Trends in Emerging Markets with Martín Escobari
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Bloomberg Audio Studios. Podcasts. Radio. News. This is Masters in Business with Barry Ritholtz on Bloomberg Radio. This week on the podcast, well, strap yourself in for yet another fantastic conversation. Martin Escobari has an amazing background that ultimately led him

to be co-president, head of global growth equity and head of the investment committee at private equity giant General Atlantic. They run over $100 billion. The background in the story is fascinating, from duty-free shops to the Atlantic Philanthropies.

Those were set up in 1960 and 1980 respectively. And over the ensuing 45 years, they just have carved their own path and created their own expertise. They're kind of unique amongst the global private equity or even domestic private equity players in that half of their people, half of their capital is invested overseas. Kind of unusual in that space.

Martin has just an amazing background, born in Bolivia, built a company in Brazil, educated in the United States. Just really, there are few people better situated to describe what it's like

being a growth equity investor, meaning you're not investing in startups, you're investing in companies that have started to develop some scale and perhaps are turning profitable and taking them to the next level. I thought the conversation was fascinating. And I think you will also, with no further ado, my conversation with General Atlantic's Martine Escobar.

Barry, it is an honor and a privilege to be here with you. Well, thank you so much for coming. I've been looking forward to this.

In part because what you do is so interesting, but also because your background is a little different. You're born and raised in Bolivia. Tell us a little bit about your upbringing and your experiences. The odds of me being here with you today are about one in a million. Right. I mean, I was born in a town of 10,000 people. My parents were communists and had disdain for capitalism.

they spent their life saving children's lives in public hospitals. And to them, business people were soulless, meaningless lives, and they expected something very different from me. So that's sort of the first set of unusual circumstances. I have to ask, what was their response when you said, Mom, Dad, I'm going to Harvard? What is Harvard? Ha!

Honest to God. We're not even talking about the business school, just the college didn't register with them. And the accident that led me to Harvard is interesting. I had a neighbor who was a schoolteacher at the American school who became my mom's lifetime best friend and talked her into putting me in the American school.

And by chance, there was a very good American school because some oil companies were funding great education for the kids. And I got a great education. And then I got a scholarship to Harvard. And that is where I sort of entered Hogwarts Academy of Wizardry and the doors of the universe opened to me. And I was the first Bolivian in 350 years to go to Harvard College. Yeah. Oh, my God. That's amazing. So economics BA and then you get the MBA from the business school. What was the career plan?

So listen, I've, up until recently, been very disciplined about setting up five-year plans for myself. And I keep them. And if you looked at my five-year plan when I was in college, I was destined to go work at the World Bank, help solve big problems in emerging markets, one day get called back to my country to be finance minister, and then if I did a good job, maybe have a shot at running Bolivia. That was the plan coming out of college.

I stumbled into business. I fell in love. And that's how business school came about. And then that's what I've been doing for 30 years. Finance Minister of Bolivia is fairly ambitious. But before we get to that...

You co-found Submarino or Submarino. How do you pronounce that? Submarino. Submarino. Really, one of the earliest online retailers in Brazil. Tell us a little bit about your experience there and what it was like being an entrepreneur in Brazil in the 1990s. So I believe each generation will have one giant wave.

one giant disruption that will catch us in our 20s or 30s.

For me, it was the internet. Later, it was the mobile internet, the cloud. Now it's AI and biotech revolution. That sounds like four waves. The one that hit me in my 20s was the internet. And I had this realization that this is my one shot. I don't know if you listen to the Hamilton musical. Sure. There's my shot. Right. The scrappy immigrant that's waiting for the revolution where it's a level playing field and you're all trying to catch this giant wave.

And the Internet felt at this amazing life changing opportunity. And I said, I can't miss this adventure. And me together with two other colleagues from the private equity group I was working on right out of business school from the 3G guys said, we're in the wrong side of this revolution. We shouldn't be financing the startups. We should be creating the startups.

And we set out to build the Alibaba or the Amazon.com of Brazil. And it was seven incredible years because it started great. We raised more money than we could have ever dreamed. We almost went public. The market shut down. We almost went bankrupt. We had to sell the pieces. We had to get the profitability. And then we came back. So it was a full compressed, you know, 30 years of life into seven. But I felt I did not miss the revolution of my generation. So that...

New York City, in my recollection during the 1990s, was just, it was a firehose of cash and capital over everything. It was a party, apartment prices were going up, restaurants, clubs, everything was just, it was the roaring 20s all over again.

You launched this in Brazil in 1999. What was the economy like? What was your experience like? So listen, the macro was horrible, but the technology was overwhelming and the sources of capital recognized that this was a global opportunity. So we raised $250 million as a private company. So before the correction of March of 2000, money was raining. There was no infrastructure. You had to build everything from zero. Everything was 100 times cheaper

more difficult. But the advantage of Brazil is we had not developed a brick and mortar retail infrastructure. There were no superstores. The Brazilian consumer was starved for variety because all the supermarkets carried very limited assortment. So the opportunity of e-commerce, we believed, was 10 times bigger than in the US or Western Europe because we were leapfrogging a whole stage of evolution of the retail format.

And it came to be. E-commerce in Brazil now, 25 years later, is close to 20% of all trade. It is a vibrant, dynamic industry and there are no category killers. We skipped that whole toys are us and babies are us and bad and be off phase. And that's good for the environment. So I was part of a transformational moment together with my co-founders. And it was exciting, it was scary, and ultimately when we sold it,

producing good returns for the investors, it was very fulfilling. So what did that experience as an entrepreneur do to you? How did that impact you years later as an investor? What do you carry forward from that? So I've been an investor for 20 odd years. The main lesson is the profound realization that the heroes of the journey are not the investors.

are the people that are in the front lines and the trench lines. It is so hard to create out of nothing something that thrives. It is inhuman level of sacrifice that these people go through. And I have so much respect for the heroes of the journey. And I remind my colleagues, we're just the supply lines.

They're on the front lines. You're just supplying the ammo and the material to do what they have to do. That's really interesting. So let's discuss some of the things you've talked about when you discuss investing and entrepreneurship. One of the themes that keeps coming up that I've read in some of your notes is the unpredictability of the world.

How do you think about making investments for five or ten years out when the world is just so unpredictable? So I grew up in Bolivia in the 80s. It was chaos. Chaos that it's hard to internalize. So in my teenage years, ten years, there were nine presidents. In my teenage years, there was 35,000% inflation.

What that meant is halfway through my teenage years, we changed currencies from the peso boliviano to just the boliviano by chopping off six zeros. Wow. One million US dollars becomes one American. That happened when I was 15. So I grew up with chaos and I got comfortable with chaos. And what the main lesson of chaos is,

is it's never as bad as it seems. And it's always darkest right before the sun is going to come out. And you have to believe the sun is going to come out and plan for the sun. And as it relates to a world that's highly unpredictable, remember the sun is going to come out and stay true to first principles and what makes great businesses and who are great entrepreneurs and who's solving real world problems and lean in when everyone else is scared.

So I want to talk a little bit more about your upbringing, but I want listeners to understand the genesis of General Atlantic and where it comes from. So let's talk a little bit about Chuck Feeney, which I had no idea about when I started doing my homework here. So in 1960, in Hong Kong,

he founds the first duty-free shop in the airport in Hong Kong, right? Now, to the U.S. travelers...

duties aren't a big deal. We buy makeup, we buy booze, whatever it is, it's more or less the same price at home. But if you go to Europe, if you go to parts of Asia, there are like substantial taxes and buying these things at the airport duty-free, real substantial savings in money. So he launches duty-free shops, DFS, in 1960. And

By 1980, it's so successful that they have to set up General Lanik to manage the philanthropy that he's now doing. Tell us a little bit about Chuck Feeney and how GA was established. Chuck is one of the most impressive people I've ever had a chance to meet.

He stumbled into the duty-free idea as a soldier because he was mesmerized by the vibrant trade that happened in the American bases in the Pacific. So you could buy cigars, liquor, appliances half off because it wasn't America and it wasn't the Philippines. It was no man's land in this area. And the taxes were very high in those regions. So there was a loophole. He created the world duty-free business, which thrived to a major business.

he landed upon a level of wealth he was not ready for, to say the least. And he questioned, what is the purpose of my wealth? And he thought about it for a long time. And I've heard him tell this story. He's now diseased two years ago. And he says, the purpose of my wealth is to improve the human condition today. Not tomorrow, not 100 years from now through a foundation, today.

And he created General Atlantic as his family office or the vehicle to manage his family wealth. He wanted us to invest in innovation and entrepreneurship globally. And he wanted all the proceeds of our investment activity to go finance the great causes anonymously.

And he was the originator of the giving pledge, except it wasn't 50%. It was 100%. He famously said, I want my last check to bounce. And he almost succeeded when he died. He donated $9 billion over his lifetime, most of it anonymously. And at the later stages of his life, he says, I actually need to tell my story because maybe it motivates other people to follow this incredibly rewarding path, which is to spend my life giving away my wealth.

And that he did, and he set us off on this incredible 45-year journey of backing innovators wherever they may be in the world. And that's what we are today, and that's what we've been doing for 45 years. And to fill in some of the blanks that some people may not be aware of, Duty Free Shoppers Limited is now owned by luxury giant LVMH.

And General Atlantic evolved from his family office to manage money for the philanthropies to a leading growth and innovation investor with now more than $100 billion in assets under management. Tell us a little bit about why.

what General Atlantic has been doing for the past 45 years to build up those returns to that degree. I'm assuming there are lots of distributions along the way as well. Yes, yes. So...

We started investing in technology in the United States and soon discovered that technology is not just changing the technology sector, but it's changing the healthcare sector and the financial services. Then we discovered that this is a global opportunity. We opened up Europe 30 years ago. We opened up the emerging markets 22 years ago. And now we've built what we think is the most experienced scaled growth equity investor in the world.

Now, growth equity has become incredibly competitive. It's now a $2 trillion asset class. Why is it so large? Because there are more companies that are growing 30%, 40%. Why? Because they're embracing technology to change their businesses, and that allows for faster growth at cost-efficient metrics. How do we compete in this highly competitive world? We have more experience, 45 years of track record, great brand, 500 investments over the last 45 years. We have scale.

We have 250 investment professionals. We have 90 operators in an operations group. We have tech-enabled sourcing. We meet 7,000 entrepreneurs every year to pick the best 25. So this is a scale game. We have the scale. And then we also have specialization.

There are 16 strategies, we call them the GA power alleys, where we've developed 10 and 20 year track record. That's a huge source of competitive advantage. And then we have 19 local offices throughout the world. In every local market, we are more local than the local players, and we have the advantage that we are plugged into this global network of knowledge and accumulated experience that the GA infrastructure provides to all our local partners.

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So let's start out why we're even having this conversation. Not only did Chuck Feeney make most of his donations anonymously and gave away billions and billions of dollars with no name attached,

But GA has historically been kind of a low-profile shop. So I think listeners may not really know some of the details of how the firm invests and the key areas you focus on. So let's start out talking about those five sectors, which are technology, consumer services, financial services, healthcare, and life sciences. And I know you get into a lot of specific details there.

And each of those five sectors have tons of sub-sectors. Tell us a little bit about the areas GA focuses on. Listen, the sectors are how we are organized internally. What's more interesting is what are the trends changing our world today? There are four mega trends that define the opportunity set for growth equity. First is the digital transition. 90% of the world's transactions are going digital.

$4 trillion of capital is invested every year in this digital transition and the investments in AI and cloud computing. This is a trend that's 20 years in the making. It's been accelerated by AI. Massive wave. The second one is healthcare innovation.

Huge challenges in the West. Healthcare is too expensive and ineffective. The only way to address that is through technology to drive better health outcomes. In parallel, there's a new generation of healthcare innovation that is using the advances of IT to apply it to the cell and creating the next generation of life sciences therapeutics, which will dramatically change our health spend.

So that's another mega wave that's very relevant. By the way, I love the phrase healthspan as opposed to lifespan. Of course. The idea is to not just live long, but be healthy for as long as you possibly can. I'll give you one scary statistic. 95% of Americans die in hospitals. Only 3% of American doctors die in hospitals.

Huh. It's not about the quality of your death. It's the quality of your life and your healthspan, as you said. Okay. So healthcare innovation, huge area, one of our biggest sectors. Energy transition. To get to our decarbonization targets, we will need to spend north of $6 trillion a year. That's a huge opportunity, the whole ecosystem around this trend to net zero. And the fourth major megatrend is the rise of the new consumer.

The sort of younger middle class rising in purchasing power in the rest of the world will mean $6 trillion of extra consumption by 2030 in this emerging new middle class. These four megatrends define the growth equity opportunity set. I find it interesting that you're discussing megatrends that are global.

In large part because I think this is an accurate statistic. Is General Atlantic the only private equity growth shop that has half of its assets and half of its people abroad? Like only half of your...

capital and people are in the U.S. Are you the only one? Among the top 10 in the world, yes. We're more global than anyone else. Why are we more global than anyone else? I'll give you two statistics. Half the unicorns, the sort of billion-dollar companies in the world, are born outside the United States. More interestingly, half the unicorns in the United States are

are founded by immigrants from other parts of the world. So 75% of value creation is for people that were in this world, people not born in the U.S. Talent is sprinkled around the 8 billion souls that inhabit the earth. We got to go where the talent is. And in our case, it means half of what we do is in the U.S. and half is outside the U.S. And our activities outside the U.S. have been accretive to returns.

So let's talk about some of the other areas that are outside. You come from South America, but let's talk generally emerging markets. Where do you look around the world for this talent? Listen, we have presence all over the world. We have three offices in China. We have offices in India. We have offices in Singapore, two in Latin America. We open offices in three offices in the Middle East. What's exciting right now?

India. We've been in India for 22 years and India did not have its moment in the sun. Digital India wasn't ready. India infrastructure wasn't ready. It has been ready for the last five years.

The business models, the digital business models that we saw transform industries in China, in Brazil, in Mexico, had not yet done that in India. Over the last five years, India did a couple of reforms. First, demonetization, taking currency away and simplification of the tax code meant the informal economy

went from 50% to 25%. - When you say informal economy, are we talking black market or are we just talking-- - Not paying taxes. - Just cash economy. - Cash economy, you don't have a credit, you don't, it doesn't count. - Kinda reminds me of the study they did in Greece where you have to pay tax on the pools.

And satellite images show there's something like 20x number of pools than there are people paying taxes on pools. So that was a Modi change? That was a Modi change. Second change is the transformation of digital India, which is internet access was expensive and not very available. The telecom sector restructure around Jio, which is a great telco company. And now 60% of Indians have low-cost wireless broadband.

In parallel, the government created a national biometric identity database that enabled fraud-free digital transactions from your phone. And now 60% of all transactions in India are digital. All of a sudden, you have one of the most digital economies in the world.

The final missing link, their own capital markets. Domestic saving gone up. They have certain restrictions around foreign domestic savings for individuals investing abroad, so they're investing in their local markets. The best IPO market of the last two years in the world has been India. So now you have the confluence of three factors that create what we think will be a virtuous next 10 years for India, which is about time.

Latin America, 700 million inhabitants, rising middle class, trading at all-time low multiples. You can buy the entire country of Brazil at 10 times earnings. Mexico, there is no better candidate or beneficiary of the trend to French shoring than the Mexican economy. The Chinese per hour worker is 30% cheaper than the Chinese worker, and they're next door.

The Mexican workers, 30% cheaper than China. Than China today. Wow. And they're next door, and they're your friends. They're not a geopolitical challenger to the U.S. So I see another great decade for Latin America in the next years ahead. So you mentioned the IPO market in India doing so well. I got to ask, we've seen two going on three years of...

pretty mediocre IPO offerings and very few IPOs actually come into market. How do you look at this environment? What do you think happens with the IPO pipeline here? So the growth equity opportunity set is the cheapest it's been in 25 years. The price for growth that we've been asked to pay is the cheapest I've ever seen in my career. And I've been around.

Why is it too cheap? Exactly for what you just said, Barry. We've gone three and a half years without a vibrant IPO market in the United States. That is really long. This is the longest period in recorded history. The second longest this century was 18 months starting in March of 2000.

We estimate there's about 3,000 companies waiting to go public. This is about 800... Is that globally? Globally. Right. More than half in the U.S., but it is a backlog of $800 billion of stock.

that hasn't been able to move. And that's why we're seeing such attractive pricing in the growth equity space is mostly hunting in these tired cap tables, pressure GPs that need to show DPI and companies that are unable to go public. Now, what does it take for the IPO market to open up? Historically, you need three things. One is you need positive S&P 500 performance for the trailing two years. - Right. - Check. - Well, we have that. - We have that. We need low and stable, relatively low and stable VIX. Check.

Well, not so much this quarter. This quarter a little up. Maybe some headroom there. Some headwinds. The third one is you need six IPOs that pop. We haven't had that. But I think conditions are set for the market to open at some point in this year. And when they do, it will unlock a lot of value. Now, this dislocation is going to take a while.

to flow through because a good IPO market moves about $200 billion of stock. I said there's $800 billion of backlog. It will take two to three years for pricing conditions to normalize. And you mentioned, the third thing you mentioned that we need is six IPOs to pop. What happens? Does it just shift the psychology and suddenly people aren't- FOMO replaces fear. Hmm.

That's really interesting. FOMO replaces fear. What about the current political climate? Is it conducive? You know, the current president got elected. The expectation was, hey, we'll have some tax cuts. There'll be some capital gain tax cuts. There'll be some deregulation. That feels like it was sort of put on the back burner while we're dealing with tariffs and Doge and everything else. And Mr. Market hasn't been especially happy about that.

Is this just a temporary setback? What do we have to do to get to that IPO pipeline that awaits us? Listen, there's more uncertainty in the world than usual. And predicting the macro is hard. When faced with uncertainty, diversify, globally diversify, and focus on the highest quality companies. And the uncertainty becomes less determinant to your fate.

predicting the U.S. politics for the next four weeks is impossible. For the next six months, it's virtually even harder. So please don't take me there. The solution to the uncertainty is diversification and quality. Makes a lot of sense. You have described your favorite business model to invest in as we like beautiful business models. What makes a business model beautiful? Beautiful.

Yeah. You have to capture gross margin. You have to sell the unit you produce at a markup to what the cost of production is. The bigger the margin, the more beautiful you are. Now, the beauty, that's a picture of beauty. What's really relevant about beauty is lifetime beauty. Is that gross margin defensible?

Or will it be eroded away by the competitors that see your beautiful gross margins? And the real question about that is the durability of the beauty. And you get durability when you have moat. And you get moat when you have economies of scale, economies of scope, learning externalities, network effects, agility. What are the conditions that this team has to create gross margin and build a humongous, beautiful moat that allows us to be a lifetime gross margin, hopefully an increasing gross margin?

How do you evaluate those things? A lot of those items you checked off don't show up in a balance sheet. How do you figure out what managers or models are agile? It helps when you're specialized in a business model. So one of our power alleys is investment management. And I'll tell you one long story to bring a power alley to life.

In the mid-90s, we looked at the wealth management industry in the United States. And it was 80% concentrated in retail banks. The guy that was selling you the mortgage, the checking account was also selling your 401k and your brokerage. And the fees were high and the service was poor. We took the bet that 80% would come down.

And sure enough, over the following decade, 80% came down to 10%. They were disrupted by Schwab, Ameritrade, E-Trade, Fidelity, Vanguard. We invested in E-Trade 27 times multiple within seven years. Sold to Morgan Stanley a couple of years ago. Eventually sold to Morgan Stanley, long after we were gone. In 2012, when I started at GA, we looked at the Brazilian market.

And the four retail banks had 99% share. And we said, this smells like something we've seen before. We backed one of the disruptors. 99% dropped to 78%. This company multiplied itself 100 times. We've done the same thing in India with IFL Wealth, in China with FUTU. We're doing it again in Mexico with CLAR.

A lot of this future telling is pattern recognition. And the more you have done in a power alley, the easier it is to recognize these patterns.

Thrivent can help you plan your finances for the people, causes, and community you love. What makes Thrivent different? A combination of financial services and generosity programs. Thrivent offers advice, investments, insurance, banking, and generosity, as well as resources to fund service projects or direct dollars to causes you care about. With more than 120 years serving clients, you can plan your finances with confidence. Visit Thrivent.com to learn more. Thrivent.

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So I'm fascinated by not only General Atlantic's global footprint, but your international experience. How did your upbringing in Bolivia and your entrepreneurship in Brazil influence this career path you've taken? Bolivia taught me about chaos. Brazil taught me about profiting from chaos. So one of the interesting experiences is at the darkest moment of the night when Submarino was almost bankrupt,

I decided I had almost lost hope at emerging markets investing. And I decided, like I typically do, to treat it like a research project. And I convinced a professor from Harvard to do a project with me where we studied 10 incredible Brazilian companies.

that had thrived in the 90s and become multi-billion dollar corporations and compare them to 10 competitors of theirs that didn't thrive. And we did 500 interviews. We wrote this book, which I gave you a copy of, and I hope you'll enjoy it. And the big insight is that in moments of chaos, there is a once-in-a-generation opportunity to do a transformational change to your business. And the masters of this, and there's 10 examples in the book, but the master of this is the 3G guys.

And what the 3G guys set out to do is what I call spearfishing. And they actually physically are spearfishers. They go on the weekend and they, and the beauty of spearfishing, which I've done since, is you don't swim towards the fish.

You choose an area full of fish. You dive down without a tank, just you and your spear, and you hold your breath for three to five minutes waiting for the fat fish. And then when he appears, you have two seconds to make the kill. And that's what they do. And their journey was...

So they're investment bankers. They had the number one investment bank in Brazil. Too much cash. They wanted real assets. They were hunting for a large asset that had characteristics of an industry that would benefit once inflation stopped. That was their bet. And they waited, they waited, they waited. And a week before a momentous election, the Swiss owners of the number two beer company panicked and they sold their business in two days. They bought it.

Big fish. Then they waited 10 years. They made that business really profitable, really efficient. And then another crisis, when the number one beer company was in difficulties, they pounced again. And they did it again 20 years later when Anheuser-Busch was in the great crisis of the great financial crisis and they struck globally, creating the... So this idea that

in moments of chaos, there's opportunities to do once in a generation 10x bets, is an insight that has allowed me to navigate the volatility in all the emerging markets because chaos visits more frequently the emerging markets. So we've seen some growth in emerging markets over the past few years.

What are the areas, I know you're focused on some of the megatrends, but what parts of the world are you looking at? What's attractive outside of the United States for the half of General Lennox that's not domestic? Yeah, listen, what we've tried to do in the emerging markets is to focus on the big problems.

Turns out there are bigger problems in the emerging markets. And if you can find a digital solution to a big problem, you're likely going to be able to build a beautiful business with gross margin that has a moat. So renting an apartment, we were just talking before about the rental market, is hard in the U.S. In Brazil, it's almost impossible because 80% of the listings are fake.

- Oh, really? - They're just a broker trying to get you, oh, that one just sold, but let me show you three other ones that I have. Buying a used car is hard in the United States. In Mexico, you may discover what you bought is not actually a car. So if you create a platform that creates a transactional platform,

Education, huge problems in education. If you create a supplier that provides a digital curriculum, we now have a company in Brazil that teaches 3 million kids a day with a digital curriculum that's self-learning using AI, blah, blah, blah. So big problem, big solution. Another one, for example, turns out Brazil and Mexico are number one and number two in the world in fraud and identity fraud. We are absolutely world-class fraudsters.

in my neck of the woods. We have two companies, one focused in Mexico, one focused in Brazil, that use biometrics to zero out all fraud with tremendous impact on financial inclusion. So,

Our North Star, for most of what we do in the emerging markets, is to find digital solutions to these big problems and hopefully profit that way. I'm fascinated by the concept of biometrics of fraud and digital solution. And I want to roll back to what you said previously about India. And it sounds like the government putting in a set of biometric...

standards, and then building out a digital mobile solution, not only does it put some power in the hand of the consumers, at the same time that's very trackable and they could collect taxes on whatever's going on. Is that the model for what you're seeing in Mexico and Brazil or are they very different issues?

Same issue, private solution, not a public solution. But it addresses to one of the core beliefs I have, which is a lot of the inefficiency and poverty outside the U.S. is there is no meritocracy. Biometrics allows for a meritocracy.

You can have a track record. You pay your taxes. You show your formal. You can borrow against it. If you pay your loans, it is trackable. Your interest rate comes down. If your interest rate comes down, you can borrow and you can send your kid to a better college.

So this idea of taking friction away and bringing meritocracy forward is so mission critical and so unlocking of value that it's very exciting to be able to back the rails of that. And India has been a role model on this. All right. So we've talked about India. We've talked about Mexico. We've talked about Brazil. What other parts of the world look interesting? Do you do stuff in Asia? What do you do in Africa?

Listen, Africa is the next frontier. We've done two initial investments in Africa. It's still 10 years away from growth equity.

rule of law still needs to work. We just opened offices in the Middle East. The Gulf economy is vibrant. Entrepreneurship is thriving. Southeast Asia is having a pickup. We're beginning to do more work in Japan. The next generation of Japan is rediscovering its innovation roots that it had in the 90s but lost for 30 years. So all these places are very exciting. Now, the U.S. is incredibly exciting.

It's half of what we do. It is transformational. It's leading the AI revolution. AI is the defining factor.

incredible revolution of this generation of 25-year-olds. And that's also very exciting. It's probably one of the most exciting new power alleys is what we see going on in AI. It makes sense that Africa is still not quite where it needs to be, but I'm kind of intrigued by other parts of Asia and Japan. Japan just feels like

It's years ahead of everybody. It just feels like the future has arrived in Japan before it makes it to everywhere else. What sort of opportunities are you seeing in Japan? They feel like a pretty mature Western-style democratic brand of capitalism. Yeah, somehow Japan lost its innovation edge it had in the 90s. And it had to do with a generation that was not embracing of rapid change.

And there's a new generation of managers that are embracing rapid change. They don't yet have a growth equity industry, but they're great in software. They're great in financial services. They're great in gaming. So I think...

I think it's early, but I do see a lot of innovation out of Japan. In Southeast Asia, Vietnam is super exciting. It's a net beneficiary of supply chain diversification away from China. It is incredibly entrepreneurial. It's incredibly young. We've made investments in the financial services sector. We're right now looking at something in the healthcare sector. That's also very exciting.

So for a long time, every time Japan comes up, someone always brings up, they have big demographic problems. They can't get out of the way. And I'm hearing similar things about China. How do you look at those issues, which are large and macro and somewhat intractable?

That's a tough one. I think the aging of the West creates a number of opportunities for healthcare services. It will be mission critical, and I think we have to invest in making sure we work on the health spend issue. How they solve those issues...

My crystal ball is not perfect. I am a big believer in immigration. The reason the United States is not suffering from the same issues is we've had very healthy legal immigration for the last 30 years, and that's refreshed and populated half the unicorns. So I suspect part of the answer of the sort of West that's aging is flexibilizing immigration.

Right. We've been pretty receptive to it. It looks like we know Japan has almost no permanent resident immigrants. The UK is turning away from it. Is this going to just be an opportunity for countries that open up their doors to the best and the brightest?

Or is this an ongoing source of political fodder for left versus right? So this is a topic my sister cares really a lot about. She's dedicated her life to it. She was most recently at the National Security Council focused on immigration. Yes, I was just in Dubai two weeks ago. It's a different Dubai.

Some of the brightest minds of Europe have moved to Dubai, attracted by the vibrant metropolis that's setting up there, their low tax jurisdictions, low bureaucracy, whereas the rest of Europe is taxing and making immigration harder and ending in on dumb. Some countries like Dubai, like Singapore, are opening up to the world and attracting the world's best talent. Soon enough, we'll wake up and say, hey,

The United States can't lose this edge. I hope it does. I'm kind of fascinated by the transition that's taken place, not just in Dubai, but through large parts of the Middle East that seem to be shifting from, you know, oil regimes and plutocracies to much more, I don't want to say open societies, but certainly economic freer societies than they've been in the past, right?

What is going on in the Middle East to drive these changes? Brilliant governance and the advantage of having seen so many natural resource-rich countries squander it away with Dutch disease. I think they've got religion. Dutch disease? You remember? Sure. They got religion, and they're making the right levels of investments. And there's so much innovation. We just invested in a company called Kayali.

It's a perfume brand. It's a beautiful entrepreneur who's created this concept, which was new to me. It turns out the Gen C likes to do layering of perfumes, which is to combine three, four, five perfumes and create your own blend. And she's built her whole brand around this. And it's a global brand born in the Middle East. How exciting is that? So I think we're going to see more and more innovation out of the Middle East. And I think they're doing a lot of things right.

Some of the investments you've made over the years almost sound like venture capital investments as opposed to private equity. So social media, perfume, consumer goods, what is the line between VC and growth equity? - Yeah, we come in when you're profitable and scaled. And the risk we're taking is not whether you have product market fit,

but whether you can really scale to your full potential. Our loss ratios, the sort of percent of the time in which we lose money, is 3% to 4% for the last. So it's the opposite. It's totally inverted. Venture is 30%, 40%. I think it's even higher than that. It's even higher. So we come in when you are a late teenager, not when you are a thriving young kid, wizard kid. Gotcha. So it sounds like, given that half of your investing is outside of the United States...

You think there are tailwinds for growth markets, for emerging markets. What are going to be the big drivers for gains in these companies overseas and in emerging markets? Listen, I think AI is the revolution that we were talking about. Yeah.

Unlike the internet or the mobile internet or the cloud, this one is truly transformational because it will touch about 80% of GDP. The previous waves touched between 10 and 20%. This is a 4x bigger wave.

Every process we throw AI to gets 30% to 40% more efficient. In today's version of AI, which will be outdated in about three weeks. So programmers are more effective. Online marketing teams spend 30% less. Call centers don't need any humans. Decision making enhanced with a bot is better. So the proof points are already there.

And we're asking all our businesses, how will AI fundamentally change your business model and get ahead of it? Investing AI, which is one of the things we're doing, we stayed away from the infrastructure layer, sort of data in the growth equity program, data centers, large language models, chips, capital intensive, some technology risk that's hard to price. We've been focused on the application layer.

sort of software companies that are using proprietary data and AI to provide a new service.

And for the last four years, we've met 800 companies, and it was venture stage. And the valuations were growth equity stage. So bad combination. Finally, in the last six months, they're growth equity stage. And we've just done three major investments on AI. And I think we'll do dozens. Give us what are the three investments you've just made in AI? So let me tell you about this company called Insider. It's a software company.

Enterprise marketing software companies. It helps companies deliver the right message to the right person at the right time in the right medium.

This company was founded in Turkey. Turkey has two things going for it. Number one, huge gaming community and huge gaming programmer community. So there's lots of programming talent. And because it's kind of in Asia but it's also in Europe, its population uses WeChat and WhatsApp. So they developed great software that really worked with instant messaging for both the West and the East. And they used this edge to develop clients in Europe and in Asia.

It's now a $130 million business, growing very fast, profitable. The huge opportunity is the U.S. market. Turns out the U.S. market is only now discovering instant messaging. We still send emails to companies to inquire about our orders. The rest of the world does not remember what it's like to email a company. Really? That's so interesting. We all use WeChat or WhatsApp.

Now there's, we think, a window to bring Insider to the United States. US is half the market, but only 7% of Insider sales. We're really strong in the United States. We're going to help them grow. So that's Insider. Another company is VI Labs, using AI for behavioral interventions, helping the diabetics stay to their medication, helping gym goers go to the gym, reducing churn, all using AI to prevent behavioral nudges. Israeli entrepreneur in the US, building in the US.

And the fourth one is a Chilean founder, Scholarship Kit to NYU has created a text-to-video

You describe a scene. It produces the video. Unlike ChatGPT, he trained it with permission, so he has copyright rights, which turns out, if you're in the image business, kind of important. Taking off like fire. And a super friendly, energized community builder of a team. And it's a company called Runway.ai, which I think will change the industry. Runway.ai. Yeah.

All right, so those are three pretty big investments. It sounds like, and you've specifically said, you're not doing chips, you're not doing data centers, you're not doing all the capital intensive things. You know, I've been fond of saying it's not the Magnificent Seven, it's the other 493 companies in the S&P 500 that are going to see benefits from this. So far, it seems like it's kind of few and far between.

How long does an innovation like AI take to make its way out into the broader economy? The hope, the wishful thinking is, hey, everybody becomes more productive, more efficient, more profitable, supports higher stock prices. What is the timeline like for that?

And I know you don't have a crystal ball, but you're immersed in this. How do you see this unfolding? It's rapid. It's accelerating. But it's human nature to be disappointed by the short-term trajectory and wowed by how deep it is five years from now. Like any exponential, we have a hard time imagining the power of exponentials. In five years, it is going to be massive and penetrated. Whether the next 12 months disappoint, I am sure they will disappoint.

That's really interesting. When you're thinking about a disruptive technology like AI and making investments, is it about the addressable market? Is it about how global it can be? What's on your checklist? Funny you mentioned checklist. So we do have a checklist. But let me tell you a story of the GA checklist. So when I became chairman of the investment committee seven years ago, I felt grossly unqualified because my experience is primarily emerging markets.

And, you know, most of what, half of what we do is develop markets. So I went to the co-founders of the firm, Steve Denning and Dave Hudson. Incredible minds. These guys ran the firm for the first 25 years. Incredible returns, geniuses. And I went to Steve and Steve was CEO for 25 years. He's a former Navy captain, McKinsey trained, very, very structured. And he says, Martin, you need to build a checklist.

Look at our deals, our best performing deals. I'll share the three M's and we'll talk about the three M's and other characteristics. And then look at the money losers and create a negative checklist. And for God's sake, please produce the GA checklist. I said, okay, checklist.

Same day, I go to Dave Hodgson. Dave Hodgson, Pi Beta Kappa, Dharma, Stanford, programmer, genius, 200 IQ plus. Every time he speaks, I have to shut my eyes and try to make sure I capture what he's saying.

And the first thing he says is resist the temptation to have a checklist. If it was as simple as a checklist, we wouldn't be paid two and 20 to make the application of the checklist. And I was like, oh my God, the two guys that ran the firm for 25 years can't agree on how to make an investment decision. Truth is, and I did some research on this, thinking fast, thinking slow is a checklist manifesto. But even the author of Thinking Fast and Danny Kellerman said,

He stumbled into the checklist, creating the checklist for interviewers for the Israeli Defense Force elite units, and he used the checklist. But after I found out, and it was not in the book purposely, there were these super interviewers that applied the checklist and had not an 85% accurate rate, but a 99% accurate rate. It turns out that's a big difference.

And it's best captured by this woman who was sort of the master prognosticator. And what she would say is, listen, I do the work. I do the checklist. And before I make a decision, I close the notebook and see how I feel in my gut. So the educated gut is the way to make complex decisions.

So you and I have talked about this in the past, but let's bring that up. You know, people talk about investing as part art, part science. What you've said is it's a combination of the gut and the brain, which I think is roughly the same.

How do you know when you're using your brain and when you have to defer to your gut? We talked about George Soros' back pains as effectively his gut overrunning his brain. How do you balance the two? Listen, you have to ignore the gut.

until you do your homework. Do the work, do the analysis, do the customer segmentation, do the financial due diligence, do the market survey, do this competitor survey, do the cost analysis. After you've fed the gut with all that data,

then you listen to the system one gut, which is three million years old, because it's likely to lead you in the right direction. The gut is wise if you give it the right inputs. If you let the gut guide you before you do the work, you're likely to make mistakes.

So let me throw you a couple of curveballs before we get to our favorite questions. What drew you to Lincoln Center? How do you contribute to its mission? You also work with Primera Chance and with the Endeavor Mentorship. Tell us a little bit about those sort of interests.

So listen, I believe wealth is a unit of energy. And if you just hoard it, you feel stuffy, slow, and it's not good energy. It's got to be in motion. It's got to be in motion. So I run a concentrated book in my philanthropy. I put my time and my wealth on a couple of things.

I care deeply about education, scholarships. I care deeply about entrepreneurship. And I care deeply about music. Why do I care about music? The cancer of our generation is tribalism in society. And to combat tribalism, I don't believe we should censor hate speech, but we should promote love speech. And the best form of love speech is live music.

We're in a room vibing to the same tune, breathing the same air, listening to the ohs, the ahs, and the singing to the same artist. We're all together. There's no racial. There's no income differential. There's no country differential. We're all vibing to the same music. So with Lincoln Center, it's about music. With Endeavor, it's about promoting music.

entrepreneurship across the globe by creating role models and mentorships, and I've been doing that for 22 years. I'm now in the global board trying to take this into even more countries. And then scholarships. Primera Chance, and I do it also with Harvard, and I do it also with my high school in Bolivia,

Talent is sprinkled globally. Find those perils wherever they are. Primera chance is quite interesting. It turns out the Brazilian public education system tests kids in the math Olympics when they're 13. Mm-hmm.

And they only use this data to provide five kids to come meet the president and they all get mad. Five. Yeah, they choose five. There's a lot of data about some other kids. So what Primeira Chance does is it goes to rural northeast. This is the poorest area of Brazil, the most unfair in the world, finds these 13-year-old geniuses and helps them get into good high schools in major cities and eventually get into great colleges. So that's one of the interventions on the education sector.

My last curveball question has to do with something you said about when you were an undergraduate picking up some extra cash bartending, and you actually bartended at a Harvard Business School reunion. Tell us a little bit about that experience. I kind of really like that story.

So I was 18 years old. I bartended at all sorts of reunions. And the most interesting reunions were the 25th and 30th reunion from both the college and the business school. Because in both, I used to have a name tag and it said my name, Bolivia, and how old I was.

I think there were like 30 people that came up, some of them drunk, look at me. Some of them touched my cheek. I said, you're so young. Please enjoy it. Soon you'll be me. And it will be a flicker of a turn of an eyelid. It will be a second and you'll be me. And I had forgotten this story. It was odd at the time. I thought it was a little awkward. I was at my 30th reunion.

And there was this young woman from Finland who was 17 years old. And I went up to her and said, oh, please do enjoy your life because it flows by in a second. And then I remembered I was her a second ago. The big insight, and it takes us to get to the old age to fully appreciate it. If you take stock, what percent of your mental time are you in the past? And are you in the future? And for a lot of young people,

70% of their time is not in the present. And if you want to savor life and breathe and savor the air you're breathing, you need 80% of your mental time to be here, now, today with you. And the sooner you get there, I mean, Confucius has this great line. He says, every man has two lives. The second one starts when you recognize you only have one.

And I just wish people get to that realization in their 30s, not in their 50s when they're going to their 30th reunion. Really interesting. The days are long, but the decades are short. Exactly. I've always been a fan of that. All right. So let's jump to our favorite questions that we ask. Starting with, what's keeping you entertained these days? What are you watching or listening to?

White Lotus is a houseful favorite. I love Mike White. He's a sophisticated storyteller. This, so far, seems to be the best season of the three. I don't know what your experience was. I know people love the first season. I love the second season because I got the Latin flair going for me. Right. But this one is keeping up. This one just feels to be...

No spoilers. I hated the ending of the second season. Not the outcome, just the way they did it. They could have reached the same conclusion in a less annoying fashion. But especially Thailand is so fascinating, the way this is unfolding. But it's been really interesting. It's gorgeous. And I'm a big fan of Mike White.

A great way I connect with my teenage daughter is watching Saturday Night Live, not just the current, but the old. Lorne Michaels is a genius. He stayed fresh for 50 years.

And a great way to cross the intergenerational gap is to show that us old people were once young and our humor was actually kind of edgy. We're not just these old farts that we've grown to be. Once upon a time, our generation had its shot. So that's something else I spend time. Every generation thinks the people who came before them didn't have a childhood. Right.

And then suddenly it's like, oh, I get it. Like you have to kind of live it to realize, oh, okay, I was a little quick to judge back then. Exactly. Let's talk about mentors who helped influence and shape your career. Listen, I've had the pleasure of working with six great investors. The guys at 3G, some people at Advent, Steve, Dave, and Bill Ford at GA. And

Having sat in three different investment committees, there's a game I used to play, which is every unique investor has a perspective that frames their worldview. I would try to learn and predict what they're going to say in the investment committee.

And the moment I got to 80% accuracy, it's like, okay, I get it. I got it. I get it how Steve Denning thinks. I get it how Bill Ford thinks. And my investment style is a mixture of all these six great investors that I had the honor of working with and

I hope I am utterly unpredictable when someone tries to do this to me because I hope my worldview is fluid enough that it cannot be predicted at the 80% accuracy level that I was able to do. So let's talk about books. What are some of your favorites? What are you reading right now? So there are three books that changed my life.

As a 20-year-old, I read Tony Robbins' Awaken the Giant Within. I know it's cheesy. I know it's self-help. It is a fabulous. People love it. It is fabulous. It's about controlling your emotion and charting your own destiny. As a hungry 20-year-old...

it calmed the hell out of me. Really? It was life-changing, and I am forever grateful to Tony, and I am a big proponent, and he's an incredible human being. I am reluctant to call things cheesy where there is a groundswell of support for

And just endless testimonials like you just gave that said, hey, you may not love this, but this really helped me through this challenge and I'm better for it. So I don't know. I think it's a little too blasé, too glib to just say, oh, it's cheesy. What did that book sell like?

10 million copies? 10 million copies. If you've never met him, see I'm Not Your Guru at Netflix and you'll get a chance to feel his energy. Oh, really? He's amazing. You should totally see that. I'm Not Your Guru. All right, I'm going to put that on my list. What are the other two books? So, Viktor Frankl, Man in Search of Purpose. I've read it five times in my life. Classic, yeah. My purpose keeps changing. And then we talked about this. I really am a fan of Genghis Khan and the making of the modern world. It was a super interesting book.

because it defied the stereotype that this was a savage, ruthless conqueror.

He was an incredibly sophisticated man that built the largest empire built in space. Bigger than the Roman Empire. Bigger than the Roman, bigger than the Ottoman. Only the British had a bigger empire. And he had rule of law. He was meritocratic. He embraced diversity. He invested in the arts. He was pro-trade. He was pro-interchange of ideas and built everything.

unheard of at the time. Before technology, it was 17% of the world's land under one empire that a single man, an orphan, a nomad, built in the 1200s. Beautiful. Arguably not just a military genius, but a...

a governmental societal genius able to not just count conquer, but keep the empire together, which is always the challenge. Um, the Romans spread themselves too thin. You could say the same about, uh, the Spanish empire or the British empire. He managed to maintain this throughout his entire life and live to the ripe age of 65, twice the life expectancy of his era, which is pretty impressive. Um, our final two questions,

What sort of advice would you give to a recent college grad interested in a career in either growth equity or investing or anything along those lines? As I think of the 12 junctures where I had to make life-changing career choices, I always took the most adventurous route. Choose the most adventurous route and don't do it alone. Don't play it safe. Don't play it safe.

At the end of the day, he who has the best stories wins. And before I interrupted, you were about to say bring someone along with you? Bring someone along. And there's two points, like Robert Frost and Walt Whitman. Robert Frost's journey, the road less traveled, is a lonely journey. Walt Whitman's is about opening the road and bringing, extend out a hand and give you my, he says, I give you my love.

bring someone you love along. And the most important decision of a man's life or a woman's life is who your life partner is. Bring someone along on this adventure because it's twice as fun if you can reminisce in your old age about all the great twists and turns that life throws behind you. - And our final question, what do you know about the world of investing today you wish you knew 30 or so years ago when you were first getting started?

From Warren Buffett, you only have 20 slots in your life as your investor. Wait for the big fish. Don't waste them on marginal opportunities. You don't eat mark to market. Only cash on cash counts. And the final one, if you think like the crowd, you're destined to mediocrity. You're destined to perform like the crowd. Exactly.

Really interesting. Thanks, Martine, for being so generous with your time. We have been speaking with Martine Escobari. He is co-president and head of global growth equity at General Atlantic. The firm manages over $100 billion.

In assets, if you enjoy this conversation, well, be sure and check out any of the past 550 we've had over the previous 10 and a half years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you find your favorite podcasts.

And be sure and check out my new book, How Not to Invest, The Ideas, Numbers, and Behavior That Destroys Wealth. Out now, wherever you find your favorite books. I would be remiss if I did not thank the crack team that helps with these conversations together each week. Steve Gonzalez is my audio engineer. Sean Russo is my head of research. Anna Luke is my producer.

I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

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