Overheard at SuperReturn International

Learn what experts had to say about the industry during the recent conference in Berlin

On the economic impact of geopolitical shifts

“The relationship between politics and economics has changed fundamentally. The US view has shifted from greater economic integration being a driver for a more peaceful world to one that focuses on building strategic industrial policies and de-risking or decoupling. We’ve seen a full-throated challenge to the hegemony of the US idea of market-led democracy that was the dominant vision for countries in large parts of the world. The percentage of world GDP emanating from ‘authoritarian’ countries, as defined by Freedom House rankings, was around 16% at the start of the century but is now likely to be close to one third by 2030. That means investors need to spend more time and effort thinking through the geopolitical landscape. There will be money to be made from initiatives such as CHIPS and IRA, but investors will need to do their homework and they won’t have free money to help them.”

Stephanie Flanders, Senior Executive Editor for Economics and Government, Bloomberg News

On navigating choppy macro conditions

“As private equity investors, we can actively manage conditions we are not expecting. So, while we are not immune to what’s happening on the macro front, I don’t worry about what I can’t predict or control. What I think about is what our companies are doing to adjust their business operations to what’s coming their way.”

Orlando Bravo, Founder and Managing Partner, Thoma Bravo

On geopolitical risk

“Geopolitical tensions are more escalated today than they need to be and that’s in part because we’ve all been so isolated through the pandemic. It is incumbent on businesses to provide leadership in bringing these tensions down. We will see near-shoring and ally-shoring, for sure, but trade can smooth over geopolitical tensions. It has done a great job over recent decades of bringing millions of people out of poverty across the planet – we need to keep up that momentum.”

Robert F Smith, Founder, Chairman and CEO, Vista Equity Partners

On the future of growth investing

“Post-Covid, a lot of investors chased trends, such as in-home exercise, video conferencing or grocery delivery. But trends do not deliver true growth today. The new playbook for growth investors needs to be based on revenue quality, margin quality and growth quality – companies need to be able to grow using the least possible energy. It’s goodbye unicorns and hello jellyfish, since these are creatures that can move fast with minimal energy.”

Raphaëlle d’Ornano, Founder and Managing Partner, D’Ornano+Co

On attitude shifts to defence investing

“When we acquired ballistic protection business, Mehler Vario Systems in 2020, around half of unitranche lenders refused to participate on the grounds that it was a defence business and did not fit their ESG investment guidelines – that’s despite the fact that the business solely provides personal equipment such as protective vests for military, police and emergency services workers. That has changed today – no-one asks whether an investment in this business would be compliant with ESG criteria.”

Nils Bennemann, Partner DPE

“Cyber and defence are now blending as digital defence is becoming ever more critical. You could ask the question of whether it is socially acceptable to invest in defence when we have issues such as climate change looming. But the real question is whether we have a choice when reported cyber-attacks are costing US$10trn a year globally. If we don’t defend effectively, our entire infrastructure is at risk.”

Daniel Tschentscher, Partner, valantic

On past exuberance

“While we maintained our investment discipline at Apollo, many in the industry lost their way over the last decade as interest rates remained low and pension fund and sovereign assets ballooned. This drove our industry to an asset aggregation model. It also created a collective delusion – 15 months ago, buy-out investors had become desensitised to deals being done at 20x EBITDA with financing at up to 11x leverage. People have woken up and now what we see is collective confusion because there are so many mixed signals about what is happening.”

Scott Kleinman, Co-President, Apollo Global Management

On over-allocation issues

“The denominator effect will stick around for longer than we saw in 2001. LPs are facing this issue because of public market valuation falls, much like previously, but it’s different this time because of the combination of strong liquidity and the bull market. LPs allocated as much as they could because they needed the returns, that pushed up valuations, which then pushed LPs to the absolute limit of what they were allowed to do. Inflation has since hit LPs hard, particularly those with heavy exposures to the bond markets. All this will work through because of the self-liquidating nature of the asset class, but it will take time.”

Ralph Guenther, Head of DACH and CEE Markets, Pantheon