Why Australia's Mid-Market Is Private Equity's Best Kept Secret? Featuring Michael Lukin (Roc Partners)

Good afternoon and welcome to the latest in our series of podcasts, the exchange by Mania Wyman and Lone. I'm Charles and today it's pleasure to welcome Michael Luke into our boardroom in Martin Place. Michael is a partner at Rock Partners, a leading Australian private equity manager focused on the small and mid market. Rock Partners with high quality businesses across buy out and grow equity strategies, with a strong track record of working alongside management teams to drive operational improvement and long-term value creation. Rock Partners has established itself as a specialist investor in the Australian private equity landscape with deep networks across founders, intermediaries and management teams. The firm is known for its discipline investment approach, focus on control and influence and ability to access proprietary deal flow in a segment of the market that is often less intermediated and highly opportunity rich. Today's discussion focuses on the Australian private equity market, with particular lands on the mid market, where we continue to seek compelling opportunities driven by fragmentation, fanned led succession and the ability to create value through hands on ownership. We'll also explore the evolving role of buy out and grow equity and portfolios and how investors can access these opportunities through other green structures like Rock Summit Fund, designed to provide private wealth investors with more flexible long-term exposure to private equity. Private equity in Australia continues to mature and the mid market in particular offers a unique combination of inefficiency, alignment and scalability. It's a space where manager selection is critical and where discipline underwriting and active ownership can drive many full outcomes over time. And that's exactly what will impact today through Rock Partners' lands. What, thanks for joining me today. Thanks, Charlie. The listeners who may not be familiar with Rock Partners, can you start by giving us another view of the firm and its history in Australian private equity? Yeah, of course. Yeah, Rock's been around for 30 years now, so it's been quite a journey. So the first half of its history was as part of Macquarie Bank. We were initially part of the asset management business within Macquarie. And in the mid to late 90s, we saw increasing interest from Aussie Superonuation funds on a new asset class at that time called French Capital and Private Equity. But starting to think about sector specialisation and the impact of something which is pretty novel at the time pulled the internet. And how that would change people's lives and the whole dot com 1.0 era. So really, I came across in 1999 to Macquarie to really start to institutionalise and offering around how do we build portfolios for big Superfans in private equity. And that was really the genesis of the business. And over the course of the next 15 years, built a great business within Macquarie. And then we had our own cooking and how to manage it by out in 2014 to form rock partners. And so since that time, we've grown the business now to about 10 billion in asset management across a number of verticals, not only do we build private equity portfolios for some of the big institutions in Australia and some of the wealth groups in Australia. But we also invest in food and agriculture here locally. We do private credit and we do a little bit of growth equity here as a really diversified investor base initially starting with some of the big Aussie Superfans who continue to be class to this day. But increasingly where we're seeing growth is in the wealth channel and increasing interest from private markets from those in wealth. And you've had a front seat to the evolution of private equity in Australia. Yeah. Starting with that Macquarie, Dan. How's the firm and the investment philosophy evolved with an industry? Yeah. I think it's a great question because when I personally started it in the industry, no one had a track record. Everyone was doing the same thing. And it was in essence what I call now private equity 1.0, which is try to visit by businesses cheap four or five times a bit dark, maybe kind of hold them for two or three years and then try to sell them. So really try to market time in essence, buying unloved businesses at a period of time on the cheap basis and then sell them when the market turns out more expensive level. We probably have grown quite a bit since that time in Australian private equity and have a kind of pretty quickly after that what I call private equity 1.0, private equity 2.0 where it's more about how do we optimize balance sheets, how do we help with operational improvement in businesses, how do we get better kind of management expertise into these companies and a bit of a segmentation of managers by size. So you started to see the kind of evolution of venture capital managers versus growth managers versus buyer managers. You started to see people stratifying by size a deal. So you might have one manager who's focused on a hundred million dollar businesses and another 500 and another and a billion. And so really starting to become a little bit more specialized in the parts of the market they play in. And I think where we've got to now in Australia is almost the third evolution of private equity in Australia, which is not only have you seen that stratification where people have really an area of expertise that is might be the size of the deal and might be the type of deal, but also in their operational capability. So there will be private equity firms that will build a really deep knowledge and understanding of technology and software or a really great venture people that can pull into healthcare companies that they own. And so you've seen this kind of increasing operational excellence that's brought by private equity, seen this increasing specialisation. And for investors that's meant that they're actually getting better returns over time as people are starting to get better at what makes a good deal for them as an organisation. And what's specifically different? So I'm sure it's the Australian mid market opportunities set from larger buyer markets globally. I think the real differentiation here is around probably the lack of competition or the lack of capital compared to the opportunity set. And so what do I mean by that? In essence in Australia, what we see is a lot of family owned businesses that are thinking about succession and you probably see this at EWL, businesses that are growing families or founders that have owned them for a period of time. And they think about retirement, they think about how they pass business onto the next generation, how they set themselves our full growth. And that in Australia is really the 50 million company size to a billion dollars. And there's a lot of them and it comes to it. There's a lot of reasons for that, but it's really a lot of these businesses have been around since post World War 2. Those founders are starting to get to baby boomers in their retirement age and they started to think about how they pass those businesses on. Similarly in technology, we're seeing a lot of businesses that are looking at how do they grow globally and think about access to capital. And in Australia, mostly businesses above billion dollars in size have historically been listed in public companies below that, predominantly where a private company, privately owned company economy. And so you've got a lot of deals in that space below a billion dollars. The capital in private equity though is like the inverse. There's a lot of big private equity firms that have set up shop in Australia that are looking for and their global firms, great brand names, great operators, but they're really at a point in their kind of development. We're there looking for deals that are a billion dollars in size and above. The minimum check size on the equity size of 500 million US, which wants to put a little bit of leverage in there, is really a billion dollar check sign, a billion dollar business and above. And so what that means is there's this gap below that for the domestic private equity managers, those mid market managers that we talk about to really be that transition capital. So the family that's looking to realize their family business, they work with a private equity firm here locally, they work out the kind of relationship and how that will work and who's best placed locally to work with them. So if they're in healthcare, it might be a particular manager. If it's in technology, it might be a different manager. And it allows them to almost do a bilateral proprietary deal, which is pretty rare globally these days. But then with additional capital, with additional time, organic growth, what you find is those mid market managers in conjunction with the families can grow these businesses to the point where they become really attractive for some of these global private equity firms. They become interesting from an IPO perspective. Generally, I'm of the view these days that an IPO of a business below a billion dollars is a recipe for failure. There's not a lot of equity analyst coverage. There's not a lot of active management these days compared to 10 or 20 years ago. And so unless you're likely to be admitted to one of the big indices, it's really hard to get coverage. And once you're over a billion dollars, a whole bunch of exit opportunities open up to you, including obviously CIG investors who want to buy the business in a tintiary and add it into their business. But importantly, global private equity and the IPO market really open up at that stage. So that, I guess, the ability to play that transition capital in a market, starting in a market that's less competitive and moving to a market where there's a lot of options around exit is really why mid market in Australia is really attractive. And you mentioned the importance of creating operational value needs businesses and learning companies. latest private equity report, the latest term is 12 was a new 5. That's really predicated on the fact that in a high rate environment you can't lever on to engineer financial returns. Can you talk about how rock approaches generating operational value in practice? The way you make money in private equity is really freeways. Buying well and selling well, so buying cheap selling expensive is core obviously to a lot of markets and private equity is not the similar. So how do you manage your balance sheet? There's another way you can grow value, so paying down debt through kind of the cash flow of the business. And then the third way is through operational improvement. So there may be revenue growth, there might be margin improvement, there might be more efficiency in your business model. Of those three, the one that is most repeatable and most consistent is operational improvement. Because what private equity does in those instances is it's a lot of pattern recognition and a lot of repeating the same playbook from one business to another. Whether it's a small business big business, a healthcare business, a technology business, simple playbook, build a better management team, diversify the seat suite, so you've got kind of specialists and high caliber people in the various seats for CEO, CEO, CEO, CMO. Think about procurement, how do you buy better as a business? Think about inventory management. Those are all skill sets that businesses do, but private equity has become very successful at those kind of strategies and they are repeatable. And so why we think operational improvement is really important and how we look for it is really the basis is that repeatability means even if rates go up as they have over the last couple years, even if the market moves against me from a multiple perspective, I can still grow the business and I can grow my way out of maybe overpaying for an asset because it was the wrong time in the cycle. And so that repeatability and that operational value out is really important to mitigating the downside risk and obviously accentuating the upside when you're buying and selling businesses. And what we're seeing increasingly now and I think this is reflective of the market environment we've been in is those businesses that haven't seen strong operational improvement virtually impossible to sell or at least difficult to sell. People become more discerning as they've kind of learned probably more about the private equity playbook around if I buy a business that has had three or four assets banged together but not really integrated. I really want to pay the private equity manager a premium multiple for that. Whereas a business that is well integrated as great systems, great management has got all the levers for success in front of it is not only likely to sell in a difficult market environment that be selling assets but also go for a premium rate. So that ability to identify private equity managers in the market that have got strong operational capabilities critical and how we do that is both quantitatively so really understanding the track record and breaking it down by how managers made money in the past. But then also very focused on referencing the underlying management team. So spending time with management, we sit on a lot of boards of portfolio companies of other private equity firms really to understand so where are co-investoring those deals. Really to understand what levers the private equity managers pulling to improve that business. And so we get these great insights through access to management, access to the board and then our quantitative analysis on who actually does deliver operational improvement. And our view is those groups will actually drive better returns over the long term far more consistently. And in the context of the Australian market, is there a sector or a theme that's more compelling here or otherwise not a little offshore? Yeah, look, I think that's something that's changed over probably the last six months to be honest Charles, it's I think over the last three years what's the types of businesses that have been selling out of private equity. It's really been software businesses and high growth software businesses on good multiples of ARR. What we've seen over the last six months is really a focus on businesses that are going to be substituted by AI. So in essence, real businesses. So whether that's been the care economy or its industrial businesses, those are really the businesses that we see as really interesting to strategics, really interesting in terms of as we think about de-globalisation and the importance of onshore manufacturing and onshore supply chains, those types of businesses are becoming really compelling for investors. And interestingly in Australia, we're very light on compared to global markets on software. So software is a part of the kind of private equity mix in Australia, but it's probably 10 to 15%. Where does private equity apply more in Australia? It's things like the care economy is a big one. So when everyone knows the story of the aging demographic and more spend on health care, but as well as health care, we're seeing more people wanting to stay at home longer rather than going into age care. So the whole home care sector, age care is now on a footing that's becoming interesting for private equity. And then obviously child care also despite some of the issues in the in-street the moment, child care is a fundamentally key part of how we keep female participation high, and we're a country that's short people. So we need as many people employed as possible. That's the key area, industrials, really any sector that you're seeing a real opportunity for private equity to both transform the business from an operational perspective, but also add capital to grow those businesses. We think are really interesting. And I think the benefit of the local market is with seeing lower multiples in terms of acquisition. Importantly, this probably isn't as transparent as people, lower dead multiples. So probably two turns less of debt in deals here. And why is that important? One is less financial risk in the business that are being acquired in Australia. So great if we are going into a downturn, the resilience of these businesses in Australia will be stronger. But also because of that limited amount of debt, we're also coming into businesses cheaper. And as the incoming buyer, you should be generating higher rates return than paying that higher price. So there's a lot of fundamental reasons why the Australian mid-marker really outperforms. Not least, which is that lack of competition, the better buying, and then a lot of the assets here are what is in actual favor in the market at the moment. And is it fair to say that Australia is still considered underpentated in terms of private equity? I understand. Yeah, I think the hundred percent that's the case. You compare the number of kind of family and businesses in that 50 to a billion dollars size. And there's probably 10 to 20 depending on how you classify them. Mid-marker private equity managers in the country that we think are institutional grade. And that's not a lot of capital. And what's really interesting is that lack of capital has been driven by two things. One is the super-endimation industry, one of being great supporters of private markets generally are getting to an extent and scale that the mid-market opportunity, probably a bit like microcaps and small caps and other segments of other markets is becoming less relevant and are at least less accessible for these groups as they continue to get bigger and their check sizes get bigger. They're interested in writing a 50 million dollar fund commitment to a mid-market firm or even a hundred million dollar fund commitment is diminishing. And so you've had this interesting kind of challenge for the Australian market where there's not a lot of capital for new entrance. So you're not seeing a lot of emerging managers come up and competing with the established names and the established names haven't gone and raised significant sums of money where it pushes them outside of their investment universe because while they're being losing Australian super-endimation fund money the global institutional investors recognize the attraction of the Australian market as does wealth we're seeing more wealth capital come into the space about 25% now of money and private equity he's in the wealth space that institutional capital has replaced it but a national capital does not like being the first investor early in a new fund and so you've had this really interesting kind of underwear unless a group like Rock or one of the few local groups here is willing to invest in an emerging manager it's really hard for them to get out of the ground so the competition and the limited number of managers means compared to the opportunity said there's far less capital and I think that's really held back penetration of private equity more generally we've definitely seen an increase in education from the kind of investor base we're out talking to families with businesses founders with businesses that may be hadn't realized private equity was an option that education is definitely coming out there public company management teams are recognizing the attraction of private equity and so more management is getting interested in the space so I think that kind of emergence of private equity will continue as more and more good deals get done and there's more recognition of the value private equity comply and the concentrated market for you is a good thing manager of greater optionality and can be more selective. - Yeah. - As investors, it means we're also constrained in terms of who we partner with to help manage a private equity or local private equity investments. How does rock source proprietary opportunities and what would you say the key distinction is between people that you compete against these deals? - Yeah, no, that's a good point. I think it's, private equity is a funny industry in some ways that the fact that I've been doing this for 30 years actually matters. Most other asset classes, and I started my career in investment consulting so I've had a little bit of limited experience with other asset classes, but it's really unique how loyalty applies a big role in terms of access to managers. So whether it's local groups here in Australia or the best-managed capital firms in the world, when someone's raising a new fund, they first put a call it always there, existing investors. And maybe it's because it's convenient and it's easier. But it's the only asset class I know where people don't differentiate based on price or differentiate based on volume. Basically any fund you go into is $2.20 and they raise a certain amount of money. And when they get to that point, they close. Whereas you compare that to say listed equities where a manager might take a billion dollars from an institution and charge 10 basis points, but then I'll take $10 million from a retail group and charge one percent. So I think that's where that loyalty and our long-term relationship aspect really matters. I've been essence grown up in the industry with all the brand name private equity firms in this market. So we've been a long-term partner with those groups, including some of the new spin-out groups where we've known those people from prior careers and that's really important. I think when we talk about our value add activity, so this is where we're investing alongside the private equity manager in Deals called Coinvesting or where we're buying mature positions in funds, which is secondary transactions, the fact that we've done probably a hundred coal investments in Australia is really important. It's important because when the private equity manager is worked really hard for maybe years to nurture and get to a point where they want to get a deal done with someone, they want to know that they can write the check. And so we've built that track record in that history with the private equity market here that doing coal investments, we're very capable. We do what we say we're going to do, which is really important. And so the manager knows that if Rock says we're into a deal, we're going to be there and that's really critical. So that fact that we've been a long-term partner, we've been essence to start, and then we do what we say we're going to do, it really matters. We're a known entity. And so when you're trying to do a deal and you may only do one or two deals a year, you want to know the partners you're working with and people who are going to deliver. And in terms of the deal volume, it's been a lot of talk around private equity, storebexids, lower DPI, vindages dating back to 2019. I still get to return. One times DPI had a point at which they should have at least returned a little based on expectations set. How does the changing rate environment and changing the deal dynamics play out in the Australian market being shallow and think global markets? Yeah. Now look, I think it's seeing that you need to private equity. This one's probably been a lot more pronounced than other cycles. If you think about listed equity markets, generally people take a view, rates lower for longer. Okay, rates now higher for longer. The market has linked along for a couple of years if people have adjusted their valuation expectations based on base rates go from zero to call it four or they're about. In private markets, that process generally takes 18 months or 24 months as people forget about the multiples that were paid in 2021. And like most liquid assets, residential real estate is very similar where people go, my friend down the road sold their house last year for a million dollars, a kind of 12 months down the track. I'm worth 1.1, whereas the reality might be with higher mortgage rates, the house is actually worth 900,000. And that price discovery, that price adjustment takes a period of time. And I think that's what we've been living through in private markets over the last couple of years. I think now we're in an environment where two things have happened to adjust valuations, actually three things. On new deals, what we're seeing is those higher rates and higher for longer rates are built into valuation multiples. So we've seen valuation multiples come down. We've seen people being more selective around the types of deals they're doing. And that is now reflected in the market in terms of deals being done today. For those deals that were done in 2019, 2020, 2021, they needed kind of two things to happen. And depending on the company, it was one or the other. One is they've grown into what I call grown into their valuation. So if you've got a business that's growing at 15, 20% per atom on the EBITDA line and your valuation was struck in 2021, in our five years down the track, you probably double your earnings over that period as a result your multiple was halved. And I think multiples haven't halved on the back of that kind of higher rate environment. What they've done is probably one turn or two turns down. So you're seeing what you've seen is businesses that were bought then, maybe they're going to do 10% IRR, not 20% IRR, just as an example. And for those businesses that have underperformed or flatlined or gone backwards three years since that real peak period, four years now, you've seen their valuations each. So people have taken their medicine, particularly in the market where you've got positive cash flow, positive EBITDA, multiplied by market multiple, you've got a pretty transparent view on valuation on a quarterly basis. And so those valuations have come down to really what should be a more normal environment rather than a zero rate environment. So that is all taken time. That obviously an adjustment of 400 basis points in the base rate. And people's expectations of base rates here locally takes time. But I think we're well through that now. I think seeing that uplift in M&A activity and even businesses preparing to exit gives me comfort there. We will see an uptick in exits and liquidity back on private equity now as we work through that issue. And why do you think it makes sense to have an Australian private equity exposure perhaps in complement to other developed markets like the US and Europe? Yeah, no, I think that's really important to highlight. And I think there's a couple reasons. It's not dissimilar to listed markets where people take a view on having a kind of stake in the local share market as well as global markets. Lots of reasons. Capital gains tax discounts, francing credits, better understanding of the market, no currency risk. So in the same way that you have exposure to Aussie equities as well as international equities, private equity should be thought about the same way. So I have an allocation to Australian private equity that really, importantly, it actually really nicely compliments your listed market exposure. I think about the listed market relatively concentrated here. Top 10 companies, half the ASX, very focused on mining and banking private markets in Australia, highly diversified, more focused on healthcare, technology, industrial, business services and a little bit of consumer. So nicely diversifying what you're getting in Aussie listed market exposure. But without the kind of, I guess, the currency risk, the tax risk and everything that comes with investing in international private equity. So from that perspective, I think it plays a really nice role. I think global private equity plays a really nice role as well. Some of the best venture capital deals and private equity deals are done out of the US and other markets. So definitely not saying, do Australia don't do global, but in the context of a diversified portfolio and Australian allocation makes a lot of sense. And private markets have historically been difficult for private wealth investors to access. There's been a matter of launch to their green global pay shops, come to shore. And we're spoken with a lot of them, they all operate in a very deep market. So they're easier to differentiate. Rock have their own evergreen private equity strategy and some it, which has recently been established. Can you talk us through what's prompted rock to bring an evergreen product to market for the Australian mid market? Look, I think there's probably a couple reasons why we felt it was appropriate to build an Australian private equity evergreen vehicle. So the first of which is accessibility. Definitely for most investors building a highly diversified, closed-end vehicle portfolio of private equity takes a lot of administration, takes a lot of cost, takes a lot of oversight. I know personally I'm a best digital rock product. A lot of times I'll get a distribution and sit in my cash account for two months and I go, oh, I forgot about that. And if you don't efficiently manage the closed-end vehicle product, you risk kind of diluting private equity returns. And so I guess the kind of user acceptance of evergreen vehicles in his space is now growing as a result of wanting a relatively simple approach to accessing a relatively administratively complex asset class. And so I think that's where evergreen vehicles are really important. So the other reason why we're looking at the real estate market is that we're looking The other one is if you're new to the asset class, it's really hard to get vintage diversification. And if there's one thing I bang on about without institutional investors as much as our health investors, it's making sure you diversify by vintage year. So just like wine, it's good years and it's bad years. And so you need like a diversified portfolio across up to five to seven vintage years to really make sure that you get the best out of the asset class. And so doing that with a closed end vehicle, it can take you seven years to get your asset allocation. Whereas what the evergreen vehicle allows you to do is really bypass that seven year build phase because you're buying into a book of mature private equity that's in between five and seven years old. So from day one, you're getting vintage diversification, you're getting liquidity, you're getting returns because you're buying into a already established kind of portfolio. And then I think for why rock and why us on evergreen, obviously that's really important. The ability to offer people jumpstart to their private equity program. But also when you build the evergreen programs, you need a really deep deal flow and diversified portfolio because you're not only managing cash flows at the underlying level, you're managing investor cash flows. And if you're a single private equity firm looking to do an evergreen vehicle, you generally have really lumpy cash flows. You might do one or two deals a year. So you need a lot of capital to be sitting in cash so you can do that deal. And then when you sell that business, it comes back to you and it's a whole heap of cash, which in the close end model, you give back to your investors, but it may result in a lot of cash drag. So what you need is a really deep diversified set of deal sources so that when you're building a portfolio, you have a great portfolio of, in our case, a hundred portfolio companies that each one can roll off and not create a cash burden on the fund. And also give you a far more smooth cash flow profile, which helps with the investor reductions and draw down. So I think we felt that we were best placed to offer that vehicle to the market that was looking for a solution around a straight private equity. And then even for those who want to build their own close end vehicle, having a semi-liquid version that can sit alongside that close end program, that can be utilized to fund a close end vehicle over time. He's also another great use case for the product. - And rock a buyout specialist, and that's what the focus of the summit fund is. In terms of buyout market in Australia and how specifically matters well to the Australian mid market and everything, structures in particular. - No, that's a really important topic because the beauty of buyouts, say, versus fetch capital in that evergreen space, in the buyouts, but first of all, there's a lot more deals in buyout than fetch capital. But in that buyout space, valuation is far more of a sign that's rather than art. I think in venture capital, because these are ideas, they may not be cashflow positive, they may not even have revenue. Valuing those assets is really an art. And so having a better view on valuation comes with buyout funds, because as I said earlier, the EBITDA of the business multiply by the market, multiple gives you a valuation. You can update that real time if you want, but in our case quarterly. So that valuation perspective is really important. So we don't have investor inequality, people coming in at the wrong value, which we think is really important. The other piece is the cashflow profile is far more consistent. So the challenge with venture capital is, you're generally funding these businesses on a regular basis, but you just don't know when. So you've always got to have cash available for the next round, so you don't get diluted. And that makes a challenge for how do you actually manage that cash and how do you actually give investors back liquidity, because what we are seeing is private for long as gray, but in the venture capital industry, that means you may not see any cashback for five, seven, 10 years in some cases. In the buy-out space, what is, particularly if you have a diversified portfolio, there will always be segments of the kind of market that are caught flavor of the month. So there's businesses that are being sold on a regular basis. So last couple of years it's been software. Now we're seeing a swing back to health care and other non-AI disrupted industries. And so there's always part of the market that are being sold and bought. And so that creates a natural cashflow recycling within the structure. If you can't sell the asset, you can always refinance the asset. So as long as you've got a business that's profitable, paying down debt, there's always the ability to go back to the bank even if you can't sell the asset and get some money out and kind of refinance. So that ability to have better valuation, certainty, and better cashflow management is really why we think the buy-out market is well suited or better suited than the venture capital market to that space. - And a little liquidity structure itself for the summer vehicle sits independently to the more saleable nature of underlying assets and cashflow that supports genuine or organically liquidity up. Can you tell too how you're managing the fund level? - Yeah, yeah. So we've set up a dedicated team that is on a day by day basis looking at cashflow coming in to the fund, coming in required for the underlying portfolio to make sure we can optimize that cash usage. And importantly, having a lily-diver's fire portfolios important for that case. And then beyond that, we have a debt facility that sits on top of that. So our view is we'll be able to run this fund and then we have been running this fund at 100% exposed to private equity and utilize a debt facility to help with kind of cash distributions in and out where required. I think what we've seen in private credit over the last couple months is the risk around introducing my dad investors to these semi-liquid assets is when the Wall Street Journal or the New York Times is running about private credit, even if there's no underlying problems in the fund, you create a problem because the investors start pulling out. And so really partnering with the most sophisticated best wealth groups in the country is really our strategy because we can work with them more effectively around if we're seeing too much inflow, which I think is also one underestimated problem with these funds is one is we can't get our money out, but if I get too much money, I can't deploy it in a structured approach. So we have a work with groups that have the summit fund on their platform to say, actually we're not seeing the deal flow. Let's see how applications for a period of time. So a combination of factors really deep focus on managing unlike cash flow. We model every underlie, portfolio company of which there are 100, make some assumptions around when we're likely to exit when we're likely to get refinancing events and then every time we introduce a new asset we're thinking about what does that mean for our cash requirements? What does that mean for our exit kind of timing? What are all these things? - And it's a great segue to the broader problem market themes and increasing participation at a private wealth level, definitely increasing overseas. And I think that trends push the media into a direction where they can get more clicks, creating some friends in. We've seen the problems that can create for a fund even when there's no structural issues. - Yeah. - Just in terms of the fund perception, forcing their to gates, that they should have known existed. - Yeah. - How is that trend playing out in Australia and how do you find investor sentiment towards private equity and actually understanding one what they're investing in and two? - And what I reflect on it, I think the difference is probably a little bit where we covered the last question. We haven't really seen quite the genuine mum and dad investor in private markets in Australia. I think the growth of wealth investment in private markets has probably really been a five to 10 year proposition in Australia, whereas kind of wealth in the US, the foundations and downmits were some of the first two bests in Benji Capital. So the ecosystem and the evolution of the market in the US is such that they've already, the privately managers in the US have already saturated the color of the sophisticated wealth end and they've stretched into the kind of less sophisticated. Kind of lower value, whereas I think in Australia what we've seen is it's really been the largest and most sophisticated wealth groups. So a small subset of states, a dozen or less, groups in Australia that are really taken on private market to the core product, holy or asset holy in their portfolios. I think each of those groups is very thoughtful around how they introduce it to the clients. These things have a role in portfolios. Their role is not generally to create liquidity. If you're building a nicely diverse five portfolio, you should have cash and you portfolio, you'll have liquid assets and you'll have a great advisor like the EWL team that says why is your cash flow requirement and how long can we lot of money out for? And so that allows you to look at some of these more private exposures if you are in a scenario where you do not need the capital base for. So I think where we're a little bit different here is we've had sophisticated wealth advisors advising clients on how to come into private markets. I think that has put the industry here in good stead that we haven't seen big runs on funds or where they are focused on those wealth groups. It's really only been where the kind of like end investor is really a retard. a genuine retail investor. So we're very mindful of that. I think it's really important that you can tell people all the time. It's 5% gators and over time you'll get your money out. But when people want their money out, they generally want their money out. Oh, they forget about what they've agreed to. Again, it comes down to having good investors alongside doing these funds and making sure that when you look around the table everyone's thinking about this thing in the same way. And as private equity penetrates the mainstream, there's different ideas around what private equity is. Some people still probably view private equity as a corporate rate of types and stripping destroy businesses. The gap goes in the world. That's one misconception that investors have about private equity that you'd like to address. Yeah, no, that's a really good question. Probably in the, for probably the wealth channel, what I've probably recognised running around the globe talking to wealth groups is a lot of end investors think a 10-year fund means you get no money back for 10 years. Obviously it's different in the evergreen structures, but in the closed-end structures, people go, "Oh, 10-year fund, I'm not going to see my money for 10 years." And that's really a fallacy. Generally a good private equity manager, good private equity portfolio manager like ourselves. Every dollar you put in, you should be getting that dollar back within five years. And so it's really the second half of that journey where it's the next dollar coming back to you to generate that $2,000 money, 20% star-wire. And I think that focus on the fund life versus the actual cash flow is probably one of the biggest misconceptions that I've seen in the market. I think also that Gordon Gekko, Kano corporate rate of type, you don't get paid to do that these days. People are very skeptical of that kind of rip cost out and put it back on the market. I think the market's educated. The end buyers of these assets are now educated enough to know that if private equity is owned and they haven't built a better business, it's very difficult to sell that asset. I think private equity is more and now about supporting growth, supporting transition, and building on strategies where additional capital will be really additive to what a company can do. That's what speaks to the evolution of private equity that we covered before and looking forward in the evolution of private equity over the next 10-20 years. What key principles should you go and invest this today? Look, I think there's probably a couple of key principles. The first one I always go to is look for alignment of interest. Alignment of interest to me. Following the money around the table and who's taking money out of a deal, why is this a good deal? Why am I seeing this deal? Is really something when people are willing to invest alongside a fund, the management team's taking money off the table. The key people who are going to develop and execute on a business plan are not actually equity aligned. I think that focus on alignment of interest and making sure people have real skin in the game is rule one, two and three. I think looking for groups that have done it before and have got real specialist expertise is really important. As the market becomes more competitive, as a private equity mature, what you need to increasingly lean in on is groups that have a real deep domain expertise in particular segments, where they can see operational improvement or growth opportunities that are generous just can't. I think that's probably the other real key for money that we see eventually over the next 10 years. As markets get just generally more competitive over time, you need to be more and more a specialist rather than a generalist to deliver a house return. That's just it all the time we have today. So thanks again for coming on the podcast and speaking. Pleasure. Thanks for having me on the podcast. Appreciate it, Charles. Thanks Mark.