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Now I want to ask you about interest in alternative investing. In our large-asset owner barometer survey, we saw that on average, investors are interested in adding more to private credit, private equity infrastructure. I'm sure you have the same experience. But when I talk to large investors, they're all worried about diversification. They're all increasing their allocation alternatives. But they're worried about getting into a bubble scenario.
They're worried about, should they go light on this vintage year? There's lots of operational issues that also come up. And it's not one size fits all. What are you seeing around interest in private credit, private equity infrastructure, or other alternative asset classes? And are there any areas that you're concerned about in terms of possible bubble potential or maybe it's a little bit overblown?
Well, I think in all these areas, we want to be, as stewards of capital, providing capital where it is scarce. So if you're providing capital to where it is plentiful, you need to ask yourself, what's going on? So in private credit, there's a lot of focus. Because there's a lot of attention coming out of the fact that the asset class has risen. And the fear is that there's too much capital going in.
However, what that misses is that the regulatory side, on Basel III in particular, it's making it more and more difficult for banks to lend into this space. In 2023, there was twice as much private equity business done as there was in 2012. But in 2012, there was more bank lending to private equity than there was in 2023. The banks are being forced back by Basel III and other measures. And it's only just starting. And if you can step in to solve that sort of problem, then it's getting very interesting.
When you combine the fact then that interest rates are at a higher level, credit spreads look interesting, you have covenants that are just stronger, that makes that a very, very interesting place to be. I do think, however, that it is worth asking the question of, A, are you getting enough protection? Does the person you're lending to have skin in the game?
And B, I think you can ask the question around, is there areas where there are specific problems that need to be solved? What some people call capital opportunities, where that interplay between equity and debt, you can get value out of matching the needs of the borrower.
Yeah, some of the more interesting things I've heard around where the markets are innovating to fill the need, securitize something that hadn't been securitized before. But then, if we just look at plain vanilla mid-market lending to private companies to finance go-private transactions, what strikes me is the impact of higher interest rates.
And so if you and I were a GP, and we were going to take a company private for a billion euro, and we thought under our management, we could generate 100 million euro a year additional earnings. Three years ago, we might have borrowed 70%. And we would have paid 5% interest on that, LIBOR plus 5. Today, we'd pay SOFR plus 10. And we'd only be able to finance 30% or 40% of it. So that 100 million opportunity might still be there as an economic opportunity.
What we're going to get if we're playing in the private equity space is a smaller part of that pie. What we're going to get in the private debt space is a bigger part of that pie, which to me, all is equal. You mentioned capital scarcity. You mentioned covenant restrictions getting tighter. The opportunity, if anything, is better now for private credit.
For private equity, I think, as our clients have looked at that, it still has a fit long term. They're still bullish on that asset class, but recognizing the IRRs we got in the last 10 years, last 15 years probably aren't there on a go forward basis. But that's probably true for public stocks and lots of other areas also.
And here, a crucial thing, so if we were doing that-- and I hadn't realized we were going to make an offer to launch a company today. But let's go for it. But if we were doing that, we would have to go to people to figure out whether they would back us or not. The key question they would ask is, what is, in terms of what we're buying, are we getting a good entry multiple? It's not obvious that things are cheaper. Are we getting a good exit multiple? Well, we can't tell the future. And as you said, the cost of debt is higher, and the availability is lower.
The only way that we could be re-underwriting us at the same level that we would have underwritten us three years ago is if we can add operating excellence to that company, we can turn it around. So what it means is private equity continues to make sense, but only if you can find and access the best.
Yeah, I absolutely agree. The era of financial engineering your way to returns is probably over. And no free lunch, it's got to be about operational excellence and true value added. Can you run that company better in private hands, or break it up into multiple companies, or combine it with other companies? Can you do something to create value that you couldn't do in public ownership? But I think that's still a very vibrant space.
And then I think the last piece of it then is we talked about that recurring meta theme of capital being scarce. The other thing to think about is, we in our industry that there's far more companies being held private for longer, and there's far less distributions being raised because of the current environment, IPOs, et cetera. That causes pain for certain individuals. And if you can step in, whether it's mid-life co-investment, whether it's GP-led, whether it's even the capital opportunities we mentioned in private credit, that's where you can generate that additional extra to make the returns even more interesting.
We had private equity and private credit in our conversation so far. I just want to flag that infrastructure investment is the other of huge growth. And I see that as a play on long-term bonds, with higher real and nominal bond yields. You can get some of that with publicly-traded debt. If you lock in infrastructure investment for 30 years, you get that plus a illiquidity premium, complexity premium, other return premium, maybe with some better inflation hedging. I think that's one of the things driving demand for infrastructure.
And then there's the supply side issue that governments globally are fiscally constrained, are concerned about debt to GDP ratios. So they're doing more with the private sector. And not just for the financials, but back to your point about operation capability. They're looking for the infrastructure investor to bring management know-how, technology transfer that they wouldn't have had if they tried to do as a government.
And then you mentioned points of pain. The commercial real estate sector, that's the one part of our clients' diversified portfolios that hasn't met expectations. But we see a lot of money moving into opportunistic real estate to transform central business district real estate into residential, into retail, or otherwise repurpose that. So even real estate, I think, is a growing area for investment, but more repurpose or opportunistic as opposed to doing what we would have done 10 years ago. Do you see any of that differently?
Totally. And I think the thing I would add to it is to link to a point you made a few minutes ago about election cycles and all the rest of it. We are in a world that has changed in terms of the way governments are acting. It's an industrial policy world now. It's like back to a previous existence. So governments are going to continue to spend.
And if you think about sustainability and the rest of it, there is the investments that will have to be made to hopefully arrest what is happening. But we're also going to have to adapt for what has happened. And those adaptation and that industrial policy, that's all going to feed to infrastructure investment and opportunities for good investors to make returns.
I absolutely agree with you. And I think politicians are learning, if they needed to, that the way to stay in power is to deliver strong per capita GDP growth and participating in public-private partnership through infrastructure investment, getting that management know-how, that technology transfer, leapfrogging technologies to give better per capita GDP growth opportunities to your citizenry. That's a recipe for success as any political party.
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