Fabiano Aguilar: Thank you, Peter! Thank you so much for having me. We have known each other many for years, right? But we were in Europe. I currently run two companies today. One is called Parabellum investments that makes investments in venture capital, early-stage private equity, usually early or growth stage. We do make some investments in financial services, like interest rate derivatives, power companies, and more financial biased investments and real estate. In the past few months, we have not really deployed in any capital real estate given the excessive liquidity we see in the market.
So, we do not have to produce earnings every quarter like a traditional hedge funds. This is my first job. My second job, I am the CEO of Strom Power which is one of our portfolio companies. That is where I spent at least 95% of my time. So, I have both hats. I am a capital allocator but also an executive.
Fabiano Aguilar: Yes. So, if you think from a perspective of digitalization of the economy, it was great because it has sped up a lot of the business that were taking too long to flourish. But I think that the whole pandemic has had a huge toll on the human side. People with mental health issues, depression. We all were affected by it no matter where you live, no matter what you are doing, what impact you have in your company. So, it is a bit hard to balance those two factors.
The first impact we have seen was an increase in productivity because folks stopped commuting, they saved an hour, an hour and a half of their day, and that they put into work. But within two months, three months of working from home, we have seen that the opposite happened. We have seen a decrease in productivity. In addition, we have seen some difficulty with communication, internal sharing and it has impacted some of our businesses to the negative side. We have tried to come back. We were not located in California, which I think was the worst quarantine so far, or Argentina for that matter. But as soon as we were able to go back to the office, we did that because we thought we were losing interaction, people interaction, we were losing discussions, openness, and collaboration.
The U.S. is the most effective key market in the world, given the numbers that you showed me before, but you have this ecosystem where you have the banks, investors, entrepreneurs, the workforce. However, we have seen PE flourishing everywhere from all over the place, in Europe, Asia and Latin America. Local PE markets have become increasingly more effective in identifying opportunities, pricing them, and executing those deals. I think if you look from the forest, not from the trees, it is a very promising, positive message because we have been growing everywhere.
Now is the moment where not only is inflation but you also see issues with the supply chain fulfillment and prices are completely out of whack at times. But that is what is happening. If you think about venture capital (VC), Silicon Valley is still the Mecca for entrepreneurs, and the issue there is that it is still the best ecosystem for matching ideas through capital and the resources that are needed to develop them. We have seen a lot of new funds in India, in Asia especially but also Latin America. In every single country that is trying to develop the ecosystem in their own way, sometimes with the help of the government, but we have not really seen the same level of network effect that we see in the U. S. Especially in California. If I talk a little bit of trends, I am sorry, go ahead.
Fabiano Aguilar: I am just trying to give you my perspective where I see this going. Venture capital and private equity, they do behave in cycles as well, like a normal economic cycle. And with the excess of liquidity coming from the central banks and from the Federal Reserve, we have seen distortions in valuations. Those are not new. They have been going on for about 10, 15 years already. There is a significant liquidity injection in the public markets. We started with bonds, but then it went to commercial paper, and then to equities. So, we have seen this situation, since 2009, 2010, where it is cascading into other industries as well.
And you see a situation where KKR and Blackstone launched private equity funds for retail investors about 10, 15 years ago. Those investments became more accessible to retail investors. And then you see a situation like Softbank launching $100 billion fund to invest in in venture capital, which is mind boggling. How can you invest a billion dollars per week? It does not make sense. We will know at the end if the fund is successful or not, but those to me are very important signals that talk of the cycle. There is too much capital chasing too few opportunities. It is a recipe for potential disaster in the next vintage funds that are starting from now on.
Fabiano Aguilar: From an investor perspective, somebody that is trying to allocate capital to the industry, the best players are still going to produce outsize returns, but I think the average return might go down in the future. The distribution of returns might get a little bit wide as compared to the past previous years. I have seen some interesting funds. I have seen a VC feeder fund that uses AI to try to identify the best combination between early managers, best entrepreneurs, and best investors. It is like a fund of funds. They enter early in the fund, and they charge on top of that. But those are new models that used to take place in hedge fund and now it is coming to VC as well.
And I think for entrepreneurs, if you are on the entrepreneur side, it would be a bit tougher to raise capital. One of the several challenges of an entrepreneur is how do you balance running the business versus raising capital? Ideally, you should do the capital funding once and have at least two years of runway, so you can go focus and put your head down and just work hard to deliver what you are trying to do. That is not what happens. You are really trying to create a product to test it, to sell to a potential client at the same time while you are talking to investors, and you try to raise capital because you don’t have enough money to survive the next six months or ten months. It is difficult.
Fabiano Aguilar: Yes. We go where the IQ is. If I can find an entrepreneur with a with a remarkably high IQ and a specific theme, that is what we are going after. A generalist will never have the highest IQ per square foot on an industry. You just touch on a few of the industry to mention commercial real estate. We were very active about 10-12 years ago in commercial real estate, especially in low value areas with high traffic. We have not had one single investment in the past four or five years.
We had a situation where nobody was in Manhattan for almost 18 months. A lot of the leases were not paid or if they were paid, there was a lot of subleasing going on without contract. It was a chaotic scenario. But prices never really discounted significantly which is interesting. We are seeing a lot of money coming back and people are going back to offices in New York. And just had this amazing report from UBS yesterday on real estate and they are calling the bubble and they are trying to differentiate different cities, like Hong Kong or Munich, where the home prices have gone significantly above anywhere else in the world. Of course, other places, the U. S. and all.
But the opportunity lies in the change, Peter. I do not think I can predict the future, but we are watching it very curiously. Because the moment that you see these huge dislocations in markets, opportunities will open up. Challenges would increase, but also opportunity would open up.
Fabiano Aguilar: Yes, I think for a lot of the very technical industries like power or media, you need specific expertise or materials, you need the technical background, you need the folks with strong background on a specific matter, coming from the very scientific universities. But those, I do not think they are scarce right now. It is always difficult to find the right people for the right opportunity. What I think is scarce are folks that can impact the business. Folks that are rainmakers, somebody that can come into a situation and review, re-analyze it, and say, “let us change direction,” or, “let us take the difficult decisions now because it will be better for us in the future.”
When I think about profiles, some of our portfolio companies that were not doing well. Because if it is doing super well, there is a system that works, there is a process, they are hiring well, they are training well, they are retaining their people. The ones that are in transition or the ones that are suffering a little bit. What I see is I miss executives that could come in and really change the nature of the business, really impact results in a meaningful way. We do not want guardians of the companies.
Fabiano Aguilar: I am Brazilian as you know, and I came from a very entrepreneurial family. My destiny was to stay in Brazil and work with my family. We have farms, and we worked in ice cream distribution. We had a small construction company. Early on, I decided to break with all of that and create my own path. Part of it is because it was a big family and part of it because the few experiences I had within the family business, I realized very quickly that I did not have the tool kit to become a good leader, good manager, or investor.
Then I wanted to work with hedge funds and could not find a hedge fund that would hire me. So, I launched one. I got a friend from Goldman; we launched the hedge fund and then I identified in the process a lot of incredibly talented people. They were very smart on a specific topic but could not really manage the rest. So, I created businesses around them, that is where I specialized. This way, I entered a lot of different industries. Most of them failed miserably. In the ones that survived, we tried to implement the lessons learned from the mistakes we have made before.
The way I see my career going is that I tend not to want to stay in the same industry or business for too long. My preference is to open up something new, start from a blank piece of paper all the time. As my wife keeps reminding me, it does not pay the bills to do that. So, I am trying to create some balance in that process. How do I start new businesses? How do I run them for a while and eventually make them more professional so I can step out and do something else?
Fabiano Aguilar: I would prefer to, yes, if I could.
Fabiano Aguilar: I think what you do has a significant amount of value for individuals but also for industries. Because I think some people have a lot of difficulty making that change, making that switch on their own. Especially in a world that is in constant change, constant dislocation of everything. I think if I am an executive right now and I am thinking that maybe it is time for me to look for something else. Maybe it is time for me to rethink my purpose.
On the other hand, I also think companies like mine need more of you as well because sometimes the hiring decisions, they are not as smart or effective as they should be. We have not really tapped into the outplacement industry as a source of talent in the way we could. You are already being paid by the executive, you have a pool of talent, why not just plugging into that and saying, you know what, this is what we need today.
Fabiano Aguilar: Unfortunately, that is true. And I am mind boggled by the fact that we do not see a lot of females in leadership positions. I have where I worked and where I had an impact, part of my goal was to transform that from within the company. With WWRE, when I oversaw the European office, I came in, it was about 20% women. When I left, it was about 50%, and not because we fired the men, but as we grew, we tried to find the best women. And it was not because I believe is the right thing to do or social minded, it was very selfish.
It is because I believe that when you have men and women in the in the meeting room, you have the best decisions. You have a different perspective. It was super selfish for me to do it. Where I am right now, Strom Power, we just promoted a general manager which is a woman. I understand why those figures are there. I do not agree with them because I think the companies need to be more flexible to accommodate to certain things.
The other aspect is just family. The family structure is making sure that when they want to have their families, when they want to get pregnant, but that they have a working environment that allows for them to do both. If they want to take some time off and not lose the opportunity, but also when they want to come back create flexibility around the new moms especially. At our age it is different. The kids do not want to see us anymore so we can work full time. But especially in that transition, most companies are afraid to invest in women for leadership roles because of that. It is a big mistake, and they are missing out.
We are not doing that. Instead, we are trying to create an environment where women can go out, have kids, come back, transition slowly, transition fast, however they want to do it. We want them in the meeting room, we want them in the world.
Fabiano Aguilar: The first thing I do when I have changed ahead of me, is a little bit of what Confucius used to say, first you fix yourself. Try to work on your priorities, try to work on your purpose, individually. Then you fix your family, then you fix your village, then you fix your country. I would start with a very intimate review of who you are, what you have done, where you want to go. One of the things that excites you, but also what is your purpose. From that, opportunities will flourish – or not, depending on what you are trying to achieve.
Fabiano Aguilar: Thank you very much, Peter. Very nice seeing you.
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