This summer, in Aspen, you said last year was Alice in Wonderland. What about this year?
One of the questions that seems to be dominating, particularly in the European and US press, is whether it will be a hard landing, a soft landing, or a recession. As a long-term investor, this is not my first cycle. And it’s not about the landing, it’s about where the journey starts, where you are when the plane pulls up and the door opens. And we are going through a period of time as a great reset…Questions of globalization have turned to regionalization. And a world of time, where assets generally moved up together, has now evolved into a world of dispersion of economies and asset classes. We were like Dorothy and the Wizard of Oz. In narratology, there are a number of devices that turn up over and over again, and one of the devices is the storm. So the storm shows up in Ulysses, it shows up in Gulliver’s Travels and shows up in Harry Potter. And it often takes characters from one world they’ve been to another, most notably Dorothy and the Wizard of Oz and the tornado. And I think that, as investors, we’ve seen this storm blow through our understanding of the world of the last few years, and we’re landing in a quite different place.
One of the sharpest changes has been in globalization. To what extent do you see this decoupling of supply chains, China-plus-one strategy, play out?
The pendulum always swings perceptibly, but the pendulum was swinging for almost 40 years toward globalization. If you look at global trade as a percentage of global GDP, it peaked about a few years ago at 58%. It’s down to 52%. And we’re beginning to see the concept of onshoring being talked about more than the concept of offshoring.
But despite this period of turbulence, you made a rather bold move of taking TPG public…
Yes, we went public in January. It was more or less a little better at that point of time. The stock has done quite well. But for me, an IPO is a financing event. And financing events are only a piece of the long-term history of a firm like ours. So it’s a shift in ownership. But in no way was it a shift in strategy or who we are…. And we are now sitting with the largest dry powder, in our history, because this period of time is when the most interesting investments occur… In the more complex world, picking sectors and areas like climate change, for example, or healthcare is where you think the sectoral dynamics will actually put some wind at your back.
In this climate spectrum, how do you model risk?
Our particular part of the market is to take technologies that are viable and scale them…. Climate focused capital will play an important part in this revolution. What’s very different is that the climate revolution is a fiscal revolution. In the tech revolution, someone built the internet for you. And he just had an idea to send it out for free, we have to build physical assets, you need to throw away your computer science book and pick up your organic chemistry book. You need to think about major projects, delivering physical assets across broad geographies. And so the skill sets of that particular type of investing share many of the growth opportunities that we saw in technology, but they’re different in terms of how we deploy them.
What are those opportunities in India? The EV deal, of course, was the headline transaction…
We’ve done a number of social investments in India which have done well. Fourth Partner Energy is bringing green energy into what was a pretty complicated grid. Luckily, things have gotten better and we are helping solve that. It’s a massively positive company in terms of its carbon wins, and then Tata Motors. India needed to accelerate EV penetration. One of the things we’ve learned in Silicon Valley is if you take a technology and you put it in a company and get behind it, get the incentives lined up, it tends to accelerate. Tesla made progress faster than GM in the early days. Essentially creating a separate entity allowed it to accelerate in a way that is important. But we’ve looked at many other things. And I expect to see much more investment in this area. One of the things that is quite positive is that the government has gotten behind this issue. In the US, we just had Biden’s climate bill. And why is that important? It creates incentives that are a minimum of $350 billion. Most people say that they’re going to be quite higher, because they’re not capped. And that will accelerate $3 trillion of spending. The US will push something down the technology curve, which will then move out to the world. The EU also committed about $300 billion to green energy.
Has the speed of innovation and technology in India surprised you?
Yeah… As you know, many years ago, one of the mysteries of India for international investors was the
, for example. The idea that everyone knew the grid had to be fixed, but now reforms are actually happening on ground. Look at electric 2-wheelers or bikes or e-cycles. We were investors in the largest ebike company in the US and also India, the EV market India is actually very interesting. One of the other interesting things about the market for electric vehicles, as you know, is charging networks. But most large parts of India have a very small radius they move within, and don’t use their cars as much for long-distance travel. So, home charging works better in India, as a percentage of travel than almost any place in the world. With the average commute, something like 18kms, suddenly, you don’t need to have as expensive a car and a huge amount of the expense for cars that last an extra 50 miles. And so I think around the world, EV adoption is pricing on the upside.
Lately, you have been big on large conglomerates – , Tatas, UPL, Shriram Group. Is that a conscious call?
I think you’re only seeing a piece of what we’re doing and those tend to get more attention. But look at
, right, that’s where we made maximum returns… I think the big ones sometimes get more noticed because they’re more mature on the investment side, so they’re a little larger. But I wouldn’t overread… I’ve always thought private equity as an asset class overperformed for a long time. Not always, but that usually, which is why most investors in the world are increasing their exposure.
Is there a number you could put on future investments in India – over three or five years?
Let’s see what we’ve done, four IPOs last year. We’ve done almost $3.5 billion in the last two years of investments. I think you can see as many IPOs out of our portfolio in the year ahead. India is picking up share in our investment activity.
But how does India stack up versus other emerging markets? How is it compared with China or Brazil?
It’s hard to say. I don’t know what metric to use. I will tell you it’s certainly picking up shares. We are putting more money here than China in the last few years…One of the things about investing in this region is there are times where you lean in and you don’t. And this is a period of time where we’ve been leaning in India. I would expect it to continue to pick up share because as I travel around the world, this is certainly one of the best performing markets in the region. It’s a period of time where the government is stable and rules have been becoming clearer. Tax rates have come down, government investment has gone up in infrastructure.
What are the challenges you face in the Indian economy?
There hasn’t been as much liquidity on exit. So as you know, the local markets were shallower. And secondly, many of the best assets are owned by the family businesses. We were not the first private equity firms in Asia. In fact, several family investment groups across Asia, essentially, look a lot like private equity firms themselves. So we’d be competing with some of the great investors in the world, in Asia, on their home turf.
What about ease of doing business?
In the early days in India, it was a little bit less clear how the rules worked. And that has gotten clearer. The role of promoters was kind of a new term when I first ran into it but that too has become a little clearer. So I feel like I’m on the long journey of how markets develop. The direction of travel has been very positive, particularly in recent years.
The Centre is very keen to privatise refiners and banks such as . You own banks around the region and the world. Would you be keen to bid?
We own banks and non-bank financial services companies around Asia. In China, we were the only western entity to control a Chinese bank since 1949. We restructured a bank called Korea First Bank…
, you have the opportunity to transform a legacy bank, into a new bank, using technology…
We’ve done this before. We bought and made the first digital bank in Indonesia and sold it over time. Besides digitization, as I said to you, we did the first all-digital national bank in the US which is a very well-known savings app…. I cannot speculate what this particular bank needs, but we’re well-known for this kind of work.
In the conversations you hear around the world, do you hear India’s name coming up more often these days?
Yes. As you know, you said that there’s the trend to look for China + 1. Take ear pods, first of all, that is a huge business. It’s a $25-billion business for Apple alone, and they’re moving a bunch of it here, right? But, it’s not just that. In a world of work from home, people are more comfortable with dispersed workforces which will be a new shot in the arm for much of the outsourcing that has been done in India. So, if you think about India’s strengths in knowledge-based industries, this is I think a pretty interesting trend. The government situation here has been stable, the rules are clearer. I hear India coming out more and more as a destination for capital. And, if you look at the growth run rate, it’s very clear… The point is India is picking up share in the discussion and it’s not just China v/s India, it’s India on her own stead. When we started coming to Asia, the story was Asia out. Asia was going to be the workshop of the world and India never quite got there. They never got this figured out other than IT services. The next wave of Asia was Asia consumption and China hit that too. So for the last 10 years, everyone was focused on that. And, now in a world of regionalization, the theme is actually inter-Asia. So, India has that moment and it’s at that inflection point of consumption.