Adapting to a Multipolar World w/ Bain Capital’s David Gross

In a discussion on the evolving landscape of globalization and investment, David Gross from Bain Capital highlights the firm's strategy of leveraging local expertise and global knowledge to navigate challenges in a multipolar world. He emphasizes the importance of building local networks and utilizing intellectual property to capitalize on market opportunities, particularly in Asia. Gross also discusses the impact of deglobalization, the normalization of private equity markets post-COVID, and the firm's focus on expanding into new capital markets, such as high net worth individuals and insurance. Looking ahead, Bain Capital aims to harness technology and increase diversity to drive growth and positive community impact.

• The world is transitioning from a unipolar to a multipolar structure, impacting globalization.
• De-globalization is characterized by increasing tariffs, trade barriers, and a focus on industrial policy.
• These changes present both challenges and opportunities for global businesses.

"Globalization was an assumed fact in most of our careers, Hugh, and that's changing. We're seeing a lot of de-globalization occurring right now with tariffs, trade barriers, with focus on industrial policy."

• The quote highlights the shift from a globalized world to one with more localized economic policies, affecting international business operations and strategies.

• Success in international markets requires a strong local presence and expertise.
• Bain Capital invests in building deep local teams with expertise and networks in Asia, Europe, and other regions.
• Emphasizes the importance of knowledge transfer over capital investment.

"The key to being successful outside the United States is to have local depth. Without that, it really doesn't work."

• This quote emphasizes the necessity of local expertise and networks as a foundational strategy for international success.

• Bain Capital focuses on leveraging its extensive experience and intellectual property (IP) across different sectors.
• The firm uses its U.S. experience in industries like restaurants and hospitals to gain a competitive advantage in international markets.
• The strategy involves combining U.S. industry advancements with local market insights.

"How do you take 30 years of experience in the restaurant business and bring that over to Asia?"

• The quote underscores the strategic importance of transferring industry-specific knowledge and practices to new markets for competitive advantage.

• Bain Capital has significant experience in the U.S. restaurant industry with investments in major brands.
• The firm identified opportunities in Asia and Australia to transition from fragmented to professional restaurant operations.
• Leveraged U.S. expertise and networks to enhance management and operations in international markets.

"We saw an opportunity with the evolution of markets in Japan, in China and India, away from very fragmented founder oriented businesses to more scale professional restaurant operations."

• This quote illustrates Bain Capital's strategic approach to expanding and professionalizing restaurant operations in emerging markets by utilizing its U.S. experience.

• Successful globalization involves a synergy between global expertise and local market knowledge.
• Bain Capital integrates its best practices from various geographies with local talent and networks.
• This approach enhances sourcing processes and operational success in new markets.

"By bringing together the experience, the people networks, the credibility that we had for having successfully run these businesses was enormous in the sourcing process."

• The quote highlights the effective combination of global experience and local knowledge to drive success in international business ventures.

• The world is experiencing significant deglobalization, reversing the long-standing trend of globalization.
• Tariffs, trade barriers, and a focus on industrial policy are reshaping global economic landscapes.
• Global private equity firms play a crucial role in navigating these changes by facilitating supply chain relocations and supporting national champions.
• There are investment opportunities due to businesses needing to divest overseas operations because of trade policies.

"A lot of deglobalization occurring right now. Globalization was an assumed fact in most of our careers. Hughes. And that's changing with tariffs, trade barriers, with a focus on industrial policy."

• Globalization, once a constant, is being challenged by new economic policies and barriers.

"We can then become the logical buyer of those because we are as a global private equity firm, I don't want to quite say nationless, but we are permeable across these borders and geographies in ways that some companies are not."

• Global private equity firms have a unique position to capitalize on deglobalization due to their international operations and flexibility.

• The shift to a multipolar world creates both challenges and investment opportunities.
• Life sciences and technology sectors, such as semiconductors and electric vehicles, are areas of significant interest.
• The dislocation in these sectors allows for strategic acquisitions and investments.

"The dislocations of that multipolar world are creating great investment opportunities."

• Despite challenges, the changing global landscape offers lucrative opportunities for investments.

"We've had some very interesting life sciences opportunities where you have tremendous innovation In China, Chinese life sciences and pharma companies had expanded in the United States and now it's very difficult for them to own those businesses."

• The geopolitical climate presents opportunities for investments, especially in the life sciences sector, due to ownership challenges faced by foreign companies.

• The market is in a phase of adjustment and normalization following a peak cycle post-COVID.
• Private equity is experiencing a recovery in financing markets, with buyer-seller convergence on valuations.
• Deployment levels in private equity are aligning with targets, indicating progress towards market normalization.

"I'd say we're in the process of adjustment and normalization. We've seen that over the last 12 months."

• The market is gradually stabilizing after a period of significant upheaval.

"The financing seize up. There's a valuation adjustment where buyers and sellers can't quite agree. And then time passes and you start to see more convergence."

• Market cycles involve initial disruption followed by eventual stabilization as financing and valuations align.

• Credit markets have strengthened due to the slowdown in traditional bank financing.
• Private credit markets are experiencing growth, providing new opportunities for investment.
• Real estate and certain technology sectors are in transition due to past peaks and changing interest rates.

"Credit has been quite strong because the flip side of the bank market of having seized up a bit is the growth in the private credit market."

• The challenges in traditional banking have led to the expansion and strength of private credit markets.

"Real estate really over the last five to 10 years with very, very low interest rates. And so those markets are in transition."

• Real estate markets are adjusting to new economic conditions following a period of low interest rates.

• The technology sector demonstrated resilience during the 2021 period through disciplined pacing and pricing.
• Certain industry segments are still undergoing adjustments, indicating ongoing changes within the asset classes.

"And so we've been other segments which have been much more resilient. And in technology, we were very disciplined in the 2021 period, both in terms of pacing and prices paid. And so we feel actually quite good about those areas. But as an industry, those are parts that are still seeing some adjustment."

• The technology sector's discipline in pacing and pricing in 2021 contributed to its resilience, despite ongoing adjustments in other industry parts.

• There is optimism for improvement in most asset classes through 2024 and into 2025.
• The expectation is that asset classes will perform better as time progresses.

"Okay, I'm going to take that to mean we should be hopeful that things will only get better in most asset classes as we move forward here through the balance of 2024 and into 2025, improving."

• The speaker expresses optimism for better performance in asset classes in the upcoming years.

• Bain Capital emphasizes generating alpha, which requires sector expertise, technology, and post-close resources.
• The cost of generating alpha is increasing, making fundraising more challenging.

"David, you've talked about Focus on Alpha at Bain Capital, and I'd like to ask you a question about alpha as it relates to fundraising. You mentioned that you're in 13 different businesses. I would argue, and I give talks all the time where I say, you know, the cost of generating alpha in any business is going up."

• Generating alpha is becoming more costly, necessitating greater sector expertise and resources, complicating fundraising efforts.

• Bain Capital employs a two-pronged approach to fundraising: aligning with traditional and new capital sources.
• Traditional sources include institutional markets, family offices, and high-net-worth markets.
• New capital pools include the individual market and insurance, both underpenetrated by alternative assets.

"Approaching this in a really a two pronged way. One is to ensure that our capital sources, and I would call them the more traditional capital sources in the institutional market and elements of the family office and high net worth market, that there's great alignment between our strategy and those investors."

• Bain Capital aligns its strategy with traditional capital sources to maintain and deepen relationships.

"The second are the new pools of capital and there's some huge ones out there. The first being the individual market and the High net worth and ultra high net worth market. To put it into context, that is a 35, 40 trillion dollars market."

• New capital sources, such as the individual and insurance markets, offer significant untapped potential for alternative asset penetration.

• Bain Capital aims to diversify and support growth across its funds by tapping into new and existing capital pools.
• The firm has a history of engaging with family offices and ultra-high-net-worth families, enhancing its market approach.

"But we're driving a more systematic effort both directly and working with partnerships with private banks to further tap that market opportunity."

• Bain Capital is systematically targeting ultra-high-net-worth investors through direct efforts and partnerships with private banks.

• Bain Capital has a unique insurance business unit investing in insurance businesses with significant expertise.
• The firm manages assets for insurance carriers, providing value-added services and acting as a capital source for funds.

"We have a very interesting insurance business unit that uniquely is an insurance private equity fund that invests in insurance businesses with a tremendous amount of expertise."

• Bain Capital's insurance business unit offers specialized investment in insurance, contributing to fund capital sources.

"But we're also doing asset management for insurance carriers where we provide a value add to them to better manage their assets and that is a source of capital for our funds."

• Asset management for insurance carriers is a strategic approach to capital sourcing, enhancing fund growth and diversification.

• Bain Capital anticipates continued growth driven by globalization and expansion into new markets such as Europe and Asia.
• The firm sees significant opportunities for scaling its real estate business and expanding its presence in credit and insurance sectors.
• Technology, including biotechnology, AI, machine learning, and data science, is expected to play a crucial role in Bain Capital's operations and investment strategies.
• The firm aims to increase diversity in leadership and address public perception challenges regarding the private equity industry.

"There will continue to be this positive march of growth. I talked about all these tailwinds. And we'll continue to participate in a number of the vectors of growth. Globalization, as we mentioned, continues to be an opportunity."

• Bain Capital is optimistic about growth prospects, driven by globalization and other favorable conditions.

"There's a number of opportunities for us to scale businesses. We are a relative latecomer to real estate, although we've done real estate investing for a lot of years."

• The firm sees potential for scaling its real estate operations, despite being a late entrant in the sector.

"Tools around AI, but not just AI, AI, machine learning and data science. That whole cluster is going to have an enormous impact on how we work, how we invest and how we add value to our companies."

• Advanced technologies like AI and data science will significantly influence Bain Capital's investment processes and value addition strategies.

"The final point I would mention will just be the evolution of our organization, which is going to drive significant increases in diversity in leadership opportunities across all of our young talent."

• Bain Capital is committed to enhancing diversity in leadership roles, reflecting its organizational evolution.

"If you were to think about one of the bigger risks or threats to alternative assets and to private equity. It's unfortunately the public perception that still persists and misunderstanding, I believe, around the role and value and virtues of our industry."

• Public perception and misunderstanding of the private equity sector pose challenges that Bain Capital aims to address through organizational values and community impact.