The transcript from this week’s, MiB: Jean Eric Salata, Chair of EQT group, is below.
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MASTERS IN BUSINESS
Jean Eric Salata, Chair, EQT Group
Host: Barry Ritholtz, Bloomberg Radio
BARRY RITHOLTZ 00:00:07 I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is Jean Eric Salata. He is chair of the EQT Group, the largest alternative manager outside of the US. They manage over $316 billion. Previously, he helped set up the Baring Private Equity Asia group and built it into one of Asia’s premier private equity platforms. With no further ado, Jean Eric Salata, welcome to Bloomberg.
JEAN ERIC SALATA 00:00:52 Thank you, Barry. It’s great to be here.
BARRY RITHOLTZ 00:00:54 Great to have you. I’ve been looking forward to this conversation for a while. Before we get to EQT, you have a really interesting background, and I want to dive into that a little bit. You grew up in Chile, you went to the Wharton School at the University of Pennsylvania to get a bachelor’s in finance and economics. Was investing always the career plan?
JEAN ERIC SALATA 00:01:20 Well, yes, investing was always the career plan. That’s not how I ended up in Asia, but the idea of going to Wharton and becoming an investor was something I always wanted to do since I was a young boy. I remember reading a lot of biographies when I was a kid—of business people—and being very intrigued by that. I remember having my first paper delivery route when I was like 10 or 11 years old and really enjoying the idea of making money, and then I actually started investing that money as a young kid in the stock market as well, and kind of understanding how that worked. And then when I ended up at Wharton undergraduate, studying finance and management, I got very intrigued with global business outside the US. I come from an international background. My family—we grew up in South America. My grandparents actually came from Eastern Europe and were sort of refugees that ended up in South America. Generation to generation, we’ve been moving around quite a bit, and I always felt like I had quite a different perspective on life and the world than a lot of the people I was at school with. And so I was interested in pursuing that. And, as luck would have it—or fate would have it—I ended up meeting my girlfriend at the time, who’s now my wife, who’s from Hong Kong, and I ended up moving there right after I graduated—a year after I graduated from college—and ended up really building my career in Asia as a result of that.
BARRY RITHOLTZ 00:02:40 And that was Hong Kong before the handover. So: Chile, Hong Kong. You started at Bain as a consultant, ended up everywhere from Sydney to Boston and then back to Hong Kong. Tell us a little bit about that global experience. How has that changed how you look at the world of investing?
JEAN ERIC SALATA 00:03:00 Yeah, I’ve always felt a little bit like an outsider in the way I look at things. I’ve never felt like I was exactly part of the community, or the consensus view of things. I was always thinking about things a little bit differently, I guess, given the background. When I was growing up in the US, I was always comparing things in the US to the way things were in Chile and saying, oh, this is different, or that’s different. Then when I moved to Hong Kong, I had the same perspective. I was thinking, wow, there’s a lot that I see happening—all my friends working on Wall Street or in private equity firms in the late eighties, early nineties—that’s not yet happening here in Hong Kong. It felt like there was a gap there. And that always intrigued me and got me motivated and interested in thinking about starting something new that would try to take advantage of that opportunity created by that gap—of what’s already happening in the US eventually coming to Asia. And that’s sort of what led me to eventually leave consulting and get into private equity in the early nineties, which was really very early in an Asian context in the private equity industry. And from there, to start building the business.
BARRY RITHOLTZ 00:04:13 So you leave Bain. Was the next stop AIG Global Investment? Did you help set up their PE arm, or was that already up and running?
JEAN ERIC SALATA 00:04:23 No. AIG was essentially an insurance business. Some of your listeners might recall Hank Greenberg, who’s sort of a legend. He didn’t actually start that business, but he was the one who really grew it beyond the founder, C.V. Starr’s, initial starting of the business in Shanghai, of all places. And it became a large global insurance company. In those days in Asia, there really wasn’t a private equity industry, but there were insurance companies like AIG that had long-dated liabilities and they needed to find long-dated assets. So you had the stock market and fixed income and so on, but in the private markets there wasn’t really a fund to invest in per se. So they started making their own investments off their balance sheet, into companies, to match their long-dated liabilities. And so it was really working for AIG, in their internal private equity group, that got me started in the industry.
BARRY RITHOLTZ 00:05:17 Foundational experience at AIG—that’s really in private equity. That’s a sentence you don’t hear that often.
JEAN ERIC SALATA 00:05:24 It was early days. It was interesting, because the whole region was really starting to boom. It was the golden period of globalization, with the emergence of not just China, but Southeast Asia—Thailand, Indonesia, Taiwan, Korea. All these markets were starting to really develop and industrialize, and there was a lot of requirement for capital for growth. So we were really growth investors in those days, putting money to work behind companies and helping them to grow.
BARRY RITHOLTZ 00:05:55 And then you move from investor to operator. As executive vice president, you run finance for Shiu Wing Steel—a giant Hong Kong industrial. What was that experience like?
JEAN ERIC SALATA 00:06:07 Yeah, that actually happened before I left to do the private equity. So it was Bain, then Shiu Wing, and then AIG. But the Shiu Wing experience is a part of my background that’s a little bit different, because it’s really a family business, very traditionally run, an industrial company. It’s actually my wife’s family business.
BARRY RITHOLTZ 00:06:30 Oh, really?
JEAN ERIC SALATA 00:06:30 Yeah. It was a very different experience. I went from—
JEAN ERIC SALATA 00:06:35 I went from Bain & Company, you know, sort of business school—
BARRY RITHOLTZ 00:06:41 Very buttoned-down.
JEAN ERIC SALATA 00:06:42 Buttoned-down. Everybody has similar backgrounds, very analytical—to the opposite end of the spectrum, which is a family business. Everybody who’s in management is related to each other, and you’re making decisions based on traditional ways of doing things. But—
BARRY RITHOLTZ 00:06:58 This isn’t a small little family dry cleaner. This is—
JEAN ERIC SALATA 00:07:02 It’s a big business, yeah.
BARRY RITHOLTZ 00:07:03 —a giant conglomerate.
JEAN ERIC SALATA 00:07:04 A sizable business. And it was a good experience for me, because it helped shape, in the very formative years of my career, an appreciation for both sides of the spectrum. On the one hand, you have the need to be analytical, rigorous, to understand global trends—the way you look at things as a business school student. On the other hand, if you’re going to do business in Asia, you have to be a little bit more entrepreneurial. You have to listen to your instinct. You have to be able to develop relationships with people, because ultimately the decision-makers in that part of the world—a lot of them have those sorts of backgrounds. So you need to be able to understand how they think. That was a very valuable experience during my formative years. But I came to the view that I didn’t really want to spend the rest of my career in that sort of setup. So I applied to business school, and I got in—I got into Harvard Business School, actually. I was about to start at Harvard. I literally was there, registered—I’m actually in the picture book—ready to go. And that’s when I got the job offer to come back and work for this private equity division of AIG, which I ultimately decided was really what I wanted to do, rather than go back to school again, having gone to undergraduate for a business degree already. So I decided to defer my business school, go back to work in Asia in private equity. And ultimately I actually never ended up coming back to school.
BARRY RITHOLTZ 00:08:31 So after AIG, you helped launch a regional Asian private equity program for Baring Private Equity Partners—a UK-based bank, right? Do I have the timeline right? So, 1997. What was the investment landscape in Asia like in the nineties? Was that a very underappreciated set of opportunities, or had people started to sniff out that this area was going to be booming?
JEAN ERIC SALATA 00:09:00 It was a very volatile period, actually, if you recall what was going on at the time. Two things happened. In 1995—this is just around the time I was joining Baring Private Equity—Nick Leeson, who is a name some of your listeners may recognize and others may not, brought down this 300-year-old bank.
BARRY RITHOLTZ 00:09:22 Barings Bank. Yeah.
JEAN ERIC SALATA 00:09:22 He broke the bank, out of Singapore, actually trading Japanese stock futures and covering up his losses, which eventually brought the whole bank down. It was a 300-year-old bank, one of the most prominent firms. So what ended up happening is that the Dutch firm ING took over Barings—famously for one pound—and assumed all their liabilities. This was around the time that I had joined. At the time I remember thinking, oh, this is very unsettling—I don’t know what I’m going to do. I was very worried. I had just decided to leave AIG and join this new company, Baring Private Equity. In hindsight, sitting here today, I can tell you it’s probably one of the best things that ever happened to me—to be able to step into a situation that was going through a lot of change. I think it’s an important lesson in life, actually. There are these times when you go through—there’s serendipity, number one, so luck. There’s also the fact that you’re often thrust into situations you don’t expect. And it boils down to how you end up responding to them. Looking for the best possible outcomes, or the best way out of a situation, can sometimes lead to huge opportunities—which is what happened here. Because that confusion of the takeover by ING of Barings resulted in Barings essentially figuring that they didn’t need to have some of these non-core businesses. So I approached the new Dutch owners and asked them if it was okay if we spun our business out, which we did. It was a very small business—we had $25 million of assets under management, which even in those days was not a lot of money. We were really just getting started, and they agreed. So we ended up establishing an independent small private equity business called Baring Private Equity Asia.
BARRY RITHOLTZ 00:11:09 So you kept the name.
JEAN ERIC SALATA 00:11:10 We kept the name.
BARRY RITHOLTZ 00:11:11 BPEA. There was this tremendous transition from what was essentially a startup to what eventually became a pretty substantial institution. What was that like?
JEAN ERIC SALATA 00:11:26 Initially, we were starting off—and again, it was 1996, 1997. If you recall, 1997 was actually the Asian financial crisis, as it’s referred to, which was a terrible period of huge currency devaluations—
BARRY RITHOLTZ 00:11:45 The ruble was worse the following year, with Long-Term Capital Management, if my memory is right. So the Asian contagion was the Thai baht crisis in ’97.
JEAN ERIC SALATA 00:11:53 It was the Indonesian high-yield market as well that blew up. People were basically borrowing dollars because it was cheaper to do so, using that money to invest in their businesses in Asia, thinking they could make the spread and capture that—
BARRY RITHOLTZ 00:12:09 —as long as the currency stays stable.
JEAN ERIC SALATA 00:12:11 Which is okay, but then it is until it isn’t, right? And so that’s what happened. That blew out, and it caused a tremendous financial crisis across the whole region. This is in the middle of when we were getting started. I remember we were writing the first PPM—the first private placement memorandum—to go raise capital. And the whole story in ’96 was about growth in Asia, the growth story. Halfway through writing the PPM, we had to change the strategy to become more of a distressed strategy—how we were going to capitalize on the dislocation in Asia to invest in great companies that had bad balance sheets. Which is sort of what we did with that first $25 million that we started with. Because what happened was that ING gave us that seed capital to get going—the $25 million. They were supposed to give us $300 million, but it ended up not coming through. So we started with $25 million.
BARRY RITHOLTZ 00:13:01 Why is it that there’s such a multiple between the indications of interest and the actual cash?
JEAN ERIC SALATA 00:13:09 What happened in my case is that there were supposed to be three of us coming across to start the business. There were two very senior guys from AIG, actually, who were poached by Barings to start the business for them in Asia. And they asked me—the young kid who was doing all the number crunching—to join them to do the actual work. I said I’d be delighted to, because it was such an exciting entrepreneurial opportunity. Here I am, a young junior analyst, and I get a chance to be potentially a partner in this startup. So I raised my hand. As we were about to get started, the two senior guys got a counteroffer from Hank Greenberg, who called them up and said, hey, you guys are too important, we want you to stay—here’s all this money and equity to convince you to stay. But he didn’t make me a counteroffer. He just cut me loose. So those guys accepted the counteroffer. I was left there on my own, and I went back to the ING folks and said, here I am, I’m ready to do this. They said, well, you’re a little young and inexperienced, it’s not what we’re expecting—we’re going to slash the capital we commit to this from $300 million to $25 million.
BARRY RITHOLTZ 00:14:12 Less than 10%.
JEAN ERIC SALATA 00:14:13 And I said, that’s good enough for me. I’ll take that—that sounds good. So we started with $25 million, and we did five deals of $5 million each. It turned out that because of where we were in the cycle, we were lucky to be able to buy in at good prices. And we bought some interesting businesses—
BARRY RITHOLTZ 00:14:30 That sounds really—
JEAN ERIC SALATA 00:14:31 That got us started, basically.
BARRY RITHOLTZ 00:14:32 That sounds really quite fascinating. So BPEA was in China, India, Southeast Asia, Japan, Korea. Here’s the thing I’m fascinated by. Maybe New York is different from Florida, which is different from Texas, which is different from California—but we all speak the same language, more or less. It’s the same laws, the same regulatory structure. When you’re working throughout Asia, there’s a different legal system, a different cultural dynamic, different political dynamics. How do you build relationships? How do you build a knowledge base and navigate? From an American perspective, are those countries more similar than we imagine, or am I teeing this up correctly—each one is its own independent, unique region?
JEAN ERIC SALATA 00:15:24 You’re absolutely right about that, and that actually is the key, I think, to what we’ve been able to achieve over three decades—overcoming those barriers. Because ultimately, people think of Asia, they call it Asia, but it’s really, first of all, geographic—it’s a huge, expansive region. From Tokyo to Sydney, it’s like a 12-hour flight. And even from Hong Kong all the way to India, it’s still a pretty long distance. And culturally, you’re talking about a very significant difference in the local culture, the local language, the ways of doing business. So what we did initially—and we were actually criticized for this in the early days, because in those days people just did single-country funds for that very reason. You had a China fund, a Japan fund, a Korea fund. What we set out to do was to say, okay, we’re going to create a regional investment program. People looked at me and said, what do you know about investing in Japan? Or, what do you know about India? You’re not even from Asia. And so what I appreciated early on—this has been an important lesson in my career—is that being a good investor is very important for what we do in our industry, but if you want to build a company, which was always my ambition, if you want to build a business out of it, you need to actually build a team, not just be a good investor. Being a good investor is kind of a prerequisite to be in our industry. But beyond that, it’s really about building a team. So I was lucky enough to meet and bring on board some great partners early on, with very diverse backgrounds. We have people, even to this day, from each of these markets. We had great partners from China, from Taiwan, on our team that we hired early on. We had a very good team in India, on the ground in Mumbai. We call it “local with locals,” where you have local teams in each market. In 2005, we opened up an office in Japan and we hired a great team there. As we were building the team, you needed to have people from those markets who understood those markets. But the next question is, how do you stitch it all together? How do you create that common thread? And that comes down to culture—building a culture of like-minded people. So I started to gain a huge appreciation for the importance of culture in a business. And that’s something that EQT, I think, has really excelled in globally. One of the reasons I was ultimately attracted to EQT, in combining our business with EQT four or five years ago, was that Conni Jonsson, the founder of EQT, early on—with the Wallenbergs’ backing—realized that culture ultimately drives performance in an investment organization like ours. So he built an organization with tremendous culture, and our culture was actually somewhat similar. So we were able to bring the two cultures together, and the cultural fit ended up being what made that merger so successful. But going back to building the Asia business—building the team on the ground, building the common culture—then it was, how do we institutionalize this, instead of just doing deals here and there? How do we create a unified, systematic approach? This is where my Bain days came in: let’s come up with some constructs about how we think about capital allocation, how we think about diversification, how we think about macro, how we think about sector trends, how we think about our investment committee process. How do we drive systematic due diligence in every market, so we have quality control in each market—it’s not just random deal makers doing things the way they want to on the ground? And so pulling all that together took a lot of time. I’m shortening it here, but there were a lot of ups and downs, a lot of mistakes, a lot of setbacks. But eventually we got there, and we refined our strategy over the years and created something that’s actually quite hard to replicate—this regional platform delivering consistent outcomes, with a great team of consistent people who have been with us a long time and have a similar approach to underwriting and, ultimately, great performance. So, going from $25 million, by the time we did the deal with EQT we had $25 billion under management—over the span of what was 25 years of building the business.
BARRY RITHOLTZ 00:19:38 Coming up, we continue our conversation with Jean Eric Salata, chairman of EQT Group, discussing the combination of BPEA and EQT. I’m Barry Ritholtz, and you’re listening to Masters in Business on Bloomberg Radio.
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BARRY RITHOLTZ 00:20:12 I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Jean Eric Salata. He is chair of EQT Group, one of the largest alternative managers outside of the US. They manage $316 billion. So let’s talk a little bit about how this all came about. In 2022, you merged BPEA with EQT—a $7 billion deal that followed about 25 years of independence. What led to that decision to merge? What could EQT offer that BPEA couldn’t build on its own?
JEAN ERIC SALATA 00:20:52 Yeah, I think what I started to sense in about 2015 was that the industry was changing—our industry was changing globally. You started to see global firms moving into Asia. You started to see some firms going public. You started to see multi-product firms developing beyond just a single product, single asset class—scale. And I realized that although we were doing very well and growing successfully, if we wanted to make this a multi-generational business that’s going to continue to thrive, we wanted to be part of this industry consolidation, this trend toward scale—rather than be pushed aside by it. That’s when I started thinking, what are our options? One option was to try to expand beyond Asia and develop our business outside the region. That was going to be pretty difficult at this stage, because the business is becoming so large and entrenched globally. And then I started looking at ways of working with others. That’s when I met EQT, really through their own IPO, which they had recently done—they had gone public in 2018, 2019. I was curious about that. I went to speak to them about how they had done it. We started talking, and one thing led to another, and by the end of the conversation it became evident to all of us sitting around the table that there was something here that could be quite powerful if we were to bring the businesses together.
BARRY RITHOLTZ 00:22:22 You mentioned earlier how important culture is to performance in an investment world. I would imagine that a Swedish firm like EQT and essentially a regional Asian firm like BPEA—you’d imagine those are very different cultures, and there’s going to be a challenge integrating the two. What was your experience like trying to get all the horses pulling in the same direction?
JEAN ERIC SALATA 00:22:53 I think initially you could imagine that would be the case, but as it turns out, a few things. First of all, EQT started off as a Swedish firm, but by the time we met it had really already become a much more global business—first Swedish, then European, expanding into Europe, and then expanding into the US, with some presence in Asia, not much. Secondly, EQT is backed by the Wallenberg family. The Wallenberg family is a sixth-generation family from Sweden that has a history of doing business globally—investors in Ericsson, Electrolux, Saab, AstraZeneca, many of the big Swedish companies. So they have a very global mindset in the way they think about doing business. And then I think the other aspect here is there’s a difference between a European firm like EQT and, say, American firms. The European firms are already thinking in terms of, well, every country’s different. The Nordics are different from Germany, which is different from France, which is different from Southern Europe. So when they come to Asia, they have a heightened sense of appreciation for the cultural differences within Asia. To me that was really important—that they understand that within Asia, Japan is very different from India, and India is very different from China. So I felt almost like there was a kindred spirit there, understanding that each country, each region—the cultures really matter. Then I’d say if you look at the histories of the firms, we’re both about 30 years old at the time. We both had our ups and downs. We both kind of built the business from a founder—Conni and myself. There was a lot of common, shared history there. And ultimately it boiled down to the chemistry of the senior team, but then ultimately the culture throughout. I felt very comfortable with it. We spent some time together, meeting with the team members, meeting with each other, and we ended up feeling like this was going to be a great fit—still taking a chance in bringing the businesses together. But having done it now, having been together for nearly four years, I can tell you it’s been a huge success. It really boils down to the fact that the people, the cultural fit, was very strong. Maybe a good time to talk about the values of EQT, which are similar to the values we had at Baring Private Equity at the time. There are some key values that EQT has. Number one, it’s high-performing—which is something most people in our industry are going to focus on. But beyond that, we focus a lot on transparency. We focus on being informal. We focus on being entrepreneurial. And we have a fifth value, which is respectful. If you take all those as a package, what you start to sense is the sort of people who end up coming to EQT and staying at EQT. It’s not the typical deal maker—the Wall Street type of deal maker that you get in some parts of our industry. And I think that really appealed to the makeup of our firm at the time—having that really informal interaction with people. That’s a little bit of a Nordic trait, I would say—this lack of hierarchy. Take a look at Conni: he’s the founder of the firm, and he opened up the ownership of the firm early to all the partners. The fact that he was even open to combining with my old business and, in a sense, diluting even further on a fairly large transaction—that speaks to this expansive view of, we’re trying to build an institution here. It’s not about any one individual, it’s not about creating a legacy of any one individual. It’s about creating a business that’s going to last. That mindset really appealed to me, and felt like the kind of place that was a good home for the company that we had built as a partnership prior to that.
BARRY RITHOLTZ 00:26:43 Really interesting. Let’s talk a little bit about how the capital is invested. 65% of EQT’s capital is in Europe and Asia. How do you think about geographic diversification? It’s always a challenge.
JEAN ERIC SALATA 00:26:59 I think diversification is becoming more and more top of mind for global investors, particularly when we talk to our institutional investors. Even in the private wealth channels, you’re starting to get a sense that people feel overly concentrated, over-extended, maybe, in US assets. Not to say that US assets are not attractive, or that they don’t have great prospects—which they do. But having 85, 90% of your assets tied into a market that’s already highly concentrated is becoming a little bit uneasy for people. So what we’re sensing with our clients is a desire to get exposure to more global markets. And where we’re strong is, we have two-thirds of our business outside of the US. We’re very strong in Europe, very strong in Asia. Within those markets, we’re also exposed to some of the best sectors—we have a very thematic approach. We invest in healthcare, we invest in technology. Actually, we just announced yesterday—I don’t know when this is airing—that we’ve been awarded the Scale Up Europe Fund mandate by the European Commission, which is a huge deal. They decided to award EQT the management of what’s going to be a $5 billion fund that will invest in early-stage technology ventures across Europe to help them scale up—so series B onwards, in areas like quantum computing, AI, life sciences, AI infrastructure, industrial technology—really taking the innovation that exists in Europe and scaling it up to compete globally, at global scale, with some of the innovation you see in the United States and in China. So we have exposure to some of these really interesting parts of the global investment landscape, and that’s very additive to what investors typically would have. Their traditional portfolio would be much more heavily weighted toward the US, and this is a way to get a little bit broader global diversification.
BARRY RITHOLTZ 00:28:53 Really interesting. When we look at the performance of various markets, really going back to the great financial crisis, it feels like Asia and Europe very much lagged the US, up until a year or two ago. I’m curious how you look at some of the macro tailwinds that Asia is certainly enjoying, as we see a shift toward China in many ways, especially leadership. And how do you see Europe? There are some tailwinds, some headwinds—they seem to be a little more complex in trying to figure out what direction they’re heading.
JEAN ERIC SALATA 00:29:34 Exactly. I think what we’re starting to see globally right now is this CapEx supercycle that is playing out with AI infrastructure—but not just AI infrastructure. It also feeds into the reindustrialization focus, the CapEx for reindustrialization.
BARRY RITHOLTZ 00:30:00 Reindustrialization—explain what that means.
JEAN ERIC SALATA 00:30:07 Meaning investing back into more of the industrial base of, say, the United States or Europe, away from just outsourcing all of it. So this reindustrialization, the AI CapEx infrastructure, plus the whole power and energy transition that’s going on with electrification—this is resulting in much more capital-intensive investment than we’ve ever seen before. The numbers people are throwing around are just unprecedented within our lifetimes. It’s historical, the levels of investment that we’re seeing. And that has knock-on effects throughout the whole supply chain. A lot of the supply chain actually feeds back into Europe. It feeds back into Asia, certainly. So this global supply chain of capital expenditures is creating new investment opportunities and demand for capital that we have never seen before, in terms of the quantum of money that’s required to make this investment play out. So broadening that exposure across the regions is where we see opportunity. If I look at the world today, the AI infrastructure opportunity globally is probably the single biggest, most interesting investment opportunity for us. It means investing in a couple of key areas. One is the compute, or data center, space. We have one of the largest data center businesses in the world, called EdgeConneX. It’s active both in the US and in Europe, and now increasingly in Asia. We have a joint venture in India, for example, with the Adani Group, in EdgeConneX. That data center business has over 90 data centers. It’s increased in value—we’ve owned it now for six, seven years—I think it’s increased by 20x in terms of the total installed capacity of the business. In addition to that, we take an end-to-end solutions approach. So we have the compute, but we also have about $100 billion of investment into energy—the whole energy grid, power generation and storage. This is a really important part of the comprehensive solution that you need to drive AI compute. So we’ve got the energy, we’ve got the compute, and we’re also investing in the digital infrastructure to connect it all—the digital connectivity of all of this. If you tie that all together, our infrastructure business is really riding some of these global tailwinds—not just in the US, but really doing this globally. Then in addition to that, the other thing that’s pretty interesting, if you take a non-US lens on the world, is what’s happening in Japan. The Japanese buyout market is really on a tear. It’s being driven primarily by some corporate reforms around shareholder reforms and increasing shareholder activism—which is supported, actually, by the Japanese government, to improve corporate governance. That’s creating opportunities to really focus on shareholder value and resulting in a lot more deal flow. The number of transactions we’ve seen this year alone is up 60% year to date. The total number of activist shareholder campaigns has doubled in the last few years—from 50 to over a hundred a year—on the back of some of these reforms. So you’re seeing a whole new market developing there for Japanese buyouts, which is very uncorrelated and very complementary to the traditional buyout opportunities that exist in the United States. And then, together with the AI infrastructure opportunity, which is more global, there’s just a lot happening in our ecosystem, which we see as being very additive, very complementary to just the traditional bread and butter of US exposure to private equity or US infrastructure.
BARRY RITHOLTZ 00:33:40 So I have so many questions to go from that.
JEAN ERIC SALATA 00:33:43 Sorry, maybe just one last point on that. You started the question off with the outperformance of the market. What ended up happening last year, as you pointed out, is that the stock markets—if you look at listed markets as a proxy—the S&P 500 did pretty well. It was up sort of 18% or something—
BARRY RITHOLTZ 00:33:58 17, yeah. Versus 33 overseas.
JEAN ERIC SALATA 00:34:00 But everything else, in Asia, was up much more than that, as it turned out. Even—
BARRY RITHOLTZ 00:34:04 Europe, Korea—amazing. Who would’ve guessed?
JEAN ERIC SALATA 00:34:06 Korea’s up 60% last year. Hong Kong was up, Japan was up in the thirties, and even European stock markets did better than the US last year. So the idea that you have all your pension, all your retirement money in one market—it’s worked pretty well for the time being. But the idea of correlation and concentration—markets don’t always go up, they go down as well. I think the old diversification strategies do play a role in long-term asset allocation. And that’s where EQT, I think, has something.
BARRY RITHOLTZ 00:34:40 I have so many questions about Europe and Japan and Korea, but I have to come back to China for a moment. For the better part of the past two or three decades, China has been the center of Asia. It feels like the geopolitics, the regulatory environment—everything has shifted fairly dramatically. How do you look at China? Are they still the 800-pound gorilla, or are there enough offsetting economies that are really growing and seeing gains in their markets that it’s not all about China the way it once was 10, 20 years ago?
JEAN ERIC SALATA 00:35:25 The world geopolitically is becoming more polarized, and maybe creating more silos in certain strategic areas like technology and defense, as the winds have shifted. That’s just the reality of the world we’re living in. Having said that, I do think there’s still this underlying ecosystem of interdependence and a desire, I think, to work together—I hope—in areas like, for example, medicine. If you look at the biopharma, the biotech industry, there’s a lot going on right now between China and the US. A lot of the early-stage trials being done—many of those are getting acquired by US pharmaceutical companies and then rolled out for the benefit of humanity all over the world. These are areas where there’s scope for cooperation, and I think everyone can benefit from that. There are areas that are much more sensitive when it comes to technology and chips and semiconductors. But even there, it’s important for all investors, for all businesses, for governments, for policymakers, to at least understand what’s happening in China, because I think it’s relevant—it has an impact on the global outlook. You look at EVs, you look at the solar industry, you look at what’s happening in battery storage—having access to that sort of know-how ultimately is going to be important for everyone. How you do that in a way that protects your national interest is a topic of the day for policymakers globally, in the US and Europe. I think people are looking at that differently than they used to, in terms of how much they’re willing to outsource versus how much they want to do themselves. This Scale Up Europe Fund that I just mentioned is also a policy response to wanting to create homegrown innovation and scale it—which makes sense, the way the US wants to do that and the way China wants to do that. I think the Chinese economy—it’s truly impressive what’s happening there in terms of innovation, the way the economy is growing, and the amount of R&D. If you look at the patents being filed, the level of innovation, how the innovation is being commercialized. But at the same time, there are some very exciting things happening in Europe and in the United States. Obviously the US is also leading in many ways when it comes to AI. One of the things to keep an eye on, by the way, is the cost-of-compute differential between the US and China. There is a big difference in how compute is generated and ultimately the cost of that compute per token to users, which is going to become more of a focus going forward than it has been up until now—where it’s kind of been viewed as a must-have, almost free, available to all employees. There will be more focus on ROI, and this is where people are going to start looking at the competitive position of cost of compute in different markets versus what’s happening in the US.
BARRY RITHOLTZ 00:38:28 Last question on EQT, before we start talking a little more about the environment out there today. How do investors in EQT manage their exposure? Are they putting money into one fund that has a little bit of everything, or do people get very granular—or a little bit of both?
JEAN ERIC SALATA 00:38:49 We have 30 different strategies at EQT, across four different areas: private equity, infrastructure, real estate, and secondaries. Secondaries is our newest area—we’ve just announced that we’ve acquired Coller Capital. It hasn’t closed yet, but we’re in the process of bringing that on board. So we have 30 different strategies, and I think we have both. We have the drawdown funds, which are the main institutional vehicles for committing traditionally, as you would, to a fund that invests in buyouts, or in growth capital, or in life sciences, or in real estate. But increasingly—and this is the highest-growth part of our business, and for the industry as a whole—we have the open-ended structures. Some people call them evergreens. We don’t call them semi-liquid, because they’re not liquid; they’re not even semi-liquid; but they’re open-ended. And what open-ended means is that you can subscribe to them every month and you can redeem every quarter, subject to the underlying liquidity availability in the quarter. What we’re starting to see is a couple of advantages of the evergreen, or open-ended, structures. Number one, they do invest across everything, so you don’t have to choose which funds you want to invest in—you get broad exposure. Number two, they invest 100% of your money immediately into the asset class. So we’re starting to see institutional investors use this too, not just the private clients, because they’re able to dial up and dial down their exposure instantly. If you want to have a certain percent of your portfolio in private markets, rather than waiting for the capital to be called over the next two, three years, you can just put it to work immediately into the asset class through these evergreen structures, which are fully invested on an NAV basis immediately. So that’s one of the interesting aspects. The other interesting aspect of our evergreen, or open-ended, structures is that—unlike some of the other products out there, which have designated investment strategies or investment teams for those open-ended structures—our open-ended structure is essentially pari passu alongside everything we do. You get exactly the same exposure to exactly the same deals, the same pricing, the same everything that we provide to our sovereign wealth fund clients, that we provide to our institutional clients. It’s all allocated across equally. So there’s no cherry-picking, no different strategies for the wealth vehicle versus the institutional vehicle. It’s a single vehicle. And then the other key aspect of our investment program—which is sort of why we’ve landed where we’ve landed in terms of our fundraising last year—for example, we’ve just announced the closing of our Asia fund, which is a $15 billion fund. It’s the largest fund ever raised in Asia: $15.6 billion. The reason we’ve been able to achieve this is because of the exits and liquidity profile of our investment program. It’s been a tough environment for exits and liquidity—it’s one of the challenges you read a lot about in our industry. We actually had a record year for exits last year at EQT.
BARRY RITHOLTZ 00:41:45 $40 billion?
JEAN ERIC SALATA 00:41:47 $40 billion, something like that. We had $40 billion in distributions, and that’s huge. It’s huge. It’s a record—
BARRY RITHOLTZ 00:41:53 That’s more than 10% of total invested dollars. That’s tremendous.
JEAN ERIC SALATA 00:41:57 It’s actually about 30% of the NAV of the strategies that that covers. And if you look at active funds, and the liquidity profile there, it even included a significant amount of tapping into the equity capital markets—the public markets. We were actually the number one ECM firm last year. We had $15 billion of equity capital markets activity, ranked number one—by far, actually—relative to all the other private equity firms out there, on the back of just having some really interesting assets that the market was open for.
BARRY RITHOLTZ 00:42:31 Meaning, when you have a liquidity event, that money doesn’t just sit in bonds—you put it actively into equity markets?
JEAN ERIC SALATA 00:42:39 No—meaning that we’re able to take our companies public, or sell down through the public markets, as an avenue of getting liquidity, versus just trying to sell to other buyout funds or to strategic buyers. Those deals have been a bit slower, and even the IPO markets have been challenging. But within a challenging IPO market, we had the highest level of activity of all market participants.
BARRY RITHOLTZ 00:43:01 It’s amazing. My bias is to not think IPO, because of what we’ve seen the past five years—but thinking some exit, and then just park the cash there. I have it exactly backwards: you exit through the IPO market, and then you distribute the cash to LPs.
JEAN ERIC SALATA 00:43:18 Exactly. Our biggest exit last year globally was a company called Galderma, which is a European medical aesthetics business, providing medical aesthetic products including things like Botox, that have been on the rise—and completely uncorrelated to AI dislocation. An investment that did extremely well for us. In total, over the last two or three years since we took it public, we’ve realized something like $24 billion of distributions from that single investment. Last year alone, we sold over $8 billion in one single tranche, which was the largest transaction ever completed in the public markets by a private equity firm. So the point of all this is really to say that in a tough market, where people are looking for distributions, it’s nice to be diversified globally—where you’re not tying all your liquidity proceeds to a single strategy or a single market, but you have exposure to multiple markets, and you’re getting cash back from different strategies to give you the cash you need at a time when you’re lacking distributions from other parts of your portfolio.
BARRY RITHOLTZ 00:44:25 Really fascinating. Coming up, we continue our conversation with Jean Eric Salata, chairman of EQT Group, discussing the combination of BPEA and EQT. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.
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BARRY RITHOLTZ 00:45:16 I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Jean Eric Salata. He is chair of EQT Group, one of the largest alternative managers outside of the US. They manage $316 billion. So let’s talk a little bit about the state of alternatives and markets in the current environment. You mentioned artificial intelligence, energy transition, healthcare, digitalization. What has you most excited in Asia over the coming decade?
JEAN ERIC SALATA 00:45:34 I think in Asia, as we were touching on a little earlier, there are a couple of big themes we’re excited about. One is this CapEx supercycle, which is feeding through the Asian supply chain. When you’re talking about building data centers or semiconductor memory chips and so on, there’s a whole supply chain that feeds into that—whether it’s the cooling, the grid, the capital equipment used to manufacture, the testing equipment, the services around that. So there’s a whole supply chain that’s seeing elevated activity and growth. I think the number is something like an incremental $5 trillion of CapEx being spent in Asia within the industrial supply chain between now and over the next five years. It’s growing at about 15% a year. So you’ve got healthy growth, tremendous CapEx spend. It’s a little bit of the picks-and-shovels approach: you have this tremendous boom in AI, and there are knock-on effects into the supply chain, and Asia’s pretty well positioned to participate in that. You look at markets like Korea, like Japan—those are probably two of the biggest beneficiaries—and certain parts of Southeast Asia as well. So we’re excited about that. I think the second big opportunity, which we touched on earlier as well, is just the Japanese buyout market, and the level of reform you’re seeing there, driving increased deal flow—driving really what I call the excess-returns opportunities that private equity is good at and should be focusing on. The days of buying undermanaged assets—either changing the management or enhancing the strategy of the business in order to close the gap between the operating performance of the business and the full potential of the business—that’s the traditional playbook of private equity. It’s gotten harder to do in parts of the market that have become more efficient globally. You have a lot of shareholder activism already, so most public companies are already doing what they should be doing. But in Japan, they’re a little bit still further behind. And now you see a big push by the Japanese authorities and political leadership to drive efficiency in their economy and to drive corporate governance reforms, which is trying to close this gap between full potential and performance. As a result, there are a lot more assets being sold—either corporate divestitures, take-privates, or generational change happening with founder-led businesses—where you’re buying a business and you really see the opportunity to simplify and improve execution. It’s really about that: focusing the business in fewer areas, and then improving execution on management.
BARRY RITHOLTZ 00:48:22 Let’s talk about energy transition. It feels like here in the United States we’re sort of backing away from a lot of alternatives. Asia seems to be full speed ahead. What are you seeing as opportunities in that space?
JEAN ERIC SALATA 00:48:38 We see a lot of opportunities across both Europe and Asia in the energy transition. With what’s going on now in the Middle East as well, it’s kind of driving home the point that energy security is going to be even more critical in the future. There’s a tremendous technological push of innovation coming out of China in terms of supply chain—for batteries, for solar, even areas like hydrogen. You’re starting to see a lot of very interesting scaled-up innovation there. We have a big infrastructure business in Asia that invests in the energy transition. We invest in battery storage, for example. We have a big business in Australia now—Australia is big in this area. We expect to see more opportunities there. Singapore’s been a leader, actually, in funding the energy transition throughout Southeast Asia—very forward-thinking in that regard. It’s just a large investment opportunity that ultimately, with energy transition and climate-related concerns, the real catalyst here is ultimately going to have to be the market forces that drive this forward. It has to be that it’s more cost-competitive, more cost-effective, to do things using electricity and the grid than using fossil fuels. Otherwise, if it’s not more cost-effective, the market forces aren’t really at play, and you’re relying on policy or relying on philanthropy—and it’s just harder to see these things scale. But we’re getting to this tipping point where the cost curves are coming down, the security concerns are becoming real. And when that happens, then, with scale, with volumes—whether it’s EV batteries or solar panels—you’re starting to see the big uptake in the movement in that direction.
BARRY RITHOLTZ 00:50:27 We’re getting a sense in the United States that the war in Iran and the shutting of the Strait of Hormuz is, paradoxically, accelerating the move away from gas, oil, crude, coal—even toward alternatives. What’s the perspective like from Asia?
JEAN ERIC SALATA 00:50:46 I would agree with that. I think energy security is top of mind. Certainly China has moved very much in this direction—they have the largest installed base of renewable energy, and they’re the largest investor in renewable energy globally. They’re moving in that direction probably mainly for energy security reasons, as well as global competitiveness reasons. And then eventually it’s also going to come—I mean, there’s still a multi-decade run in fossil fuels, for sure, that’s going to play out—but ultimately there’s going to be a cost issue related to fossil fuels. If you want to be competitive as an economy, what’s your cost of energy? If energy is a scarce resource and the cost of energy is going higher and higher versus the other alternatives out there, and you haven’t invested in that, you’re playing catch-up. It will feed through to the rest of the industrial base. And I think this is where it’s important to take a longer-term perspective, and where private equity can play a role—thinking through the next five, ten years. How do you make companies more competitive? How do you drive innovation? How do you drive investment in energy competitiveness and the energy transition to help this happen?
BARRY RITHOLTZ 00:51:55 We haven’t really talked about India, which has always felt like it was, oh, two years away—this is really going to be the next powerhouse economy. It always feels like it’s on the verge. What are you seeing there? It kind of feels like one of the more compelling growth stories.
JEAN ERIC SALATA 00:52:14 I like India a lot. We’re very, very bullish on India. It’s been the biggest market for us over the last five years in terms of where we’ve invested. Historically, the story’s been a lot about technology investments, in the tech services industry primarily, which has been a beneficiary of global investment in technology and the tech stack and the migration to the cloud. That has hit a little bit of a disruption now with what’s going on with AI. But they’re quickly adapting to it and using AI tools to actually make enterprises more competitive, and to help diffuse AI into the enterprise—using the skills and the millions of computer technology programmers and labor available to help drive AI adoption, which is one of the things India is very competitive in. But the bigger story in India, I think, for the next five years is more about the consumer and the growth in the middle class. One of the big beneficiaries of the growing middle class—as you’re now seeing a huge increase—it’s the largest population in the world, 1.4 billion people. It’s also the youngest population in the world, so the demographics are very favorable. One of the big early beneficiaries that we’re starting to see on the ground in India is the healthcare sector. Housing and healthcare. The first thing people do when they start to save and generate a good income is buy a home, and then they want to make sure their family is well looked after—their parents and their children well looked after from a healthcare standpoint. So we’re seeing strong demand for housing, housing finance, and for healthcare, which are some of the areas we’re investing in in India.
BARRY RITHOLTZ 00:53:48 So I’m going to paraphrase a quote of yours: “Talent is the key to unlocking outsized returns in private equity.” You’re looking at India, China, Japan, Korea, Europe, and the United States. How do you find and develop management teams in such a broad, diverse selection of regions? That sounds like its own specific challenge.
JEAN ERIC SALATA 00:54:14 It is. One of the things we’ve learned over the years is the importance of being able to be what we call an active owner in the businesses we buy. That has really meant that we’ve migrated primarily to a controlled buyout strategy—other than in our early-stage tech strategies. But in our main strategies, we’re a buyout investor, which means we have control. Having control enables you to really effect change in the business, and it collapses this agency problem that you see between ownership and management in many other markets around the world—and Asia is no exception. We’re starting to collapse that, and see that collapse, in Asia, through the ownership model—the governance model, really, that private equity brings when we invest, as an industry. As a result, as we’ve scaled our business over time, you’re starting to be able to really develop pools of talent. For example, we have seven, eight hundred what we call industrial advisors globally across EQT, from different industrial sectors that we invest in. We tap into those to come and become what we call our non-executive chairs, or independent non-executive chairmen. So we have a chairman we bring in from industry. We usually have a CEO—either the existing CEO or a new CEO. And then we have our deal partner. That combination of those three people is the governance structure for our investments that drives the active ownership model for our business. We’re also seeing a bigger pool of domestic talent now that we’re able to develop within, say, Japan, within India, through multiple private equity-backed investments that we’ve made—where the same CEO, for example, that we work with before, we can work with that same individual again, because the model has now been tried and tested and been around for a couple of decades. So you’re developing a much deeper bench of talent in private equity in Asia than you’ve had in the past. And that’s been a key driver of returns—the combination of governance through the buyout strategy, plus the talent pool that’s available now.
BARRY RITHOLTZ 00:56:12 I have one last question before we get to our favorites that we ask all our guests. What do you think investors are not talking about or thinking about, but should be, when it comes to private equity—different geographies, different regulatory policy changes? What is getting under-noticed or overlooked but shouldn’t be?
JEAN ERIC SALATA 00:56:34 I think one of the really interesting developments is what’s happening in the convergence between public and private markets—companies staying private longer, and the blurring of the lines there. How do you get exposure, if you’re an investor, to the best businesses in the world? Do you wait until they become public, or do you do it before they become public? Historically, it was a very small minority of institutional investors that really got exposure to private markets. Individual investors had almost zero. That’s changed a lot in the last few years, but it’s going to change, I think, even more as we move into the coming years and people start to participate more—the democratization of our asset class that people talk about. I think a big trend related to that is the blurring of the lines, or convergence, between the secondary market and the primary market of private equity. Those two used to be viewed as completely different things. You invest in a private equity fund, and if you can’t get your money back after seven or eight years, you find someone to buy those interests from you—that’s a secondary market. That has changed. Think about the public markets: when you invest in a stock, you’re buying a secondary position. When you buy Apple stock today, you’re buying it from someone who’s selling it to you. You’re buying a secondary; you’re not buying the IPO of Apple—that was a primary that happened 25 years ago. The same thing’s happened in private equity. All the companies that are private—in order to buy them, you had to buy them as a primary, through a fund that bought the company as a private deal. Well, now we have $3.8 trillion of private companies out there that are unrealized, that everybody’s complaining about. That actually is the foundation of a secondary market now in private companies—private assets that you and I and others can start to participate in through the secondary market. You don’t need to find a new deal to buy; you can buy an existing business that’s privately owned, if you like it, if it’s got great return potential, if it’s the right price. It’s another way to get exposure to the asset class—through these evergreen structures, for example, and particularly through the secondary market structures, which is the way a lot of institutional investors are starting to think about it. If I want to dial up or dial down my exposure to private markets, I can use secondary structures. I don’t need to invest in a private equity fund per se; I can do that through the secondary markets.
BARRY RITHOLTZ 00:58:52 So let’s jump to our speed round, starting with: who were your early mentors who helped shape your career?
JEAN ERIC SALATA 00:58:58 I was very lucky. I had a third-grade teacher who took an interest in me and kept me after school to help me work on independent projects. It was like an outlet for my creativity, which I felt was frustrated in class. Really amazing teacher.
BARRY RITHOLTZ 00:59:13 Let’s talk about books. What are some of your favorites? What are you reading currently?
JEAN ERIC SALATA 00:59:17 I read a great book called Why the West Rules—for Now, which is a sweeping history of why the industrial revolution happened in the West and not in Asia and the East. But it talks about how, going forward, that could change. If anybody’s interested in history, I highly recommend that book.
BARRY RITHOLTZ 00:59:33 Really, really good. Final two questions. What sort of advice would you give a recent college grad interested in a career in either investing or private equity?
JEAN ERIC SALATA 00:59:44 Two things I would say. One, you need to be AI-native these days—which was obviously not the case when I was starting out. And secondly, perseverance. Don’t give up. Stay in the game, because things come and go. You get knocked down, you get back up, you stay in the game, and new opportunities arise.
BARRY RITHOLTZ 01:00:00 Final question. What do you know about the world of private equity, private real estate, credit, infrastructure—alternatives—today that might have been useful back in the nineties, when you were really getting your legs under you?
JEAN ERIC SALATA 01:00:13 The so-called eighth wonder of the world, which is the power of compounding. I wish I’d appreciated that a bit more. After 30 years of investing—if you let something ride for 30 years, generally, if it’s a decent business, it’ll be worth a lot of money.
BARRY RITHOLTZ 01:00:27 Jean Eric, this has been absolutely fascinating. Thank you for being so generous with your time. We’ve been speaking with Jean Eric Salata, chair of the EQT Group. If you enjoy this conversation, well, check out any of the 640 we’ve done over the previous 14 years. You can find those at iTunes, Spotify, Bloomberg, YouTube—wherever you get your favorite podcasts. I would be remiss if I didn’t thank the crack team that helps put these conversations together each week. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna Luke is our producer. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.
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