Talking Money To Us | Frank Yu – Ally Bridge Group & Julius Garofali – Shaw and Partners

Candice: [00:00:10] Hello and welcome to talk money to me. This is your need to know financial podcasts. [00:00:14][3.4]

Felicity: [00:00:16] I'm Felicity Thomas. Thank you so much for joining us today. We're bringing you another one of our special guest interviews. So today we're actually joined by Frank Yu from Alli Bridge Group and Julius Garofoli, one of our colleagues from Shaw and Partners. Firstly, a little bit about Frank. So Frank founded Alli Bridge Group in 2013 and is the Chief Executive Officer and Chief Investment Officer. In this capacity, Frank is responsible for setting Firmwide strategic initiatives and leading investment objectives across high impact life sciences transactions in private and public markets globally. [00:00:49][33.2]

Candice: [00:00:50] What a wrap. And I guess a little bit more background on Frank. You know, you are regarded as one of the top private equity healthcare fund managers globally, and that's because his mandate and his skill set is really investing in world leading late stage life science companies which fulfil significant unmet medical needs and most of all, help save people's lives. So in doing so, Frank has produce a gross IRR of 45% for his investors across his several funds since 2010. That is very impressive. And I guess to help unpack the exciting opportunities that we're going to be hearing from Frank in the life science space, we're also joined, like Felicity said, with one of our colleagues here at Shaw and Partners, Julius, who is a senior private wealth advisor. Like us here at Shaw and Partners, but has a few more grey hairs than us. He's got about 20 years under his belt, Shaw and Partners. And we're going to be hearing his version of how he met Frank and I'm sure Frank's version of How You Met Julius. And also will be asking Julius his thoughts on the private equity space in general. So welcome, gentlemen, both to the podcast. [00:01:54][64.7]

Frank Yu: [00:01:55] Thank you very much. Candace and Felicity, as great honour to be here and great pleasure to share on my experience with you all. Thank you. Candace Simplicity. It's a joy to be here doing this podcast with you both. [00:02:05][9.9]

Felicity: [00:02:05] Also, and we're very excited to have you both on the show today, and we can't wait to hear your thoughts on the pay market in general, as well as your expertise in the healthcare sector. But before we do quickly, here comes our disclaimer. So our chat today is not personal advice, even though we're registered of financial advisors at Shaw and Partners. Please note that the podcast and the content discussed does not constitute financial advice, nor is it a financial product. Now everything discussed is based on facts that we know at the time of this recording to be correct. And the date is the 18th of May 2022. All right. Now that that's out of the way to start things off, we've been lucky enough to be introduced to you, Frank, by Julius. So I know there's a bit of a funny story about how you two met. So, Julius, can you give us a bit of background and how you actually met Frank and what drew you to him? [00:02:52][46.6]

Frank Yu: [00:02:52] Yes. So I met Frank through a very well-respected investment banker, fund manager out of Melbourne. We flew to Hong Kong during the Art Basel conference, Credit Suisse Private Banking Conference back in May 2019. We went to visit the world's leading fund managers, which basically all congregate for that one specific time of year. We met Frank, funnily enough, in a restaurant in the Conrad. Sit next to Frank. It's not always easy to get a meeting with Frank. It was just purely tailing the back of this very close friend and mentor of mine who had known Frank and followed his work for ten years for his banking career at Goldman's and and through his time at L.A. Bridge and didn't get much of a background on Frank Private dinner. But I sit next to Frank, obviously, besides his in-depth knowledge on Burgundy ones. He absolutely blew me away on the type of world leading human impact, lifesaving medical device, telehealth medtech companies that he had been investing in in his career as a specialist, invest in health care. And it just became more and more apparent that as human population continues to grow and therefore more and more problems continue to grow in parallel with that, that there is a there is a very much thirst and need for some more of these instruments and companies to save human lives and keep, obviously, human beings out of hospital and protect themselves, insurance companies alike, the type of things he was coming up with, which would basically we don't really see much of this in Australia. Silicon Valley in Europe is talking about things like that, detecting cancer early or a one out procedure, a minimally invasive procedure that would prevent you being in ICU for two weeks. And this would literally be a a very, very precise surgery that would take an hour and you could literally walk home and therefore are just blown away thinking that if these people can get a surgery done, that's going to save their life within an hour, which accelerates the well even removes almost the whole impact of of healing just. This minimally invasive procedure that that all doctors moving forward will be using is absolutely blown away. And this is something that we really need to get access to in Australia. There's a huge hole of diversity in this country. I mean, Australia, we're really, really huge in resources. We're providing the world's, you know, finished products and resources. We're taking care of that need. And then domestically, where our GDP, huge contribution is property. But outside of that, what are we investing in? And, you know, I know that all of us here know these world leading companies, CSL, Cochlear, ResMed, Sonic Healthcare. But besides those companies to get access to as an investor, where else do you go? And the types of world leading investments that Frank was making in terms of the FDA approved businesses making as know, meaningful revenue, saving human lives and delivering significant unmet medical needs are a must in not just our clients portfolios, but I think investors in Australia want in general. So look, I was blown away after I met Frank for about an hour and a half, 2 hours and a huge knowledge of what he was doing and also a huge knowledge after that of his burgundy ones. He went back to the hotel, did a full fledged due diligence on him as a profile on his website. And I was having a look at the investments that he had done in terms of his co-investment roles with Bezos Expeditions, Gates Foundation, Bristol-Myers, Merck, Johnson Johnson, some of these Silicon Valley based businesses that we would never, ever get access to being here in Australia. And I thought he was just my gatekeeper, my, my unicorn to to to basically grab, grab the horns on and, and open this up to all my client base and short Skype is here in Australia. [00:06:43][230.9]

Felicity: [00:06:44] Well we just wrapped the podcast now because that was a great intro and can't do much better than that. No. So, Frank, what did you think when you first met Julius as well, do you remember? [00:06:54][9.5]

Frank Yu: [00:06:54] Yes, everything he said, it was very true. You know, I wasn't sure about what Australia means to our business three years ago and you was ones that I strongly believe being a wealth manager for many years in Australia, your product could have a very strong audience in Australia. I was very sceptical, I didn't believe them and then he was very persistent and then texting me, emailing me and said, Hey, you got to come to Australia, check it out to see if we can work together. So it took me several months to decide to make it day trip to Sydney from Hong Kong to see how real it is. And after I spent hours with them, you know, I was leaning towards to give him a shot. You know, several months later I went to Sydney again to give a first presentation to many kinds of honours hosted by Julius. And then, you know, since then we were able to, to, to attract a good amount of capital from Australia. The last fund feeder fund set up by Sean Potter's your firm successfully invested in our last year fund and contributed significant capital base and I expect that to increase significantly. I think what tells me of the following, number one, Australia is got a very strong wealth creation. Number two is that increasingly I see Aussie investors who are successful, well-educated and globally minded. They are really increasingly looking to diversify their investment holdings. Therefore, you know, more and more of these investors are becoming investors in our fund and then more and more come to what we do. So this is very encouraging. I really see now Australia being a very important capital base for our cutting edge life sciences investments and most of which are in the US. [00:08:54][119.2]

Felicity: [00:08:54] Yeah, that's really great to hear. So Frank, can you give us a little bit more some background information on how you actually got into life sciences? [00:09:01][6.6]

Frank Yu: [00:09:02] Yeah, you know, I know early on that I would never be a scientist, never be a medical doctor and ever be an engineer. I just happened to be born into a family of four doctors that included my mother. So I grew up with many doctors, Romy, and, and I respect them a lot, including my family members were doctors, you know, they really saved improve many people's lives. And after I got into finance, Archer was at Goldman Sachs. I started to interact with my colleagues in health care group in New York. So I concluded that, you know, this is an extremely technically demanding business. If you have the know how very few people are able to do what you're able to do, but also you need very strong knowledge and experience in financing. And therefore, I made my first life sciences investment in medical device company 11 years ago, which did very well. And that was. The turning point in my investment career. Ever since that, I started to focus on live science. So that's been 11 years, the closest since about five or six years ago. We decided to build a bridge designed to focus only on live science investing and nothing else. So we are 100% dedicated to life sciences, but I have to be cutting edge. Also, we're not an early stage venture capital investor. We primarily focus on all those cutting edge life science technologies, mostly in the US after proven concept, and then many of which are the majority of which already post FDA approval. Many of which are already generating significant revenue and are growing very fast. And that is the sweet spot of our bridges investment universe. [00:10:49][107.1]

Candice: [00:10:50] Okay, so it's really late stage. Like you're saying, it's not a concept. It's it's an actual business model with a track record and FDA approval on that track, which is interesting to hear, I guess, taking it back a step. Just a general question for you both, and I'd love to hear your perspectives. What is the the checklist, the metrics, the investment kind of criteria that you look for just generally in the private equity space? What do you have to see there for? You go. I'm excited. Julius, you first. [00:11:19][28.9]

Frank Yu: [00:11:19] So for me and my client base, it's more about the nearer term to liquidity. We all like to see. I mean, we're all used to having the option. Therefore, you know, people invest in the share market, having the option to liquidate it in the time that they want. But then on the other half of the client base, which would normally have maybe 90% of their net worth is in property, it is a liquid. So I think when they see private equity, I think both of those come into into mind. And I think if we can get them 2 to 3 years with the view of liquid liquidating, with a meaningful return of 30 to 50%, I think that is 100% acceptable. And I find that majority of my client base and even myself to capacity. I think a lot of these VC funds, although they can make tremendous amount of returns, you know, up to 1,000% and whatnot. I mean, you stuck in there for a decade and it just seems like a very long time. It's an uncomfortable. That's what I look for, what I also look for. And I think it's more the mandatory for most of us now or desirable, is the lack of volatility. We've seen a lot of it in the previous couple of weeks and even from October last year in the Nasdaq, some of the top 200 Nasdaq stocks are falling as much as 80%. Some companies that we never thought would ever do that. So I think if we can remove volatility and see a 30 to 50% return within, say, 2 to 3 years, I think it's very hard to beat that. And that's what I look for. [00:12:48][88.6]

Candice: [00:12:48] Yeah. And like you were saying, a real pure diversification that perhaps our market in Australia can't offer. And Frank, what's your take on it? Just generally in the private equity space, what you look out for? [00:12:58][10.0]

Frank Yu: [00:12:59] Yeah, I mean, equity is a huge space. So I would rather focus on the space we focus on, which is life sciences investing, especially on the private equity side. Of course, you know, what Julius referred to are exactly the things we're looking for, you know, multiple cost of investment, how many eggs over how long a period that translate into IRR. Right. So, you know, multiples of returns over how long equal to IRR based on the calculation. So I would just say that, you know, our having invested it across different stages of life science companies and across all different subsectors, we really focus on our sweet spot. Again, we work very closely with some of the best venture capitalists who are extremely good to spotting what companies are giving birth to those companies and taking them through childhood. And then a teenager. Good. And then adulthood. Right. But we are much more focussed on those children that already have proven they're very good at school and then also they have a proven ability to get into the workforce, becoming a very successful employee or entrepreneur. I think that's the kind of stage we're looking at, but also very importantly is that of impact. You know, we are a well-recognized brand for us. The impact, what kind of technology does get into how much how big of an impact we are having through that those companies on the life and death of patients and also the quality of life. You know, so the bigger the impact, the more successful we see ourselves in addition to greater financial returns, you know, so this is a very much of a social impact driven business. And not only by money, we have to generate good returns, otherwise we're out of the business. In the meantime, all of our investments have to be very impactful in terms of actual benefits to human lives. [00:15:17][138.5]

Felicity: [00:15:18] Yeah, that's really nice to hear because I know not all fund managers are like that. So return our focus to what you do best, Frank, which is obviously identifying the right health care company. Could you go through the your team's investment process before you decide to invest or not in a specific company for us? [00:15:36][17.9]

Frank Yu: [00:15:37] Is it research or research? Research? You know, what we focus on is extremely technical in terms of scientific, clinical and also financial analysis. You know, so research is our number one focus. And then if we got it, I would just say we have over 20 well-trained people, experienced people, both investment professionals, as well as career scientists. The overwhelming majority of our time or effort really spend our researching, understanding the size, the technology, the clinical data, and also the commercial benefits, commercial gains. And I think these are the things that we focus on. And then after we. Have a very good understanding of the science, the technology and the products and then, you know, the returns. Then we focus on how do we get in. I think now more and more business is very much brand driven. You know, we don't need to knock on people's doors. People come to us for our brand because the brand immediately adds a premium to the value of the company's investment. So at the end of the day, it's a research and research research. And then in the meantime, after we go into companies, we have to be able to add value whether is in operations or in capital markets or in M&A for exits. So I think understand a company is a first critical step, but after that, is that what you are able to do to create and to realise the value of the money will put into the company? [00:17:18][101.4]

Candice: [00:17:19] So there was obviously a lot of research, research, research going on last year because 2021 witnessed an impressive surge in the private equity space. I think the inflows were around 141 billion. In your sector, the healthcare globally and when we were preparing for this podcast, we saw that inflows more than doubled and the number of deals also soared 36% to 200 to 515. Excuse me. So, Frank, I guess what were the driving forces behind this explosion, the power sector? And you know, can we expect these records to continue like Julius touched on? It's very volatile at the moment in the markets. What's your outlook and take on the PE space the next, I guess, two years? [00:17:58][39.0]

Frank Yu: [00:17:59] Yeah, it's a great question. I think it's a very fundamental question about how the global investment community treats investing in life sciences or health care. And I will say that the number one driver of a huge investment in health care was Calder. I mean, you saw this huge market sell off upon COVID becoming a pandemic in 2020. But then we saw in a V-shape a very sharp V-shaped recovery as vaccines were being developed at a rapid pace and effectively. And that's already injected into hundreds of millions of people around the world. We saw the very powerful effects against COVID and its variants. So I would say in recent years, really cold had been a very specific catalyst and a huge closed off investment in cutting edge life science. And then as a result of that, the whole global investor community realised that no matter what happens to the world, we must invest one more of the capital into live science innovation. Because you know, every one of us, our friends and family, all the other human beings on the planet will have to deal with these medical needs and especially those unmet medical needs, which are many, many out there. You know, so and also with the ageing population and yet in a wealth creation increase the spending in health care and also increased the investments in cutting edge life science technology to address so many unmet medical needs become inevitable and irreversible. [00:19:57][118.7]

Felicity: [00:19:58] Yeah, well, that's kind of it, because the only thing really guaranteed in life is death and taxes, right? So health care is a really important place to invest. Now, aside from COVID, what other major trends are you seeing sweeping through the healthcare investing industry at the moment? [00:20:13][15.1]

Frank Yu: [00:20:14] Yeah, I think the most fundamentally is the need to address unmet medical needs, but I mean, that need has been around for since whatever existed. But then, you know, I would say that with scientific breakthroughs over the past several decades, especially driven by genetics and then all the scientific discoveries that have come out of that, driving towards a precision medicine, our ability, mankind's ability to address American needs, and also a huge capital market in both the venture capital, growth capital and the public capital market are huge. And, you know, investors are becoming more and more sophisticated. You know, with all that, you know, this is definitely a sea change as an investment asset class in healthcare in general, but also increasingly in live science innovation. [00:21:17][62.9]

Candice: [00:21:18] And I guess one last question on COVID, because I'm sure, as included in our listeners, are probably over talking about it. But I guess what? What has been any opportunity that has been brought about by COVID 19 in your sector? You know, it has it has it ramped up business models like we keep hearing the you know, the advancement of technology is even more important because of COVID. What about the integration of digital tools like AI and I guess the overall resilience of the supply chain, which we're hearing a lot about that covid's disrupting. What are your comments and thoughts on that side in your in what you do on a day to day basis? [00:21:50][32.0]

Frank Yu: [00:21:51] Yeah, the bigger question, so I was a COVID has both positive and negative impacts on our business in general, the life sciences business. I think of course the most positive by far is that it really proved, you know, great size, really work with the right people with a lot of capital behind us supporting it and also with a very strong government push to address this very, very critical need. And, you know, so that's a very, very positive. And, you know, that also helped to lift the whole sector of life size. Right. I mean, look at how many billions of dollars of revenue have been generated from the vaccine sales and then more and more new products are being developed. So in the meantime, as more and more capital are put into life sciences outside of the vaccines, definitely some are working out. And so those are very positive. Of course, you know, pulled it has also negatively impacted many of our business. You know, some of the many other types of diseases were put on the backburner just because, you know, hospitals have prioritised the treatment of COVID patients. So many, many medical procedures were delayed or on hold. So that's still an impact of those business is but during the earlier months of the pandemic. And then the second is that the capital markets, especially the public capital markets, you know, from a hop to code, you know, so they say, wow, you know, huge dividend has been paid for the cold IT vaccine place. And then all the other sectors may not be as fast as generating these concrete benefits. Right. So we've seen a huge pull out of a lot of capital on the public side. But in the meantime, there's a lot of capital investing in cutting edge life sciences based on the private side and not so much impacted by the public market. [00:24:02][130.8]

Candice: [00:24:02] And we're going to get into that cutting edge life science interest that you're seeing. But before we do that, we're just going to take a short break to hear from our sponsors. [00:24:09][7.1]

Felicity: [00:24:12] And we're back. All right. So as iPods and specs are coming under increased regulatory scrutiny, do you think more health care companies are looking to stay private for longer? [00:24:22][9.7]

Frank Yu: [00:24:22] Oh, that's a fantastic question. This is actually something that we've been thinking through every day. I would say we're very happy for ourselves, for our investors. That and then for those sure. And partners of clients we invest in our last one, the overwhelming majority of our portfolio, current portfolio, existing portfolio are private companies. And we last year made great decisions by keeping some of our best companies private, despite all of the great temptations from the public market to go public IPO through IPO or through a SPAC merger. As you may recall, last year in the US, SPAC was all the rage and then fell out of favour. So looking back, we've made a great decisions by keeping a number of our companies were extremely IPO or merger ready, kept them private. And so those companies are able to focus entirely on executing the business rather than being distracted by the hugely volatile public market. So we're very glad we made the decision. So I think in this kind of market, staying private is an advantage. If you were able to raise a lot of money before the huge market sell off, because if you are desperate for cash, this is a really a life and death juncture for many companies. But I'm very happy to report that our companies will very well funded before the market crash and they're able to ride through this extremely bearish market. [00:26:11][108.7]

Felicity: [00:26:12] Great. Well, for our listeners, benefit a SPAC is actually a special purpose acquisition company. So you kind of answered our next question, basically saying that companies potentially are finding it harder to raise capital, but a lot of the companies in your fund are not because they're already fully funded before we've gotten to this kind of climate. [00:26:31][18.8]

Frank Yu: [00:26:32] Yes. So I would say that we've seen a roller coaster, a ride with the SPAC. But, you know, even though it is an extremely difficult market segment after several months of being all the rage on the public market. So we've seen a kind of 180 degree anti-climatic turn of the SPAC market, but still they are several superstars that have done very well. And also we have a own SPAC and we're very well positioned. But I think the key thing is the quality of the asset. Second is, you know, the the pricing of the asset we believe was the great asset and then a very compelling pricing. There will be success just like what we have seen with some of the successes against many, many disappointments. [00:27:22][50.7]

Candice: [00:27:23] Can you disclose what your SPAC is called? [00:27:25][1.8]

Frank Yu: [00:27:26] AB gi Abigail. Okay. [00:27:27][1.5]

Candice: [00:27:28] And focussing. I would just want to turn our attention back to the fund just for a moment. How big of a role would you say is playing in the healthcare sector in general? And what proportion of the portfolio is allocating, you know, capital to these companies that are delivering really groundbreaking AI in the health care sector? [00:27:45][17.4]

Frank Yu: [00:27:46] Yeah, I mean, no longer just a concept, no longer just a bunch of geeks working on a computer. You know, we really see we're very much involved. In fact, I can talk with specific examples all in the public domain. A.I. is playing an increasingly important role in health care across the board. I mean, I will say one thing that certainly is becoming more and more clear is imaging using A.I. to analyse image, right? When you look at an MRI, a CT scan. Also, pathologists, you know, these businesses increasingly will be driven by AI. In addition to, you know, human input, you know, you've got a very experienced the pathologists will always be useful, but they will increasingly leverage the power of AI more and more as these technologies become more and more mature and more and more proven with more and more data validating their value propositions. And then the second, also, in fact, on a bridge in the public domain, we recently have invested a significant amount of money in this age driven drug discovery company based in Cambridge, UK, which completed this successful. This SPAC merger with Europe's largest SPAC. So now after the successful merger in which all of you played a significant role, we have been following the company for a while. Not only us, but also the Singaporean Sovereign Wealth Fund, Temasek, a giant global pharmaceutical company, AstraZeneca. You know, I've all been investors in the company and our bridge has been teaming up with these key central shareholders, are helping the company to go to the next level to further validate the power of II for discovering new drugs and know still early, but we've seen some very encouraging developments proven in the clinic. And there's a lot more to come as these technology, as I said, are becoming more and more proven in the clinic, not just, you know, in terms of the mathematical models, computer models, but at the end of the day, in our business, they have to be proven in the clinic. [00:30:16][150.2]

Candice: [00:30:17] Yeah. And that sounds like really great groundbreaking technology in the drug space. So can you you mention was public knowledge. Can you talk about the company so we can follow it? [00:30:26][8.7]

Frank Yu: [00:30:27] You know, it's it's Cambridge UK based the company and as you know obviously everything that I talk about is in the public domain and as a very transparent, they already discovered a number of novel drug targets and a share that with their strategic partners whether it's AstraZeneca and also that first validation came and during cold it they actually through their platform they discovered this drug that was commercialised by Eli Lilly for different indication but they discovered through their own AI engine that this drug could be very effective for treating some cold in patients. So Eli Lilly and then shortly afterwards, the drug was proven and it becoming a Kogan drug. That was a great validation of this II approach to discovering something so quickly and so cost effectively. And it's something that really works in the clinic as well as in a commercial market. [00:31:39][72.1]

Felicity: [00:31:40] Look, in the listed space, we really do like Eli Lilly, and I think Candace and I have a little bit of research to do on that. Cambridge University Company. Now, your last fund, you invested 679 million over 20 different companies, which accounts for about 86% of the fund size. Am I right in saying that? [00:31:58][17.8]

Frank Yu: [00:31:58] It's very close. In fact, we completed our 21st investment just last week, so we got 21 investments, the total investment of nearly 700 million. So you're not far off is pretty, you. [00:32:12][14.1]

Felicity: [00:32:13] Know, far off. And look, we also know that you invest in the fund yourself personally. So you really put your money where your mouth is, which is fantastic and something we tell our listeners to do. Can you give us an example of a recent investment that really stands out to you? Why did you invest in it? What are the returns mean so far and where do you see that investment going in the near term? [00:32:32][19.2]

Frank Yu: [00:32:32] Yeah, I mean, we made a several investments over the past several weeks. In fact, Australia has been a very turned out to be a very productive place for me visiting because during the past several weeks we'll close the three new deals. When I talk about as a benevolent I is a drug discovery company and we were able to lock in somewhat down some protection mechanisms for our investment. And also we already saw it in the money and that investment. And then also we invest in a Silicon Valley medical device company for every medical. This is not public yet. But I can say that that we closed that investment a public the press release will come out very soon. And this is a post FDA medical device company to treat nasal obstructions. The EMT space, anybody who's a doctor this is an EMT here knows through our space and is office procedure very fast and in a with superior safety and efficacy and already generating tens of billions of dollars of revenue. And they're growing very fast. And this is a very, very similar to the first two investment made by the last funnel that a short brother's just to your feet, a fun to participate in, in politics and back those which were invested through the funds in 2019 and both that exited. So this recent investment aeromedical is a very, very similar to those two. And also we invested in a lot of science to come. But he also in Silicon Valley, that is a single cell DNA sequence and a protein analysis company. Because when people talk about precision medicine in the most technical terms, there has to be based on the most understanding of the genetic mutations and therefore single cell level DNA sequence and a protein analysis, and therefore, we invest in that. So these are good examples of our most recent investments. There's no absolutely no kind of binary risk. And, you know, already these companies generates revenues and very much risk and a still a lot more to come out of that equation. I'd just like to jump in there while you're on that path of momentum, Frank. And just to address Felicity, your question before about private equity and what I look for private equity as an asset class in general. And Frank attributes the thing about private equity versus the buying shares on the stock market hold her prior. I guess passive investing is that when you invest in private equity or back someone like Frank. Frank being a leader in his field is that he's actively involved with the companies he provides. Tremendous influence is sometimes sits on the boards of of companies. I think he sits on boards currently and it's about influence and guiding these companies so that Elbridge is such a strong brand name and it continues to be comes from a stronger as therefore a lot of these companies seek ally bridges tremendous Deep Dive due diligence and foresight and also guiding them. How the best way to access capital may not be via public listing might be securing capital from their own fund, leading a capital around which which is exactly what Albert Shu, they they lead them very seldom correlate a round of financing for these companies, but also the mastermind behind it. And Frank, since this experience is M&A, mergers and acquisitions, which has been doing his entire life and he if he needs to find a strategic investor or work with strategics, that that is what that is what he does. That is what the fund does. So we're really talking about strategic investments that Alibaba is focussing on and a fund that that really clears the path and speeds up the process of having these companies reach their goals a lot sooner than what they would have. And you're really dealing in a place and in the northern hemisphere where you're finding that there's a lot of activity in the M&A space, which we probably wouldn't find that much here in Australia. Like it's fine at 100 times multiple of, of, of mergers and acquisitions happening in that part of the woods. And and just just on another flip side, I mean, you know, you hear about companies in the fund, but what about all the companies that the other 99 companies that Frank turns away? There's some really funny, funny companies. He was just talking to me. We were in the I think the second row. John is talking to me about prostate removal, guided surgery, which uses compressed water. So basically it's for the urethra that you remove in an hour and you walk home and there's a zero chance of erectile dysfunction. I thought that was awesome. And that was it. An investment in life, whatever. I would have gone for that then. Anyway, just a bit of light hearted entertainment here. [00:37:33][300.7]

Candice: [00:37:34] Oh, we love that. And I guess touching on the point you just raised, Julius, you are right. The fund predominantly is in North American US based. Over to you, Frank. Why is that? You know, why is Europe and Asia and like Joy said in Australia, you know, there's not much appetite for that. And then I have a follow up question for you, Julius. Don't you worry. [00:37:53][19.3]

Frank Yu: [00:37:54] Yeah, it's a great question. You look, I mean, the U.S. is by far the most advanced in life science, innovation, and then by far the largest, the deepest and most liquid market for venture capital growth, capital and public investing and M&A. Therefore, you know, those are really the key drivers of our pivoting towards the U.S. Number one is we only want to be involved in cutting edge technologies. I mean, you know, us is not, you know, 100 out of 100%, but still great technologies in elsewhere in the world, in Europe, Asia, Australia and others. But the US is has the lion's share of the most cutting edge technologies for many very good reasons. And number two, also because the capital market in every part of the capital market is so large, deep and liquid, therefore, in terms of further financing as well as the exits, because we're fund investors, we're not a charity or endowment, you know, we always have to focus on when to exit. Sooner or later we have to exit. So if you don't have a very liquid market. Kids for exes. This is a huge problem with us, with our investors. Right. You know, so I would just say that the US is by far the most liquid market for exits, whether it's IPO. I can tell you that for now, the IPO market, the secondary financing market is pretty much shut down. But we also have now, you know, an increasing active M&A market and, you know, all these strategic i.e. the big players in the industry, Big Pharma, Big Biotech, they have a multi multibillion dollar war chest sitting there and looking for praise. That's the kind of market that we're operating. And also, I think right now the public market is extremely bad, but we are very busy with our portfolio companies for strategic discussions with potential acquirers. [00:39:59][125.3]

Candice: [00:40:00] So that makes a lot of sense. Frank, I guess because you're heavily involved in the US market, I would love to hear your insights in what you think the US economy is looking like. Currently, we're hearing a lot that economists are saying supposedly inflation has peaked. [00:40:13][12.3]

Frank Yu: [00:40:14] Let me let me let me address that volunteered address. I would say that I personally strongly believe the market will continue to be very volatile. There's no way I can call anything like bottom or inflation peak, because anybody who predict that will prove to be extremely take on a high risk with their credibility, because there are a lot of moving parts, because we have a huge geopolitical uncertainty on top of the inflation outlook in the US, you know, so it's a very, very dynamic interplay of multiple factors well beyond any of our control. However, as a private equity investor, this is a great window of opportunity. When you have a dry powder to invest and then you are able to cherry pick the best assets and now the best of the bad assets, because in this kind of market, everything looks cheap, but then you only focus on the best assets, on a much better valuation, and then just focus on executing the business without being distracted by what's going on. The public market. I think this is a golden opportunity for very well-respected private equity investors. [00:41:31][77.1]

Felicity: [00:41:31] All right. Well, to wrap it up, Julius, why do you think investors can't ignore an investment in the space? And do you think this decision is even more prudent given the current market conditions? [00:41:40][8.7]

Frank Yu: [00:41:41] That's an excellent question, Felicity. I think that with with the volatility of the market and the so many moving parts in the economy that it's really, really difficult to predict where to go, whether I'd even add which asset class are predicted to be the best performing. And I think with the thing as private, private equity, you can really find refuge in terms of timing, in terms of you've got time on your side, you've got no volatility or low volatility, but also you're somewhat safeguarded to too many factors in terms of when you're exposed to liquid assets, say, for example, money markets, currency exchanges and stock markets. You're in a whirlwind of volatility, especially the bond market. With your question before inflation rates are going up, the ten year bond rates at 3%. So you know, people here in Australia pulling out their head going should I hold Commonwealth Bank shares yielding a 4% or should I hold something risk free ten year bond rate at 3%? What do I do? So, you know, there's a lot of moving parts. So you've got inflation going up, you've got potentially Russian, Russian threats, which are just unforeseen. You can't predict that. So I think with coming back to private equity is even a step safe for the private equity, healthcare, private equity, which is a consumer staple and it's somewhat proven over 100 years a defensive space that humankind really need that. I think that with Frank's Fund, that coming back to time on your side, when you're seeing valuations being compressed in equity markets, that eventually will flow through to private equity. And Frank is seeing it and Frank being a leader in his field, he is and will be picking up very, very high value assets on the back of that. And I think that once equity markets stabilise, in my career I've been through the GFC, Dotcom Asia crisis covered markets do stabilise eventually. This may take up to 24 months, but when they do I strongly predict a valuation pull in of fund. [00:43:44][122.8]

Felicity: [00:43:45] Thanks Julius. That is some really great insights. Now, as a fun way to end our conversation, we like to ask all of our guests the same question. So we'll ask you, Frank first. Coffee, tea or tequila by tea. What kind of tea? [00:43:57][12.3]

Frank Yu: [00:43:58] 20. Yeah, because for life science tea, green tea has a lot of antioxidants, which is healthier. [00:44:05][7.8]

Felicity: [00:44:06] So we all need to drink a little bit more green tea. And Julius, I think I know what you're. Going to say, but coffee. Tila Tequila. [00:44:11][4.9]

Frank Yu: [00:44:12] Tequila. Tequila. When you deal in financial markets, you must go to tequila. All right. It's an. It's a natural probiotic. It ticks all the boxes, and it makes me feel like I'm on the coast of Mexico. [00:44:26][13.8]

Felicity: [00:44:28] Well, thank you, guys, for taking the time to chat with us. It's been really great and our audience is going to absolutely love this episode. [00:44:34][5.5]

Frank Yu: [00:44:34] Thank you so much. Great pleasure. Thanks, guys. [00:44:36][2.1]

Candice: [00:44:37] Wow, that was a fantastic chat. I learnt so much. Felicity and I just really loved hearing all the insights into the private equity market and in particular obviously what Frank's really good at the life science space. Definitely needs to do that. Research on that Cambridge Company he's talking about, which is in the I drug space. But before we sign off, guys as always as a reminder, please remember, although we are registered financial advisors at sharing partners, the discussion today obviously does not constitute as personal financial advice. As always, you should seek professional financial advice before you make your investment decisions and. [00:45:11][34.1]

Felicity: [00:45:11] Please make sure you follow us on at Talk Money to Me podcast for daily market updates. And if you enjoyed this podcast, make sure you give us a review. Five stars only on Apple Podcasts, Spotify. And remember, if you've got any questions or you'd like us to pass on anything to Franco Julius contact us at TM tm Equity Mates dot com. Until next time. [00:45:11][0.0]

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