KKR欧洲私募股权负责人 Philipp Freise：Andreessen 与 General Catalyst 会让 KKR 感到害怕吗？

I'm a free marketeer. I think tariffs are not the answer. We need to work on the underlying issues in our Western democracies. Trying to raise money through tariffs is not the right approach.

In Turkey, I think we lost around 500 million. What we didn't see was that the rule of law was a bit of a flexible concept there. Quite frankly, we have so much going on in Western Europe. We just don't take the risk; we stay close to what we can control.

Do you believe the US dollar will be the reserve currency of the world in 10 years?

Philipp, I'm so excited for this, dude. I've wanted to make this one happen for a while. I've heard many good things from Henry and Johannes at GetYourGuide, so thank you for joining me, Harry.

It's great to be here. Thank you for having me.

Now, when I was chatting to Johannes, he said, “You’ve got to start with the Venture Park days.” I was probably 4 or 5 years old. Not to age you. That's a really unfair start, but it was before the Samwers, so I had to start here. What are your biggest takeaways from the Venture Park days, in that really early Web 1.0?

Just for your listeners, to put this in context, you're absolutely right, Harry. This was 1999, so these were the rock-and-roll days—the Wild West of venture investing in Europe, really. I had been a young kid at McKinsey in New York and had encountered Thomas Middelhoff, who was that very visionary CEO at Bertelsmann at the time. He loved Idealab—you remember it, which Bill Gross still runs strong today—and really wanted somebody to bring that to Europe.

There hadn't been anything like this in Europe, so we went there in 1999 and 2000. We raised a pretty big round. Goldman was our lead investor, and there were a lot of people involved. If you ask me today what the lesson is, I'm sure Johannes will have spoken to you about this because he embodies it perfectly: in bull markets, you just have to keep perspective and humility and not take yourself for a genius.

So many of us back then, once we had raised whatever it was, 100 million, thought that was the end of it. I learned very quickly, a few months later, when the dot-com bubble crashed and the Neuer Markt in Germany crashed, that the most important thing really was the investors I had on my board, because there were 2 camps.

One camp did this to have a quick turnaround and a quick IPO, while the other wanted to do it literally for eternity. The big corporates—Telefónica and Bertelsmann—just wanted this to be their window into venture and innovation. As a young founder—I think I was 26 at that time—I spent all my time mediating between these 2 camps.

My lesson learned is this, and I'm applying it manically in everything I do, and I know Johannes does, too: as a founder, the investors you choose are so important. Of course, it makes a huge difference if you're the founder of Helsing and you choose Daniel Ek, because Daniel Ek understands long-term business building.

You don't want those fast-buck, financially oriented early-stage VCs that, when the shit hits the fan, drop you very quickly. I learned that lesson very quickly.

There are many things for me to unpack there. You said something about humility in the good times. The thing that I struggle with is Bill Gurley's statement that you’ve got to play the game on the field. I look at the very exuberant times that we have today, largely fueled by AI and a huge amount of capital coming into our business, and I'm stuck between playing the game on the field and retaining discipline on price and cadence of investing. How do you think about those seemingly opposing statements?

That's a very important point. Having invested through all these crises—it wasn't only the dot-com crash; it was the Global Financial Crisis, the euro crisis, and the pandemic—we've learned that we all just boil with water, if you will. To have discipline even in those times, yes, you want to deploy when there's an incredible opportunity, but you need to set yourself limits, right?

There are limits to how much you invest in a year and how many different types of in-theme things you back. Unfortunately, even if you're right and these are fantastic teams, great ideas, and scalable ventures, you don't know when the next missile hits or the next virus comes around. Things can just be out of your control. Therefore, as an investor, you need to keep the humility of asking what else could go wrong.

I think another thing you'll learn is, one, that I don't stick to a schedule, and, two, that I literally just use this as a way to get better as an investor myself. One thing I also find really challenging is having a failure or a mistake and letting a past failure impact a future decision. You invest in healthcare, lose money, and go, “Oh, all healthcare is shit.” How do you think about retaining purity of mind despite success or failure impacting your mindset?

Rigorous analysis, and you want to reflect on your rigorous analysis with as many great minds as you can. With Venture Park, the mistake certainly wasn't going into that space of combining capital with hands-on scaling support. You see that with the Samwers you mentioned: Oli and his brothers came a couple of years later and made a fantastic success out of it.

The space itself, in our case, wasn't the problem. We were too early, had the wrong investors, and the execution wasn't what it should have been. To answer your question, you have to retain the enthusiasm that you originally had for a certain idea and just go through that rigorous analysis of what went wrong, then build on that.

There's nothing as helpful as a good failure. Without that good failure, you cannot become a world-class founder and investor.

My biggest failure—you might laugh at this—was losing money in Pakistan. In the good times, I thought I knew more than most people did about emerging markets. Alas, I did not, and I got taught a hard lesson. I learned many things. What would you say is your most painful lesson, and what did you learn?

I'm right with you. We lost a whole bunch more in Turkey. I think we lost around 500 million. We backed a company called UN Ro-Ro, which we thought was this incredible logistics and shipping player in Turkey.

Remember the days when everybody thought that was the next frontier: great demographics, incredible innovation, great people, and an increasing middle class? What we didn't see was that the rule of law was a bit of a flexible concept there. So what we thought was a protected player suddenly had some other entrant come in, even though that wasn't really possible, and we lost our shirts.

Does that mean, then, that you don't go into emerging markets in the future?

I just take a pretty blunt view. I'm like, “Hey, it's hard enough to build a business. Add in political risk and currency risk—I don't need to take that risk.” At KKR, we made exactly the same decision. We also tried Africa—Ethiopia—where we were the largest growers of tulips and roses. That didn't work out for similar reasons.

Quite frankly, we have so much going on in Europe, in Western Europe—we could talk for hours about it—that we just don't take the risk. We stay close to what we know we can control.

You mentioned taking the risk. Another risk that you can take is market-timing risk. I'm probably expected to take market-timing risk more than you, given that I'm much earlier. Are you willing to take market-timing risk and suspend disbelief, or do you need to see that now is the time for this?

Many people thought KKR Europe was crazy when we leaned in and invested, I think, a third, if not 40%, of our current fund during COVID. In 2020, we made some pretty bold decisions because we didn't know what that virus would yield, but I've learned over a long time that you have to focus on what you can control.

I'll give you an example. We invested in Wella, the other hair brand alongside L'Oréal, and there were seriously people who questioned whether, once the pandemic was over, people would still go and get their hair colored. Having 3 daughters and 3 sisters, I was absolutely convinced this was not going to be a problem, so we invested. There are many more examples like this.

So yes, those were the types of uncomfortable decisions we took. After the Global Financial Crisis, we were pretty much like the rabbit in the headlights. We didn't invest anything. The only investment we made in 2009 was BMG, when I took the decision to invest with Bertelsmann in music at a time, quite frankly, when music was in freefall.

That was a great investment in the end. It was a courageous decision, but probably I could only do it at KKR because we didn't make any other investments. There were no large investments. But then the crocodile tears came later, when we saw that there had been a Global Financial Crisis. Those types of disruptions are exactly when you should go in, and we didn't.

During COVID, there was no discussion with our founders and our leaders around, “Should we invest now?” There was the opposite discussion. This is very important: there was very considered, top-down encouragement. “Don't be afraid. Talk to us about what you can control. Let's deploy.”

What do you think was the boldest bet you made in that period? 40% is a lot. What do you think was the boldest?

As you know, what we do is partner a lot with companies, right? We don't just buy them outright. The decision at that time was that Coty was the holding company that owned Wella, and we had seen—again, I give my oldest daughter the credit for this—that one of the Jenners had just sold her cosmetics brand to Coty, which was an unbelievable Instagram success, and Coty got a little bit in trouble.

They were overlevered, and we took a 10% stake in the company and then bought out the majority of Wella at the same time. It was a combined transaction, and that leap of faith in the midst of the pandemic—because they also had a travel-retail business in their mix, for instance, which, for cosmetics, meant you could ask, “When are these airports going to open again?”—was a bold decision, because these 2 investments together were very sizable in the fund.

You said they were about 40% of the fund in COVID. I was always taught—and again, I really am a student of investing; I’ve loved it since I was 13, which is why I had no friends in school—that temporal diversification is everything. Actually, discipline in terms of deployment cycles is crucial. How do you feel about sticking true to temporal diversification and a 3-year fixed cycle in venture? I don’t know what it is for you versus actually just moving faster and putting 40% out.

It’s an excellent question. What I told you is just a variation—it’s a variance on the theme of linear pacing—because we typically have 5- to 7-year cycles. On average, it’s probably more like 4 or 5, but we very much believe you’ve got to have the discipline of linear deployment because it avoids that issue.

So even though COVID hit in 2020, if you have a 4-year cycle, you have to deploy 25%, right? Most people didn’t deploy anything. We took the decision to go 10% to 15% above, but then we got lucky because in 2021 we didn’t invest almost anything. As you know, my market became very exuberant when COVID gave way to that incredible wave of liquidity. But the answer to your question is that it’s incredibly important to have the discipline to deploy linearly over 3 years in your world and 4 or 5 years in ours.

This is such a fun show for me to do because I have to say, venture in itself is a little bit uniform, especially after you’ve done as many great interviews as, I guess, I’ve done, and yours is a different world—one that I don’t know as well. So, it’s a real learning curve for me. I heard your other shows, and you said you spent a lot of time on portfolio construction, and I was like, great, that’s a super place to start to understand where we’re at. How large is the fund, then, as a starting point?

So, Europe for KKR is an $8 billion fund. It’s the largest standalone investment fund in Europe. As you know, I’m a massive voice for Europe. It’s not always been easy. It’s tough sometimes to make the case that we should invest in Europe, but it helps us to have that vehicle because it very much helps you in that discipline to say, as a global investment firm, Europe is on the map. We’ve got to deploy relative to a global fund, which can just make the decision to deploy in other geographies.

In terms of your question on portfolio construction, it is so important because traditionally people didn’t really think about themes. They didn’t think about growth versus cash flow. They didn’t think about the underlying industries or the geographies. So, we really focus on that. Also, what many people in my industry—and I know you’re going to reflect on that in our conversation—sometimes lack is the discipline to say, “Hey, of a fund of $8 billion, you typically have around 15 investments.”

Of these 15 investments, when do you start selling some of them? When do you start insisting that they should be better? And when do you just keep them for the long term because they’re your winners? Often, if you make that a work of love for the individual investors in the fund, you start losing perspective. You have to, top-down, as the lead of the fund, make those calls to say, “Hey, my space company in Bremen, which is OHB—we just did that investment—that’s going to be a big winner given everything that’s going on. Then there are 5 others which are great, but honestly, they do not compound in value consistently by more than 20% or so, and at some point, if somebody calls you and says, ‘We would like to buy that company,’ you just have to force yourself to sell it.”

Do you believe then that PE in your business very much aligns to the power-law nature that my business does, or is it much more in the consistent 3- to 5x—get your money back and always 3- to 5x everything?

I do believe there we overlap in quite a few things. What is different is that our business model is not to have 2 massive winners and then have most of the others be failures. We have to be pretty consistent. Nonetheless, you need to have some real winners because you always will have 1 or 2 which are not great. It’s a common misunderstanding that my industry is sleepy, boring, and just aiming for those doubles over 5 years. If we do that, we don’t do our job.

Totally agree with that. If we think about 15 companies in the portfolio, as you mentioned, in an $8 billion fund, what’s the average check, then? How does this structure work in terms of ownership? Are we taking a majority, or are we buying in?

Yeah, so you’re right. On average, it’s like $400 million to $600 million. In the last 10 to 15 years, three-quarters of all the investments we have made are partnerships, so I didn’t just buy something outright, but I went into, for instance, OHB in Bremen. We are a 30% shareholder. Or WILD Flavors in Germany, which was the synthetic-flavor business, 35%.

What about reserves? Most venture firms say, especially at early stage, “We have 1:1 initial reserves.” Do you have reserves?

We always do, but it’s more like 10% to 15% of the fund. So, of $8 billion, you would retain, let’s say, $1 billion or so as a reserve, because we do not need as much capital for follow-on rounds. In terms of the maturity of these companies, these are the Spotifys, right? These are very big companies that do not necessarily need any more rounds. Follow-ons are typically for acquisitions, if they want to buy something.

Totally get it. What about capital intensity? How much does that factor into your decision-making about getting involved? You said that they probably won’t need to raise more. I never have met a company that doesn’t need to raise more. How do you think about the future cash burn of a business when investing?

Yeah, it’s extremely important. If you think about everything we discussed about the crisis, you have to sustain the discipline of capital allocation for the founders and the CEOs of these businesses. It’s very interesting because you spoke to Henry. Henry Kravis always tells the story about the team that was told, “Hey, you own 10% of the company now, and by the way, we want to now invest $150 million of capex in buying these things. And by the way, if you really want to do this, $15 million is your own money.”

And the reaction was, “No, no, you don’t understand. If that’s the case, we don’t need to make that capex.” The idea is that we come from the other side than you, right? You come from the side where the founders are the owners and you back them. We make those entrepreneurs who are in there, or these CEOs or these families, owners again, right? Because many of them weren’t originally the founders of these companies.

So, where you and I meet is the owner mindset, where it’s truly your baby and you truly care about the scarcity of capital, and you say, “Okay, do I open France? Do I open Japan? Or do I rather launch another product?” These are real trade-offs. So, you are right: capital is always wanted, and we always invest it, but the discipline of deciding where you invest it is critical.

Does the model work in an AI world? What I mean by that is, when you look at, especially on the model side, these companies are just cash-incineration machines. When you look at anything like Harvey in legal, which has raised a huge amount of money very quickly, they just require so much cash and so much more. Does the model still apply?

It’s fantastically intellectually inspiring and interesting because we are the largest owner of fertility clinics in Europe. There we are expanding very, very quickly and very broadly in different geographies and in different areas. I know Elon likes talking about this, right? The demographic trends are not great. People do not have children anymore, and we’re extending lifespans.

But to answer your question, those are businesses that will not be replaced by AI models. These are just real businesses that still very much need the cash to open more clinics.

It’s a long-winded answer to tell you—and I’m sure you’ll ask me about some other things that are happening right now—that I happen to be lucky. Quite frankly, I’m super lucky because, by pure luck, I’ve seen so many different cycles of this. I know I sound like a younger version of Warren Buffett now, which is crazy, but he’s right. Things look different, often every 5 years, but if you separate the noise from the reality, the underlying principles of capital allocation have to be very thought-through and rational. They haven’t changed. You will have some AI models where you need lots of capital. It makes a lot of sense to invest in there, and you have some others which don’t.

So, do you think the principles are the same? I’ve been, again, a student of venture for 15 years, and I was always taught that $0 to $10 million was the gold standard in 18 months. We have 3 companies that have gone from $0 to $100 million in a year. That’s the magic. It’s incredible. Do the principles actually apply if the revenue and company scaling is like nothing ever seen before in history?

I’m making the bold prediction that you have just seen 3 of the incredible winners in the space, but they will not be the norm for whatever comes afterwards.

When you see those winners, you better invest and double down or triple down. But this doesn't mean that software, SaaS models, and the investments that are the bread and butter of many in our industry will no longer be good investments. You just have different cycles there.

Do you ever sit around the table at KKR and think, “God, it'd be an easier job if we just stuck money into OpenAI, Anthropic, and Helsing, and we didn't have to be so operationally involved? We could sell in secondary markets in 2 to 3 years for 3x, and we could ride the wave very efficiently”?

No, I have incredible respect for the Benchmarks, the Harrys, and the Daniel Eks who found those types of opportunities. But you asked me about my lessons learned from Benchmark. I tried, Harry. That's what I set out to do, and I learned the hard way that some brilliant minds can do that, while others are not so much in that space.

My experience is that the truly outstanding investors in venture are ones with deep vertical experience and real knowledge. I'm a generalist. I've seen so many things and patterns. I'm better in the later-stage industry. You look with great admiration at the Accels, Benchmarks, Indexes, and Kleiners of the world, but that's not our business.

Obviously, when we look at 2021, we saw a lot of your D1s, your Coatues, and a lot of crossover firms move earlier and earlier. We see Insight, to this day, cover the full spectrum. To what extent do you feel pressured to move earlier and earlier to ensure more and more access?

Growth is a separate team, so I cannot understate the importance of this. It's not like the same bunch of people does different things. I don't think the DNA of KKR and of other later-stage firms extends to what Insight does or what growth funds do. It will never extend to venture because it's a different skill set. It's a very different skill set.

I totally agree with you. I think Thrive is the one that's able to cross growth and early stage incredibly well, but I totally agree with you. You said there about a different team.

Yes. In terms of decision-making, I think the quality of your decision is the quality of your product in our business.

How do you think about decision-making today in KKR, and what's been your big lesson on how to do it right?

There's not 1 brain that decides. We truly are a partnership. If you have 2 or 3 brains around the table thinking through a tough decision, you always get a better decision than if you just have 1.

And in terms of the decision-making, you think so—does that not lead to consensus thinking?

No, because the culture is that you have to be willing to challenge each other and to be open about concerns you have. Coming back to your AI point, a lot of this is pattern recognition. Isn't that fascinating? The best investor today in the world, full stop, is Warren Buffett, who is, what, 93 years old? So, how do you replicate that brain?

Right. So, I do want to chat about the big L in our business, which is obviously liquidity. It's been an interesting few years. I think there's structural illiquidity, which is a real problem and a concern that I have, and it seems to be getting worse in some respects. How are you thinking about access and liquidity, particularly for the largest of the positions?

Harry, I'm going to make an old-fart-type comment. I've seen at least 3, if not 4, cycles where liquidity goes from unbelievable exuberance, like we've seen in 2021, to the drought that we see now, only for people to say at the peak, “Liquidity is limitless and the party is never-ending, so I don't actually need to sell anything. I just ride all my winners,” only to give way to the hangover and the realization that that was a mirage. There's no more liquidity. And then, at the bottom, people predict there will never be liquidity again, that it's structural, and that the world is coming to an end.

I can literally walk you through the same sentiment in the Great Financial Crisis, after the dot-com bust, and probably during certain elements of the euro crisis as well. But we have $3 trillion in locked-up LP money in private markets. I hear you, and you're absolutely right: the party that was celebrated in 2021 and 2022 in terms of the velocity of fundraising and investing was absolutely artificial, inflated, and not sustainable. The hangover had to be tough.

The hangover is now. I don't think it's structural; it just has to clear the excesses. But remember, I remember very well in 2001 how the venture industry had to digest the exuberance. You had many funds that had to halve, right? People gave money back on a grand scale. We haven't seen that yet.

And the halving, if you will, of the universe of public companies is also structural. I'm going to make the point that this has led so many of our partners to choose to be with us rather than be public. The space company OHB was a public company. GfK, the market research firm, was a public company. Both of them were owned by a family foundation and a family, who both said, “The public markets are not helping us because they just can't cope with all that volatility and all that change. We'd rather have KKR take it private and be with us for the long term, and have them help us deal with all of that change.”

That's a structural factor that's different from 2001.

So that structural factor is that founders are aware that they'd actually be better off in private markets, and they want to privatize?

That is a structural factor. If you think about my industry, I'll give you one stat for KKR: over the last 15 years, only 15% of our exits were actually IPOs. So, 85% of our exits were either strategic exits, where some large company came along. I'll give you an example: I just mentioned GfK. NielsenIQ said, “We merged with GfK and we built a global champion.”

Or it was another play in our industry. I mentioned Fotolia, which TA Associates had basically built up to a certain scale, and then they sold 50% to us. That is much more of what we have done historically. So, the structural crisis of the IPO market right now is not resulting in a structural crisis for our firm and for our industry. It's slightly different for venture.

I totally get you. In terms of what you said about fund sizes halving and the impact you saw from 2001, I think AI is kind of the oxygen that venture needed. It's like we were just coming into the day.

Absolutely.

And then it's like, “But wait a minute, it's the best time ever.” If you're an LP, there's enough material there to say, “Actually, they could be right, and so I have to keep going.” Do you agree with that?

I agree, and that is why we don't see fund sizes halving, because exactly of what you said: a lot of these opportunities are so capital-intensive because you suddenly have some interesting places to deploy.

It doesn't matter whether it's venture or private equity; the fundamental underpinning of what we all do is that we are the answer to the demographic crisis that Elon Musk is putting his finger on. We have an aging society everywhere. People are retiring ever later, but they have to retire. They have ever fewer babies. So, if we don't have a capital stock compounding and accumulating for the benefit of retirees, people cannot pay for their old age.

Therefore, what's happening right now is that a pretty narrow investor base—university endowments, insurance companies, sovereign wealth funds, and pension funds—that underpinned our industry and yours is being complemented by ever-growing elements that were completely excluded from alternatives so far: 401(k) pensions and individual investors.

If you think about it, we have—I think it's $192 trillion of savings—that are completely excluded from alternatives and are in a high-net-worth and individual-investor base. The innovation, you know, that was underpinning the Norwegian sovereign wealth fund, to allow it to participate in all of this long-term investing that we do, investing in these growth companies and creating huge value, is now extending itself to individual investors.

I think 1% of the $192 trillion is invested in alternatives. If that only goes to 5%, you suddenly have $10 trillion. You think about the magnitude relative to the entire institutional investing base.

Meaning, to answer your question, while that whole universe on the left is in dire need of liquidity, there are others who are dying to provide liquidity. So there's a market, right? What's happening is that secondaries as an asset class are going through the roof. They are buying fund stakes, providing liquidity to some LPs who need it, and there are also innovations in the industry that I hadn't seen in my lifetime before, where you have evergreen products.

If you think about the treadmill system that we have in our industry, you have to go every 3 to 5 years and present your case again to the LPs. Then you have a new fund, then you have another new fund that's being replaced. I call it very much the Warren Buffett model.

I remember, at that time, I was a young Turk at KKR, and our brilliant mind Scott Nuttall came up with this idea to take KKR public by merging with a public LP vehicle, which hadn't worked because the public markets were assuming that we would lose 80% of every one of our investments. He said to the public, “If you value more stability, why don't you become a 30% owner of KKR's general partnership, of our partner economics, in exchange for that pool?”

That's how we ourselves became owners of a $5 billion pool that had been valued at $1 billion, became $10 billion, and is now $30 billion. So, we are actually the largest investor in our own funds. But to cut a long story short, what he saw at that time was that Warren Buffett had innovated in an incredible way, where he got GEICO and other insurance companies to provide the liquidity for all the investments he made, right? Because he owns these insurance companies.

So all the people who have insurance policies, they pay upfront, the cash comes in, and normally it sits in interest-bearing accounts earning nothing. And now he uses it at the source to buy whatever companies he buys—American Express. That is the innovation that we see in our industry on top of this retail money. So basically, we, Apollo, and others have now taken under our wings insurance companies that provide all this liquidity.

So you see, the innovation goes beyond what some people talk about—continuation vehicles, et cetera. It extends to completely new areas of the market, which make a lot of sense, because will KKR’s European fund be $20 billion in 10 years? I think that the answer is not the fund. If you ask me, will KKR Europe’s assets under management double and triple over the next 10 years, the answer is yes, because the universe for what we do is radically expanding.

When I did the BMG deal, that was a $1 billion to $1.5 billion deal for a 50% stake in that music company. You fast-forward 10 years, and we had a $10 billion deal to buy half of Axel Springer, which again was a 50/50 deal with a family. You can very easily see how that could scale further. The capital itself will be doubled and tripled, but the source of it won’t necessarily be a fund. It could be those retail funds that I mentioned, or it could be some part of the insurance capital, if you see what I mean. So the funnel becomes much bigger. We are responsible for a much broader scope of capital to invest, and the demand for what we do in Europe is also growing much faster because more segments of the market want private equity investment.

To what extent can you share what percentage of your LPs are European?

I’m very happy to say, but I think I probably have 10% that are European; 90% of my LPs are American. So I’m going to disclose one thing to you: the large majority is American.

You have some pockets in Europe, like Holland and Norway, that are very strong. The Middle East is incredibly innovative and takes a large chunk.

Do you find it ironic, though, that when we make a huge amount of money from European companies, we just ship it back to a load of people in the US?

First of all, I’m grateful for any capital that comes into Europe, regardless of the destination, because we need more capital in Europe. Mario Draghi is right: we need to invest €750 billion to €800 billion a year alone to catch up on innovation and AI, but also to compete in other industries—defense, high tech, et cetera.

Nonetheless, for the future, you’re absolutely 100% spot-on. We’ve got to wake up in Europe. For instance, Germany has now decided to invest 25% of its GDP and make sure that when we make these investments, we build equity value. In other words, it’s being done here in the UK with the mansion house complex. We need to professionalize our pension systems together and allow more investments in alternatives to build capital accumulation.

Absolutely. And that means in 10, 20, 30 years, hopefully, we retain a larger percentage of the value creation we make with alternative investments. Are you fundamentally investing in a different type of company today? What I mean by that is, in past generations, there might have been a Fotolia, there might have been a GetYourGuide, kind of similar to me in that respect. And now we have the most terrible challenges with energy, defense, and infrastructure. You mentioned, obviously, your space company. I mean, we are woefully under-equipped when it comes to space. Are you investing in a fundamentally different class of company, given this need for capital in all of these very hard but new industries?

Maya is right. We are behind in defense, for instance. But look, in scarcity and hours of need, innovation kicks in. And look at what happened because of the hour of need and the innovation that we have in Europe. We’ve seen what the US has done by saying 10% of the spend of the Department of Defense needs to go into the innovative ecosystem, and space is the same.

SpaceX was just the result of opening it up to the private sphere. That is coming here now. Let’s not forget, we have had a terrible tragedy in Ukraine for years now, and they’re still standing. It’s because of innovative companies like Helsing that have supported them. So the short answer to your question is yes: innovation, what you know best, is the answer to these problems. But I wouldn’t be so negative. They are coming now much faster than some people realize.

Do you feel we’re taking more risks than ever, given the volatility that now exists in the world on a daily basis? We were talking before about some tweets and events that happen that just change everything with a tweet. My point being, the world seemed relatively stagnant or plateaued at certain points, and now it seems like it is more volatile than ever. Do you think we’re taking more risks than ever?

Well, you started this conversation with AI. You’re right. AI is a fundamental transformation of all the assumptions that we had made around productivity and around the innovation cycles you need in certain industries, like healthcare and defense. That alone was already massive.

At the same time, you have this incredible pivot from the postwar consensus of how everything works. Right after the Second World War, there was an institutional ecosystem built with the IMF, the World Bank, and the United Nations, and there was a clear understanding of how everything worked. People had forgotten about the 1900 to 1930 period, when it was much more bilateral, much more nation-state-driven, and much more everyone-for-itself.

People had also taken for granted the unique role of the US dollar as a reserve currency. That is being questioned now. Fourthly, Ray Dalio points out that when you have large amounts of debt accumulated, we are just one step away from a major crisis, because those bubbles at some point get resolved by internal strife, war, or massive transformations in the monetary system.

My point is, we have 4 disruptions at the same time: technology, geopolitics, the monetary sphere, and a huge demographic crisis, which we talked about. There’s a feeling of unparalleled inequality between certain segments of the population and others, and certain regions of the world and others.

So yes, we are investing against an unbelievable backdrop of risk, volatility, and uncertainty. But especially in times like this, I remind myself of what Warren Buffett says: you have to focus on what you can control. If I have a spectacular founder like Murat at Hamaton, I have a large market that will be transformed by technology. And if I see that there’s unparalleled openness to actually institute change for the better, which I think is the case in Europe right now, then I invest.

I just have to be able institutionally to be patient and to hold for longer, because you’re not able to predict what’s going to happen in 3 years. It’s impossible. So if something goes wrong, you just have to be able to hold longer.

Do you believe the US dollar will be the reserve currency of the world in 10 years?

Yes, I think that it’s impossible to replace reserve currencies that quickly. Will the US dollar be the reserve currency in 50 years? I couldn’t tell you. I do think, in 10 years’ time, the percentage of reserves the US represents will probably have reduced slightly.

The problem that the monetary system has is, if you want to replace one thing, you need to decide what you replace it with. Right now, the only credible alternative is the euro. We in Europe need to get our act together. It’s a fantastic opportunity for us to take a larger share.

You don’t think it’s Bitcoin?

I think Bitcoin is a very interesting innovation and will take a larger share, but it’s too early for us to call that the reserve currency of the world. And, you know, Harry, why does nobody talk about quantum computers anymore? Think about what that means. If we have quantum computing, think about all the impact of that. People will just not replace 80% of US dollars with Bitcoin overnight. I think Bitcoin will take a larger share, as will the euro, but it’s going to be more of a mix.

We mentioned the 4 disruptions. The hard thing with disruptions is they change the world in such unprecedented ways that they make a lot of prior assumptions really invalid. We mentioned thematic thinking earlier. I don’t like thematic thinking because I think the world is so unpredictable that companies can happen and industries can be changed overnight in ways that we can’t comprehend. To what extent do you think thematic thinking and a prepared mind are actually valid in a world that changes so much, so quickly?

Can I put a Buffett-esque spin on the idea of thematic thinking? I think it’s very relevant. If you think about Buffett, he will tell you, whatever noise there is in the world, I’m going to look at a few essential elements. I’m going to look at the founder, or his team, or the CEO of the team. I’m going to look at, essentially, the business itself. Is it in a large market? Does it have an unassailable position in that market? Is it innovative enough to have product-cycle innovation? And is it having a good return on capital? Then I’m putting incentives in for these people to just keep running fast at it.

I love his thinking. That is a very different thing from saying, “I invest in energy, and I invest in certain industry verticals.” He has a human spin on thematics.

That said, I do think thematic investing is valid. If you now think that in Europe Draghi is right, and there are certain elements where we just have to invest—and that, for instance, is space and defense—if that is part of your investing theme, then that makes sense, because you can’t just overnight say, “Hey, I was a healthcare investor; now I’m a space investor.”

You need to build—going back to our original conversation about what makes a good venture investor—you need to have deep thematic knowledge. But do I—sorry, I don’t mean to be difficult—I’ve met so many space—no, not space, defense—companies. Every defense company is trying to be in this, obviously, because it’s so hot in Europe. I’ve met so many defense companies, and none of the founders I’ve met touch Torsten Reil.

I mean, even if I knew nothing about defense—which I don’t, to be very clear, I know nothing—I love nothing more than having such a massive consensus with you. Torsten Reil is a rock star. Having met all of them, even though I know nothing, I know he’s the best.

Yeah, no debate. He is the best, for sure. But that’s the good news about markets and innovation cycles. Henry Kravis was the best by far in his industry, and he set up a whole industry. People are fast to copy, fast to innovate, and fast to follow.

Torsten is the best, but in 5 years’ time, we’ll look back and say, of course, Torsten couldn’t have done it all by himself. There will be Murat at Harmattan. There will be others. To what extent—I always say, if you want to invest in the next Helsing, don’t just invest in Helsing.

I spend my life with investors who are like, “Oh, I’m trying to find the next OpenAI, the next Anduril.” Don’t just put your money in the winner.

Well, you always want to back your winners.

I completely agree with that. Winners compound—winners totally compound—but it doesn’t mean that you can put your entire fund into 1 winner.

Right. This is what we discussed before: how much money would you put into a company, in terms of concentration of funds?

We are absolutely rock-solid and disciplined on this. You wouldn’t normally do more than 10% of a fund in 1 company. In terms of underwriting, the absolute maximum is 15%, but it’s in that range. I love Brian Singerman at Founders Fund, who says, “The enemy of great venture returns is capital concentration limits,” and that’s why they did 33% into Airbnb.

I always remember thinking, “My God, that’s conviction: 33% into 1 single company.”

Yeah, that’s absolutely, in my industry, not the right approach. Can I ask—we’re talking about Europe. Europe has incredibly fragmented public markets. How much of a problem is the complete lack of functional public markets for Europe today?

That’s a beautiful question. We come back to Mario Draghi. The second thing he said, after “You’ve got to invest €750 billion a year to catch up,” is, “We need a capital markets union.” We need to come together and do away with artificial limits between 27 nation-states and the UK when it comes to concepts like securitization or going-public laws.

Yes, of course, we need a European SEC. Yes, of course, we need 1 pan-European place where people can go public. That’s extremely important.

I completely agree with you. I think a unified European liquidity mechanism would be great. To what extent do you worry also about an EU AI Act? Bluntly, it’s incredibly prohibitive.

We are experimenting today, and, bluntly speaking—which I’m happy to experiment in—we have absolutely overregulated that space. We need to unleash the power of that technological innovation and not stifle it by too much regulation.

For sure, Germany has a challenge in the auto industry. Do you worry as much as I do about the rise of BYD, Xiaomi, and China in, bluntly, destroying much of the European car market?

I’m going to answer that question indirectly by saying what I’m observing, because we own fantastic investments in related industries. What we see is that when the automotive industry is shrinking because of some of the factors you mentioned, those people immediately find jobs in other industries that are growing, whether that is sensors or defense.

Of course, we need to have a fair playing field between different economic regions in the world, and I always worry when certain industries do not find fair conditions to compete.

Should we tariff the shit out of Chinese cars, then? If they’re subsidized by the Chinese government in terms of their creation and they’re able to flood our markets, while we’re playing fair, do you not just tariff them?

I just think, generally, I’m a free marketeer. I think tariffs are not the answer. I know that’s a controversial statement in today’s world, but we need to work on the underlying issues in our Western democracies.

For instance, we have too-high deficits. Those deficits lead to exceedingly high indebtedness. We are therefore not crisis prone. To try to raise money through tariffs is not the right approach.

What do you think is the best way to deal with the current situation we have in terms of deficits?

Critically important is what we discussed before. If you think about 20%, 25%, or 30% of all of our budgets going to 2 sources—1, just servicing the interest on the existing debt stock—it’s huge. In many countries, these are higher expenditures than our healthcare or defense budgets. Then it becomes very clear that the only way to restrain that is on the expenditure side, where, for instance, on the pension systems and the benefit systems, we do not benefit from capital accumulation and wealth creation.

It is mind-boggling: if you and I were Norwegian, we wouldn’t worry a bit about this because the Norwegian sovereign wealth fund, through everything they have done, has created such a capital stock that every single person doesn’t need to worry about their pension.

I had Nicolai Tangen on the show, and he said, “Every single Norwegian is a millionaire.”

He’s a genius. He’s doing a great job running it, by the way. I asked him if he’d invest in my fund, and he said, “Of course, our minimum check is $10 billion.”

Imagine if we had the German, British, and French equivalent of Norges Bank. What would that have meant? That was the conversation I had with Angela Merkel 10 years ago. It was absolutely possible. We slept through it, but that doesn’t mean, because we missed it, that we couldn’t do it in the future. We must do it.

I think 1 interesting one for me is, again, I’m a student of economics and history as well. If you look at Japan in the 1980s, their deficit was huge. The question is, everyone’s like, “Well, we’ve got to worry about the deficit. We’ve got to control it.” Why? Why can’t we just let it go higher? I know it sounds terrible, but they kind of kicked the can down the road in the ’80s. To what extent can we not just do it now?

You and I are going to have a hobby economist conversation because it’s a fascinating conversation. The chickens will always come home to roost. That’s what I’ve learned in economic theory, because here’s what we miss sometimes: a lot of this is very much virtual. What’s the biggest coin of the realm? What’s the biggest currency in our business and our economy? It’s trust.

Those numbers don’t mean anything, but if people convince themselves that spending 20% or 25% of an ongoing budget in any country on interest for your debt is too high, and you can’t pay for innovation, healthcare, defense, and so on, at some point there will be calls for 1 of 2 things: either increased taxation, which typically means that a lot of your value creators leave your country, or radical cuts in spending.

We have seen both in Japan and the United States of America. It is extremely hard for a political system that is elected every 4 years to actually have the discipline of reducing these expenditures. Japan still has a structural deficit.

If you can’t really raise taxation and if you can’t really reduce expenditure, the only other way to get rid of your interest load is to inflate away your debt, right? So you do financial repression, which means you force your interest rates to be below the rate of inflation. In real terms, everybody who has assets loses, and that is a very inflationary way of dealing with it. We know what that meant in the ’30s, right?

Quite frankly, we’re having a philosophical debate now. Our generation—the people who are not retired yet—will ask the questions. If the statistics I give you in Italy, as an example, are that in a few years’ time every 4th person will be of pension age, so over the age of 65, how can you sustain any balance between toiling every day and feeling that in your own retirement you actually will have anything to live from?

At some point, societies get an imbalance. Look at our political systems all over the Western world in the election results: populism rises. This goes much beyond what we do as a job, but there’s a direct correlation between all of this.

So I come back to what you and I do every day: there’s a lot of purpose in it. It’s not just about making returns; it’s actually about making pensions affordable for millions and millions of people. We need to have a political system where what we do benefits as broad a population as possible.

Do you think AI will have the productivity gains that people suggest it might?

It’s too early to tell. I think it will. However, productivity gains, which will be extremely beneficial to the world, don’t mean that the challenges I just mentioned will be solved, because there will be this disruption phase where many, many people—

Won’t they be worsened?

Because you’ll have more and more people who are removed from the labor force, actually. Even people of working age will not be working. It only works if Norges Bank—let’s assume Norges Bank, which is the Norwegian sovereign wealth fund—would suddenly be the British equivalent, and every one of us had a stake in those companies.

So if we had a fund that was actually catering to the pensions of everyone, which owned 20% of OpenAI, you would be celebrating that development, right? We would find a new balance between work and leisure, and there would be different jobs, but people wouldn’t have to fear the outcome of this. The problem is that right now there’s no such mechanism because we don’t participate in the value creation.

You don’t think we’re going to have massive structural unemployment because of AI in the next 10 years?

The point I’m making is, if we in Norway had massive structural unemployment, it would be fine. We would be fine because Norges Bank has hedged against that structural unemployment: they’re the largest investor in the AI companies, and therefore they could redistribute the spoils of it. I do think there will be a transition now where white-collar jobs will be impacted, and we need to answer the question on a societal level: How do we cope with that in terms of the earnings and the results from the investing, to make sure they are broadly based for everyone impacted by this?

You spoke about owning 20% of OpenAI. The challenge with the expansion of private markets is that wealth creation is shared among a very small number of people, compared with public markets, where it’s obviously available to many more: Norges Bank and countries around the world. To what extent are you worried that we’re seeing the concentration of wealth among a few people with the expansion of private markets?

It’s a brilliant question, and it’s the most important question. That’s exactly why our industry—the investing industry—needs to open up for the many. That’s why, as I said earlier, the fact that we were only allowing 1% of all private individuals to participate in the alternative investing industry is not sustainable.

If your dad and my dad and others have the ability to save for their own retirement, and they can select 5% or 10% of the capital pot that we’ve now said everybody can have for their future retirement and allocate it to us, and we invest it in OpenAI, it suddenly becomes available to the many rather than the few. So that’s the answer. The answer is broad-based participation in the alternatives industry, and that is why this is so important.

Do you think we will see that broad-based participation? How does that actually look?

That looks like retail-backed funds. I think we will see it. I remember I was at McKinsey some time ago, but I still have a 401(k) plan from that. I wasn’t there that long, but I still have whatever the number is there. You don’t check it.

I do.

I allocate it every year. I’m just a long-term investor, so there’s no point in checking it every quarter. But if I check it every 5 years and reallocate it to the same allocation, by the way, I allocate 30% to my industry, and the rest is the S&P 500 and a bit of bonds.

Yeah.

But if you do that, imagine everybody was able to do that. You sleep well at night, and you look again in 10 years and see the compounding that has resulted. There’s no reason why what America allows or Norway allows shouldn’t be available for all of us in Europe. It’s just a regulatory question and a question of courage for the political systems to say, “I go from a pay-as-you-go pension system to one that has a private capital accumulation pillar.”

I also think it massively increases education standards, actually, at the company level. I got one brilliant piece of advice, which is that if you want your children to give a damn about companies, buy them a single stock, because the minute you have any form of ownership, your interest level will go through the roof.

Can I ask a personal one on money? How do you think about your relationship with money? Mine’s a weird one. I used to think it was everything, and then I got it and realized it’s relatively nothing. It’s nice to have as a foundational layer, but it wasn’t the jar of happiness that I thought it would be.

Can I disclose a secret to you?

Yeah.

I got to go and see the new Brad Pitt movie, F1: The Movie, which I think is spectacular. If I had had a say in what we called it—one of our production companies produced it—it wouldn’t be called F1: The Movie. It would be called It Is Not About the Money. You’ll see when you see the movie why that’s the message I would give to people when they ask me what my relationship with money is.

Was it never about the money, or was it like me, where you think it is, but then it’s not?

I just stumbled into it. When I made the decision to leave a high-paying job at McKinsey, people thought I was absolutely crazy because I gave up the safety net for no certainty at all. You know how it is to be a founder: one day, you think you’re a gazillionaire on paper, and the other day, you’re broke. It’s the most incredible experience because you learn very quickly from that that it’s not the money that matters; it’s the learning.

When I joined KKR, it was a startup. Let’s make no mistake: there were 39 people, and I had no idea what it meant to build a career and a track record in investing in funds. It’s an important job. My job is to create results for all these pensioners and for what we do, but it’s only an output. It’s not the main reason we do that.

For me, at least, I enjoy every day speaking with people from completely different walks of life. You may know that I’m a crazy music fan.

You love the opera, huh?

I do love the opera, yes, but I love all kinds of music. I’m crazy about trying to innovate the Bayreuth Festival, which is the Richard Wagner Festival in Germany. I’m also a trustee of the Royal Opera House. I love it because I learn so much from these artists. When you see the shining eyes of the opera singer or the ballet dancer, I mean, it’s so incredible to experience. During COVID, when they couldn’t perform, it showed what it meant to them once the curtain could rise again.

In many ways, whether you are a Formula 1 driver, an artist, or an investor, if you don’t love what you do, then you ain’t going to be good at it. If you’re really good at what you do and you love it, there will be money that follows.

Listen, I could speak to you all day. Can we do a quick-fire round? I’ll say a short statement. Okay, let’s roll with it: Which investor do you most admire, and why?

Warren Buffett. He has an incredible ability to separate the noise from what really matters.

What’s the most painful investing lesson, and what did you learn?

VenturePark. I set it up, and it failed. I learned to keep going, to remain humble, and to really, really, really think about your investors.

What do you know now that you wish you had known when you started at KKR?

That it is a marathon and not a sprint. As an investor, you just have to go for the long term.

What does that mean?

It means when you’re in the eye of the storm, like COVID or like now, do not make the mistake of thinking that it’s structural. You’ve got to stay through it. You’ve got to look for the long term. When you look back, it’s also obvious, but it’s never obvious. Endurance is what matters in our industry. You never give up.

I so agree. Endurance is what matters. I always say, when you’re in the eye of the storm, like now, I’m seeing so many people sacrifice trust for short-term financial gain. Never do it. It’s so dangerous.

Yes, I totally agree with you there.

What’s the biggest lesson from working with Henry Kravis?

People skills—that’s what he taught me. I will never forget when I was the new kid on the block at KKR and entered the office for the first time. I didn’t know what to do, quite frankly. I was just shy, and he and his cousin came over and said, “Hi, you know, we are Henry and George, and this is the firm we built. Tell us about you.” I was so mortified, but so inspired by it.

If KKR were a band, what genre would it be, and who’s the frontman?

Listen, I love the opera. I love classical music. I love many things. But it’s an orchestra, quite frankly, where the tuba player, the violinist, the bassist—all of them—are world-class. My job is to be the conductor and try to motivate everybody and bring them together as a team.

What’s one European startup you wish KKR had invested in?

Spotify. I was the first institutional investor through the door. I just didn’t have the fund to invest.

Oh, I know.

But this is again—every failure you have in life is an opportunity. I learned from it. Because of that, we did get GetYourGuide, which is a fantastic success.

Now, is there one that you said no to, where you did have the chance?

Oh my God. I have to hide now under the table. We literally at KKR had the chance to invest in Alibaba a long time ago. It came across my desk, and I said no. Big mistake.

Ah, that wasn’t your desk, Philipp. That was someone else’s desk.

It was literally, at that time, early angel, kind of family KKR stuff, and I was the maverick in terms of having done venture investing.

What do you make of all the venture firms coming into your field? Now you have Andreessen, Lightspeed, and General Catalyst eating into the financial stack. Do you worry they’re coming into your field?

I think the industry is big. Everybody has their place. I’ve done venture myself, so I know that it’s an entirely different skill set. I’m not worried about it.

Final one: KKR 10 years from now, and you in it. Where do you want to be? We spoke about AUM. Where do you want it to be in 10 years?

Very important question. We have $670 billion under management now. This number will go up massively. But what I want to see—I think historically, the individual, retail-type, broad-based investor base is roughly 20%, maybe 30%. I want to see that go to 50%.

Just to have that spread of what we discussed before.

Listen, Philipp, thank you so much for joining me. As I said, I've been looking forward to this one. So many good things from you, Hannah. Thank you so much.

You're very welcome. It's great to be here.