Olga Sachura
Hello and very warm welcome to Balentic Edge podcast.

Investors used to ask what asset class am I in? Today, they ask what future am I backing? We’re seeing a notable shift. Things like AI, clean energy, aging, and digital infrastructure are becoming more important for capital allocation decisions. And this isn’t just in public markets. Private markets are catching up. As an example, global thematic equity fund AUM more than doubled from $269 billion in 2019 to $562 billion in 2020.

I am Olga Sachura and the dependent advisor to Balentic. With me today is Kasper Wichmann, the co-founder and CEO of Balentic. Kasper has a vast background in private markets and set up Balentic to focus on digitization of private markets. Yair Shacked is a former executive director of NIO Capital and an advisor to Balentic.

At NIO Capital, he led the USD fundraising and focused on global venture capital opportunities. Thank you for joining me.

Yair Shacked
Thank you, Olga. It’s great to be here.

Kasper Wichmann 
Thank you for having us.

Olga Sachura
Let’s start by discussing why thematic investing is gaining attention in private markets.

Yair Shacked
Yeah, it is. And I think it’s because private markets are naturally long term and that makes them perfectly fit with big trends or mega trends or structural shifts that are taking place globally. Things like energy transition, demographical changes, digitization and AI. These trends are not going to disappear soon. They will be around for quite a long time, even a decade, two or even more than that.

So that makes a perfect fit for private markets to chase these opportunities in those themes.

Kasper Wichmann 
Adding to Yair’s points, GPs have actually been specializing from years. They’ve moved from generalists to sector specialists and now more to theme led strategies. So in this regard, to some extent, the LPs are simply following the GPs. What’s interesting though is this is the same transition that we saw on the public market side, investors following the investment managers. So today LPs and private markets are not just asking who’s the best growth fund in Europe, but who’s best positioned to capture a theme, whether it be demographics or aging or energy transition, et cetera. A point in case, a recent survey by BNP Paribas found that almost 90 % of institutional investors are familiar with slash considering thematic investing and 69 % of institutional investors plan to increase their allocations to thematic strategies in private markets. So this is going to be very, very big.

Olga Sachura 
Interesting, and then maybe we can discuss what makes a theme investable.

Yair Shacked
Well, a few things, three main things. First is big. It needs to be a market opportunity that is meaningful. And even if you take something that seems to be a niche like aging related healthcare, that niche could be worth a few trillion. So that’s the first, being big opportunities or big markets. Secondly is the durability of these investments. It needs to be meaningful, durable trend and not something that will pass away so quickly. The third is under capitalization, meaning that it’s still early enough to benefit from coming into that theme and at an early enough stage to actually find market inefficiencies and capitalize on that and also have valuations which are not too high at that point. So that’s the third element that I see.

Kasper Wichmann 
I think as an example of something that wasn’t durable, think many of us can actually remember cleantech. Lots of investors ended up with large losses on the back of that. Despite a lot of hype around the theme, it ultimately didn’t prove durable. Many of the investments were more science project than actual real investments. So in line with this, GPs need to be really careful. They can’t just name drop a theme, whether it be ESG or AI, energy transition or whatever it may be. LPs are going to want to see that the thesis is aligned with actual execution, which means that we will look into the portfolios and try to map the investments to the themes and see if this actually stacks up with the data and the long-term intent. It’s not enough just to rebrand the fund name and expect LPs to sort of jump into it. LPs, by and large, are much too sophisticated for that today.

Olga Sachura
What are the challenges for LPs in finding thematic investment opportunities, you think?

Kasper Wichmann 
That’s good question. LPs have traditionally bucketed their commitments, for instance, in asset classes, so infrastructure, private equity, real estate, private debt, et cetera, geographies as well, stages. That’s however starting to change. The investment teams are by and large still aligned with the traditional asset classes, infrastructure, real estate, private equity, private debt.

But the buckets are getting more flexible or if you like, there are more buckets into which they can actually allocate and invest. This makes it easier for the investment teams to actually invest into teams, even if they don’t necessarily fit into a particular type of commitment bucket. This flexibility is really important because many of the big themes that you also spoke to, they span from early stage venture capital all the way through growth buyout and into other asset classes such as infrastructure and real estate and private debt.

Yair Shacked
And maybe to build on what you said about the flexibility, when you look at current databases that LPs use, sometimes, most cases, they found the traditional breakdown, according to the legacy breakdown that you mentioned, the asset class, the geography, and so on. Usually, they don’t have a filtering option by themes. And that means that LPs that are interested in focusing on themes, they rely more on word of mouth, consultancies and their own networks, which is a bit outdated way. And it slows down the process and it means that there are missing interesting opportunities that are out there and that they should focus on.

Olga Sachura 
So that’s when platforms like Orca come in.

Kasper Wichmann 
That’s correct, Olga. This is in fact the very reason why we’re rolling out themes on Orca. On Orca, we can categorize both the GPs and their funds by theme. It’s not that the legacy breakdown isn’t there. It’s just that first and foremost themes, and then you can break it into further bits and pieces if you like. So if an LP is searching for say energy transition, they can search for it using natural language search and not just filtering and sorting. And they will actually find all the relevant GPs and funds.

This gives LPs an almost complete universe to choose from within a theme. And based on the information they then find on each GP and their funds on Orca, they’re actually able to really ascertain if the GP is truly investing and aligned with a theme or if they’re not.

Yair Shacked 
What I like about what Balentic is doing and the rollout of themes is that it’s a structured approach to onboard or to provide GPs and LPs that are interested in specific themes a chance to do so, get discovered, interact with each other, and so on. So this rollout step-by-step approach enables this critical mass, you wish to call it that, for GPs and LPs to onboard and discover.

Olga Sachura
How can a GP stand out? How can thematic GP stand out on the platform?

Yair Shacked
So I think as Kasper said before, it’s not just about having a name. It’s more about having an identity that coincides with that theme. So I think the days when we had a fund manager saying we’re a US mid-market buyout fund are kind of over. It would be more like a US mid-market energy and climate tech buyout fund. So the theme will have to be in the DNA of the fund manager. That actually gives clarity to everyone and also helps attract the right LPs to that fund manager and to their strategies and funds.

Kasper Wichmann 
I’d agree with that. It’s really, really important for the GPs to be visible now, branding, marketing, and so on, be top of mind with investors. So if your strategy is compelling, but not really aligned with a theme, just aligned with outdated legacy breakdowns, then you won’t get found. LPs are searching and looking for GPs in different way. So GPs, to differentiate themselves, need to be themed first, not asset class first. It doesn’t mean we don’t talk about asset class, it just means that themes is what should be popping up first.

Olga Sachura 
and where would you say the thematic investment is heading? What’s next for thematic investment?

Yair Shacked
So I think that there will come a time when LPs will look at the mega trends and the themes and that actually will influence a lot of their allocations and not just the traditional asset classes. So one of the things is themes being more important or a bigger part of the consideration when allocating. But specifically, I think you will have custom mandates that LP will issue focusing on specific themes. I think we will see that more and more.

And this also correlates to co-investments. There will be thematic focused co-investments, opportunities and interactions that GPs will share with their LPs. So it’ll be more focused around themes.

Kasper Wichmann 
I think as we talked about, the challenge really isn’t demand here. That’s already there. We’ve talked about some of the numbers. It’s the ability for LPs to find and effectively screen thematically aligned GPs. And with Orca, we’re trying to help solve that problem, making it easier for LPs to navigate themes and for GPs to show up when LPs are searching for themes. Sort of underlining the urgency here and aligns Bernstein’s survey.

So the 46 % of global LPs plan to increase thematic exposure in private markets. An example of this is already back in 2022, Ontario teachers created a pool of Canadian $5 billion, approximately $3.7 US dollars for climate impact, specifically for carbonization. If GPs want to tap into that from venture all the way through growth buyout and other asset classes, they’re going to need to figure out how do they fit into that. And they’re going to need to prove that this is actually something aligned with systematically into.

Olga Sachura
Thank you so much. We’ve seen that the private markets are evolving. Themes aren’t just a buzzword anymore. LPs want to invest in trends that shape the future and GPs want to be found for the value they bring. Our platform, Orca, is helping them do that more efficiently. Please follow us for the rollout of themes on our platform starting with energy transition, which is the topic of our next podcast. And for more details, please visit balentic.com.

Thank you, Kasper. Thank you, Yair, for joining us today and sharing your insights.

Yair Shacked
Thank you Olga, great to participate.

Kasper Wichmann 
Thank you, Great to be on.