management teams will generate  a  10 to 20% higher investment return. And we've also seen that at leadership level that having a gender diverse team is a known factor to reduce governance, risks, and behavioral risks as well. Kaufman's data shows that female fund managers who invest two times more money in female led founders and CEOs, and it's the trickledown effect. So, if we increased investments and women fund asset management teams will then increase capital access to those women-led CEOs, women CEOs, and female founders, as well as the businesses that they support. So, the business case for quality is very clear. We know that with equal opportunity, we can all succeed. So in short, we know there's a moral imperative and a business opportunity to address the gender imbalance in our sector, in your industry.

And to this end, we've leveraged our contacts and our business model to put together a comprehensive support package for first-time female managers to help them succeed. And we're calling it the IQ-EQ Launchpad. This Launchpad initiative consists of how financial support in the, in the sense of highly, favourable service terms. We also have a great global network. Those at IQ-EQ have developed a really good network within the industry globally. We want to share that with female feminists to connect them up with the key players in the sector to help them succeed. And that's across the network, the experience pool and our various contacts. We've also developed specialist training modules to help female fund managers navigate the jargon, the ins and outs of the technical terms within the sector to help them navigate that. I think to Diana's point around building confidence, knowing what the terms are, not feeling like, you're not quite sure what the what the terms are being discussed in the room or how to structure a new fund, where to structure it, what to look for, what will LPs look for.

And we know that from our various contacts and experience, we can help them navigate that through the training. And we developed the other support around specific challenges in setting up a first-time fund be overcome. I had a discussion earlier with one of our guests on a first time fund manager launch, and I can assure you it's quite an involved process and is a really intense and helping navigate that through the experience can be really helpful. And through this, we can drive an expanding circle of female fund managers and women-led funds. We know that we can get a greater percentage of capital to female founders and CEOs and ultimately lead to higher investment returns. So, I'm also pleased that today in the room, we have a few participants in this IQ-EQ Launchpad initiative. The projects sound very exciting and we're delighted to contribute to their aims. They're really exciting projects and building a better society and to help contribute to the aims of these female managers, by leveraging our global network. I know how an experience can support these funds and many more like them and create more opportunity and more prosperity. So, with IQ-EQ Launchpad, we believe that with your involvement that we can all help drive the sector towards greater gender equality and success. Thank you. I'd like to also now invite my colleague, Steve Sokic to introduce his panel. Steve, thank you.

Speaker 8 (00:54:30): Steve Sokic

Thank you, thank you, Justin. First, I'd like to invite my fellow panelists to the stage, and I'll introduce you all in a few minutes. I think we need some chairs as well. Don't we? Or are we going to, we can ask them to stand, I guess, but anyway, while we're waiting for that, I mean what Justin mentioned and with Diana spoke about as well, I mean, it made me think of perhaps a bit different, but I was thinking of Mother Teresa's comments, and I'm paraphrasing of course, but, if you're going to make change, go home and start it. Right. So, for those of us with daughters, wives, sisters, etc, there's a role for us to play as well. And I've got two daughters and master's degrees in the UK. And so it's quite relevant for me as well.

So, my fellow panelists, if you can please join me, I think that's Hugh, Mar,k Guy and Winston. And I'll introduce them all. You've met a couple of them already, but I'll introduce them in a minute. First of all, hello, it's very nice to be with you all, both in the room here in London and around the world virtually. I mean it's great to be out again as Guy mentioned earlier and including here at our flagship event, Crossroads, we're really thrilled to follow the footsteps of the last few years of various topical themes. And this year, of course, the Rise and rise of private capital. Now, as global economies open up in the world gradually emerged from the shadow of this horrible pandemic, we remain cautiously optimistic. Now that's why this year, we're doing things a bit differently.

Hosting our first ever hybrid event here live in London and live streamed around the world, as we cautiously enter the next normal. Now, before we dive into the panel discussion some context for the discussion, we are in a way celebrating the rise of private capital, but we're also understanding why it has risen and what's to come. Now, I think Winston mentioned earlier that the report on private capital that he mentioned shows that the private capital industry has more than doubled over the past five years to reach around seven and a half trillion dollars. I mean, that's massive. And it's also encouraging to see not only IQ-EQ and Nomura, but it's also good to see the broader ecosystem in the financial industry, not just here in London, but around the world embracing this. And you see dedicated teams with divisions focused on private capital with ambitious plans for growth.

Now at IQ-EQ, we witness this firsthand, these market developments. Given our frontline role as fiduciary or administrator or reporting outsource partner for global investors, they're the ones driving this trend. And again, we have that front row seat, whether it's a fund, alternative asset fund manager, whether it's a wealthy family or a family office, again, we're partner to these investors. And we're seeing a sort of convergence of the private investors, the institutional investors, and of course the alternative asset fund managers, which tie into that, into this private capital space globally. Like Serge, I'd also like to welcome you all who are joining us from around the world via the livestream platform. And also, as Serge mentioned, we look forward to hearing from you all through the Slido comment box on your screen. So, please do give your feedback and insights. They'd be very, very much appreciated. Now with all that said, my pleasure to introduce my fellow panelists. 

We'll start with Mark McDonald and Mark heads up the global private equity business at DWS, which includes responsibility for strategy, business development investments and fundraising. So welcome Mark. Next, we have Hugh Stacey. Hugh is the Executive Director of Investor Solutions at IQ-EQ. It's a division dedicated to servicing the private market portfolios of both institutional and private investors with the latest technological platforms. Welcome Hugh. Diana Noble, you've already heard from and Diana is a non-executive director of the Bank of England and also the founder of Kirkos Partners. Welcome Diana, again. Next, you've also heard from Guy Hayward-Cole. He runs the advisory business for the EMEA region at Nomura. And he's also the chair of its technology media services group in the EMEA region.

And finally, but certainly not least ,we have Winston Chesterfield, who you would have also heard from, and he's the founder of Barton Consulting, a specialist consulting firm. Now, you know who we are, you know the context let's get into some questions. So, the first one, Winston talked about the report. Now that report shows that confidence in the immediate future for the private capital industry solid with a majority of the respondents saying they were very, or extremely confident. Now we'll start with you, Diana. Would you agree with that assessment? I mean, are we, and I'll extend the question, are we at the bottom of the market? Has that come and gone and we're continuing the rise of this sort of capital private capital space. What are your thoughts?

Speaker 6 (00:59:50): Diana Noble

So, I mean, this is just an extraordinary industry. I don't think there's any other financial sector that has been so rocket fueled for so long and not resulted in a bubble. And it's strange to me when I look back sort of over my 35 years in the industry and how we used to talk about it in the late eighties and nineties, and I see Jonathan Blake here, who's been around at least as long as I have. And he he'll vouch for the fact that back in those days, we used to say, oh, there's far too much capital chasing deals. It's all going to you know, end in tears. You know, now I was one of the two people who co-led the first, 1 billion Euro, European fund and we thought that was enormous. And of course you look at the numbers here and it just keeps going up.

So, it would take a pretty brave person to say that it's not going to keep going up. And, and why does it not end in a bubble? I think there's sort of a couple of reasons. One is that the ecosystem is incredibly healthy. So when, you know, underperformers just die quietly, cause they can't raise their next fund and really good investors who can't get to the top of their firm, spin out and create dynamic new fund firms. So it's a really healthy ecosystem, but I think even more importantly, it's all about the creativity and dynamism of the very best people because private equity pays so well, it attracts the very best people and they have used their talent and creativity over decades now to find ways of adding value to businesses. So, we've moved well beyond the early days of leverage and asset arbitrage to create value. It's now about let's take this asset and what are all the levers we can pull, whether that's management, whether that's strategy, whether that's operations or whatever it is, and get the very, very spare specialists to enhance the value of this company. And you know, that drives performance that drives more capital into it. And even though there are some ups and downs. I think the investors got much savvier about how to behave at different times at the cycle, and that keeps the average performance incredibly high. So that's my personal take on it. 

Speaker 8 (01:02:17): Steve Sokic:  Thank you, Diana. I mean, you mentioned investors and confidence, which is obviously critical in any sort of investment context. And with that, Winston, maybe you can provide us some additional context on investors’ confidence, Investor confidence levels in the various private asset class sectors that you refer to earlier.

Speaker 4 (01:02:36): Winston Chesterfield

Yes, well, we never asked people whether they, they felt the bottom of the market had been reached or anything as direct as that, but we did ask them certain questions about which types of investment and which asset classes, but also which sectors where the most exciting and, but also most secure. And one of the questions we asked was actually which sector had the most attractive risk return ratio. And in that, we actually interestingly saw that real estate, which has come under a bit of a cosh over the last 18 months, particularly with the pandemic as a sector for investment actually came at two out of five. That was the sector, which represented the most attractive risk return ratio. After that, we had one in five saying private equity and then the rest of them were around sort of one in 10 or less than one in 10 saying things like VC and infrastructure in debt and things like that. So real estate private equity is at the top, but real estate being at the top sort of indicated that there is a sort of great deal of confidence about parts of the private capital sector, which have been under fire for a period of time of the last 12 to 18 months.

Speaker 8 (01:03:45): Steve Sokic

Yeah. It's I mean, real estate and private equity. I mean, we talk about a convergence or I mentioned it earlier and even the term Crossroads in terms of different types of investors, I lead the private wealth segment within IQ-EQ. So I see it from the family offices, from the wealthy families and it's still there. So, so on a practical basis, I absolutely see it. But speaking of these sectors, maybe Mark, we can turn to you. What are your views as to why, what's the drivers of this, the investor interest in PE and real estate?

Speaker 9 (01:04:16): Mark McDonald

Sure. I'm more of a private equity professional rather than real estate one. So the real estate comments I'll add some quite large pinches of salt. But I think if I can break down that question into two fold, one is sort of a cyclical change over the last 15 or so years, particularly since the prior to last financial crisis in 2008 and the other one I think is sort of the secular trend, a lot of the thematics on that we’ve kind of touched upon it in various of the presentations today. I’ll go on this sort of cyclical side first and say that, you know, inherently, private markets have grown exponentially since 2008. Why is that? I think on the real estate side, you've seen just a general increase in asset prices to do with low interest rates.

On the private equity side, I think post financial crisis, you saw investors see actually a stability and lower volatility of returns in these kinds of asset classes. So you're saying, if my equity portfolio in public markets is going to drop 35% overnight, it may come back as we saw through this through the 2010s, but actually what was happening in private equity, there was a blip for one or two courses and people worrying about leverage. As soon as the central banks opened up to flood the market with liquidity, those returns were very stable, very long term. And actually, you know, inherently beat the public markets depending on which year and, and which sort of time series you use, but investors saw that and said, look, if I invest more in private equity funds, they'll generally deliver even during a financial crisis, you've seen the same with COVID.

Obviously, a little bit of a wobble in sort of March, April, May, but private equity fund returns have been stunning actually during the course of 2020 and 2021. And the investors we talk to, you know, some of these large public pension plans in the United States, as an example of running at sort of 40-50% IRR to date, in 2021 on their PE portfolio. So, I think that's sort of the cyclical side, add to that massive reductions in interest rates, almost forcing investors to hunt for yield. And where do you hunt for yield, you hunt for yield in something that's going to hopefully deliver you a single to double digit return, whether that's real estate or private equity, but also inherently be quite stable. And let's say, let's say less volatile. Therefore people say less volatility, less risk.

Now that's not necessarily the case. But I think that's the way people are sort of viewing these markets. On the secular side, I would say for private equity in particular, I would argue that for many, many companies of which there are tens of thousands globally, the private equity model has proven to make more sense than being a public market investor. Now that's attracted talent, obviously through incentivisation alignment and compensation, but also taking a longer-term view ,four to seven years is the average hold period for an asset. And I think that is driving a lot of the interest in the private equity sector as a better model to run a company.

Speaker 8 (01:07:33): Steve Sokic

Thanks Mark. And I think just on the real estate very briefly, I think it's sort of stubbornly consistent in terms of interest in real estate. And I think, when I ask clients why, there's a sort of an intangible to it that history has shown that that interest just continues. And even in the face of the pandemic, people are debating now whether that will wane or not. And it is stubbornly still there in a way. Moving on let's shift slightly to geographies. So, Winston talked earlier about Asia, North America, Western Europe, etc. Now those are the strongholds, but yet investors consistently favoured Asia as the place to go for future growth as the most exciting in terms of private capital growth. Now maybe, Guy we'll turn to you. Do you agree with that? Do you see that trend as well?

Speaker 5 (01:08:29): Guy Hayward-Cole

Yes, we do. And I’ll answer that question if I may, because we know something about this at Nomura about, through the lens of the Japanese market, because there are some quite extraordinary statistics, you know, to give you an idea about why people are beginning to getting quite excited about investing into the Japanese market and, and tapping that market for investments. Everyone knows about the Norwegian State Fund. It's commonly said it's the biggest one in the world, etc. I don't think it's about just shy of a trillion dollars. You know, the Japanese equivalent is actually much bigger than that. It's about $1.4 trillion dollars, yet no one knows about it, no one hears about it. And why, because it invests its money almost entirely in US treasuries, with an eye on negative yield.

You don't hear about the equivalent of the GIC or the Temasek of Japan, yet, you would think that as a government, that then at some point they will want to be investing some of that capital for slightly higher returns than you can get on a US treasury yield. That’s one thing. The other somewhat amazing statistic about our friends in Japan is the amount of capital, amount of cash, which is held in deposit accounts in the banking system. Everyone knows about negative interest rates, for the past 30 years or so in Japan yet households hold around about $1.4 trillion worth of cash in the banking system, earning effectively a negative rate of return. And that's because they're very, very cautious and they have been cautious for a long time. We and others spend a lot of time trying to, come up with interesting ideas to try and encourage, some of those savers to take a little bit more risk, by finding things to invest in which might actually have a positive return, as opposed to a negative return, it takes time it's going to happen.

The third element, which is really why I think you're seeing a lot of private equity companies opening up offices in Japan, going to source money from LPs to invest in Japan, is in the corporate sector there. Again, this sort of national conservatism is seen in the way that a lot of companies over there, both public and indeed private, you know run their businesses. The amount of cash which has held in the average company in Japan is quite staggering. You know, they're very, very cautious, and, and a bit like the national servers, etc. So, if you're a private equity group looking at some of these companies to invest in, they're very, very under leveraged, but they're not leveraged at all. They're sitting on sort of enormous amounts of cash, which could be, quite frankly, without putting, as we know, the companies in any degree of risk, can be sort of, have their capital structures really transformed in order to drive equity returns in a way, which is just not in their psyche at the moment.

And that's, what's attracting a lot of interest there as well from the private equity community is actually even attracting the interest of the government of Japan who are actually introducing legislation to force companies to actually take some of the cash, which is sitting off their balance sheets, into other areas, whether it's M&A, whether it's buying other companies, whether it's investing in their government, whatever. So there's a real sort of like absolute gold mine of private capital sitting in that economy, which is whatever the fourth economy in the world itself, the largest going on with world, which no one's even touched the surface off around, and put that into the context of has done was talking about the 30-35 year sort of party that's been going on in the UK and the US in across some of the worlds. And actually, then sort of say, you, you can see why people might be very, very excited to, to be entering into a market, which is just basically untapped and has got so much potential. 

Speaker 8 (01:12:54): Steve Sokic

Absolutely. So as one of my clients described that as young, but, the pace of growth is unlike anywhere else. Absolutely. So we've talked about types of private assets, types of private capital, private equity, real estate, etc. We've also talked about geographies as well. Let's turn to sectors now where I was going to say the end of the pandemic, but we're probably not there yet. So, Biotech is, is interesting. And that's, I think came up in the report as well, along with information technology, riding that digital transformation sort of wave and the acceleration of that way, I would argue, as part of the pandemic and post pandemic, and also,  looking at the report, I think it was half of the investors surveyed look to those sectors for private capital investments going forward. So, Mark, can you walk us through the sectors you think most promising for future private capital investment?

Speaker 9 (01:13:48): Mark McDonald

Sure. I mean, it's not the easiest question to answer. I'll start by saying obviously I think investors and people in general are generally predisposed to take an interest in what's in front of them. So it's no surprise that after a global pandemic in the public, the publicity around the RNA technology and biotechnology in general is a race to get the first, second, third COVID vaccination out. People think that is a hot sector, a bit like the internet was in 1998, 1999. Similar with technology when everybody's been locked in their house for a year. You know, we've become more connected to our technology at home and in other areas of our lives, therefore people think that that's a good thing isn't going to sort of change things.

Both of these are very correct. I think we are going and entering into a sort of a 5 - 10 year supercycle. But I would say is biotech now part of healthcare, is that now sort of an integrated part of the drug development process, and will that have wider implications for the wider healthcare industry? Yes, I think it will. I think healthcare is certainly somewhere where we focused, over the last sort of two or three years. Similarly with the technology sector. I would argue that when we look at a company, are we looking at a technology company or are we looking at a technology enabled company? Every company, I think that you will look at over the next 5 to 10 years will have a technological embedded value proposition within it. And I think you're going to see massive disruption across all sectors.

So I don't think that choosing a sector specifically or recommending you should focus on that versus something else. I think companies themselves, and I think private equity can do this, need to embed technological solutions within those sectors and those companies, and that will help disrupt and will help grow. It will help change the nature of that company and therefore society  in general. So I think it's a bit of a general answer, but I think it's more on the getting investors who know their specific sectors, they're knowledgeable about them. I think private equity is proven. You can pretty much make money in any sector, as long as you have knowledgeable people who are front of their industry and can take the opportunity in an entrepreneurial way to transform companies, which is the whole point and embedding technology across those sectors, as well as within biotech, embedding that within the healthcare sector, I think will continue to deliver very good returns.

Speaker 8 (01:16:29):Steve Sokic

Thank you, Mark. I mean being tech enabled is a strategic pillar at IQ EQ. So it sounds all very familiar. Guy, any additional thoughts on sectors?

Speaker 5 (01:16:37):Guy Hayward-Cole

Yes, I think we all know that as Mark was saying so much of the activity, the M&A activity, including around the private equity community has been in the TMT sector in the last sort of 18 months. You know, a lot of that is obviously COVID related because there were COVID winners emerging from the technology sector in particular galore, but even, you know, media sectors and all that stuff. So, that has absolutely driven a lot of the activity and the stats are amazing. Is that going to continue or are people going to be actually start thinking about, well, should we be looking to the other end of the spectrum in terms of COVID, the COVID hit companies and sectors, which, should now be emerging and perhaps have been oversold if there is anything oversold left out there, some of the consumer areas, perhaps some of the leisure sectors and things like that, to find some of the more bounce back type sectors, some of the contra cyclical ones.

Speaker 8 (01:17:44):Steve Sokic

Excellent. Thank you. Thank you Guy. I mean, let's shift again slightly to what was referred to earlier by Winston in terms of reporting. Transparency and reporting, I think in history, have never been as important as they are today and probably going to become more important. What I mean is the demand for accurate, timely consolidated digital multi-asset class reporting. The demand seems quite high, but yet I think it was just more than half of the investors surveyed, came back and said it was essentially average. I mean, overall, neither satisfactory nor dissatisfactory. So Hugh let's turn to you, what's been your experience as to what theexpectations are of an institutional or a private type investor that ticks all the boxes in this regard?

Speaker 10 (01:18:36):Hugh Stacey

Well, I think one thing is the reporting platform, but really what drives the use of that is the integrity of the data, the underlying data and the collation of the data, because you can have the greatest, coolest looking platform there, but if the data is not there, then you're not going to use it. So in terms of reporting platforms, I think the ease of use is a big thing. It's got to look sexy, it's got to look slick. I think, the other area, which especially for alternatives and private investments, it has to be sort of tailored for the individual, whether it's an LP or GP, and depending on their sub-asset class. I think also in terms of being able to have multi-asset classes, because often, especially on the LP side, they're not just investing in private equity or real estate, they're looking at a hedge funds, securities, et cetera.

Speaker 10 (01:19:28):Hugh Stacey

So I think the ability to be able to sort of show everything in a consolidated form is really important. And I think that's a quite difficult thing to achieve. People are really looking at the reporting platform, but forgetting about the collation. You can have the best reporting platform in the world, but if you don't have that data management solution supporting that, then you might as well not use it. And I think that's why we're getting those results today in terms of the survey. A lot of people are talking when they talk about in-house portfolio solutions, I think they're talking aboutExcel to be honest, and it sounds shocking when I say that, but we speak to a lot of  groups based on managers and investors, and they're still saying they're using Excel and I've got to say, I think in the next five years or so, the online reporting dashboards will be the future and the sort of PDF reporting of quarterly reporting  will be a thing of the past.

Speaker 8 (01:20:25):Steve Sokic

Absolutely reporting and I think a lot of the reporting, especially the mode of reporting, the method of reporting digital, technology is also being driven. When we were chatting earlier about the young, the younger generations, the next gens, they want it more real time. And I think that's driving a lot of that demand as well. Finally let's shift to ESG that was also mentioned in the report and in particular that a majority, the vast majority if I recall, of investors made ESG either a priority or certainly high on the focus list in the last year to year and a half. Now, Diana, tell us about your views about this space, the importance of ESG considerations, and perhaps along with ESG reporting and how relevant that is.

Speaker 6 (01:21:14):Diana Noble

I'll keep it quite brief because I think I'm standing between you and the bar. There's one area of the investment world where ESG is not a new thing. The DFIs who invest in, particularly in Africa, South Asia and emerging markets, have had ESG as core to their investment strategies for 20 - 25 years, which is obviously essential because a lot of the companies that they are investing in have very very low standards and these need to be improved, whether it's health and safety or emissions or community relations. I know I'll just tell you an anecdote, which I hope will be relevant to you doing it in your world, which is when I joined CDC, which is a DFI and has been doing ESG for a long time, there were lots of issues.

Speaker 6 (01:22:12):Diana Noble

It was a big turnaround. But the one area that the board were very proud of was that of ESG influence. At the time CDC had 1200 investee companies and it had an incredible book of policies that it expected every investee company to sign up to that said, you will not do this, you will do this, etcetera, etcetera, all based on the IFC performance standards, which kind of drove the market largely at the time. So I sat down with the guy who put this all together, this amazing book and very impressive in one sense. And I just said to him, give me an example where this has led to change in an investee company. And there was silence. So that just says to me the easy bit of the standards and the reporting and the data and everything kind of around it as well.

Speaker 6 (01:23:12):Diana Noble

The hard bit is using ESG to actually improve things in operating companies. And it only changed at CDC when I brought in a couple of really brilliant people who were commercial enough to do two things. One worked hand in glove with the investment teams. So they didn't drive the investment teams mad and the investment teams respected them and wanted them to be part of the investment process. And secondly were to be able to sit with CEOs and management teams and talk about ESG in an incredibly practical, knowledgeable way that then encouraged and resulted in those management teams actually changing things for the better. I think that has a read across to ESG in your world as well in that the policies are the easy bit. Try using those policies to drive change for the better is the hard bit.

Speaker 8 (01:24:11):Steve Sokic

I mean, times are certainly changing in the ESG space. I mentioned my daughters earlier, I can't help it, I'm so proud of them, of course, but the older one was in Glasgow as part of the COP conference as part of her master's degree and when they're learning about that, that young so you think about the future, how it is going to change, and I suspect at pace but before we conclude on ESG, Hugh or Mark, any further comments on ESG and / or reporting?

Speaker 10 (01:24:37):Hugh Stacey

In terms of reporting, I've got to say for private equity related funds, I think it's quite difficult still. I think, historically ESG reporting has been led by the LPs, and I think the quality of the data on the ESG reporting will only improve once you get clear regulations and that's all coming through and there's a lot of regulations coming in. So I don't think it's just nice to have any more in terms of reporting, I think it is a must to have, and if people aren't doing that now, they certainly will very soon.

Speaker 8 (01:25:11):  Steve Sokic

Well demand does drive action, doesn’t it? Mark any other comment?

Speaker 9 (01:25:14): Mark McDonald

Yeah just very quickly, I think the G part of ESG is what private equity has been doing for the past 40 years. It's all about governance, so I think it's really about the sort of the E and the S and I think we're in a bit of an anarchic situation at the moment in private markets in particular, and behind the public markets in this respect, just because it's more difficult to measure and it's also more difficult to do something sort of tangible at the end, but I think the good thing is that we have EU regulation coming in, we have regulation from other areas and I think most of us want to do more in ESG, and I think we are there in terms of the willingness to implement, but I think the playing field is extremely volatile.

Speaker 9 (01:26:08): Mark McDonald

And I think until that settles down, and then you have the capacity to actually do something rather than just measure and report and tick boxes. I think as Diana said, and I completely agree with this, you need to prove to your investors that what you are doing has tangible, measurable outcomes, that you're very transparent and clear on in terms of delivery and I don't think the industry as a whole is there yet. I think in the next five years, it will be transformed. And I think your daughter and my children and all of the young people will look at ESG today in the same way as we look at the 1960s banking advertisements, and I'm hoping we do a much better job going forward.

Speaker 8 (01:26:51):Steve Sokic

Very well said. I mean, if we had more time, I think we could even continue discussion to things like impact investing, which is different than ESG, which I hear a lot from my clients about, but we do have the time that we do. I just wanted to thank you all Winston, Hugh, Diana, Mark, and Guy. I think that was a fantastic discussion. Really appreciate you taking the time and please do join me in thanking them.Stay right there, we’re going to need you again in a few minutes, but to all of you around the world that joined us today, thank you very much for joining us. And again, we'd be delighted to hear your feedback, using the tool on your screens, or any questions you might have as well. We'll be sending a copy of the report that we've talked about a few times now in the survey to all of you here in this room and also attending, virtually around the world. And I'd also like to thank Nomura personally as well who's partnered with us again on this fantastic event and all of our esteemed speakers and panelists today. And I mean, it does take people's time and effort, but this insight is really valuable, particularly around private capital at this time.