Name: How fintech is transforming the private equity & private credit markets
Uploaded: 2023-08-23T13:23:36.160Z
Duration: 818

FF 2023 NEWSOME KEYNOTE EDIT D3_V03_1.mp4

FF 2023 NEWSOME KEYNOTE EDIT D3_V03_1.vtt

English

{{00:00:06}}
So, how's technology gonna

{{00:00:08}}
impact the way we invest?

{{00:00:10}}
Now, this can also, this can be from

{{00:00:12}}
an asset manager perspective, doing

{{00:00:13}}
deals, finding credits, investing

{{00:00:16}}
in companies, and also from an

{{00:00:18}}
institutional investor perspective,

{{00:00:20}}
how do we find the right investments?

{{00:00:21}}
And of course, the two challenges

{{00:00:23}}
with investment are sourcing

{{00:00:25}}
and analytics, broadly.

{{00:00:27}}
So with sourcing what's happening,

{{00:00:29}}
particularly in the credit market, is

{{00:00:31}}
you're able to now take large amounts of

{{00:00:33}}
data, comparable data from even smaller

{{00:00:36}}
companies, what might be called sponsor

{{00:00:38}}
list companies in our market where you are

{{00:00:41}}
having to take data, which hopefully has

{{00:00:44}}
its own integrity and doing comparisons.

{{00:00:46}}
And that's, I think that's

{{00:00:47}}
just a question of speed.

{{00:00:48}}
I think what's happening there on

{{00:00:49}}
the analytics side is not what you

{{00:00:51}}
might call a blue ocean change in

{{00:00:53}}
the way we're gonna be working.

{{00:00:55}}
It's just gonna be what might

{{00:00:56}}
be called a red ocean change.

{{00:00:58}}
In other words, more efficient,

{{00:01:00}}
more possible to do things quickly

{{00:01:03}}
and to do things in a robust way.

{{00:01:05}}
It may mean that there are certain jobs,

{{00:01:07}}
which used to be highly prized which is

{{00:01:09}}
of course what we all think about with

{{00:01:10}}
technology are gonna be less highly prized

{{00:01:13}}
because machines will be doing them.

{{00:01:15}}
But the actual job of getting

{{00:01:17}}
your analytics done right, I think

{{00:01:19}}
technology is only gonna improve that.

{{00:01:22}}
There are risks with it in that

{{00:01:24}}
we start to rely on technology

{{00:01:25}}
and we start to take shortcuts.

{{00:01:27}}
But I don't think anybody in our market

{{00:01:29}}
is gonna be doing that for long, 'cause

{{00:01:30}}
you cer certainly find out pretty

{{00:01:32}}
quickly where you've made the shortcuts.

{{00:01:34}}
So on the investing side, I see technology

{{00:01:37}}
as enhancing, improving, speeding up

{{00:01:40}}
and making more robust our market.

{{00:01:43}}
I don't think it's gonna

{{00:01:43}}
change our market dramatically.

{{00:01:46}}
The other side though, this is, that's on

{{00:01:47}}
the sourcing side in terms of analytics.

{{00:01:50}}
Of course, we will be tempted to

{{00:01:53}}
start using analytical models which

{{00:01:54}}
predict the future, and this is where

{{00:01:56}}
we have to be a bit more cautious.

{{00:01:58}}
To extrapolate private market performance

{{00:02:01}}
or to extrapolate alternative investment

{{00:02:03}}
performance and try to use some form

{{00:02:06}}
of analytical processes or AI to

{{00:02:08}}
make predictions of the future is

{{00:02:10}}
something we should be cautious about.

{{00:02:12}}
Yes, we can provide

{{00:02:13}}
better scenario analysis.

{{00:02:16}}
For example, at the moment we've all

{{00:02:17}}
been thinking what is gonna be the

{{00:02:18}}
impact of 8% inflation or 6% interest

{{00:02:21}}
rates on the alternative asset market?

{{00:02:23}}
And because it's a market, some people are

{{00:02:25}}
predicting a wave of distress and other

{{00:02:27}}
people are predicting that the private

{{00:02:29}}
markets will continue to work and to grow.

{{00:02:32}}
So there will always be different

{{00:02:33}}
opinions when it comes to predictions.

{{00:02:35}}
What we shouldn't do is.

{{00:02:37}}
Make technology somehow our

{{00:02:38}}
master, it should be our servant

{{00:02:40}}
when we're making predictions.

{{00:02:41}}
And we should always double

{{00:02:42}}
check assumptions based on

{{00:02:44}}
our own investment philosophy.

{{00:02:52}}
So how's technology gonna influence the

{{00:02:54}}
fundraising in alternative asset markets?

{{00:02:57}}
And generally, is technology gonna

{{00:02:59}}
help us make the right decisions?

{{00:03:02}}
Help us take our stories to market.

{{00:03:05}}
My view is clear on this, which

{{00:03:06}}
is that fundraising always

{{00:03:08}}
has to have a human element.

{{00:03:11}}
If you think of technology and you think

{{00:03:12}}
of the great technologists, people who

{{00:03:15}}
use technology, they're people who have a

{{00:03:17}}
vision for how it should be deployed, and

{{00:03:19}}
it's exactly the same with fundraising.

{{00:03:20}}
If you are an investor relations leader

{{00:03:24}}
in an asset manager, or if you're a

{{00:03:26}}
placement agent, Then you can start

{{00:03:29}}
to use technology to speed up what

{{00:03:31}}
you do to get your stories clearer,

{{00:03:34}}
but it can't replace what you had

{{00:03:36}}
before, which was a vision for why

{{00:03:39}}
something makes sense to an investor.

{{00:03:42}}
And at the end of the day, I'm firmly

{{00:03:43}}
of the view that there needs to be,

{{00:03:45}}
the last mile needs to be human

{{00:03:48}}
delivered because we haven't in our

{{00:03:49}}
market yet got to the point where

{{00:03:51}}
there's a sufficient level of trust.

{{00:03:53}}
Why is that?

{{00:03:54}}
That's because these

{{00:03:55}}
are complicated assets.

{{00:03:56}}
They're long-term hold, seven, 10, even

{{00:03:59}}
20 year hold in the infrastructure market.

{{00:04:03}}
With that being the case, there

{{00:04:05}}
needs to be that constant human

{{00:04:07}}
to and fro in the last mile.

{{00:04:10}}
Between experienced people who've

{{00:04:11}}
seen the patterns of finance before,

{{00:04:14}}
because finance always has the same

{{00:04:17}}
traps and it always has the same

{{00:04:19}}
deceptions, if you like, and people

{{00:04:21}}
who've been working for 10 or 20 years

{{00:04:23}}
in finance know what those problems are.

{{00:04:25}}
So if you are an investor, if you're

{{00:04:27}}
far away where, wherever it may be

{{00:04:29}}
Norway or in China or in Brazil, you're

{{00:04:33}}
gonna be hearing stories from gps.

{{00:04:35}}
Who may be in Germany or Canada, and

{{00:04:39}}
you are gonna have to have a level

{{00:04:41}}
of trust that somebody that you're

{{00:04:43}}
talking to knows where the bones are

{{00:04:46}}
buried and knows where the traps are.

{{00:04:48}}
Now, technology can get you much

{{00:04:51}}
more information in a tidy way in

{{00:04:53}}
nice packages, but the different

{{00:04:55}}
packages are just information.

{{00:04:57}}
They're not the story.

{{00:04:57}}
So, For an example what we're doing

{{00:05:00}}
in my company is we are now building a

{{00:05:02}}
network of really good local advisors who

{{00:05:04}}
themselves are empowered by technology

{{00:05:06}}
to have information at their fingertips,

{{00:05:08}}
but they work with investors locally.

{{00:05:10}}
So the good news is with fundraising

{{00:05:12}}
is that we can think global and

{{00:05:14}}
act local to use the cliche.

{{00:05:16}}
But that's very important and

{{00:05:18}}
technology actually enables us

{{00:05:19}}
to do both at the same time.

{{00:05:27}}
So the challenge with anybody investing

{{00:05:29}}
in asset managers or, trying to promote or

{{00:05:32}}
run an asset manager and get them adopted

{{00:05:34}}
by investors is really differentiation,

{{00:05:37}}
'cause we now have a big market.

{{00:05:38}}
We have, whatever the measure McKinsey I

{{00:05:41}}
think said it's like going to 25 trillion

{{00:05:44}}
as a market in the next two years.

{{00:05:46}}
So with that, there's a lot of different

{{00:05:48}}
asset managers, so it's always good

{{00:05:50}}
when using technology just to go

{{00:05:52}}
straight into it and use it yourself.

{{00:05:53}}
So I asked ChatGPT 4 to

{{00:05:55}}
compare two managers that I

{{00:05:57}}
actually know extremely well.

{{00:05:59}}
And one of the main ways we need

{{00:06:01}}
to differentiate between managers

{{00:06:02}}
in our market is on culture

{{00:06:04}}
and on investment philosophy.

{{00:06:06}}
And I was thinking, well, the machine

{{00:06:08}}
will never understand the subtleties of of

{{00:06:11}}
team culture, but actually it did a very

{{00:06:13}}
good job and one of the main ways in which

{{00:06:15}}
ChatGPT 4 is usable is we can get a first

{{00:06:20}}
opinion from a machine, which scrapes all

{{00:06:23}}
data and we can then go back and check it.

{{00:06:26}}
So, but like with all technology,

{{00:06:28}}
it's rubbish in, rubbish out.

{{00:06:30}}
And I did notice a couple of things

{{00:06:32}}
in the way this large language model

{{00:06:35}}
differentiated the asset managers.

{{00:06:37}}
I did notice one thing, particularly

{{00:06:38}}
with the manager that I knew best.

{{00:06:40}}
And it was a point which

{{00:06:41}}
they make about themselves.

{{00:06:42}}
So I could see that the machine had

{{00:06:44}}
actually regurgitated some of the

{{00:06:47}}
propaganda points of an asset manager.

{{00:06:50}}
So when we are using technology either

{{00:06:51}}
to differentiate between managers or

{{00:06:53}}
to market ourselves, we need to make

{{00:06:55}}
sure that every point that is being

{{00:06:58}}
made to us or every point we're making

{{00:07:00}}
is genuine, that it's authentic and it

{{00:07:02}}
has integrity within the whole story.

{{00:07:05}}
But as a first cut and a first

{{00:07:07}}
way to differentiate managers and

{{00:07:09}}
to do marketing, the whole new ai

{{00:07:13}}
AI opportunities are gonna be excellent.

{{00:07:15}}
It will save time, it will take a lot

{{00:07:18}}
of information very quickly, and give

{{00:07:20}}
us a very good first approximation

{{00:07:22}}
of what makes a manager successful.

{{00:07:31}}
So when thinking about how the alternative

{{00:07:33}}
investment market invests in tech

{{00:07:36}}
companies, It is better to think in terms

{{00:07:39}}
of this stage or the investment stage.

{{00:07:41}}
So from early stage through to late stage.

{{00:07:44}}
And really it's also worth

{{00:07:46}}
dividing into the credit market

{{00:07:48}}
and the equity market here.

{{00:07:50}}
Take the credit market first.

{{00:07:52}}
It's been a big wave of gps coming into

{{00:07:55}}
all coming into annual recurring revenue

{{00:07:58}}
deals, investing in software companies

{{00:08:00}}
where you can have some assurity of income

{{00:08:04}}
streams and you can lend against that.

{{00:08:06}}
So that's been a good way in which the

{{00:08:09}}
alternative asset market has come into

{{00:08:11}}
technology companies and invested in

{{00:08:13}}
late stage companies 'cause they have

{{00:08:14}}
proven revenue or proven contracts

{{00:08:16}}
and I expect that to grow more.

{{00:08:19}}
On the equity side, of course, really

{{00:08:20}}
in private equity you should be in

{{00:08:22}}
companies which are five years or older.

{{00:08:25}}
So while venture capital has gone

{{00:08:27}}
through a little bit of a, mini winter

{{00:08:29}}
the last two years in the tech space,

{{00:08:32}}
interestingly private equity has

{{00:08:34}}
come into the later stage companies

{{00:08:35}}
and is investing really quite quite

{{00:08:38}}
a good clip into five or 10 year old

{{00:08:41}}
tech companies.

{{00:08:42}}
But this has meant that the private equity

{{00:08:44}}
community has had to understand some

{{00:08:45}}
different dynamics in their portfolio

{{00:08:47}}
companies, rather than using financial

{{00:08:50}}
engineering for returns which of course,

{{00:08:52}}
the popular conception of private equity,

{{00:08:55}}
it does mean that people have to have

{{00:08:56}}
more operating history, more sector

{{00:08:58}}
knowledge, really understand how different

{{00:09:01}}
companies are competing in their market.

{{00:09:03}}
Often with technology, it's a bit

{{00:09:05}}
of a winner, takes all market and

{{00:09:07}}
therefore there are more risks.

{{00:09:09}}
So there that's really been an area where

{{00:09:11}}
private equity has had to retool itself

{{00:09:13}}
and to build specialist teams rather than

{{00:09:16}}
relying on the old financial metrics.

{{00:09:19}}
I think it's healthy for portfolio

{{00:09:20}}
companies because it was the case

{{00:09:23}}
10 or 20 years ago that after your

{{00:09:25}}
first financing rounds you were

{{00:09:27}}
really on your own after series C,

{{00:09:29}}
you were really on your

{{00:09:30}}
own In terms of management.

{{00:09:31}}
I think it could be positive that

{{00:09:33}}
private equity will be coming into

{{00:09:35}}
later stage companies and staying with

{{00:09:37}}
management during the growth period.

{{00:09:39}}
Of course, with return expectations

{{00:09:41}}
of 20% rather than going to

{{00:09:43}}
unicorn within two years.

{{00:09:45}}
It means also that our market,

{{00:09:47}}
the private equity market, can be

{{00:09:49}}
more patient and just

{{00:09:50}}
work, work with companies.

{{00:09:51}}
I think that's positive.

{{00:09:53}}
On the credit side as well though, there

{{00:09:55}}
has been a push towards investing in

{{00:09:57}}
FinTech companies or lending to portfolios

{{00:10:01}}
which are, or FinTech portfolios or

{{00:10:03}}
lending to portfolios of small SME loans.

{{00:10:07}}
That has actually, because of

{{00:10:08}}
the financial crisis recently,

{{00:10:10}}
post pandemic even during the pandemic,

{{00:10:12}}
I think that's been a little bit of a

{{00:10:14}}
prove it case where is it possible to

{{00:10:17}}
lend against statistically analyzed

{{00:10:19}}
portfolios of SMEs successfully?

{{00:10:22}}
It's happened and I think

{{00:10:23}}
the jury is still out.

{{00:10:25}}
If that does prove to be robust,

{{00:10:27}}
through this cycle, then I expect

{{00:10:29}}
a big growth there in SME lending.

{{00:10:32}}
Banks are pretty much outta

{{00:10:33}}
the market at the moment

{{00:10:34}}
still, have been for a long time

{{00:10:36}}
and are not looking to come back.

{{00:10:38}}
So if our community can start

{{00:10:40}}
to lend money to SMEs,  using

{{00:10:43}}
technology, that would be positive.

{{00:10:44}}
But I think at the moment we're

{{00:10:45}}
still waiting to see how the

{{00:10:47}}
smaller credits come through

{{00:10:49}}
this recessionary environment.

{{00:10:54}}
I think the overall point to make

{{00:10:56}}
about technology and how it's impacting

{{00:10:58}}
private equity, how we would want it

{{00:11:00}}
to impact the private equity and credit

{{00:11:02}}
markets is: does it help us do what

{{00:11:05}}
we do well, even better and even more?

{{00:11:09}}
We shouldn't be looking

{{00:11:10}}
for change from technology.

{{00:11:11}}
This market is a 20, 30 year market.

{{00:11:14}}
Well, actually under some measures

{{00:11:15}}
you could say that private equity has

{{00:11:17}}
been around for hundreds of years,

{{00:11:19}}
but as a large globally distributed,

{{00:11:22}}
Market over the last 10 or 20 years,

{{00:11:24}}
we've done certain things, right?

{{00:11:26}}
We've made sure that private markets are

{{00:11:31}}
run by expert people with teams that can

{{00:11:34}}
be tested, teams that have experience.

{{00:11:38}}
What we've managed to do with private

{{00:11:39}}
markets is not what the banking system

{{00:11:41}}
did, which was to create products

{{00:11:43}}
that would somehow distort that's

{{00:11:46}}
the right word, or to  to borrow

{{00:11:50}}
short and lend long, and these are

{{00:11:52}}
some of the problems which have

{{00:11:53}}
existed in other parts of finance.

{{00:11:55}}
The great benefit of private equity is

{{00:11:57}}
that what we've done is we've provided

{{00:11:59}}
money for ideas and we've tested those

{{00:12:02}}
ideas and we've provided the money.

{{00:12:04}}
So what we shouldn't do with technology

{{00:12:07}}
is to somehow short circuit these

{{00:12:10}}
processes and then distort them.

{{00:12:12}}
To give an example, I think the way in

{{00:12:15}}
which digitalization of private assets

{{00:12:18}}
could be happening through blockchain

{{00:12:20}}
and through the crypto industry, I

{{00:12:22}}
think there we have to be a little bit

{{00:12:24}}
cautious to make sure that financial

{{00:12:25}}
products still reflect their underlying

{{00:12:28}}
risk and that people taking the risk

{{00:12:31}}
are the people who know the risk

{{00:12:32}}
best.

{{00:12:33}}
On the other hand, the way in

{{00:12:34}}
which technology can help us

{{00:12:36}}
source assets, analyze assets,

{{00:12:38}}
gather data, compare ideas, is a

{{00:12:41}}
great opportunity for our market.

{{00:12:43}}
I think investors will continue to embrace

{{00:12:45}}
what private equity and private credit

{{00:12:47}}
bring, but what we need to make sure we

{{00:12:49}}
do with technology is to do what we do

{{00:12:52}}
even better than before and do more

{{00:12:55}}
of it than we did before, because yes,

{{00:12:58}}
there is finance needed for the ideas

{{00:13:00}}
in the economy, and the ultimate aim of

{{00:13:03}}
working with technology could be that

{{00:13:05}}
we start to link  what we would call the

{{00:13:08}}
real economy with the savings system.

{{00:13:11}}
So if our pensions and our insurance

{{00:13:14}}
premiums that we pay, which go into

{{00:13:16}}
large pools of money, can be connected

{{00:13:18}}
more quickly with more transparency into

{{00:13:21}}
the economy itself, then we will have

{{00:13:23}}
proved that this alternative market is

{{00:13:26}}
actually the mainstream way of financing

{{00:13:30}}
economic growth in a sustainable way.

list companies in our market where you are

technology are gonna be less highly prized

So on the investing side, I see technology

The other side though, this is, that's on

To extrapolate private market performance

And because it's a market, some people are

markets will continue to work and to grow.

fundraising in alternative asset markets?

use technology, they're people who have a

vision for how it should be deployed, and

FinTech Futures

Explainer

Distinguished investor James Newsome, CEO of Arbour Partners, unravels the influence financial technology is having on all aspects of the private equity and private credit markets: from investing, fundraising, marketing of PE firms and investment portfolios of tech companies.

Newsome has more than 20 years global market experience, having previously led fund development at Merrill Lynch’s Alternative Investment Group in London before going on to found Arbour Partners in 2010. Arbour Partners is an FCA regulated capital market group specialising in private credit and debt solutions for institutional investors.

Digital Transformation

Differentiable

Digitisation

Private credit

Fundraising

Fintech

Artificial intelligence finance

AI fintech

Artificial intelligence fintech

Digital Innovation

Fintech investing

Marketing

Alt investing

Artificial Intelligence

Private Equity

Fintech Solution

Digital Assets

Private Markets

Future wealth

Private equity investors

Digital Solutions

Digitalisation

Digitization

Fundraising models

Private Lending

Digital Asset Management

Private Capital

Private and public markets

Tech investing

Future of alternatives

Alternatives

Future Trends

Digital Technology

Future of Finance

ChatGPT

thumbnail_James-Newsome-iVBORw0KGg-4f45d2e02059259f6e8ce0c71475fdcc.png

xsmall_James-Newsome-iVBORw0KGg-4f45d2e02059259f6e8ce0c71475fdcc.png

James-Newsome-iVBORw0KGg-4f45d2e02059259f6e8ce0c71475fdcc.png

James Newsome

Discover insights from other experts

Managing Partner

Investing 

Investing in tech companies

Overall point

large_How is fintech transforming the Private Equity and Private Credit markets - James Newsome.png

medium_How is fintech transforming the Private Equity and Private Credit markets - James Newsome.png

small_How is fintech transforming the Private Equity and Private Credit markets - James Newsome.png

thumbnail_How is fintech transforming the Private Equity and Private Credit markets - James Newsome.png

xlarge_How is fintech transforming the Private Equity and Private Credit markets - James Newsome.png

xsmall_How is fintech transforming the Private Equity and Private Credit markets - James Newsome.png

How is fintech transforming the Private Equity and Private Credit markets - James Newsome.png

How fintech is transforming the private equity & private credit markets