Erin Sarret-.mp4

Back

Or filter by your interest

Browse all our content

SuperReturn

Unlock all the content with only {{price}}

Erin Sarret_.vtt

ENGLISH

{{00:00:04}}
Erin, thank you so much for
joining me here at Superinvestor.

{{00:00:07}}
Great to see you again, as always.

{{00:00:08}}
Thanks, Emma.

{{00:00:09}}
Always good to hear your insights and
particularly to talk about what the LPs

{{00:00:14}}
are all interested in at the moment.

{{00:00:16}}
What are they most focused on
and how are they moving markets,

{{00:00:20}}
if you like, at the moment?

{{00:00:21}}
Yes, so like anything, LPs
are the investors and so we

{{00:00:25}}
need to follow the money.

{{00:00:26}}
Their allocations are slightly changing
in the sense that they have to sometimes

{{00:00:31}}
find additional pockets For climate.

{{00:00:34}}
That is an urgent issue,
obviously, but I think we can see

{{00:00:37}}
a big change in the landscape.

{{00:00:40}}
So we have many, many more GPs
out fundraising without giving

{{00:00:47}}
liquidity to their investors.

{{00:00:49}}
So there are lots of different structures
around with the GP stakes or the nav

{{00:00:54}}
lending or other kinds of strip sales.

{{00:00:56}}
But that is not really
changing the way they invest.

{{00:01:00}}
That's just changing the way of liquidity.

{{00:01:03}}
We're also seeing a lot of regulation,
and so people are overwhelmed with

{{00:01:07}}
the amount of regulation out there.

{{00:01:09}}
But at the end of the day,
the LP is investing in private

{{00:01:12}}
markets for an extra return.

{{00:01:15}}
So what are they looking at?

{{00:01:16}}
They're looking at the team.

{{00:01:18}}
The track record and trust.

{{00:01:20}}
And we've really developed a currency of
trust now that says, I will invest with

{{00:01:25}}
you if you actually do what you say.

{{00:01:27}}
And I don't want just financial
returns, we want extra.

{{00:01:30}}
So we want value creation through whatever
that is that is important to the LP.

{{00:01:36}}
As an example, an endowment may want
to create more surface among their

{{00:01:42}}
own university for more UK venture.

{{00:01:46}}
Let's say if they're based in
the UK or France or whatever.

{{00:01:48}}
So that will be a priority for them to
invest in that particular asset class.

{{00:01:52}}
So that is the additionality
they're going to look for.

{{00:01:54}}
And so we're seeing more
fragmented allocations.

{{00:01:57}}
It's not everybody just saying,
I want private equity buyout.

{{00:02:00}}
We're seeing differentiation in the
allocations, which then creates more

{{00:02:04}}
room for additional GPs to be out there.

{{00:02:07}}
But you still have to meet
the return expectations.

{{00:02:10}}
and something else.

{{00:02:11}}
It's quite a complex and nuanced
picture now compared to the past.

{{00:02:15}}
What does that require those
firms to be able to do?

{{00:02:17}}
So it's, it's in the sense of,
it's still back to basics, right?

{{00:02:21}}
You still have to make money, but you
need to do it in a way that is not

{{00:02:26}}
going to have any reputational risk
because LPs don't want, even if they

{{00:02:30}}
make tons of money, let's say on the
nursing home, they don't want us, we

{{00:02:34}}
saw in the COVID crisis, they Granny's
dying or getting kicked out, right?

{{00:02:38}}
So that reputational risk, and
again, that's why I get back to the

{{00:02:41}}
trust currency, is quite important.

{{00:02:43}}
And we say ESG, but in fact
it's about sustainability.

{{00:02:46}}
It's about resilience.

{{00:02:48}}
It's about saying, you know, if I'm
going to invest in Volkswagen, which

{{00:02:51}}
is a public company and they had
Dieselgate, they not only lost shareholder

{{00:02:55}}
value, but there's ongoing ripples.

{{00:02:58}}
Because even today, they're
still doing recalls, right?

{{00:03:01}}
Because they were greenwashing.

{{00:03:03}}
So, let's just be honest.

{{00:03:05}}
It's very basic, right?

{{00:03:07}}
Get a good team together, have a great
track record, and do what you say.

{{00:03:10}}
Private equity has historically
been quite opaque as well.

{{00:03:14}}
So reputationally, this is
really important to move forward

{{00:03:17}}
now into the, you know, 2025.

{{00:03:19}}
And onwards, we've got to look more
modern in that approach anyway.

{{00:03:23}}
So the really good GPs are not going
to be affected so much by regulation,

{{00:03:27}}
because the regulation that is going
into place in the ESG, if we use that

{{00:03:31}}
generic term, is just catching the
laggards, the best in class will already

{{00:03:35}}
have been doing these things, because
guess what, it builds better businesses.

{{00:03:38}}
Can we prove this?

{{00:03:40}}
You can't prove it on all metrics because
we don't have a global set of standards.

{{00:03:45}}
We are getting closer, which is great.

{{00:03:47}}
We had a big change basically in 2015
with the COP 21, whereas the world

{{00:03:52}}
decided, wow, we really do have an issue.

{{00:03:55}}
So we're finally getting
towards some commonalities.

{{00:03:57}}
But when I started in private equity
over 20 years ago, we would say

{{00:04:00}}
ESG, we'd say sustainability, but
nobody could compare because we

{{00:04:05}}
didn't all compare the same things.

{{00:04:07}}
And in this last We're starting
to agree on what is important.

{{00:04:12}}
The other thing I want to highlight
is LPs don't want everything, so don't

{{00:04:16}}
give them a 500 page data report.

{{00:04:18}}
Like, did you actually create any value?

{{00:04:20}}
And it can be on three issues,
but make sure it's integrated

{{00:04:24}}
through the whole process.

{{00:04:25}}
So LPs will look through and
say, Did you examine it during

{{00:04:29}}
phase one of due diligence?

{{00:04:30}}
Did you examine it in phase two?

{{00:04:31}}
Is it part of your investment memo?

{{00:04:33}}
And this is the additionality.

{{00:04:35}}
And what is the baseline that the company
that you've just invested in is going to

{{00:04:38}}
create so that you can either get that ups
tick or down tick, a bonus or a malice, in

{{00:04:44}}
your carried interest, aligned with these,
again, commonality term, Um, ESG values.

{{00:04:49}}
And obviously there's been a shift there
as well, because what you were describing,

{{00:04:52}}
you know, 10 years ago is the sort of ESG.

{{00:04:54}}
Yes.

{{00:04:54}}
It was actually more about risk management
potentially than it was about purpose.

{{00:04:58}}
You think that has shifted?

{{00:05:00}}
Yes.

{{00:05:00}}
There's been a huge shift.

{{00:05:01}}
So it used to be we avoid bad things.

{{00:05:04}}
Then we said we're going to
actually, so they called it

{{00:05:06}}
just risk management, right?

{{00:05:07}}
Then we went to kind of saying we
want to be responsible, but we're

{{00:05:10}}
actually now into sustainability.

{{00:05:12}}
So it's not only just doing things,
avoid it hard, but we're actually

{{00:05:16}}
saying we want to do something.

{{00:05:17}}
in addition to the
generic financial returns.

{{00:05:20}}
And there might be huge
potential as well in that market.

{{00:05:23}}
It's not just about being
philanthropic, is it?

{{00:05:25}}
After all, no, no, no,
it's non concessional.

{{00:05:27}}
It's getting above average.

{{00:05:28}}
So the World Economic Forum
came up with the stakeholder

{{00:05:32}}
metrics, and this is about 2020.

{{00:05:33}}
But these are generally
being adopted with the ISSB.

{{00:05:36}}
Which will then become the global
financial reporting standards because

{{00:05:40}}
they have the IFRS and the ISSB.

{{00:05:43}}
And all this work is happening right now.

{{00:05:45}}
It's not even fully adopted.

{{00:05:46}}
But the idea is to have sustainability.

{{00:05:49}}
The next wave that will come
through is biodiversity.

{{00:05:52}}
And we feel this.

{{00:05:53}}
We need to be in balance
right with nature.

{{00:05:55}}
We feel it when we're not so we
can talk about climate all we want.

{{00:05:58}}
But people's health and well
being is severely affected.

{{00:06:01}}
Most people here are working very long
days and they're becoming burnt out.

{{00:06:05}}
GPs that are over committing to their
funds are going to be under pressure.

{{00:06:09}}
So having people under pressure
does not create a good environment

{{00:06:13}}
to have good returns, right?

{{00:06:14}}
So we need to find a way
to have people in balance.

{{00:06:17}}
And one of the measures is
saying Well, do you help?

{{00:06:21}}
Do you provide additionality
and create value in that sense?

{{00:06:25}}
How might this picture shift now that we
have a new president in the White House?

{{00:06:29}}
What are you expecting to see?

{{00:06:31}}
Unfortunately, I do think we're going
to have some rollbacks on some of the

{{00:06:36}}
priorities from political standpoint.

{{00:06:38}}
Again, the best in class, private markets,
groups will do the go the extra mile

{{00:06:45}}
because there is such fierce competition.

{{00:06:47}}
I've never seen fundraising being
so fierce because there are less

{{00:06:51}}
returns and less distributions.

{{00:06:54}}
So that enormous
opportunity there as well.

{{00:06:56}}
Well, yes, but it's a very crowded market.

{{00:06:58}}
So only a few, a select
few will make the cut.

{{00:07:02}}
And so it's not just enough
to have financial returns.

{{00:07:04}}
They have to have something more.

{{00:07:06}}
They have to offer something more
to the LPs who then don't forget,

{{00:07:09}}
have their own fiduciary duties.

{{00:07:11}}
Right.

{{00:07:11}}
The LPs have a duty to protect the
pension pots, the sovereign wealth

{{00:07:16}}
funds, the family offices and say,
I've made a good financial investment,

{{00:07:21}}
but I've also gone beyond that.

{{00:07:23}}
We also see that no matter what
the political landscape is with

{{00:07:26}}
Gen Z, Gen Z is fundamentally
changing the way investors invest

{{00:07:31}}
because these are the fiduciaries.

{{00:07:33}}
These are the voice of the future.

{{00:07:34}}
Gen Z's are going out and convincing
their parents, their grandparents and

{{00:07:38}}
saying, You need to be more active.

{{00:07:40}}
You cannot be passive.

{{00:07:41}}
You have to take control of
your investments and they

{{00:07:44}}
are investing directly.

{{00:07:45}}
Um, all of the retail platforms we're
seeing is because people want access,

{{00:07:49}}
but they want access to their demands.

{{00:07:51}}
And if some of these comp about
talent droughts aro personnel

{{00:07:57}}
as well, those to work for the
companies that good, don't they?

{{00:08:01}}
Ye in the private market spa
the investment banking wo don't

{{00:08:07}}
care how much they important.

{{00:08:10}}
And I think we

{{00:08:13}}
The investors care about people, right?

{{00:08:15}}
It's team track record and trust.

{{00:08:18}}
So if you're burning people out and
you're using them up and throwing

{{00:08:21}}
them away, that's probably not a
very long term sustainable model.

{{00:08:26}}
It's not resilient.

{{00:08:27}}
I mean, we all saw in the UK with the
Weatherspoons pubs laying people off, even

{{00:08:32}}
though they could have been furloughed.

{{00:08:33}}
And so there was a huge rejection from
investors to go into places that don't

{{00:08:38}}
treat their human capital as humans.

{{00:08:41}}
So Erin, how does all of this
affect portfolio construction?

{{00:08:44}}
What are we seeing there?

{{00:08:45}}
So I think that's a
really interesting angle.

{{00:08:48}}
We are seeing higher
allocations to private markets.

{{00:08:51}}
We also see this specifically in
infrastructure, which is seen as growing

{{00:08:54}}
so much because of blended finance, right?

{{00:08:56}}
Public entities don't need
to support all of that.

{{00:09:00}}
We also see the growth of impact.

{{00:09:02}}
Historically, impact was
Venture philanthropy, right?

{{00:09:05}}
And it has changed phenomenally with the
rise of the EU Green Deal and all the

{{00:09:10}}
sustainability efforts and saying, Hey,
we can do private equity additionally, but

{{00:09:14}}
the returns will be slightly different so
they can be measured on multiple angles

{{00:09:19}}
and that will change in allocation.

{{00:09:20}}
I give an example of Norwegian
wealth fund that doesn't currently

{{00:09:25}}
invest in private equity because
they find the fees too high.

{{00:09:28}}
And we can look at the research
of Ludovic Falipu on that issue.

{{00:09:31}}
But they do have separate pockets and I'm
seeing this among family offices, other

{{00:09:36}}
pension funds, specifically to climate.

{{00:09:39}}
And there's a lot of leeway given
around these to say, we want it

{{00:09:42}}
to meet our goals, whatever those
goals are of that institution.

{{00:09:46}}
And these asset owners all have different
programs, but that allows a lot more.

{{00:09:51}}
availability for new climate impact,
whatever you call it, but it's almost

{{00:09:57}}
like an additional envelope that
is available to the GPs these days.

{{00:10:02}}
So we are seeing Russia's, we're
seeing the EIF having allocation, so

{{00:10:07}}
sovereign wealth funds, we're seeing
additionality being created with the

{{00:10:10}}
BII, so in Africa and Southeast Asia.

{{00:10:14}}
So additional pockets are opening up
and that is nice to see because those.

{{00:10:18}}
Assets will be able to fund
some of the emergent managers or

{{00:10:22}}
spinoffs or teams that want to
grow in a different direction.

{{00:10:25}}
So reasonably positive in those terms
in what this industry can do, even, you

{{00:10:31}}
know, political environment withstanding,
what are you most positive about now

{{00:10:35}}
looking forward just finally, I think
the best thing is we are looking to say

{{00:10:40}}
we're getting the greenwashers called out.

{{00:10:41}}
So people who are saying they're
doing ESG, but of course they

{{00:10:44}}
aren't, is we're very demanding
investors have a huge selection.

{{00:10:49}}
There's never been more
demand for their assets.

{{00:10:53}}
And so people have to rise.

{{00:10:55}}
And so I, unfortunately, I think
we'll see a lot of firms shutting up.

{{00:11:00}}
They will not go on to raise the next
fund, but the best will find those

{{00:11:03}}
investors because the investors are
quite demanding, as they should be,

{{00:11:08}}
and will find the best managers.

{{00:11:10}}
Those that are doing it well will survive.

{{00:11:12}}
Yeah.

{{00:11:13}}
Erin, thank you so much.

{{00:11:14}}
Good to talk to you.

{{00:11:14}}
Always good to hear your thoughts.

{{00:11:15}}
Thank you.

Erin, thank you so much for
joining me here at Superinvestor.

Always good to hear your insights and
particularly to talk about what the LPs

What are they most focused on
and how are they moving markets,

Yes, so like anything, LPs
are the investors and so we

Their allocations are slightly changing
in the sense that they have to sometimes

That is an urgent issue,
obviously, but I think we can see

So we have many, many more GPs
out fundraising without giving

So there are lots of different structures
around with the GP stakes or the nav

But that is not really
changing the way they invest.

That's just changing the way of liquidity.

We're also seeing a lot of regulation,
and so people are overwhelmed with

But at the end of the day,
the LP is investing in private

And we've really developed a currency of
trust now that says, I will invest with

And I don't want just financial
returns, we want extra.

So we want value creation through whatever
that is that is important to the LP.

As an example, an endowment may want
to create more surface among their

Let's say if they're based in
the UK or France or whatever.

So that will be a priority for them to
invest in that particular asset class.

So that is the additionality
they're going to look for.

And so we're seeing more
fragmented allocations.

It's not everybody just saying,
I want private equity buyout.

We're seeing differentiation in the
allocations, which then creates more

But you still have to meet
the return expectations.

It's quite a complex and nuanced
picture now compared to the past.

What does that require those
firms to be able to do?

So it's, it's in the sense of,
it's still back to basics, right?

You still have to make money, but you
need to do it in a way that is not

going to have any reputational risk
because LPs don't want, even if they

make tons of money, let's say on the
nursing home, they don't want us, we

saw in the COVID crisis, they Granny's
dying or getting kicked out, right?

So that reputational risk, and
again, that's why I get back to the

And we say ESG, but in fact
it's about sustainability.

It's about saying, you know, if I'm
going to invest in Volkswagen, which

is a public company and they had
Dieselgate, they not only lost shareholder

Because even today, they're
still doing recalls, right?

Get a good team together, have a great
track record, and do what you say.

Private equity has historically
been quite opaque as well.

So reputationally, this is
really important to move forward

And onwards, we've got to look more
modern in that approach anyway.

So the really good GPs are not going
to be affected so much by regulation,

because the regulation that is going
into place in the ESG, if we use that

generic term, is just catching the
laggards, the best in class will already

have been doing these things, because
guess what, it builds better businesses.

You can't prove it on all metrics because
we don't have a global set of standards.

We had a big change basically in 2015
with the COP 21, whereas the world

decided, wow, we really do have an issue.

So we're finally getting
towards some commonalities.

But when I started in private equity
over 20 years ago, we would say

ESG, we'd say sustainability, but
nobody could compare because we

And in this last We're starting
to agree on what is important.

The other thing I want to highlight
is LPs don't want everything, so don't

And it can be on three issues,
but make sure it's integrated

So LPs will look through and
say, Did you examine it during

And what is the baseline that the company
that you've just invested in is going to

create so that you can either get that ups
tick or down tick, a bonus or a malice, in

your carried interest, aligned with these,
again, commonality term, Um, ESG values.

And obviously there's been a shift there
as well, because what you were describing,

you know, 10 years ago is the sort of ESG.

It was actually more about risk management
potentially than it was about purpose.

Then we said we're going to
actually, so they called it