tv Bloombergs Studio 1.0 Bloomberg December 31, 2017 1:30am-2:00am EST
♪ emily: he cofounded tpg, one of the largest private equity firms in the world. jim coulter, along with david bonderman, got their start by investing in a bankrupt continental airlines in 1993. today, tpg has its hands in everything from j.crew to movie studios. ♪ health care in china and cell towers in southeast asia. and two of the most prominent tech unicorns -- uber and airbnb. as these companies take longer to go public, tpg's investment strategy is undergoing a new evolution in the era of private markets. joining me today on bloomberg
"studio 1.0," tpg co-ceo jim coulter. so, tpg is an investor in uber, airbnb, vice, spotify. what do all these companies have in common and what does it tell us about your strategy? jim: i think they all have in common the fact that they're driving disruptions in their industries. in some ways, if you look at the history of tpg, while we are often called a private equity firm, from the very beginning when we started with continental airlines, people began thinking we were airline investors, but really, that was a moment in time. we have not done much airline investing in 10 years, but since that founding 25 years ago, we
have constantly specialized in finding where the economy is changing and how we can expose capital to it. emily: you and david bonderman cofounded tpg in 1992. you were both working for the texas billionaire. what was it in those early days that set the stage for what tpg became? jim: we came to the industry from a different place. first of all, it's a bit aggressive to call it an industry in 1990. in fact, it was a backwater piece of the investment world. have constantly specialized in finding where the economy is changing and how we can expose but in those early days, there were a couple of small funds. kkr literally managing hundreds of millions of dollars, but some of the largest players were families. the basses and the pritzker's. and as the industry grew up, the gene pools on one side wall street, on the other side, families, came together to form what is now called the private equity industry. and became from that different gene pool and that has affected how we behave as investors. emily: tpg did take some hits during the financial crisis. how has that changed the way you do things? jim: you always have to learn
from your mistakes. what we learned last cycle is that the larger deals that we did, often thought to be safer in areas like utilities or casinos, actually didn't do as well as a companies that were fundamentally growth companies. so, as we have come through the last decade, and to look at what tpg has done, we have been very focused on the midsize companies that have periods of rapid growth driving industry change. emily: you're fresh off of your meeting. what are your investors asking you that they were not 15 years ago? jim: what we are seeing is that the venture capital market is active, but today, more companies are staying private longer, so activities that used to happen in the public market are happening in the private market, and our investors are trying to understand how to participate in that, and how to sort it out in their mind. emily: you've talked about this upcoming era of the private market.
is this good for the economy? jim: i think so. i'm obviously a big advocate for private markets, but i do think that, over time, the public market has evolved to be a little more short-term, a little more indexed. and the private markets have that, over time, the public grown up to where we can bring a the markets a toolkit, a value added that is difficult for public market investors to bring. emily: softbank has about $100 billion to invest in tech. the cofounder of paypal told me that it is like the asteroid in the room. how dramatically is softbank changing the investment in the landscape, the competitive landscape? jim: i guess i've seen a lot of asteroid scares over my career, so i'm trying to take a balanced view of it. so, what we had in softbank is a large fish in a very large pond. so the question is, how is that large fish going to change life in a very large pond? and i do think their appearance as a market leader will shift some of the tech investing landscape, but i also think it will shift more tech dollars into the private market over time, and may actually expand the opportunities set, as well as affecting the price dynamics. emily: so, what do you think
about the position uber is in today? what do you think uber is worth with dara khosrowshahi as ceo? jim: i'm very excited to have dara in the seat. i think he's an excellent choice. i think the market will tell us what the values are overtime. if uber continues the growth that it has exhibited so far and continues to broaden what it does, uber eats is a fascinating idea, doing really well. i think there's a really exciting path ahead for uber, but it has a lot to clean up. so, i won't comment on the values today, but i think, if it has the success that we believe it can under dara, success may surprise us all. emily: interesting that you mention uber eats. what do think the potential is for that?
jim: i think local delivery starting with food, packages, etc., is a truly interesting issue. you see amazon struggling with it. you see retail struggling with it. once you get a network effect, what can you deliver? i'll be enough, the delivery of people may be the most difficult thing. maybe there is more we can deliver in more markets around the world. emily: what do you think travis kalanick's role should be at the company be? jim: i think the board will decide that. emily: so, he's on the board. some people think he should not be on the board at all. jim: i think the board and travis will decide what his role is going forward. i suspect travis will remain a large shareholder of the company and hopefully a positive player in the company's evolution. emily: has your position on travis's role changed? because tpg didn't sign that original letter asking for him to resign. i'm curious how your own position as a main investor has? evolved? jim: we have a huge amount of
respect for what was accomplished by the company, and what was accomplished for ridesharing generally. companies have to evolve, so we have been in favor of evolution positive ways. i don't think that is necessarily a focus on any individual, but we are are pleased to see the company moving forward on a number of fronts in the way that they simply must. emily: what is the lesson you think tpg has learned from the uber story? jim: i think uber is a company that works in reverse dog years. one year is seven years in uber, both in terms of growth and in terms of earnings. if i take away one message it is that governance and culture really matter. we always do that, but sometimes in the flurry of growth out here in silicon valley, we need to keep focus on governance and
culture. emily: how so? jim: i think it's just making sure that as we build revenues, culture. we also build the cultural aspects that make companies what they are. and that governance models evolve as a company moves through its life history. uber moves through life history so quickly that at times the models have grinded to keep up. we also build the cultural though i think there is a general lesson to make sure that those models around governance and culture bear the same discussion in companies as the business models, which often drive them. emily: so, david bonderman, cofounder of tpg, was on the board of uber. he made an off-color remark about women at a meeting and he resigned. is that kind of remark acceptable? is that kind of an attitude? jim: no, david's remark was unexplainable and inexcusable, so clearly inappropriate. and in the aftermath of it, david immediately apologized broadly and deeply, and innately -- immediately stepped off the board, so that was part of the
discussion as a company changed its culture. so there's no excuse for what was done. i think david's actions proved that we, in fact, understand that. there is obviously a broader discussion going on on these issues, and i think it is not really just about uber. it's about a journey that businesses everywhere have to move more quickly on. emily: does it concern you at all that it could change the level of influence that tpg has at uber? jim: no, i think in some ways, uber is moving towards regular governance and we are just one seat in the board room, but i do think that we live in the world of large-scale, international companies, and it has been a boardroom that has not had as many voices with that background. and as the board expands and we bring in new board members, i
think it will be a very positive thing for the company. emily: as you alluded to, sexism is a huge problem in tech, in investing, in business. what is tpg doing to improve its own culture in this regard? jim: to be clear, it's the right thing to do, but it's also the smart thing to do. i mean, i have no doubt that more than 50% of the world's iq, and more than the 50% of the world's wisdom lies with the female gender. so, we need that wisdom at this time in business and in the world. we have to be more inclusive. around tpg, when our co-ceo join tpg, he brought a lot of efforts that have been lost decades ago, at goldman to begin to grow their commitment to diversity, and we have been traveling that path with vigor and with focus for years here now at tpg. if anything, we have to
accelerate it. emily: how so? jim: to understand unconscious bias where it exists and really encourage diversity of all sorts to enter our organization everywhere, from the boards that we appoint to the entry-level recruiting we do. for example, last year, of the partners we made, over 30% were women. that, for our industry, is a high number, but i am embarrassed it is a high number for our industry, and we got a long and concerted effort ahead of us. ♪ emily: what's the single most important thing this administration needs to address? ♪
issues. i think generally, for most of my career and private equity, we did everything we could to keep our head down. i think there's a general shift in business, and it is about doing the right thing. issues. you can't stand on the sidelines the way you used to. emily: what is the single most important thing this administration needs to address? jim: i think the division in the country. at the end of the day, we have a system built on compromise and governing, and not a divisiveness and politics. and we need a government that governs. emily: is the divisiveness, these political issues, the volatility, the market uncertainty -- is that having an impact on your investment decisions? jim: yes, but if you think in a macro sense, one of the things that concerns me most are little people are concerned as we watch the public market footing with new highs every day, or breaking them. it seems like what we see in the business pages and the front pages aren't aligning as they have most of my career.
so, how that uncertainty plays through our investments is something we're discussing deeply, and trying to express in the portfolio. our favorite way to express it is trying not to invest in the macro. all right? we're trying to invest in situations, companies and industries that are interesting and changing. and you know, that's where our focus is. emily: so, what are you most concerned about? jim: what i'm most concerned about is what i can't predict, and that's geopolitical events. so, what's happening today that might be the subprime of the future? i don't think we know. and that combined with geopolitical events means like is more complicated than the low volatility that the market indicates. emily: when it comes to tax reform, what are you most concerned about as it pertains to dealmaking? jim: generally, i'm not very optimistic we will have tax reform.
we may have tax cuts, tax changes, but tax reform is one of the most difficult things governments do. my job is to take the cards as they're dealt and play them well. unfortunately, we can't affect tax reform, but we're anxious to see what is going to happen here, and from there, we will play our cards well. emily: what sorts of moves could materially impact tpg's behavior as an investor? jim: i think, most notably for us, would be changes in interest deductibility. and a portion of what we do, the use of leverage is important. and there's been various, potential moves on the deductibility of interest that i think would change the relative attractiveness of certain types of capital structures. emily: carried interest has been an issue for more than a decade. will it change, first of all? and if it does, will that materially impact your behavior? jim: i have no idea if it's
going to change. i think it will arguably affect behavior broadly. i think one of the interesting things about carried interest is that it tends to be discussed as if it was something particular to the private equity industry. it's real estate. it's venture capital. it's entrepreneurship. it's small family businesses. it's something that has been in the tax code for 100 years, so if they decide to take it, they will change it, but it will affect the economy more broadly than the discussion typically captures. emily: tpg has long been active in asia. what's the most significant investment trend that you are seeing there, whether it's in china or elsewhere? jim: my favorite trend right now in asia is health care. people want to spend more on their health and well-being, yet the existing systems are not set up for either the economy or change in health care delivery. so to give you a sense, we owned one of the largest maternity hospitals in china. we're building cancer centers across hong kong and southeast
asia. we're doing surgery centers across india. so, this concept of catching the demographic wave, but also catching what is a global change in the delivery of health care, is, i think, the truly interesting investment area. emily: you were in saudi arabia recently. what to do think those opportunities are? jim: you have an economy built on hydrocarbons, which is pivoting to an economy involved in the global markets technology. that's a massive, bold move. and i think it will create investment opportunities in several ways. emily: any plans to open an office there? jim: no, i don't think they need us to open an office there to help in the economy. it's funny. when i spoke to a number of local investors while i was there. and the point i made to them is
they don't need chevron. they need aramco. emily: any plans to partner with the saudi aramco public investment fund? jim: we would be happy to partner with them. we would be happy to partner with a lot of the sovereign wealth funds. so, as they transfer capital, i expect we will be active with them. ♪ emily: do you think tpg will still go public someday, and if so, when? ♪
♪ emily: uber and airbnb are often compared as two of the most highly valued unicorns. you're an investor in both. so i'm going to ask this question in an interesting way. so, uber or airbnb, how do you see the trajectory of these two companies playing out and comparing them? jim: hard for me to know. which of your children do you love best? each has different opportunities.
but what we have tried to do is to choose specific company set up places in the industry that are special. and i think that is true of uber, airbnb, spotify, and vice. what interests me as an analog to uber eats and airbnb is that they are now beginning to focus on experiences at airbnb. if you think about traveling to a hotel, you don't just want the room. you want the concierge, and its exposure around the city. so, i have been a big advocate of a general shift in the economy from things to experiences. and i'm really interested in how uber is building uber eats, but airbnb is building its connection to experiences. emily: uber surrendered in china. airbnb is pushing forward in china. they are not the market leader there. could you foresee doing a partnership with a local rival? jim: i would not use the word "surrender" in china for uber. it's that partnerships and alliances are smart.
i think as anyone tries to expand at the rate that these companies are, finding partnerships and alliances is a smart business. emily: you guys are putting more money to work in content and entertainment than almost anyone when it comes to vice or caa. what is giving you the confidence to do that? jim: over the top, delivery of content when you want it is fundamentally changing elements of the consumer industries out there. and we don't even know quite where it will end. "game of thrones" would have been almost unimaginable a few years ago, and now we have a move from that content to short form. so, the idea of content and content-shifting is to me, one of the most interesting things happening. emily: are you at all worried that too much money is getting put into content? are we in a tv bubble? jim: we're certainly increasing
the number of scripted shows and tv very rapidly. and like most shifts, there will be moments when the pendulum will swing back and fourth. so for me, i'm fascinated by the concept of binge watching. binge watching, in my view, is just how people are going to watch in the future. and as that involves, i think you're going to see the dollars being spent in tv really just how people are going to becoming some of the dominant dollars in content. emily: you're also investors in spotify. what makes you think that spotify can take on apple in the long run? jim: yeah, taking on apple is daunting, but spotify has shown very rapid growth and effective positioning in doing that. i think one of the most interesting things about spotify is its position as a data company. its ability to evolve to meet the customer need.
so i think it will be one of the winners. i think we tend to believe there will be one winner in a lot of these industries, but generally, spotify will clearly be one of the winners in the music business going forward, and maybe adjacent to music. emily: you brought in an outsider as a co-ceo, you are a founder yourself. that's a tricky position. how have you and john dingell read split up responsibilities? jim: in the old days, you simply had to invest well. now we have to invest to higher standards, but we have to manage ourselves well. and so, those skills of investing and managing are sometimes not present in one person, and certainly take a broad set of efforts and personalities. my background's a little bit more as an investor, although i have been a manager for long time. john's was a little bit more of a manager, although he has been an investor, running goldman sachs' pia division reporting to him. so, it was really bringing the
best those two together. emily: you guys will start raising a new fund next year. we heard the cap is as high as $13 billion. can you share anything about your plans? jim: i think our goal is to have enough capital, but not too much. emily: tpg has remained private while your competitors are publicly-traded, whether it's blackstone, kkr, or carlyle. do you think tpg will still go public someday, and if so, when? jim: it's totally unclear to be. we have no real desire to go public. and if you look at -- emily: but there were plans to go public, and those plans were shelved. jim: they were shelved, and the reason why is because we said we will only do it if we think we need to do it. and what's become clear to me is that those who have gone public, may be not as please with being public as they might have anticipated, there is now capital available in the private markets for companies like tpg also. why go public if you don't have to and don't particularly want to?
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♪ emily: he is one of the most well-known tech titans of china. kai-fu lee got his start at apple, then moved on to microsoft, and sparked a lawsuit when he left to run google in china. that was before the search engine left the country. facebook and twitter were blocked by the government, and a thriving chinese tech scene sprang up in the void. now he is running a billion-dollar fund to invest in the next tech generation. joining me today on "bloomberg studio 1.0," sinovation ventures ceo kai-fu lee. you came to the u.s. in 1973.