 Hello and welcome back to the deal room and what we're going to talk about today. It's something called Davos and we're going to use that to kind of talk about a couple of the things coming out of Davos That a particular interest around private equity AI, so all of the good stuff, but we thought a lot of people who might listen might not even know What or where Davos is the importance or not of that event? So we thought we'd start with perhaps a little bit of an explanation because I think if you're going to go and work in Probably any corner of finance You probably will come across this on an annual basis because it does touch on it Nearly every part of the financial spectrum from investment banks to PE to asset management and everything in between So yeah, Steven, perhaps you could kick us off with what is this event? Davos well, I'm quite disappointed actually You can see my my screen. I don't have nice mountains in the background You haven't you never been to Davos? I know you used to move and shake in a few political circles back in your youth I mean you never got the invite. Look never got the invite. It's a it's a it's a very very Well, there's only sixteen hundred people that get invited and so far despite banging on the door Making my case that I should be there Keynote speaker. I've never been invited So to the boss, what is it? It's something that we're not at at the moment But if you're watching Bloomberg news or any of the other financial news channels, you will see leaders and executives Nicely framed with blue sky and and snowy mountains and they're all having a great time other place called Davos in Switzerland and this is the annual meeting of the World Economic Forum It is where the movers and the shakers of capitalism and liberalism come to Wine and dine and not along to keynote speakers saying all the right things. So The first meeting of Davos was in 1971. So this is the 54th edition as I mentioned there are 1600 business leaders and heads of state entrepreneurs and young leaders that are invited every year this year We've got Jamie Diamond Sacha Nadella from Microsoft Emmanuel Macron Zelensky Ursula von der Leiden So quite a lot of the big names, you know, again, if you were To drop a bomb on Davos, you know, you're gonna be removing the real creme de la creme of movers and shakers and so much so that Davos has become a bit of a meme in financial circles It's back in 2004 what's I called Samuel Huntington term the phrase the Davos man or the Davos woman a kind of private jet Owning executive making globally important decisions. Hello, I the global emi the global elite I was just thinking to myself actually might ask you the question who who would you say is the ultimate? Davos man or Davos woman. Who is that person that just fits in with this? You know global elites making decisions Prognosticating on all sorts of interesting things. Who would you put down as the ultimate Davos person? Well, someone who I've always been and still am a big fan of However, she is Davos all over Christine Lagarde her tan her fashion sense of pizzazz Slightly shady dealings when she was finance minister. Yeah She's she's a Davos woman for sure. Yeah, well, she's there. She's there this week So I reckon she's probably been every year for the last 20 or 25 years. So yeah, I always I was thinking maybe Tony Blair He's quite, you know, Tony Blair consultancy jet-setting, you know on the board of various things Talking a big game, you know, this is his main roadshow of the year. Did you not know that? This is where he goes This is where he literally like sets his business deals for the next five years like every year So I have this I have this I have this thought and obviously Davos is a ski resort in Switzerland I have this thought of a real elite CEO a kind of Bill Gates or something like that just coming and learning how to ski on the on the beginner ski slopes falling Over and being laughed at by the rest of the global elite. Maybe that doesn't happen But I like to think it does Would you would would you say them the most in-demand person at Davos this year is Sam Altman would they would he easily take that this year? Do you think? Yeah, I mean, we're gonna talk about AI that probably is again in the in the word cloud of Davos Conversations both in the conference room and in the bars and the side meetings I would suggest that AI generative AGI is going to be the talk of the town and Therefore the likes of Altman the likes of Sacha Nadella of Microsoft and a couple of other ones that we'll talk about We're gonna be yeah a few you know a couple of years ago. It was Greta Thunberg and it was climate change It still is The opening the opening conference it with the conference was opened with a concert and the title of the of this year Davos is rebuilding trust and the concert was basically a Representation of the Sahara and the Amazon rainforest To represent our kind of climate burden and and the climate catastrophe. I think it's so strange Just thinking all right. I'm in the ski resort surrounded by you know, Zuckerberg and Diamond and I've got I've got this Strange representation of the Amazon I don't I don't quite know what's going on. That's right. Well, they're obviously very in touch people. So All right, well, look, let's let's talk about Three topics then coming out of out of Davos and one over to kick us off is around Private equity. So what what's happening in the private equity space? It feels like it's been a couple of weeks since we've talked about this now Yeah, so I just tried to pick three FT headlines from the week in Davos and try to unpack What's going on as maybe a bellwether or a bit of a signal as to what's going on or what's predicted in 2024 with regards to deal making so the first one is private equity predicts meal rebound as sellers capitulate on prices So unpacking this a little bit So as we've mentioned before in the podcast lots of private equity firms have bought big have filled up their funds by buying companies over the last few years and They have been waiting and waiting and waiting and waiting to sell these companies waiting on valuations to return to a kind of 2021 early 2022 level valuations have dropped off a cliff as we know due to the rate hiking cycle increased cost of capital Closure of the IPO market and so on So there's been this wait and see element across the private equity Alternative to alternative asset industry and we just hold on to this company for an extra year And instead of trying to sell it for $10 billion we can get what we think it's worth Which is $13 billion for example 2024 is going to be a year of realization and It was Pete Stavros co-head of private equity at KKR This said sellers have conceded to lower valuations and the pressure to meet a certain return on investment is ticking So basically what he's saying is look we try to hold out for the big valuations But investors limited partners investors in private equity firms private equity funds want their money back in fact Bain said that they the private equity firms currently have 2.8 trillion dollars of investments So not a great deal of dry powder a lot of investments Bain calls it a towering backlog of potential sales. So if you're thinking from a deal-making perspective You know a deal is good or bad depending on the price Now if the sellers are starting to go all right, you know We were going to try and get X for it But now we're happy to take why this is going to be a real Contributing factor to potentially a bumper MNA. Yeah, and we've already seen If you look at the if you look at the look at the websites You've already seen a lot of MNA activity in the first couple of weeks It already seems to have started with a little bit more momentum than last year And this is the one of the contributing factors Yeah, on that on that point the biggest deal announced in some time Actually what two two days ago in the software space a chip designer buying out a software developer. So yeah, it's definitely feels like a change going through the turn of the year for sure and irrespective of Pretty resilient economic data. We've had out of the states again both on the job side retail sales You know, we are still cutting Is the baseline expectation? It's just a matter of just raining in a little bit So those rate cuts are inbound People feel a bit more confident it feels going into the year ahead Yeah, and this is it's great to get the sentiment of Davos because these are the moves and shakers both from a government perspective And also from a business perspective So if this kind of a theme of a little bit more confidence is there then that that could be good for the markets in general But I do I want to pick up on one point It's really really interesting that in the context of the cyclicality of deal-making in this industry So Scott Nuttall the co-CEO of KKR who of course is at Davos at the moment Says this is a good time to lean in i.e. I up some companies There is less competition for deals and multiples have come down. In fact, he says in periods like this We have historically earned our highest returns and that sentiment that statement reminded me of Buffett's classic Be greedy when others are fearful fearful when others are greedy. So when you know, this is this is not a great time It hasn't been a great time for deal-making Confidence is still relatively low But now's the time to pick up some cheap assets that are now for sale So this is the time where the multiples remember from a private equity perspective You know, you're one of the key metrics is money on money multiple what you got out relative to what you put in So if what you're putting in is less than you thought you might have to put in there's a higher likelihood that what you get out will be bigger relatively Scott Scott pumping his book there Yeah, yeah, I mean look well if You're at Davos you've got to pump your book. Yeah, what are you doing if you if you're not? Cool. All right, then. Well, let's let's move on to the second one and to be quite honest with you I mean, I've not been tracking Davos a great deal. So it's timely conversation. There's a an AI company I was about to say small When you hear the numbers floating around with this it's not that small, but yeah, what have we got? What's this French AI company? Yeah, so the second headline I want to talk about today is Mistral It's actually a French term for the for the winds blowing in off the coast of Provence in the south of In the south of France the mistral how perfect for the So mistral becomes the talk of Davos as business leaders seek AI gains So obviously the big theme here is let's all talk about AI and AGI in particular And how it is going to necessarily affect businesses governments and the world We've spoken a lot on the podcast and Open AI and oh here an anthropic have been taking quite a lot of the headlines US West Coast based technology companies Hitting some pretty high valuations Relatively early on in their corporate careers, you know Anthropics a few years old co-hears four years old, etc But mistral wins the prize the highest valuation to age of company ratio that I think I've ever seen feels quite Unbubbly so mistral artificial general intelligence company based out of France has just raised 400 million euros at a valuation of over 2 billion euros So putting that valuation into context Who billion dollar valuation on a company that was founded in 2023 and I just shared with you a picture of their team looking all smiley and happy and wearing Mistral t-shirts What's the value per employee on that valuation that is mind-blowing So we're looking at a photo with about 15 maybe 20 Employees and that's the total sum of the employees of mistral. It's only a few months old Yeah, it is valued over two billion dollars and I was just checking some some similar Listed market capitalization companies here in the UK on the FTSE 250. I was thinking all right I wonder how many employees other two billion pound or two billion euro companies in terms of market capitalization have and I looked at whiz air the low-cost airline employees 7300 Don Elm the home furnishings classic always got time for done now always got time for done I'm well look they've got over 10,000 employees and balfour BT the kind of construction Infrastructure company. It's got 25,000 employees and they're all worth the same as mistral. She's got about 16 It kind of blew my mind when I when I just saw that photo and thought yeah, so is this the case of a New type of technology they have new idea or is this more FOMO from the investment community Yeah, there's definitely a little bit of a bubble here I think the realization that is coming though is that this isn't a winner takes most market This is such a big trillion dollar multi trillion dollar market potentially and the and the realization of Business use case has been there for all to see in the last year and the speed of progress is so quick But I think people are realizing that much like the internet boom You know, there were four or five companies that came out of that and turned into Multiple hundred million trillion dollar companies So it's not going to be that there's just open AI that we should all try and pile into it might be the open AI works best for a few use cases Mistral is is Trying to focus on open source customizable AGI which I think might have different use cases and different Customer bases So you might you'll probably end up with three or four. I'm pretty sure this is not a particularly big prediction I'm pretty sure that one or two of these will become trillion dollar companies You need that you know the next wave is going to come right? And it might be that there's three or four battling for it So maybe Mr. L's just you know like a horse in a race just positioning itself quite nicely All the winners here obviously the 16 employees, but all the winners here big tech Because to facilitate a lot of this AI has to come, you know cloud storage capability all these other things And am I right there using Microsoft cloud? Yes, yeah, they're using a zur for a Microsoft. So actually Nadella came out and said actually we really like mistral Just back back back a mall. Yeah. Yeah. Yeah, open AI. Oh, fine. You like the malls. Um, well, one of the interesting things I was I was looking at today was the role of Nvidia I think we mentioned on the pod before that Nvidia has taken stakes in the likes of co here But they've made 35 AI investments in 2023 Including mistral Regulation, I'm sorry. How does that? How is that even allowed? It does it does feel very Well, you say that we often talk about stakeholders when we're thinking about Investing and and more specifically ethical investing. We think look all right every company has multiple stakeholders You've got your employees. You got your customers. You've got your environment. You've got your shareholders and Often it's about balancing these very separate interests And that's the kind of skill of a great CEO now when you're When your clients is also your investor Suddenly the weight of that's that kind of joint stakeholder Overwhelms almost everything else and overwhelms the other customers that aren't also shareholders. So I totally agree This is you know, it's backdoor because they're taking minority stakes It kind of falls below the threshold level for regulators get interested But when you're thinking about 35 AI investments, all of whom are going to be predisposed towards using Nvidia's Chips and technology. It's it's pretty mad So it's hard not to be skeptical with something like Davos when all of those people involved or 1600 or however many you said Probably all have some skin in the game with some upside exposure to all of this and yet They're the very ones that are setting policy To prevent a lot of that Yeah It's it's nice. It's you know, it's the world's biggest network. Well, it's not the world's biggest It's the most world's most important networking event and you've got 1600 nodes Probably with pretty strong connection to multiple different nodes connecting in this vast web of Davos And I'm sure that conflict conflict of interest is not much spoken about but it's definitely happening, isn't it? Okay, well, let's let's go on then to the third one, which is Blackstone and a comment from their boss Steve Schwartzman sees animal spirits returning to financial sectors. What is this animal spirits? Maybe we go about that Animal spirits what animal spirits is basically I can't I don't know where the phrase came from but it's basically confidence in The ability to make money So animal spirits, so I am confident I feel bullish that I'm gonna go out there and be an animal in the market. I'm gonna meet my I'm gonna make money and I'm gonna win That's how I that's how I see animal spirits. Maybe maybe you've got a different definition But yeah, so this is the headline Blackstone boss Steve Schwartzman sees animal spirits Returning to the financial sector and the reason why I picked this headline Because there was four or five of these headlines, you know from again keynote speakers panel speakers We had the Morgan Stanley new boss Ted saying that there was going to be multiple maybe even up to eight Interest rate drops this year, which I think is a little bit Overoptimistic David Rubenstein at Carlyle talking about rate drops thinks the first cut will come in March Lagarde your favorite Hints of potential rate cuts in the in the ECB by the summer So, you know, you just you start to kind of pick up the messages here You know Solomon at Goldman Sachs We are just across debt and equity issuance seeing more activity and more engagement so that you know, you can just sense this wave of Optimism and I think you you've covered it on on your podcast with peers, but it doesn't feel like with you know, there is Momentum to get a bunch of good news out there because there's a big election coming up at the end of this year You know, are we gonna are we gonna front load rate cuts? I know we're drifting into your territory here. So what do you think? Yeah Again, I just can't help but think when you say all these things and you've got like each end of the spectrum from like The policy setter sat there side-by-side having dinner with the banker with then the CEO of an investment bank and then you've got the PE guys sat there. It's just Yeah, that I don't know I don't want to go down the trap of opening Pandora's box and speculating on all the stuff that goes on But yeah, it's it's definitely interesting. Could there be your question then? Could there be pressure to? Act with policy. I mean, yeah I mean, I would if I were the CEO if I were one of these business people I would be Look putting pressure on making these things happen. I mean Obviously not bluntly but in a sophisticated way and in a unified voice from the industry and across different sectors to put pressure on policy Setters, I mean your goal your objective is different to a policymaker And so your goal is to appease all those stakeholders. You said so in their interest. I would be piling it on Yeah, yeah, and and who knows whether you know Bit of pressure coming in from the White House on Jerome Powell as well Look, you know, we need some good news in H1 because you know what a what a mess It's gonna be if if Trump gets in there's definitely that narrative that's floating around as well So yeah, I was also just in the context of animal spirits Especially over in the US. I was just looking up and though we've covered this a lot But I was just looking up some u.s. Economic growth and kind of macro statistics I just want to get I just want to get your thoughts on this where in the G20 largest 20 economies Where does the US rank in terms of quarter-on-quarter GDP growth out of the 20? We've got China. We've got the UK India Russia, etc. Where do you reckon is? Well China's slowing, but it's still growing fast comparative to Western economies. So what where is the US? Yeah, where's the US in the terms of rankings of speed of quarter-on-quarter growth? Hi, because they've been as I said earlier surprisingly resilient. So top three Not bad behind China because China's what 5.2 percent something like that Well interesting enough the second behind India. Okay, so so the US Economic growth in Q3 2023 year on year was revised up to 5.2 percent, which is quite nuts ahead of China And the only economy that was growing fast in Q3 2023 was India out of you know, and you think this is an Extremely developed economy often these kind of five six seven percent growth rates come from more Chop economies and so, you know, there is reason maybe for these animal spirits you translate the macro into what's going on on the deal room and and There's reasons why Rubenstein and Solomon and Ted picker again talking their own book but talking a slightly more bullish game Well, yeah, I mean to kind of conclude this point I've got the definition of animal spirits and within the conclusion of the conclusion is this concept That basically it helps explain economic trends may not always follow rational patterns Highlighting the influence of human psychology on financial markets and economic behavior And I think that kind of summarizes then that what events like this do I think they amplify that pattern whereby you can put some Coordinated effort into shaping what the future looks like to influence the policy setters Irrespective of them looking at the the concrete factors. That's really it's a really interesting definition So maybe animal spirits taken, you know taken back a couple of years was the meme start Crypto 2021 boom, you know that was dislocated from reality in so many ways, but the animal spirits were there Going to the moon HODL all of that stuff. I'm sure you got involved in and Not as much as I would have liked to We're not at Davos. So whatever. Okay, so well look to wrap things up then I know he's kind of slightly touched on this throughout But I know you we wanted to ask the question to ourselves to have a bit of a debate of Basically is Davos still worthwhile and perhaps a little bit about The themes at the moment, but also what would be a positive force and a negative force about this as an event Yeah, I think it's you know, I said this was again another headline is Davos still worthwhile I think it's it's worth debating this and it's worth trying to To kind of remove your cynics hat It's so easy to be cynical and there was good reason to be cynical of course and the the author of this article Did say, you know, what could be more decadent than traveling across the world in a private jet to discuss net zero and climate positive policies It says it all So, you know, I can give a load of arguments again, but what can you give any arguments for why is this actually a good thing? What's the upside here? Yeah. Yeah, I did have a bit of a think about this. I've got a couple of points and Yeah, you're right. It's very you do have to check yourself Because the instant you go to is just what you've almost passively been exposed to which is such negativity around Davos and all the things that you've mentioned but a couple a couple of positives Because it's we're recording this on a Friday. So Fostering partnerships that might not otherwise be formed and what I mean by this is you might You know, a lot of these people we've mentioned are pretty well connected So whether it's the Microsoft chief talking to the open AI chief who's talking to the VC funding person but you might get someone who's a policy setter or An analyst working in that domain That might cross pollinate with say from a regulation perspective with a new technology with the French AI startup And out of that comes Positive things it could enhance then things for good in that sense. So I think the networking effect like that is very powerful if given the chance to happen the other points I've got here are So the forum it obviously the idea is it sets things like economics social environmental political agendas things like that It's this idea in my mind of a more unified approach the world Seemingly in 2023 feels like jubilitically It's becoming fairly fractured on a lot of key issues and these involve all of the biggest world economies So I think getting everyone together Not gonna call it a safe space, but the fact that they can all be there and have dialogue I think is a positive thing as well the other thing is Yeah, the bringing together thought leaders and experts to inspire and educate one another I know one of the things here is they do bring out research during these events Where they'll come out and talk about that sort of thing So I think that's that's positive to rub off on each other And then yeah, the the other networking things that come out of this I think which kind of summarizes what I've said It's not just about Investments, but there might be new initiatives solutions to problems. I don't think this is just about Money like we've kind of talked about it trying to I guess lay the foundations for what that could like in the future There's a lot of intellectual Benefit from these high-level discussions. I think that can have a positive impact on certain things Yeah, and I think I think maybe just to end the positive notes Maybe to end on a positive note. I think as we said, you know being a cynic makes you feel and sound smart and Obviously, you know when you see Greta Thunberg coming to the World Economic Forum the cynic in me would say gosh Well, this is just a bit of greenwashing. No one's actually really listening You know, she's a big name and it's just a nod to that to that particular movement But the reality is she's got an audience and she's saying things that matter and even if Only a few percentage only a few percent of the people that are in the audience actually, you know Have a bit of a moment and think oh gosh What I'm doing isn't isn't particularly climate positive and maybe have a couple of side meetings and maybe you know, so Very easy to be cynical, but there is some good stuff going on there And there are you know people aren't just there cynically to make as much money as possible all the time. There are some good people I hear the chateau patrice is particularly tasty as well Absolutely. Absolutely. Well look annual membership to the World Economic Forum cost 50,000 pounds And I think it's about 10,000 pounds to get the ticket in accommodation. So and if we have a if we have a bumper year 2025 we will be reporting live from Davos. I'm actually quite interested to know what does annual membership mean What does that? Sounds like a good price to get in some of those people sounds like an excellent price Yeah, I don't know whether it's 50,000 pounds to be a member of the World Economic Forum And then it's invite only to Davos. I would assume it's something like that You can't just get any old any old, you know, and and Stephen coming along Well, I know what so what we'll do is between now and next year we'll set up a ski training business And we'll become instructors and then we'll we'll kind of find a different way in maybe I can run the cafe and be the barista You can be the ski instructor Yeah, as long as it's got an AGI element If you get AI in there at all, I don't know Cool. All right. Well, look, thank you for for breaking down Davos for us, Stephen And yeah, any questions at all as I always say wherever we share the podcast Particularly on channels like LinkedIn things like that. Feel free to drop us a message any questions thoughts feedback always welcome and have a great rest of the week Thanks, Ann