Good Investing Talks - David Nangle, how do Creditas and Konfio contribute to VEF's success?

Episode Date: May 13, 2022

VEF is the Emerging Markets Fintech investor. The Sweden-listed company is investing in Fintech assets in Emerging Markets. After one year I did a follow-up discussion with CEO Dave Nangle.

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I really like their tool and it's a high recommendation by me. And now, enjoy the video. Hello, audience. It's great to have you back. And I'm also very happy to welcome Dave Nangle of WebVC back. WebVC is their website, but they are not the typical VC. We already discussed us in a last interview you can find a buff here. It's great to have you back, Dave. Hey, thanks, Ilman.

Hey, thanks, Hillman. Great to be back. It is very nice to do our interview after one year because a lot of dynamics in the markets have changed. And we really have a different situation at the moment. We already talked about this in our pre-talk. And at the beginning of our interview, I want to try to figure out a bit the dynamics between public and private markets. So Dave, in your position at West, you have a lot of insights into private markets. as a long-term-oriented VC investor in different emerging markets with the fintech space. So what could you observe in this markets?

What are especially hot markets with a lot of competition and which markets don't have that much competition? More and less competitiveness in the private markets within fintech across emerging markets. Look, I wouldn't say it's a it's a natural kind of consistency across the board and generally i see an emerging markets a lot more by country than by segment um over time so we kind of get countries being hot as opposed to segments themselves being hot so and with any um it's you know india first i think has always been you know at prime because china obviously is fascinating big and a massive opportunity but then generally china is for the chinese is the way most investors see it so india as a country has always been

hot, true cycle. And behind that, you know, not too far behind, I'd say it's Brazil. And then everything else kind of flows in and out of kind of temperature hot, being Mexico, being Southeast Asia. Africa, front and center gets a lot of focus. More so than other countries on a similar pecking, I would say, maybe like, you know, the Pakistan's of this world or parts of Southeast Asia. Africa always has a lot of dedicated capital, whether it's the ESG side or financial inclusion money or just generally speaking, it's very much a focus continent for capital. But I would say that's the true cycle, India, Brazil. I would put them top two very much in focus.

If it was going to drill down to sectors, like payments always gets to focus. And it was online, offline, definitely cross-border less so. And then credit kind of comes in and out. But I guess more and more we're seeing a lot of Web 3 focus and as a future of finance in Web 3 in various forms of blockchain technology and cryptocurrencies, that's clearly, we've seen the volume turn up there from very focused investors to a more mainstream investor base focusing in that space. So if you look at hotness, it is also about a lot of, it also attracts more competition. and this leads to the risk to overpay if there's more competition in a certain space because there's only a limit amount of great companies and if a lot of demand for them is around yeah prices go up so with your focus in emerging markets and fintech

do you see this happening in a lot of markets or what do you observe there yeah look we're talking today and we probably would have a different conversation three months ago than today. Like I love emerging markets. I've been in emerging markets all my career. And part of that love affair with them is probably due to a lack of competition. You just get less eyeballs, less capital, less skill set, focusing on what are the biggest part of the world, the fastest growing part of the world, and the most fascinating parts of the

world, never linear in nature, but generally going up into the right gradually over time. And then you get periods over the last five to ten years where we had a good run. We had a good run for, I guess, global stability, global macro, capital flows, flows into the private side, venture funds, private equity. And we started this seven years ago, and we would have been alone and shopping in Pakistan, for example. You fast track to today, it's busy. And Pakistan gets busy, you start to ask questions, you know, what's happening in the world, no offense to Pakistan. Brazil, back in 2016, the back end of the last kind of mini recession. we were not alone, but we were one of the few kind of series BC investors who were turning up in that market, picking up names like credit tasks. Same in Mexico, picking up names like Confio, and you fast track to 2021. And it got very busy. But then you kind of fast track a little bit to today. And what you're seeing is the start of a risk off mode globally. You know, privates taking their lead off publics at last. It took some time what they got there. So I guess what I'd say is we are a permanent capital.

vehicle. We're through cycle investors. We're long-term investors. And these aren't cliches. These are facts. We haven't just raised the funds that we have to deploy capital in order to get paid. We cannot invest for a period. We can stop and watch markets for a year, for two years. We cannot invest in Mexico for five years and then do five investments in Mexico. Should we see fit, if the time is right, if it's a window where political instability, currency blows out and the opportunity set arises. So I love that flexibility. you know, last year, over time, we've kind of kind of checklist of what we're looking for in a company. And we're very rigid and disciplined in that. And we don't get everything we want.

We just don't invest. Not saying we can invest, but, you know, we want great founders. We want great VCs around that founder. We want traction, strong new economics, a big addressable time, and good regulatory support and defendable modes. If we get all that, we dig in and we go deep. But then we're looking for valuation also. And, you know, 30%. 30% IRA or is our hurdle rate. Now, in fairness, as you alluded to, over the last 12 to 18 months, we started to ask ourselves, are we wrong? Because we were losing deals. We're losing more deals than we did. And we were losing them mainly on valuation where other people were willing to pay more. So we're saying, we're trying to ask ourselves, like, you know, are we in the wrong game?

Is 20% the new 30%? But then you fast track to today. And the question is, it's 40% to new 30% in a higher risk environment is 30% enough to put your dollar to work in an emerging market. So, you know, these cycles come and go and some are longer in duration than others, but I'm very comfortable that we have a playbook of what we want to find in an investment, what we look for, and when we find out trying to get our capital in and to write valuation. And even in periods which are, you know, hot and cold, we've generally converted on a regular basis and found what we want. So, you know, even last year when deals were passing us by for valuation, we still got our capital,

into names like Rubeke and the Goldback Lending Space in India into Black Book. And then putting more capital to work in some of our better companies like Credit Us and Confio. And each time we were justifying it with 30% IRAs in Excel on paper with the money we're putting to work. So busier, yes, I expect that volume to turn down. And I can't expect global capital which ventured outside of US, Europe. You know, got a bit more aggressive during the pandemic, specifically via Zoom in markets where it's not their first port-a-call, that's no offence to them, but getting capital to work out of the US into Nigeria or into Pakistan or investing in Brazil having never traveled there. And that's not a sweeping

statement, this isolated incidents. I think that capital starts to go a little bit more risk off. And for people like us, true cycle investors, you know, it's going to be a very interesting next six to 12 months. And these are the kind of windows where we can make some very interesting bets with a five to 10-year view on horizon, you know, on the lookout. So let us tell you. So let us take a look at your toolbox so how do you arrive at this 30% how do you measure them what is in your toolbox for the 30% return the toolbox well look it's it's analysis it's getting into the companies it's forecasting so you know the every company we look at and we're generally looking at a series bc that kind of area and they'll have their own numbers and

forecasts you know from an individual company point of view but you know we'll be stress testing the hell out of that and their numbers out three to five years if it's a realistic model we'll work with if it's unrealistic we'll build their own and we're generally trimming and being more conservative than what they're being and they should be aspirational they're entrepreneurs it's the game that they're in forecasting out in local currency because these are all local currency businesses that we're investing in for the most parts be that mexican peso turkish lira brazilian real and deflating that when we convert into hard currency into u.s dollar because the assumption is the currency will

and weaken over time. So maybe a currency deflator of 5 to 10% per annum, depending on the market. And then we're looking at exit multiples. As you look five years out, we're looking at the peer group. We're looking at a reasonable peer group and exit average multiple, you know, over time for these companies. And that's the exit multiple we're putting on these companies. And then we're discounting it back to see if we can get for the price we're paying today, what would be the price we'd pay today to get a realistic 30% plus IRA on our money. so are there any qualitative factors in your 30% calculation so is there any founders premium because the founder is so good or is it just numbers crunching it's numbers crunching and we don't crunch the numbers if the founder isn't right so the qualitative factors are what gets us to spend the time on the numbers and we're not going to waste our time on numbers if those qualitative factors don't kind of work um so the founders the VC the space, the scalability, the addressable market, all that kind of stuff makes us want to do work.

Because, you know, time is an asset, Tillman. We are a small team. Well, small and growing. We're nearly 10 people now. So we're growing as a team, as our AUM grows, as our business grows. But still the opportunity cost of us spending any time on one individual company that we're not going to invest in is hard. So we sit down, you know, once twice a week as a team and decide where we're going to spend our time. We're obviously interacting with our IC, which is our board.

about where we should be spending time, what they would or would not approve if we do spend our time. So all those qualitative factors feed in and then obviously we're getting into the number side of things, which is it's our strength, it's our history. I guess we came into this not as founders, but as analysts, as research people, as investment managers. A lot of people enter the VC world or private equity world as former founders. And everybody has a strength, bring something different. I think we've learned those skills and those muscles, but we brought a discipline on numbers. And I guess that's where we feel comfortable. today with markets obviously dislocating and share price falling you know did we get caught in

you know the up cycle and we're playing top of cycle multiples for investments we did just three six 12 months ago and i don't think so i think we're very respectful with shareholder capital we turned down deals which were wrong we were playing true cycle multiples albeit now we're at lower end of cycle multiples so i think that's the discipline which served us well or will serve as well let's say that so in your calculations what value do you address to options with credit tasks you had them going to different verticals and enhancing their business is this something you factor in for instance now it's fair now we forecast what we can see tillman um you know new countries new business lines we'll do this and that and we've seen it again and again where

companies say we're going to go here there we're going to roll out this and that's worth something it's it might be worth something to them it's not worth anything to us it's nice to see it gives you comfort that they're ambitious and but we forecast what we can see we underwrite what we can see and then we'll take whatever else on top when it comes so coming back to this idea of competition and you already mentioned that you don't want to overpay and have a clear limit here but is there also some impact of competition on your service side so that you said well We've had to increase the offering it gives to founders, get more founder focused, get better in this. And is there any strength you want to add over the next years for VF in this matter?

Yeah, no, like it's it comes back to, and it's an interesting question. And we do think about this a lot, as in one of our goals is to be the number one investor for the companies that we invest in. We obviously need to take care of our capital, which is our shareholders, take care of our companies. but if we are a top-ranked investor in their MPS or their scoring internally, you know, we will have a good brand and reputation in that market, be that Brazil, be that Mexico, be that India, and that will roll on to us getting invited to other great assets potentially to invest in. So I think first and foremost, you need to be supportive as a shareholder.

We've lent that over time. You need to work with these companies in good times and bad. You need to provide capital and be a good supportive shareholder and tell them what you think at the same time. I think that's key. I think from our side, where our strength is, as I said, in numbers and forecasting and modeling, especially at early stage companies. We stress Estahela, their budgets and their models. We help them prepare for fundraising. We're very strong in capital raising, be that debt and equity. So we're kind of like an internal consultant or an internal investment bank for these companies. We don't overplay our hand. There's other funds that we,

you know, partner with, which are very strong in different areas. The likes of QED, the X Capital One guys, These are very strong in data and asset quality. And the guys are Kazakh in Latin America. They're ex Mercado Libre guys. They're great in scaling unique economics. You know, they have real strengths in having built businesses from the ground up in that continent. I guess if everybody brings their core skill sets to the table and a general wisdom set, then it benefits the company and the founders in their journey.

So, you know, we play to our strengths. We could add, you know, what have we got inside a team? It is a team of basically fundamental analysts and investors. And we could add founders to that, some skill set around that. And we haven't gone there yet. So, but it's possible. What are the borders in your founder focused nest? So what are examples where you said you got some in cry with, but you finally said, we can't help you?

So a founder comes to us and asks for help in a specific area. And we go, no. Is that the question? Or like, say, this is. something we can't do. We would love to help you, but we don't have the capability to help you. So what are the limits here? Exactly. Look, I guess there's an element of we shouldn't be telling companies how to run their business. We're the investors. We're investing in people who should have an idea how to run their business. We're going, we should be the sounding

board, the strategy. We should be the stress test, not looking to trip them up. And we've got investors like that where I was in the US last week and we sat in room with investors for an hour for two hours, people like Fidelity, people like ruined, kind of. And they were stress testing us, being, you know, slightly pushy, but it was for the benefit of us. So we'd walk away from that meeting and think and think twice about our strategy, what we're doing and aspects of us that they would benefit as shareholders. So I love doing that then with my companies, just, you know, softly pushing them around a bit so that they rethink everything that they're going to do next, which they think they might have dug into.

But as areas like skill sets, we will definitely, you know, liaise with outside experts in tech and credit quality and connect people outside of our, you know, our own company. But, you know, skill sets and people that we know into our portfolio companies, we don't have that skill set. We'll never just give a hard no and go, no, we can't help there. It's always got to be some caveat of let's see how we can help. And where do you see your strengths in helping companies?

You already mentioned that a bit. in reference to founding rounds and helping companies to access more money? Yeah, no, look, we do a lot of work on that area. I think it's important. I think, you know, capital raising is key. It's key for the success of a private company. You can have a great company or strategy and numbers, and if the founder or founding team haven't got the skills to raise capital.

And there are some soft and hard skills embedded in that, but it can be trained. So we work very closely with these companies to get their pitch write and their presentation rights to be presenting the right story in the right way and that's a key area i think we focus on and in introductions to anybody in our ecosystem and they're warm introductions because we wouldn't be introducing a company if we didn't rate it ourselves and putting our own capital to work in it so i think that's kind of a a forte for what we do so coming again back to the idea of competition and what had the increased competition and increased demand for great companies has led to higher shares of passes for you either because the company said we don't

want you or the valuation was too high for you how did the share of passings develop over the last time yeah now it's um it's definitely grown it was definitely probably our peak year in 2021 on that front but you know maybe it's worth pulling back to the fact that we probably convert one percent of the deals that hit our funnel so last year we looked at over 300 deals and as a team and that's from a first call right through to full due diligence and sometimes things hit our you know our process and it's a 30 minute call and that's it's logged in the system and we move on but to answer your question last year we did three deals I believe and we lost three deals because of valuation as in we wanted to invest

we were ready to hand the term sheet or did hand the term sheet and somebody else turned up with evaluation higher, in one instance, twice as high. And in that, in that instance, all you do is you call the founder and say, congratulations, you know, good for you. You've got a bigger check from, you know, arguably a bigger fund, a bigger valuation, less dilution. You know, we were here to invest on unreasonable terms, but, you know, congratulations and there's no disrespect and it's all good. So I'd say 50% of the time last year. And before that, seldom. Very seldom it happened to us, you know, in 2017 through 2020, but 2021 was definitely busy on that front in terms of getting refused, Tillman, yes, at the door.

What are the other reasons dealing the end stage besides valuation didn't go through? Yeah, look, if we get to that stage, it's because we've done everything on our side from a DD and numbers and, you know, point of view that we want to do it. Legals is obviously an area, a key area that can stop a deal happening. and to be quite honest, you know, our chief counsel can veto any deal that we're doing based on legals in terms of terms. Because obviously last year and the last 18 months, as well as valuations and, you know, competition going up, you know, because of the hotter companies, then the terms start to get looser for the investors. So you're getting, you know, a smaller stake for a bigger

check. You're getting less legal rights. All these things start to loosen up at the top end of the cycle. But we haven't had it yet, but our chief council can very much step in and say, we're not doing this deal because the rights that we're getting here are not comfortable for us as a company and for our shareholders and the capital that we represent. So, you know, it doesn't get there. You just valuation, but legales can be another thing that just stops it at the last stage. You know this chart very well. I'm about to find out. It's loading. It's the NAV price chart.

And it's not the latest numbers. Yes. We have here because like your share price is bit down more and the discounted and NAB has even widened from here. So this chat in mind, let me maybe ask a personal question. What does this do you in a personal level? You do a lot of hard work, a lot of travel and so forth. But things run against you for a while on this market.

And as an investor myself, I know it feels a bit powerless in this. this period of times you do your work you reposition yourself but it's like the results yeah don't look that good how are you coping with this powerlessness and maybe a frustration anger that comes up on a personal level what are your hacks to to stay focused and stay aggressive and don't lose the left for the game no no it's um fair question actually i am i don't get i'm very unemotional about share prices. It's a chart. It's a number. It's a data point. If you get into day watching of share prices and your own share price, you will go mad. I think I learned long ago that the macro overrides the micro every time. So if Russia invades Ukraine and if growth stocks are

out of favor, and if the US, if the SMP or NASDAQ is falling, who am I? or VEF share price to get in the way of that, it's going to happen. I look at our history over seven years and what we've achieved and what we've created and the position that we're in today, I look forward and I get more excited about dislocations and opportunities to compound value from here once we defend, you know, and get everything on the front foot as is key. And, you know, I kind of fully understand, we're all learning, but, you know, markets are, for us, they're a higher beta representation of our NAB per share. So our NAB per share may go gradually and generally up onto the right,

but we see the share price, you know, bounce around aggressively, as it does. Markets are efficient, sometimes overly so. They overshoot on the way up as we go to a premium. They overshoot on the way down as you go to a deep discount. Yeah, I, you know, I respect markets, I watch markets. they obviously impact us as a company or valuation when we can raise capital what do we buy back etc um opportunities arise from that but no it's not i don't get disheartened um i get out there like i did last week and i meet investors i hold their hand i tell them what's going on um i meet new

investors and i warm them up for the next time and we just keep on working we we communicate we do things like this we get out in front of investors we don't hide um and over time that will all take care of itself. A lot of the next questions are a bit in the core the concern of some investors who are public investors, that there's a disconnection that that's I'm coming from the private markets and the valuations we see in the public markets. And the end, private market valuations will go down to the public market valuations. And for you, it is an important exit way to get money in where the public market again. So maybe what do you think? think it's more true. With the current discount to NAV, Mr. Market is telling you that the IP

of creditors, I think it's scheduled for 2023, but correct me if I'm wrong here, will end in a down round if they go public or Mr. Market is currently depressed and valuation should recover the next three years to the levels you are shown with your NAF. What do you think is more true or is there anything in between? Look, I think the first points. So dislocations between public and private markets or vice versa. Well, what are we? You know, we are a listed entity. So we have a share price. Who are our shareholders? Fidelity, Wellington, Rebico, Robur. As private market investors, we are as connected to the public markets as can be. So we're not a Sequoia or Excel or big, you know, venture capital, private equity house.

And that's no offense to them either. But we are very connected to public markets. And my history And most of the team's history is in public markets. So we've got a great understanding, respect, and we're always learning for public markets. So we don't live in a private market bubble where we believe that private companies should trade at 10 times what their public period should trade at. We know there's a connect there. And we know when you're exiting, if you are exiting via IPO, private markets meet public markets and reality kicks in eventually. So you always need to keep that in hand. And that's how we value companies on an ongoing basis.

So that's just one aspect, saying it from a general point of view. then there's our NAV and our NAV is made up of our portfolio companies and the valuation that we hold those companies at. And, you know, we've got to respect the fact that share prices have fallen in global markets. And then there's within that there's certain country share prices and there's certain sectors that are key peers for the companies that we invest in. But what I've been talking to investors about is it's one aspect to a valuation in a company like ours. We have underlying forecasts and performance of our companies, growth. of those numbers. We have local currencies. Translating that back into dollar. So we take something like credit tasks and that's key to talk about because it is our biggest asset. They did raise money

in Q4 of last year and we did put capital to work in that. And one of our big investors, Fidelity led that round. And they are public, public into private. They've got their finger on the pulse. Wellington, who are also an investor in us. It took part in that round. They're public. So there's lots of public, private crossover people knocking around the creditas tables. So there's not an ignorance of private markets. And then you look at some of the periods and the share price fall off year to date versus, say, creditas. And maybe they fall in 20%, maybe someone fall in 40 to 50%. But then I look at creditas's numbers and they've grown 20% plus quarter on quarter in Q1.

So the underlying growth in the story is supernatural versus peers. Then I look at the Brazilian Real versus the US dollar. And that's nearly strengthened 20% quarter and quarter in Q1. So you've got these conflicting factors as opposed to, you know, I see a share price of PayPal or square. It's fallen 30%, i.e. your credit house position is worth less. So, you know, I guess that's what we talk to investors about. And we're very specific on each company that we look at.

They're individual forecast and performance, the currency, tailwinds or headwinds, and in the peer group, whether it's marked a model or marked to the last investment round. And I guess what we've proven in the past, Stilman is on the way down and the way up, we're very quick to change our evaluation marks. And in line with our auditors, our PWC, our auditors, we have an audit committee inside. Every quarter we sit down with them, we justify our evaluations. And we wouldn't put out a nav if we didn't believe in it. So our nav, so you've got our Q1 numbers coming, and that will be a fresh nav.

And there will be some implications in that nav. But those implications are more specific to what's happened in Russia and Ukraine, because we've got a Russian asset, we've got exposure to the region. and they will be impacted i.e. you put a zero on them when you work a way back. It's a small part of our portfolio and we're very public and communicating that. But in other parts, you know,

we've seen some benefits of the ripple effects from the regional conflict and I think Brazil is one of those positive ripple effects on what we've seen in the currency. Some investors also feared and brought the questions looking at what Tiger Global did with the down rounds.

Do you see any risk of this for you in a substantial way? or how do you observe this down rounds that are happening? It's going to happen. I don't mean it's going to happen in our portfolio, but it's going to happen across the board. I think what you've had is you've had exuberant private markets for a very long period.

And all kinds of companies have benefited from that. Weak companies, average companies and great companies, and valuations have benefited from that. And now we're going into a period where capital is, I won't say totally risk off, but more risk off on both sides of the defence. and we're seeing that in later stage rounds already and people are going to pay less for companies

if they do pay we're going to see companies failing that's going to happen we're going to see down rounds down rounds could be a good outcome for some companies versus failing and then as always we're going to see quality it's been like buying a house the quality house still gets the most bids and the premium pricing so I think what's key for us is that we we think and we believe we've paid the right price at the right time for these companies when we did pay for them.

They've been growing since and mainly were heavy in Brazil, as we said, but also Mexico and India, which is good kind of real estate in emerging markets right now, given all what's going on. None of our big companies need to raise money this year, so they're not going to get involved in markets. And, you know, we've raised a lot of money for creditors, Confio, Dumo, TransferGo, Just Pay. Oh, our top five, six companies have all raised significant amounts of capital last year. Don't need to touch these markets this year.

and then we'll see what happens as we roll into next year. And all will be growing up very healthy clips this year, given all we've seen so far. So, you know, as we stand here today, I'm very comfortable with our nav. I don't see the issues in our portfolio. But this is a crisis, Tillman, you know, and these crises have legs and they have ripple effects.

So you kind of size what happens in Russia, Ukraine, in the region. Then you get the ripple effects into macro from food and commodity price inflation, positives and negatives. Globally, we're going to see a slowdown, all eyes on the US, what happens next on interest rate policy and that ripples through everything else.

So very much, it'll be a quarter on quarter NAV evolution and watching that space. And there'll be micro-level companies as opposed to sweeping general statements. They know everybody needs to cut their naves or every, it'll be like a specific company somewhere. But then you get beneficiaries, you know, as well.

And the other side, we can't negate the tailwind of the currency in Brazil. We can't negate the tailwind we're seen with Rupeak and gold prices in India or with transfer go, which is a remittance company for migrants in Europe. And all of a sudden we've got the mother of all migrant moves in Europe because of what's happened to Ukraine. So I'm not talking with benefits from war, but it's very clear their business is and will benefit. So, you know, we'd be looking at everything on a micro level. But it's defense first at this point. You make sure everything is shored up, make sure everything is well funded. And then NAV then kicks in in

evaluation. If you already get this topic, maybe it's try to take a look on the macro impacts on certain companies. You already told some stories, what other stories are interesting to hear for shareholders? Yeah, look, it's everybody gets the, you know, the macro playbook out and there's some great economists out there. And there's some countries that are just, you know, built for these kind of windows. They got great, very strong balance sheets.

They're commodity or food producers. And I guess we're quite lucky to have over 50% or nearly. 60% of our NAV in Brazil, we just had two more deals in Brazil this year. So we're very heavy in Brazil. And we didn't do it for macro reasons, but obviously macro is helping them right now and helping us. Then you look at places like Pakistan and Egypt. We're in Pakistan. We're not in Egypt. And both of those countries have weak balance sheets. They are going to see, you know, pressure on the current accounts. They're going to see or need help from external parties, be at the IMF or bigger, wealthier nations. They'll probably see their

currency and devalue to a certain degree. And that puts pressure on those local countries and I'll keep capital away in big amounts for a period. So, you know, it's a real country by country approach. I think Mexico is somewhere in between. I think India looks good geopolitically and has a stronger balance you than I ever had. So I'm actually quite happy given where our portfolio is today. And I guess we looked back five years ago, we were very heavy in Russia. That's where you don't want to be long today. And we've exited that. We made good money for investors and we re-deploy that capital into different geographies. But, you know, that's a different story.

But, yeah, I'm quite comfortable from a macro geopolitical thesis of where our portfolio is placed. Maybe you can tell us a bit more about the impacts you see on Brazil and why it is a positive for the country, the current situation. Or, yeah, in that positive? Yeah, let's not get too carried away. I'm not saying, you know, I'm living in dreamland and Brazil is going to, you know, go to the moon while the world fall apart, there will be a global macro slowdown as a result of what's happening. The ripple effects will happen everywhere. We've seen inflation pick up even in Brazil and now interest rates through double digit levels. So, you know, I see it on a micro level through

credit tasks where it grew its loan book 3X last year in 2021. That's public information. You know, will we grow 50% to, you know, to 100% this year. That's more reasonable in an environment like this for a story like that. So, you know, it's not the year for, everybody to go gung-ho on growth. It's a year for a little bit more conservatism, I think, across the board, while still seeing solid growth in most companies. But I think Brazil, it is food, it is commodities, oil, gas, etc. That's obviously key for Brazil's exports. That's feeding true to a stronger currency, as well as the high interest rates and the industry trade versus the US. And that's a nice, very nice tailwind when you've got assets in Brazil, which are 100%

Brazilian real and you're investing with hard currency you don't expect it you're not forecasting that's not what you're looking for from a micro level company you're looking for them

to compound and win their space and to exit but if you get tailwinds along the way especially when there's a lot of stress in the world you take it interesting

insight into Brazil do you play an instrument music I'm I do not play an instrument I would have tried guitar over the years, but I failed miserably. So no, I don't play music. Then maybe let's do it with the keyboard picture or the keyboard metaphor then. So if over the last years, I think last two years, you saw a bit more playing on the instrument set or the keyboard set of capital allocation and capital races.

And now with the bond, you've made something. Maybe walk us a bit through what do you think about capital allocation, this. since capital races, also in this environment with the high discount to NAV. Yep. No, it's fair. Look, I think we've done over the seven years that we've been existing, we've done a little bit of everything in terms of, you know, on the capital front, we started off with a rights issue.

Then we had an exit from a public company, which is Tinkoff, we had an exit from a private company, what was the Easyco. We've done two directed placements. and now we have issued a bond, our first bond, and a social bond for a sustainable finance. So, you know, a very key kind of marker on our ESG funding. So, you know, we've kind of stretched our wings in terms of how we attract capital into VF and we're very grateful for the various pockets of capital that have come our way. And we did a bond this time specifically because of what you said, Tillman, because of where

a share price is trading. It's trading at a deep discount to NAV. And it's the window where you be buying back your share is not the window where you'd be issuing your shares. And we're very aware of that, hence the bond framework was there for us and the capital support was there. And we were low on capital, you know, after Q1. We ended 2021 with $62 million of cash capital. And following investments, we were below $30 million at the end of Q1. So we needed to replenish that capital and just be in a stronger capital position given what's coming down or what potentially is coming down the path in terms of either risks and headwinds and you

going to be able to support your companies or opportunities because of those risks and headwinds and new companies and hence we wanted to replenish. What I would say is we will probably raise more capital in the future and that will be a function of our share price and would it be a rights issue, would it be a directed placement we'll see and we're very open to boat. We touched on credit us earlier and I actually didn't answer your question about IPO and exit. It's still a company that wants to IPO. It will be IPO ready this year. They're very clear and communicating that to the market. But, you know, will the markets be ready for them this year? Probably not. Well, more likely no than yes. So it's a 2023 playbook. And that's where we can see

more capital potentially coming in where it's a name we'd like to keep for longer, given everything we know about the company, but it's also potential for us to take some capital off the table. And we'll see when that journey comes around. So I think exits, equity placements are still very much on the table. The bond gives us nice breeding room and capital comfort. And then, has obviously the potential to buy back our stock. It's something we can't do right now, unfortunately, because of our Swedish holding company and the fact that we're listed on NASDAQ First North,

which is a secondary exchange in Sweden. But the important thing for us and for our shareholders is we're moving to the main board. So we'll be on the main Swedish stock exchange is the plan. Everything goes according to the plan in the next three to six months. And that will, there's lots of positives within that, but also within that we're allowed to buy back our stock again. What are the other positives?

that are coming from this relisting? Well, A, we're on an unregulated exchange. So even though we act and, you know, and operate like a regulated entity, given our shareholder base and what we do, officially run an unregulated exchange, and that keeps certain pockets of capital away from your share. You move to the main board.

It means you're open for all pockets of capital globally. We like that. It takes away some of the minimum thresholds of people can hold in your stock because you've been regulated. And it also comes with more fund flows and more eyeballs from retail and tracker funds, etc. So it just means effectively you grow up as a company. You're on the main board and you've access all areas for capital as opposed to certain areas. You already mentioned cash.

So maybe how do you think about cash inside of VEF? Is it something you want to hold to a certain extent to be able to be aggressive and volatile faces? Or is it like Dave has a telephone in his hand and he's always able to. to call some of the core shareholders and say maybe we need you to via a bond or a capital raise to give us cash to be more aggressive in this phases. How is it going there

with cash? The magic phone. Make some calls. Get some capital. Look, it's a balance. So we would like to be light on capital and then just call capital as in when we need it, i.e. by equity or via debt. But the realities of the situation is you are a slave somewhat to market. And when markets are poor like they are now, your share price trades down like it does.

And it's more difficult because your shareholders are also having difficult times and they're seeing lots of opportunities to deploy capital or maybe they're playing the fence as well. It's a bit perverse when times are good and everything's fully valued. There's more capital on the table to play with. So I guess the way we think about it is we like to keep enough capital to be strategically flexible in what we do, but not too much capital that we're going to hurt overall performance. but there's a bit of give and take in that tussle. I think we got too low in capital in Q1.

I think now after the bond sitting on 70 to $80 million of capital or cash capital and about 10% of our NAV, it's a good place to be both, you know, for downside protection, upside flexibility and not too much drag on performance. So I'd kind of like to keep it, give or take in the 5% to 10%, closer to 10% would be comfortable from my side.

That's an interesting insight. Let us move on a bit and look. at your core portfolio holdings and i want to a bit focus now on creditors and confio maybe you can walk us a bit through the investment thesis behind these companies what value do these companies add to the customers why and why are they growing so strong okay look let's start with credit us our baby it is over half of our nab and if you want to know about vef you want to know about credit us and if you like it you go a long way to liken us And it is a special and unique company in that what they do in Brazil, which is a scale market, is they provide secured consumer lending.

So Brazil is a very large consumer loan market. It's about a $500 billion existing loan market today. So it's not like it's one of these emerging markets with future potential growth. It actually exists. The problem is a lot of that lending is unsecured lending. It's credit card. It's overdrafts. It's personal loans.

so it's it's high rate short duration loans to individuals in Brazil where you know a lot of these rates can be as high as triple digit annual or double digit monthly rates so it's a you know what credit us then does is it provides a better product market fit is providing a secured product secured against your home or your car or your payroll and once it's security or collateral against it they can charge you a lower rate than the banks do on average and a better duration you can get a longer duration on more fit for purpose so I think I started with that It's not that the banks can't do this product or don't do this product. They just don't push this product because their core unsecured loans are much more monetizable, better union economics for the banks.

So credit has pushed this product. It's a product that exists in Western Europe and the US and it's very deep and rich, but they were kind of pioneers of it in the Brazilian market. And they've been doing it for over 10 years now. And because of the size of the addressable market, they've just been compounding from a $50 million loan book to 100 to 200. you know as of today it's an $800 million loan book so this is as of year end at 21 and this is public information um and the way they built this business is they funded all off balance sheet so it's it's an off balance sheet funded model locally all local currency all matched and into a scale market with a great product market fit with supernatural unit economics and they've proven they can scale

scale the team scale the products scale the volumes and what's happened then over the last 12 to 18 months as they've gone through each of those ecosystems, home, auto and payroll or work, they started to roll out more products, whether it's insurance, you know, in payroll, into benefits, auto, I say insurance without auto eye buyer. So, you know, you're getting different product suites into that core relationship and doing partnerships with some of the big entities in the fintech scene in Brazil like Newbank as they cross all their products into their client base. So it's been a very exciting journey where they're really delivering on a size.

scale opportunity, which is the core. That's got lots of room to compound. And going back to my earlier point, you can forecast the compounding nature of that as they have the capital, the funding, the product, the product market fits. And they're just improving incrementally as they go. And it's a very strong team. And then they're expanding, you know, broadening and deepening the tam as they go. So that's what, you know, the more time we spend on credit tests, the more we like it. Hence, we've given them more and more capital over four rounds from Series C when we first invested back in 2017, you know,

right up to their series F, which was done in Q4 last year. And hence it's a, yeah, it's very hard to find a story like creditas, like a tinkoff for us in the past or an easy co. And when you do find them, you get closer to them, you sit on the board,

you see what's happening. You have an inside track. You just get as much capital as possible and enjoy the ride. And maybe you can also explain a bit more on Confio. Like what do value do they add for the customer Whereas why could they grow so strongly? Yeah, no, it's fair.

Look, different. It's Mexico versus Brazilian stories talked about. But still a scale market. There's 130 million people. But where do Confio focus? They focus on small businesses versus credit tasks on the consumer side. And what you've got in Mexico and what we like the small business space in Mexico is because the seven million small businesses in Mexico and the banks just don't service them.

So this is more about financial inclusion and underprivacy. penetration, then the banks treating them badly or having too high prices. So if you are a big corporate in Mexico or a rich or middle income individual, the banks will take care of you. So it's very good banking for the top end. Then at the very bottom end, there's kind of microfinance or do-gooder institutions. So there's a lot of kind of focus on that. But in the middle, small businesses, and you obviously tell me, you're from Germany, which is the home of the small business, there's just no small business banking going on. And we're talking credit, for one, We're talking payments. We're talking software for management information systems. We're talking just basic banking products. So Confio started once again like credit house maybe 10 years ago. Focusing on credit, working capital for small businesses. It built out that product. It was rolling, it scaling it, still scaling it today. And then it moved to product number two, which was ERP, you know, zero model or into a quick books for small businesses. Then the third product, they made an acquisition last year in payments like merchant acquiring, like the square model.

in the U.S. or Izzettel or sum up in Europe. And now it's applying for a banking license. So effectively it'll be a digital bank or a full suite of services for the Mexican small business. And that's what they've been building in. The interesting thing is we actually, we're shareholders in Confio

with much of the same shareholders we are in Creditas. The two founders know each other very well. So there's a lot of kind of cross-pollination and ideas sharing in those two markets and those two businesses. I'd say Confio is probably running. about 18 months behind Creditas, not a negative, but just in terms of size and shape and stage of its journey, whereas Creditas is, you know, IPO ready or thereabouts. You know, Confio's a little bit behind, just given its traction and its type of journey versus what Creditas is.

Very interesting. Let's do some more deep dive on creditors. So what can shareholders expect from the corporation with New Bank that recently was announced? And maybe you can also explain what NewBank does for people who don't know NewBank in Brazil. Hey, Tillman here. I'm sure you're curious about the answer to this question, but this answer is exclusive to the members of my community Good Investing Plus. Good Investing Plus is a place where we help each other to get better as investor day by day. If you are an ambitious, long-term-oriented investor that likes to share, please apply for Good Investing Plus. Just go to good minus

Investing.net slash plus. You can also find this link into show notes. I'm waiting for your application. And without further ado, let's go back to the conversation. In your presentation, you disclosed some key metrics for creditors. Maybe let's take a look at them and maybe help me to understand he the revenue side and the net income side of creditors. Maybe let's begin with the dummy question.

why is the net income for creditors like the loss is growing year over year over year and how should I understand this loss it's a dummy question but yeah no you don't want to extrapolate that look what you guys you got a company in fast growth mode and you know top right chart is the revenue and this is all public information so this is their quarterly revenue and this is all in local currency so this is Brazilian real divide by five give or take to get your dollars. So it's a company that's very much growing on the origination side, on the left-hand side and on the revenue side. Its unit economics are strong, such that, you know, on a contribution margin level, they're profitable. And where they are break-even before

effectively customer acquisition and expansion. So where those losses have been racked up, it's effectively a function of them aggressively expanding. There's been a whole new raft of M&A and expanding into new countries like Mexico, and mainly it's the customer acquisition spend, where they're spending incremental dollars to bring customers through the door. Now, every customer at credit as a paying customer, so once they come through the door and they spend money to acquire that customer, that customer becomes a one year, two year, five-year customer on a revenue product on a secured loan. What we've done in the past, and you see kind of blips of positivity in that kind of

negative chart for net income is where they stopped. they say let's stop acquiring and what it shows is the core business is profitable and that's you know it's this is all spend for future growth and what you're going to see starting to happen through 2022 is that chart to start to tear up and because we're moving towards IPO the growth will be less you know the machine is scaled now as to say 800 million dollars in q4 of of loan book which is paying and its fees being paid on top of it up so you're going to start to see the trend going back up and to the right towards that kind of break-even point because the markets want, and they should want, a company that's not only strong, growing with a big addressable

market, but also one which is a path towards profitability from here. And credit us at its core is you an economic positive, but it's that expansion and that's kind of customer acquisition, which is a reason for the burn. What are the key costs in this customer acquisition? Like, where does creditors spend the money towards and how efficient? are they in your eyes? The good thing is they're getting more and more efficient. So the direction of travel on customer acquisition is improving, quarter on quarter almost for the last, I don't know, 12, 16 quarters.

It just continues to trend down in terms of what they pay for a customer. I won't get too much into the specifics of the numbers, but if they're lending $100, you know, they will be taking 30% on average of that. as interest income over one, two, three, five years. So 30% a year off the top from that. You know, what they pay up front to acquire that customer can be 10%, can be 20% of that loan value. So upfront is a very meaty amount of customer acquisition costs to pay, but then over the

life of the loan, you more than get that back in the return and the capital return is very high. So hence you have the upfront customer acquisition costs that are quite high, but they're getting more and more efficient as they grow. And how do they make sure that the loan doesn't default over time and like they have the right customers? They have the right customers, A, and B, they have the right collateral. I think B is more important than A. And that's the beauty of collateral lending.

And because if you lend to, if I lend to you, Tillman, and I give you $10,000 and I hope you pay me back because I score you because I've got a good credit history. but if I give you $10,000 and you collateralize it against your home, which is worth $500,000 and if you don't pay me, I can take your house. It's very likely you pay me. So the collateral is important. Okay. And maybe another dummy question. If you could look at the recurring revenue and upfront revenue chart above the net income,

can you explain the term recurrence? in this sense and up front? Yeah, look, there's fees and there's interest income for credit tasks, especially on the credit products. So the upfront fees that they get off customers for underwriting the loan, you know, are upfront. And also the funding structures that they fund off balance sheet, they actually get paid for sourcing the loan and securitizing them. So there's a lot of fees that come up front. And then there is life of the loan where they're getting interest income, you know, over the one, two, three, five year period. So it's that mix. But what I would

say this is all Brazilian gap and local accounting standards not to get too boring. We'll move to IFRS and there'll be a different accounting treatments of all these things and we're going to evolve that way as we move towards IPO. But I guess the way IFRS goes is you get more conservative at most things. You take provisions up front. You take fees over the life of the loan. And so it'll all be morphed and merged a bit as we go. This episode is also a bit of about fears of investors and you already mentioned Tinkov in our conversation. And if you look at, this was one's the largest holding, I think. And if you look at the share price of Tinko, which is a great company,

they went from $90 to $3 at the moment due to the Russian invasion. And if you think about like the willingness in the emerging markets to underwrite like a huge concentration you have with creditors, is this what you've observed now with Tinkov a bit challenging your mind there? and let you rethink sizing about a certain threshold? Simple answer, no. And we're not here to, we're not reckless with investor capital, but we're not calling global geopolitics or, you know, that's not our mandate.

Russia is special in that regard. Russia has a tendency to go to zero every so often. some way it has a tendency to you know i've seen it so many times so many crises in russia this one is different you know they're all different but as a has a darker edge to it and we all know that i'm very aware of and the ethics are are pretty negative there but think off is a phenomenal asset and a phenomenal business arguably one of the best if not the best digital bank or fintech in emerging markets nothing that russia's done has changed that fact it was built by a entrepreneur not an oligarch, built from scratch with a very strong team, loyal, hardworking, skilled

who have been with them through the journey, revenue first, economic first, profitable first. Nothing's perfect, but they are as close to perfect as you get in the EM FinTech world. And what's happened to them is a function obviously of what's happened on the warfront and with Putin and the invasion in Ukraine. And you said it's trading at $3 a share, but it's trading at $3 a share and not trading, so it might as well be worth nothing, albeit it is very much. much a going concern. So what does that say to me? These things can happen. Of course, they can. They're more likely to happen in certain emerging markets, i.e. Russia than others. We don't mind

concentration, though. I'm very happy with our creditors concentration for all the reasons that I said. But there will be a time when, you know, we'll be out of that and something else will be concentrated. And we're heavy Russia in the past and we're heavy Turkey. Today, we're heavy Brazil. We're looking at India, three investments in growing. We're looking at doing our first investment in Indonesia and so we keep on evolving as we go and as we grow. But yes, we have to be very aware of what happened Russia and we did a lot of soul searching after we exited Tinkoff, effectively at $17 a share and watched a go to, as you said, $100. And we asked ourselves, you know, did we miss a trick? You know, we knew the company well, arguably best. We were on the inside.

It was compounding. And we left a lot of money in the table. But now it's worth nothing and we look clever um so yeah the truth somewhere between are there any other lessons you've taken or learnings you've taken from this impact of the russian invasion to ukraine and what has happened there for your investment style and your approach you have some impacts in the portfolio you can also explain them if you want but it's more about the lessons and if you've changed anything in your process and thinking yeah um to be honest no um and i'm not saying we know everything or we're not learning we're learning lots always it's um it's an intro i've looked i've been around a lot of russian and russian related crises in my life um

and it's the first time it's happening and i'm not brutally exposed to it so we have a very small exposure revo by now pay later company in russia very good company growing profitable but it lives in a parallel universe right now and we'll see where that universe goes um so we're you know we're very able to size, shape our exposure to the region, very able to look through to the global aspects and ripple effects of that. But now lesson-wise, I don't think we're looking at this and taking anything away. If anything we're questioning, can we invest in Russia again? That's a question, ethically, fundamentally.

I think we sit on that one for a while because obviously with our structure, our long duration arguably there is an opportunity for us to put capital to work in Russia and maybe maybe not and these are questions that we're asking ourselves and asking our investment committee and talking with our shareholders so these are things we're thinking about but i don't think we've taken any real hard lessons from this so far and look to change anything that we do let's go back to confio and in your annual report you have written a quite interesting sentence. Confio now has all the pieces of the puzzle in place to grow into a multi-billion dollar company. So why is that? First of all, it's easier said than done. Second, you can have

all the pieces in play. You still need to execute. But why is that? I think it's a function of when we invested in Confio, it was a monoline. It was a single product company focusing on working capital to small businesses. And their promise to us when we did invest was that they would keep on focusing on that while adding in more product suite. And they have added in the payments. They've added in the ERP. They've added in hopefully soon, a full digital banking license for the company. And that means it can be the number one small business financial ecosystem in Mexico because they can offer everything to the small business in financial services. Now the key for them is execution. They need to take the sum of the parts and put them together and make it a very

valuable hole and that's their kind of so you know that's where we sit around as a board and as a management team and when they look to bring all those products together when they're talking to small businesses that they can offer the full offering so that's why it gets very exciting but this is where it gets a bit more this is where the work is done you know everybody likes to talk about acquisitions and raising capital and but sometimes your companies need to put the head down and really deliver and that's that's the wind that I'm here in right now looking at these two companies but also the other portfolio companies you invested in is there anything this has surprised you over the last year or are there any super interesting learnings you want

to share with us um like there's always learning so we keep on learning but specifics um i guess the importance of of strong founders is always key um and i keep on you know know, as much as companies and numbers, we talk about being analysts, founders make things happen. They make capital come through the door, to make good hires. So, you know, we keep on seeing that with some of our founders where they keep on, you know, impressing us on that front. And that's a key. So founder first, founder centric, get the right founders, then start thinking about everything else. And that's always the way. I think we talked about earlier, it's just not getting caught up in euphoria

of markets and pricing because as always it turns and it's turning again and it'll turn again and we'll get into a new cycle of fun I'm not saying we're the cleverest kids in the street and we knew this would happen

we were putting capital to work last year but we think we put it to use at good valuations but you know it's there and I guess the last thing companies are investors we've got some great investors and it's just great sitting down with the Fidelity's and the Wellingtons and guys at Ruin Conoff, who are one of our biggest

shareholders, and, you know, you talked about our share price falling and different negative aspects of any cycle like this, but, you know, this two shall pass. It always does. And you've got to be sitting there on the other side of this. So, you know, you play the fence first. You make sure you're strong, you're positioned. And then you start thinking about, you know, the opportunities, hence we raise money via the bond, putting more capital to work. So that, in terms, 12 months or 24 months or three years time, you look very good and clever about what you did in this window, as opposed to sitting back and worrying about your share price in the short term. So a quite easy question on your portfolio. What will be the next creditus in your portfolio?

The next creditas. Look, we talked about Confio already, but I think one to watch if you're a shareholder in VF is just pay in India. just because it's a it's a phenomenal company it really is very strong engineering product first team they got a great product market fits with their what they do on the payment space on mobile mobile first mobile only the partners that they have and that they're attracting and from a customer point of view from the ubers the amazons the olas they're letting their technology inside their app and they're compounding with these companies and, you know, doubling year on year and also

rolling out new products, which are higher, you know, economic. So we've got a team on the ground this week in India with them, sitting down, catching up on everything. You know, if I was a VF shareholder, obviously do your work on credit us in Confio. That's where the juice is today. And but next gen is Just Pay. And who will be the next Confio? you could probably go down to the earlier ones and the younger companies. Or which companies are you like where you say

that makes me bullish? Like it's hard to say it's like you have 15 kids and you love all your 15 kids but this kid has such a great talent. I know. I've got three kids and I've got favorites all the time. I'm not ashamed to say it.

But our newer investments it's hard to get away from the new ones. So you know Abby and I'm wearing Abby's t-shirt here, just back from Pakistan, you know, energized after spending a week in Pakistan with them. And they are a phenomenal company in a financial wellness space with a great founder. You know, we'll raise more capital and will compound a lot of value for us as shareholders. So I really liked that one. And then we did a deal in Brazil in Q1, a company called Gringo,

which is a car app, growing like a weed, great customer market or product market fit there, great unit economics and how they process payments for all aspects of, of a driver's needs in Brazil, be that fines, registration, certification, you know, it's kind of a hidden niche, but a scale niche at that. And we've got a couple of other interesting deals

coming down the pipe. So you can't help but getting excited too much about the new ones. It happens. But, you know, as an investor, I'd stay focused on credit tasks confio and just pay and then let the rest kind of season a bit and they'll come true nicely.

In market where you're just lying groundwork, I think. haven't announced any deal as Egypt. And you said in your report, you like a lot what you see in coming out of Egypt. What could you observe on the ground and why did you like it? Yeah, look, it's, you know, I hate to say like 100 million people. And you kind of hear people say in Pakistan, 200 million people, it's a very simplistic terminology. But it is a scale African or stroke Middle East market. So that gives you. And we like single country plays because that's where you get the most juice.

It's when companies cross borders, it can get more and more difficult. They have a nice tailwind from a regulatory point of view and government point of view, digitisation. So the direction of travel seems to be somewhat akin to what we've seen in markets like India or Brazil, albeit earlier stage. And we're getting a local ecosystem of venture capital funds,

seeding companies for seed in Series A. So we're starting to get the ecosystem, the capital, the regulation, the governance. and obviously the population is hungry for this. So that all feeds well. I think what's less well is just, you know, unlike Pakistan, where we've done two investments, about to do three. And we haven't yet found the company or the founder we want to back yet.

That can change very quickly, but it's a function of finding that before we put capital to work more than anything else. So, you know, I'd say we are open and happy to invest in Egypt. And we just need to find the right opportunity. what is your playbook to open such a market for you or if there's any playbook no there is a bit of a playbook and it kind of people ask us how can we sit here in in europe and do what we do but it it doesn't take a lot there's this internet there's this internet it is this internet but like we've got a reputation and a brand for em and fintech we've got relationships across the globe and the bc world we travel we hit the ground we learn the public side from the government from the macro row to the politics, to the listed companies, the banks, the telcos. In Egypt, there's a company called Fowary, which is kind of Fintech 1.0, you get inside that, you travel on the ground, you meet the local VCs, you meet the entrepreneurs.

And because there's so few people doing this, like us, it doesn't take a lot to become the global expert in Egyptian fintech. The competition is very small because not a lot of people dedicating a lot of resources or time to that, other than the locals or the regional guys. and then you become one of five, one of ten people looking in depth of that market having a resource with their finger on the pulse looking at that.

And then you find the founders that you like and the spaces that you like and you drill and you dig and you dig and then opportunities arise and you try and take them. Very interesting. For the end, I want to talk a bit about climate risks because you tend to concentrate on countries

that are close to the equator where you already have a lot of heat and humidity and you see impacts of climate change more stronger in my eyes. How are you thinking about climate risks with the investment process you're doing? Yeah, I don't get to ask that question every day, to be honest. From an ESG point of view, we're very, not that we're ignorant on E,

and obviously G is a given, given we're a listed entity in Sweden. We focus a lot on S and sustainable finance and financial inclusion and wellness. So that's kind of been our strength and hence the bond that we raised. From an environment point of view, obviously there's individual thoughts on that. But from an investor point of view, you know, we're not exactly investing in that, albeit we do have a very interesting deal done in the making. It was announced in our annual report. We haven't, you know, formally made a lot of noise about it where we're going to invest in a solar company,

which lends against solar panels just because of the climate aspects. of Brazil, specifically, and the opportunity in that space and the credit behind, you know, rolling out that product. So I'm not saying Tillman, we're ignorant of it. I wouldn't say we're overly focused. It's throwing up some opportunities and we need to take advantage of them. And we need to have a strong ESG playbook and watch our aspect of that. But, no, I haven't seen it come to the fore as issue number one in the countries that we focus on.

do you fear any like impacts of climate risk at a certain point on your portfolio that certain regions will have problems accessing capital markets migration as a topic maybe like migration as a topic is very real but you know i'm trying to get my head around where the world migration flows are going i think you know poor countries to rich countries is a bit simplistic and africa to europe and you know You know, that things are changing and evolving all the time. Mexico to the US, maybe it's going backwards within that. So migration flows based on climate as well. I think it's a global thing as opposed to an equator-based thing. And it's developed markets as well as emerging markets based around that, I think is everybody's issue. So I don't think it's a totally thing for the markets that we look at.

But as you say, some of them are front and center in that. They've probably got more priorities at their level, not saying they shouldn't. But, you know, in terms of poverty levels and getting everybody up to a certain level and standard and basic needs. But they need to be part of the global climate debate with the Western world as well. Yeah. The background I'm asking this question is also that I took a deeper dive into the climate topic and did also look at the countries around the equator and I think that we will see the biggest impacts on the next years. for instance in Brazil I'm personally like I find it like generally super interesting what you do with enabling people to participate in financial service which is for a Western person normal thing you go to a bank or you just like go online and get an account and everything is fine but a lot of the emerging countries have problems with the services and you do a lot and it's also the the reason why you could do the social bond but in the other side for instance if I think about Brazil Brazil has a lot of energy dependency on water because they have a lot of dams through the Amazonas.

Amazonas, with every degree of warming and every quarter degree of warming, it's getting dry and drier. So the question is where this water comes from for the energy productions. You have dependence on coffee production and exports, soya. It's also a question with jet stream's destabilizing. You had this, I think last year, snowfall coffee plants went, yeah, didn't copy coffee drop by 25% you have if you think about Egypt you have the Cairo and all the concentrated around the Neal River and if sea level rises

Alexandria I think I'm not 100% sure we'll have pressure you have India where you have these heat days that are so hot if you're standing in the shade yeah you have the risk to die you have you have gone down a rabbit hole haven't you told me yeah yeah It's nothing like, I'm a bit fascinated with this focus on emerging markets, how you can assess this risks. Because like what I personally worry and is that for certain regions at a certain point of time, people will say, I don't know enough and I can't land there anymore. Yeah. I know you've got these long-term climate risks are not the only ones and you've got short-term geopolitical risks. We talked about Russia, Ukraine, and then you've got political cycles in these countries.

We've just seen Imran Khan being ousted in Pakistan. We've got a Brazilian election. All these short-term folks is when, want you to be pulling back on the long-term issues that you talked about on the climate side, globally, collectively. So, you know, we can't be ignorant of it. I don't think it stops the capital flows today or the capital exits today. But it is very, we won't have to be cognizant of it and more and more as we go. but I do think on the energy side in Brazil and you do point to the water factor

is very key and that was part of our kind of thesis about investing in this solar lender because Brazil is made for solar like Australia is made for solar and I think 25% of Australian power comes from solar the penetration is pure there in Brazil

it's 2% and just the demographics and the aspects are very similar so that's where we're looking at a playbook on that which would be good from a climate point of view like just from an energy point of view but the climate side needs to be fixed too then thank you very much for interview

for the end is there anything you want to add we haven't discussed I can just wraping up Tillman I think we've touched on a lot of topics and one needs to be very realistic in the world that we live in today publics versus privates geopolitics geopolitics, ripple effects into macro

you know we've been here before and we'll be here again we're building something for the long term we're investing we think in great companies at true cycle valuation so when something like this happens we don't really get caught off guard but you know we think we think deep we work with our companies we get capital to work for the long term so it's just an air cycle and we're not being blaze or too relaxed about it but you know we're not freaked out by any means then thank you very much for your openness answering all the questions i had and thank you for the viewers staying to

now. Bye-bye. Super. Thank you, so much. Chao. As in every video, also here is the disclaimer. You can find a link to the disclaimer below in the show notes. The disclaimer says, always do your own work. What we're doing here is no recommendation and no advice. So please always do your own work.

Thank you very much.