Next up, it is my pleasure to welcome John Redett, Co-President and Head of Private Equity at Carlyle. John assumed his newly created role in January after serving as CFO and Head of Corporate Strategy. John's tenure as CFO was at a key moment for Carlyle. Harvey Schwartz had just taken over as CEO, and during John's tenure, FRE at Carlyle grew by more than 50%. FRE margins improved from the mid- to high 30% to the high 40%. Please help me welcome John Redett. Thank you.
Let us start out with a mark to market on private equity, if you do not mind, John. Carlyle's private equity business is its largest. It is a big part of the firm's heritage. It would be great to hear your updated thoughts on the state of the private equity business, what you have achieved in taking the helm of that business, and what are the big things that are on your to-do list. Of course, we would be remiss in not talking about monetizations, given how important that is.
All right. Brennan, thanks for having us. It is great to be here. We have a bird in the room, for what it is worth.
There are a few. Yeah.
So look, I think-
It's the hawk idea. It's thematically central.
So look, I think that is a question that probably is a very, very long answer, so I'll try to be reasonably brief. In terms of realizations, I think our teams have done an outstanding job. If you look at the industry, the industry is returning roughly 12% of NAV, which is meaningfully below historical levels. We, as a firm, globally, are closer to 18% of NAV, and in the U.S., we're north of 20%. So I think the teams have done an exceptional job of returning capital. And look, we're in a time period where a lot of LPs have not returned capital, or a lot of competitors have not returned capital to LPs, and that has created some problems for LPs allocating money to private equity. But our team has done an exceptional job.
And I think some of that is just really a reflection of how we run the business. We always build a very diversified portfolio. We don't like over-concentrations. And I think you've seen the industry really struggle with monetizations because of the over-concentration in software. I mean, in 2020, 2021, 50% of private equity deals were software. So, it's going to take some time for the industry to get unclogged on the software front. We never got overexposed to software, so our teams are not spending time with portfolio companies that have upside-down capital structures because they paid a huge price for back in 2020, 2021. So I think that's enabled our teams to realize more than the industry. In terms of the What gets me really excited is just the investment environment.
When I was CFO, I got heavily criticized because we were not all in on software, and needless to say, today, we do not get criticized. People are quite happy about that. If you think about where the opportunities are today, it is right in Carlyle's sweet spot. Defense. You cannot go anywhere in the globe without an LP wanting to talk about defense, more broadly, national security. What does that mean? Energy independence, supply chain resilience, cybersecurity, actual defense. Those are really important topics, and we are seeing tremendous opportunity in defense. Energy. We are one of the few firms that has an energy effort. We do brown energy. If you would have told me five years ago that I would be running around Europe and LPs wanted to talk about brown energy, I would not have believed you, but they want to talk about brown energy.
We are raising money for a global energy fund. Healthcare, financial services, industrials. We have done 90, more than 90 industrial carve-outs, and we are seeing an acceleration in carve-out activity in Europe, in the U.S., and we are really seeing a big acceleration in Japan. We have announced, I think, two carve-outs in Japan just this year. Look, I think there is a view among LPs that the current funds that are being raised will have some of the best returns LPs have seen in a long time. I am pretty excited about the opportunity, and I think our teams have just done an amazing job positioning the business for growth going forward.
Right. Some of the recent vintages, with no doubt, everybody is really excited about what is getting raised today. Performance in CP VII, you have described it publicly as not what you guys expect to be your finest moment. The public portion of the portfolio moves around, and that held back some of the performance recently. Rebounded quarter to date, right? We can all track the big ones, Medline and StandardAero. What are your updated expectations for that fund, and what are you thinking about for the likelihood of that getting into carry? It is early days for CP VIII, but that performance has been more encouraging. How do we think about those two vintages?
Yeah. CP VII, when you have been doing private equity for 40 years, you will have a fund that does not meet your expectations, and that, for us, is CP VII. I think the leadership in our U.S. buyout business has done a fantastic job getting CP VII to where it is, and I think we have a very clear path that we have explained, walked our LPs through where we think it will get to, and it seems absolutely doable. I think the LPs recognize that occasionally you are going to have a fund that is not your best, and that for us is CP VII. I feel good about where CP VII is heading. Again, it is not our finest piece of art, our work, whatever you want to call it. But I think most LPs have really focused more on VIII, and VIII is 75% invested. CP VIII is going to be a fantastic fund.
Typically, when you are 75% invested into a fund, you have one or two companies where you are like, "Oof, oh geez, I do not know about that." We do not have that in CP VIII, so I think it is going to be a great fund. When I talk to the large LPs, they get VII, they understand the path, the glide path we are on, but more importantly, they are really laser-like focused on VIII, and VIII looks like a great fund. I think we have done an exceptionally good job positioning the business for the current fundraise which we have launched. I think, you couple that with where the opportunities are in the world, it is kind of the old economy opportunity, and that is just where Carlyle has excelled for 40 years. I think the environment is reasonably attractive.
It is certainly, you guys are HALO heavy, so it certainly speaks to your strength. You cannot talk about VII and VIII without then talking about IX. You guys are out fundraising now. How is that experience been? I believe you guys indicated that you expect a close around year-end or early 2027. Any sense for the sizing of that?
Yeah, I have to be careful what I can say on that b ecause we are actually in the market fundraising. We will have a first close sometime this quarter or next quarter. It is really hard to nail down the exact date because it really is dictated by a couple of large LPs coming in, then other LPs come in. But feel very good about the fundraise prospects. I think the environment for private equity fundraising has gotten marginally more positive, as LPs see the enormous opportunity that we are seeing. But it is still not as easy as it was, say, five years ago.
Right. That segues perfectly into AlpInvest, because the solutions businesses are there, and they are facilitating some of this DPI. You guys had a structured solution for IX. You guys, earlier this year, the SPV was announced, Potomac, I believe it is called, utilized the CFO structure to cement $5 billion of commitments for IX in liquidity, provide some LPs in VII and VIII some DPI. What has been the response to that from LPs, and how significant do you expect that is going to be as a feature for the future?
Yeah, so the structured solution, it has been very positive from the LP community. It is one of those few situations where it is a win-win. It was a win for Carlyle. We earmarked $5 billion for our current U.S. buyout vintage. It also enabled some LPs to get liquidity in their portfolio. So, it was really a win-win. The response has been incredibly positive. I do think the technology will have some applicability to other situations, and we are thinking about that.
But this would not have been possible for Carlyle to do this transaction if we did not own AlpInvest. I think Harvey has done an exceptional job integrating AlpInvest into the fabric of Carlyle. The connectivity between private equity and AlpInvest has become seamless. I run the private equity business, but I spend a lot of time with the AlpInvest team. Their data and their market insights are immensely valuable, and they took a lead role in driving that structure, and it was a fantastic outcome . It had never been done before. Ve ry unique. I got a lot of calls from competitors asking how we did it, how does it work, and I think it's generated a lot of interest in the market.
I would love to drill into part of that. So, you talked about AlpInvest. It's definitely a unique business for Carlyle. I think it's one of the most interesting. I'd love to hear how AlpInvest and the integration of AlpInvest has changed in your time in being involved in private equity, and what the level of engagement is between those two teams.
Yeah, I mean, if you think about what AlpInvest does, they are really at the center of the private equity industry and how the private equity industry is evolving. When I was on the private equity side of the business, rightly or wrongly, there was just no connectivity with AlpInvest. Until I became CFO, I did not really fully understand how AlpInvest, what their products were, what their capabilities were. I was just blown away by just the data insights this business has in global private equity.
There is tremendous connectivity across the globe between AlpInvest and global private equity. They are immensely helpful as we think about a new fundraise. They are immensely helpful as we think about how we want to position the new fund in terms of how we are going to raise it. It was a wonderful acquisition for us. The organic growth in that business is amazing, and they continue to have immense tailwinds. You look at, most people talk about the equity side of the secondaries business.
No one really talks about the credit side of the business. The credit side of the business is, it is not even batting practice. I mean, it is early days. It roughly represents 1% of direct lending. I think the credit side of the business is going to have phenomenal growth over the next 5-10 years. It was a great acquisition, and integrating it into Carlyle was a very smart thing for us to do for the firm.
Yeah. It feels like that is really changed in the last few years when you think about the organization. Are there any examples that you can give about how that has manifested within Carlyle, the businesses working together? When we came in and you guys had your Investor Day earlier this year, getting a chance to sit down and have lunch and talk with some of the different businesses, they all echoed that idea. I am sure the examples are extensive. But maybe give a little sense of that.
Well, I think that structure we did for the private equity business, that would not have happened two years ago, three years ago. We just didn't have that kind of connectivity. But there's connectivity across the entire firm. You think about direct lending, it's very much GP relationships. What does AlpInvest have? Tremendous GP relationships. It's all over the firm, and I think there's still a material amount more we can do together with AlpInvest. But it's really just a solutions business, and the market insight and data that business has is just phenomenal. They have data on over 30,000 companies. It's really valuable.
Yeah. Fundraising. You guys have talked about $200 billion fundraising target over the next three years. I don't believe this is your term, but Harvey has called it a super cycle for fundraising.
Not my term.
Not your term. Fair enough. From the 3Q call, it sounded like it is about to get kicked off. You spoke to LP appetite. I assume that is around large cap buyout, but it would be great to hear you confirm that. How are you thinking about how the different geographies can contribute to that target?
Yeah, I have been at Carlyle for 20 years. I am not sure over that 20-year period I have seen a two-year period where we have this many material funds in the market. I guess it is a super fundraising cycle. In the U.S., we will have our current vintage of U.S. buyout. We are raising a defense industrial fund, which is the first for us. I think that will resonate with LPs. We have been doing defense for 40 years. That is what we started in. I do not think there is an LP in Europe or the U.S. that does not want exposure to defense. Our track record in defense is fantastic. That will be in the market. We are raising a global energy fund. Again, we are one of the few large global firms that does brown energy.
Whether you like it or not, brown energy is necessary, particularly in today's energy consumptive environment we are in. We are raising a new secondaries fund, which is in the market. We are raising an opportunistic credit fund, which we have had a first close on. Our Japan buyout business will be in the market at some point in the next 12 - 18 months. It is really, when you look at Carlyle and you look at all of our material funds of size and scale, they are all in the market in the next. Some of them are already in, and others will be in in 2027. 2027, 2028 is going to be a very busy fundraising cycle for Carlyle.
Yeah.
I feel very good about it. It's very diversified, which I like, and wealth is a component of that as well. We just launched a private equity wealth product about 12 months ago, 18 months ago, and it's really just starting to scale as we get on some of the wirehouses. Wealth will be a contributor to that as well.
That was the piece that I was going to drill into next. That's $40 billion of the $200 billion.
Yep.
You talked about CPEP. Could you talk a little bit more about wealth, what your expectations are? Where is CPEP on the journey? How many wires is it on?
Yep.
Where are you thinking about that?
I think, for whatever reason, when people were talking about wealth nine months ago, it was just up and to the right. Nothing in our business is up and to the right. But for some reason, that's how people had it pictured in their mind. We always knew it was going to be a journey with some bumps in the road, and we're at a point in that journey where there are some bumps in the road, particularly on the credit side.
Yeah.
It'll work itself out, because when you look at the underlying credit quality of these funds, it's still quite exceptional. We never thought it was going to be up and to the right. It will get there. It's going to be an enormous source of growth for the industry. The penetration of private market assets into individual accounts is de minimis. But again, we never thought it was going to play out overnight. I think this is a 15-year journey, and it's going to take time, but it's going to be an immensely important source of growth for us. We really have three businesses. We have AlpInvest, which is our solutions business. We have a private equity business, and we have a credit business. We launched our secondaries product a couple years ago. It's scaled really nicely. We launched our credit product seven years ago. That scaled.
We just recently launched our private equity product, which we call CPEP, and we just crossed $1 billion on that fund. It really just went live on the first wirehouse a couple months ago. When you look at the calendar, we go on more and more wirehouses in 2027 and 2028. I expect to see that scale nicely over the next couple of years. It's just more kind of a sequencing calendar issue with the wirehouses. The RIA channel also is going to be a big growth driver for CPEP, and we're starting to get on some of the bigger RIAs as well.
Yeah. That makes sense. When we think about the FRE margin expansion. When Harvey arrived, the margin was in the 37%, I want to say.
A couple years before that it was 22%.
There you go. The team has expanded. Now you guys are at a record 47%. Your 2028 target, I believe, is 50%+ . Can you speak to the sustainability of current levels and the big drivers of operating leverage as we move forward to 2028?
Yeah, I've always thought the firm should be able to operate at an FRE margin in kind of 50%, 50%+ . I never really wanted to get there through efficiencies, but rather through growth. I think you are going to see, as we move through this fundraising super cycle and we gather assets, you are going to see that margin just naturally expand as we raise more money. Because in our business, if you raise a previous fund was $5 billion and the next fund is $8 billion, you do not need more people.
You are just going to see naturally the operating leverage in the business with growth. I think getting to a better margin through more scale and more growth makes a lot of sense, but it is not an efficiency exercise. I do think there are things as a firm and as an industry you are going to see over the next five years in terms of automation that should, on the margin, enhance the FRE margin, but it is not going to be a meaningful driver. The real driver is going to be just growth.
Right. Europe. You guys have been pretty upfront in the issues that your buyout business faces in Europe. Could you give us an update on that? It sounds like there has been a lot of change, and I think that is something that might not be fully appreciated by investors. Where are you in that journey, and what has recently been some of the accomplishments?
Yeah, so Europe, we have had some challenges in Europe. When I became CFO, we immediately were focused on making some changes to our U.S. business, and then we moved on to Europe. We changed the leadership. The guy running that business is probably one of our best private equity investors, and he has restacked the team to where we have some newer talent coming in. Some actually used to work at Carlyle, they came back, some other people from competitors. I feel incredibly good about that business. I think we are probably 90% of the way through that transition. We just announced our first deal for our latest fund in Europe. I think the opportunity in Europe is very attractive.
I know a lot of people say, "Oh, Europe does not grow," but the pricing is attractive, and quite frankly, if you back out the AI CapEx in the United States, I am not sure the growth rates of the two geographies are all that different. But we see great opportunities in Europe. This defense fund we are raising, this defense and industrial fund we are raising, will be focused on the U.S.A. and Europe. You are going to see a lot of ability of that fund and our European business to work together. I think it just really is going to leverage areas where we have a proven right to win. But I feel very good with where the European business is. I have been very upfront when I was CFO that we will be investing out of a fund that is substantially smaller than the predecessor.
Right. You touched on the defense fund that you guys are now. I believe this is going to be a new series of funds for you, potentially. Could you talk about that? Could you talk about what you think that opportunity set looks like? I think the idea that defense is a theme here resonates a lot. I would love to hear you just drill down a little bit on that.
Yeah. National security is top of mind everywhere. Some of it is top of mind for reasons that are rather unpleasant, but it is what it is. It is a topic that is critically important to all nations, and that includes cybersecurity. I think cybersecurity risk is getting elevated with AI. A lot of CEOs are incredibly concerned. I think energy independence is critically important. Europe is very focused on energy independence.
I think actual defense, kinetic defense, is incredibly important. Supply chain resilience is top of mind for everyone. This is an enormous opportunity, and I think it is probably one of the more attractive opportunities I have seen in my career. The United States has an amazing defense capability, but it has to change for the times we live in. You are going to see a big transformation in the U.S. in terms of how we go about defense.
You are going to see a lot of the business being generated by the non-primes, newer companies that are coming online. Europe really has to build defense capabilities. They are going to require a tremendous amount of private capital. The governments do not have the capital to do it themselves. They are all heavily indebted. It is going to be an enormous opportunity for private capital. We have been doing defense for 40 years. We have an amazing track record. We are the only global private equity firm that has a defense capability. We are really competing against middle market firms that do not have the global footprint, the resources, the technology that Carlyle has. I think it is one of the most attractive opportunities I have seen. Historically, we had not really captured this defense capability outside of our large U.S. buyout fund. That is a large cap-focused fund.
This is going to do more middle market, which is where we see the opportunity in the next 5- 10 years. Again, it is just taking a step back and looking at ways we can grow a business where we have an amazing track record and a right to win. Any time we have a business with a track record like this and we have a right to win, we will figure out a way to leverage it, and that is what we are doing with this defense fund.
You guys have a tremendous heritage in Washington. It speaks to some of your defense capabilities. Can you talk about how that translates and how you think about the opportunity set, which I think some of which sits in Europe?
Yeah.
Is it inherent through just having your connectivity in Washington, where that therefore gives you the insights? How does that evolve?
Yeah, I think having connectivity to D.C. is certainly a positive on that front. That's where the firm's based. That's where we were started. I don't know how many defense businesses are in that kind of Dulles-D.C. corridor, but it is a lot. Most of them are actually in that corridor. So, I think having our team in D.C. and having the connectivity we have to D.C. is immensely helpful. We have a four-star admiral on staff and a former army general on staff as well. So, just having that connectivity to D.C. and having ex-military people on staff really helps. There are a lot of defense companies in that area. Kind of like if you're doing technology, you probably need to be in Silicon Valley. I think D.C. is the same for defense.
Yeah. When you think about, though, because you touched on the fact that this is going to be smaller cap, the primes are going to be sort of less critical. Can you talk about how you think that's changing? Maybe how we're seeing the battlefield play out in Ukraine and all the new methodologies and new approaches that we're seeing coming out of there, and how you think that's going to inform the-
Yeah, I think the Ukraine war has shone some light on the ability to fight a much bigger army with limited resources. They've obviously done incredibly well with drone technology. I think you're just seeing the Western governments just rethink their whole defense approach, and how can you quickly scale munitions? Obviously, the U.S. has depleted some munitions with the conflict in Iran. How do we go about more rapidly figuring out ways to use technology, leverage technology to create munitions and defense capabilities quicker, cheaper, more at scale? It's just a big rethink, and I don't think there's a government in the Western world who's not having that conversation today.
Right. We touched on this before, but the secondaries business is one that's really, really impactful. Can you talk about what that business looks like, what the competitors that are at scale, how many of them there are, what the inherent benefits are there, you touched on data a little bit, and how you're leveraging that when you're thinking about growing up.
In the private equity industry, there are a lot of competitors. I think someone told me this stat, which I thought was quite amazing. There's 19,000 private equity funds in the United States, and there's 13,000 McDonald's. Again, I'm not saying we need more fast food restaurants. I think we probably need less private equity funds. So it's a highly competitive industry, and I do think a higher rate environment's probably going to shake the industry a bit. I think you'll see some consolidation, some firms just shut down, which I think is good for the industry. The secondaries business is very different in the sense there's really only five or six scaled players, and we're one of them. So, the industry competitive dynamics are much different than private equity.
I think it's going to be incredibly difficult for a new entrant to get to the level that AlpInvest is at, the scale level. They have 25+ years of GP relationships and data, and it's just that data is so valuable, and we're using it in so many different ways across AlpInvest, across private equity, across credit. I just don't see how new entrants ever get to the level we're at. So, I love that dynamic as well. It's just a phenomenal business, and they're at the center of the private equity universe, and we have figured out a way to leverage that data, and it's helpful across the entire platform. But it's a business that organically has amazing tailwinds. I think when you look at the organic growth we've had the last three years, it's phenomenal.
I think we're probably, on the credit side, early days, and on the secondary side, I think we're probably in the second or third inning. We have a lot more runway, a lot more runway. It's driven somewhat by the lack of liquidity in the private equity industry. There's no doubt that that's a tailwind, but it's also just structural. More people, more investors are using the secondary tool in terms of how they manage their portfolio. You're seeing increased adoption of just secondary usage beyond trying to get liquidity from their investments. I think it's got a long runway, and I couldn't be happier with that business.
Right. You touched on credit a little bit as far as secondaries goes. Credit doesn't have the same DPI issue, like that sort of is an issue with the equity side. How do you think that that develops? What do you think the opportunity set looks like for credit when you think about where maybe equity is in the secondaries business relative to that market? Is it going to be structurally smaller because of that DPI dynamic, or is the opportunity set the same?
Just to relative frame, the equity side of the secondaries business is a $250 -billion market. The credit is around $25 billion. It is not clear to me that the credit side will overtake the equity side at any point, at least in my career. Maybe in your career. I think it has just got unbelievable growth dynamics. Most people think it will be a $50+ billion market in the next three years. It will basically double. I do not see it getting bigger than the equity side of the business.
Sure. We are now inside 10 minutes, so I want to see whether or not there is any opportunity for a question from the audience. Okay. When we think about the secondary side, you think about what you guys did with Potomac. How is the journey in integrating those businesses? How are you aligning incentives within the organization? Excuse me. So that you can ensure that collaboration continues to come together and you do not miss out on opportunities, like what presented itself with Potomac?
Yeah. Look, we have always had a culture, I think it stems from who our founders are. It is a culture of collaboration. I have never actually worked at a firm where there is so much focus on collaboration across the platform. Whether we have our opportunistic credit team looking at something in financial services, and the private equity financial services team is helping them think through that investment, it could be in a structured transaction. So we have always had a culture of collaboration. It is not necessarily financially driven, but it has just been more a part of our culture. That is really what drives the collaboration.
Look, when the secondaries, when the solutions team spend as much time as they did on that structured transaction for us, there obviously will be a form of compensation because that took them away from doing their day job for a prolonged period of time. It is not something that we need to financially incentivize people to do. It is just part of our culture.
Right. Another thing that's changed within Carlyle, and that Harvey's been really focused on, has been the transaction revenue side of the business. Can you talk about that opportunity set, where you are today in that journey versus where you were, and then what is still on the come?
When Harvey became CEO, I would just simply say we were nowhere. I was on the private equity side of the business for 17 years, and I'm not sure I charged a transaction fee. Wasn't clear. I mean, I wasn't told to do it. We had no real system in place, no kind of reward mechanism in place to get people to approach transaction fees. Harvey really instituted, firm-wide, an approach and system to focus on transaction fees. I think we've done an excellent job. When you look at the numbers the last 12 months versus, say, three years ago, it's up meaningfully. I think we've really, in the private equity side of the business in the U.S., are probably the most deeply penetrated. I think when you look at private equity businesses outside the U.S., we're far less penetrated, so I think we have some upside there.
I think there's a lot more we can do in credit, and as credit starts to scale even more, you'll see more transaction fees, like in the Asset-Backed Finance business. We've done an excellent job scaling that business, and there are transaction fees in there. I think, lastly, solutions is an area where I think you'll start to see more transaction fees as more kind of bespoke solutions are provided to LPs, and that's another area. But I think there's a lot of upside on transaction fees. I don't know. I wouldn't say we just scratched the surface, but I wouldn't be surprised if it's multiples of where it is today.
You touched on ABF.
On transaction fees, just to be clear, we're only focused on Carlyle content. We're not trying to displace Goldman Sachs or BMO. We're focused on Carlyle investments only, and not going externally.
Understood.
We're not using the balance sheet. I think for us, they're higher quality fees, versus some of the others in the industry.
So Alan can breathe easy. That's good to know. When we think about ABF, you touched on that a little bit. You guys have a great capability around insurance. I'd love to hear about, that's one of the big growth vectors for the business. You have a different approach than some of the competitors, definitively balance sheet light.
Yes.
How are you thinking about that position, how comfortable you are at that position, and then how you want to drive growth in that business going forward?
Well, we have chosen the balance sheet light approach. As a financial services investor, that makes me happy, because there are points in a cycle where having a balance sheet is not necessarily a good thing. We have just an amazing fee generation model. I do not like the balance sheet approach. Others have done it really well, but we want to remain a private markets manager. We do not want to be an insurance company. We are very focused on balance sheet light. We do own a stake in an insurance business. It has been a very good business for us. It is a little different than our peers, in the sense it is a closed block business, so it is not getting constant flow like an annuity business that most of our peers have acquired. It is a very good business. We buy very complex insurance risk.
We have announced a couple deals this year, and the team is very busy. I think you will see growth in that business in 2027, 2028. I am very optimistic, but I like our approach. I realize from a shareholder perspective, it is harder to project, just given the lumpy nature, the episodic nature of adding closed blocks to the business. But I think it is a great business for us. I think there is a lot of opportunity, particularly in some of the Asian markets, to get more liabilities on the books.
Is that where you think the opportunity set is the most robust, thinking about insurance?
I think it's robust in the U.S. I think it's fairly robust in Japan as well. We had looked at a couple of annuity opportunities, and I just don't think the pricing was attractive enough.
Well, that's one of the things you hear regularly about the insurance business is that right now, especially, the pricing is just a big obstacle.
Yeah.
Do you guys just say, "Fine, we're going to grow a little more slowly?
Yes.
Yeah.
We are fine with that. Again, I have been investing in financial services for a long time. If you would have told me 15 years ago life insurance companies would be so highly sought after, I am not sure I would have agreed with you. I was clearly wrong. But we like our approach. I think there are things we can do to make that business better, and we are thinking through that. I do not think we have fully optimized it. I think there is a lot more we can do with that business.
Right. Without leading the horse too much, what are some of the areas you think where the fruit is most low-hanging is always the wrong term, but what-
There is really no low. Honestly, there is no low-hanging fruit in that industry. It is competitive. There is a lot of capital chasing some of these opportunities. We have seen some stuff done in the U.S. where the return just does not make sense for our type of capital. But I think the Unum transaction, we are seeing opportunity in the U.S., and again, I think Japan is a big market for us.
Right. That is probably the—
But it is a business that we are very happy with, but it is a business that we want to become even more important to us.
That is great.
So there is a lot of focus on it.
Nice. Please. Oh, Saurabh, yes.
One follow-up question on defense.
He doesn't need a microphone.
Follow-up question on defense. What sub-industries within defense is attractive to you? I know you said drones is not, so what is attractive?
Data protection, cyber, shipbuilding, kinetic. I think just the reason drones are less attractive is there's thousands of drone manufacturers. I'm not sure we have the time or resources to figure out who has a sustainable drone platform. Cyber, we've done a lot in cyber in the past. Shipbuilding capabilities, the U.S. has largely exited that market. Shipbuilding's critically important for warfare going forward. Data encryption, we announced a deal already, the first deal in that fund, Secturion, which is a company that provides data encryption for data in transit. If it's a military aircraft and it goes down, whoever finds that plane cannot get access to the data. It's highly encrypted. It would be just as applicable on a ship as it is a plane.
I think you're going to see in Europe a lot of dual-use industrial capacity being transitioned from just consumer to consumer and military. I think that's an enormous opportunity. That's why we think it's both a defense and industrial opportunity. I think there's a lot of opportunity more broadly in defense technology. I think it's, again, I said it earlier, I think it's one of the more enormous attractive opportunities that I've seen in my career.
All right. Well, with that, thanks.
Thank you.
Appreciate it, John. Thanks for coming.