Yeah, it's a bit

of a win for common sense, isn't it? I mean, they just needed to get it sorted and they have. But what matters now is what happens next. I mean, you know, we it's now getting through this problem. It illegally sacked all those workers lost in the high court. You know, it's all about changing the behaviour, changing the culture, making sure these things don't happen. Having cleaned up some messes. I mean, that's what really matters.

Yeah. And Joe's right to be sort of deeply skeptical about, you know, the words have changed at Aquantas. Have the actions changed? I think that he is right to be deeply skeptical. I think the initial evidence is yes. Hudson is trying to clean this stuff up. But, you know, it's fair enough to want to see a lot more evidence over the next year and beyond to make that judgment. I think that's totally right. But from an investor's point of view, she's made a decent start. She was on stage at the Macquarie Conference, Anthony. How'd she go?

Oh, she went pretty well. I mean, she seemed pretty confident, actually. She sort of like walked the aisle shaking lots of hands before she went up on stage, which is not something you see out of many CEOs. And I certainly didn't expect to see that out of her. So I found that surprising. But yeah, I mean, she handled it pretty well. I think the shares are up five or six percent this week. So I mean, it shows that investors are happy that the ACCC issue is being rectified.

Yeah, absolutely. Well, Anthony, it's time for our first topic of the week. And this week, we saw the demise of giant Australian financial services and funds management business, Perpetual. Perpetual was founded 138 years ago as a trustee company by a group of businessmen, including Sir Edmund Barton, who would later be Australia's first prime minister. Where it shot to prominence, though, was as a major investor in Australian companies. It set up a funds management business in the early 1990s at the dawn of the Australian superannuation industry and pretty quickly established itself as one of the most powerful investment houses in Sydney, investing on behalf of both superannuation funds and retail clients. But now it's all ending in tears. This old company with its once great funds management business has fallen prey to a private equity breakup. The funds manager is to be rebranded under a new name, which is yet to be determined. And it will sell its other two businesses to private equity firm KKR. And Anthony, how did this all unfold? It seems a pretty sad moment in some ways.

Yeah, it's a sad one. Perpetual is one of the great brands in Australian markets and wealth management. So the company has three arms, funds management, trustee and wealth management, which is sort of financial advice. But it's aggressively grown that funds management business in the past five years. And it's done that by buying other businesses, bringing these sort of other brands into its stable to create this sort of house of brands approach to funds management. Now, it's been very successful in doing those deals. It's found a few big targets and it's spent more than $3 billion doing it. But unfortunately, that $3 billion that it's spent looks like it's pretty much disappeared. It's sort of blown it up. Now, the big thing I bought was a business called Pendle, and that was 16 months ago. Now, it was a stunning acquisition at the time because perpetual and Pendle have been huge rivals for years. They're both based in Sydney. They're both big Australian equity shops. They run similar strategies. They both expanded offshore about the same time to try and keep up with the times. And perpetual and Pendle, if you look at their investment teams, their distribution staff, they hated each other like any good competitors do, right? Think Woolworth's Coles or Qantas Virgin. They were two big dogs of Australian and particularly Sydney funds management. They ended up coming together. So perpetual paid about nearly $2.5 billion for Pendle, including a big cash portion. Now, to fund that cash portion that took on debt, the acquisitions haven't fired. Perpetual's bleeding client funds. It's lost a few big stock pickers. It's got refinancing coming up on that debt and it's earnings have dropped. So, it's what's it got to do? And for 20 years, for 20 years, people have been calling on the company to break it up, to break it up right into these three different parts questioning what the point is. And for 20 years or so, we've heard perpetual CEOs say, no, no, no, no, no. It's the right strategy, three things, more diversification, protection in down times, all that sort of stuff. But when you got debt and there's a bit of a gun to your head, you just can't resist those calls anymore. So it's selling the trustee business, that thing that Sir Edmond Barton was involved in, it's selling the financial advice business. And it's also selling the brand, which you think is an incredibly valuable trusted brand, selling all that to KKR. It's a big shift for Perpetual and it's a big shift for the wider industry. James, and this is just the latest dominoed fall in Australian funds management. Why are some of these businesses hitting their use by dates?

Well, if the funds

management sector has got a bit of a problem, that they active funds management sector, what they sell doesn't work that often. What I mean by that is you pay for a fund manager to beat the benchmark, to beat the broader index. But the stats show that last year, 77% of active managers in Australia failed to beat the ASX 200, 77%. You go back over 15 years, 85% of them failed to beat the index. Now, that's not a great hit rate. That's not just hitting miss, that's mainly miss. And they charge a big fee for that relative to passive investing. And this is the big change. So passive investing ETFs, basically hug the index. There's lots of types of ETFs now, but it's set and forget, charges very low fees. And for many investors, they see it as a sure thing. At least it's going to do exactly what the index does, where it was with it when you go with one of these fund managers, most of the time they struggle to beat the index. So to me, that's the big challenge that the competition has increased for these fundies. They once disrupted the old life insurers, and now they're being disrupted themselves by passive investing, which now accounts for about 50% of the money invested in public markets. But Anthony, we shouldn't forget here that big super, the big super regulation funds also have a role, don't they? Oh,

huge role, James. 20 years ago, 15 years ago, I remember starting at the Fin Review and made the big funds in Australian equities were perpetual BT, which is now a pen, AMP capital, colonial first state and MLC. Now, these were all either fueled by industry super funds or corporate funds, you know, your BT, AP, colonial sort of funds, like it was pretty much in house money for them. Now, since then, industry super has grown super fast. It's getting a lot of the inflows and it's got a lot of power. Now, the big industry funds, so your Australian supers and your Awares, Seabuses, those sorts of funds, they've got a lot of the money that they used to dish out to your perpetuals or your BTs. And they've pulled that in house and they're managing it themselves now, they've got their own teams to do that job because they think they can do it just as well or more cheaply or both. So, if you look at the register of a big Australian company now in the top in the top 100 in the large caps, by nine times out of 10, their biggest investors are the big super funds and it's got nothing to do with perpetual or pendul or colonial, AMP, any of those. It's just been a huge shift. And that's obviously put a lot of pressure on the business models for the perpetuals and the penduls of the world and they've all responded in different ways. For perpetual, that was to try and change with the times to grow offshore, become bigger, more efficient, get into global equities, get into ESG funds. But it just hasn't worked. And, like you said, that's because now more than ever, it's getting pinched between those big forces of passive funds, your ETFs. And the other one is the private capital, right? That rush to private equity, private credit, and a lot of the big superannuation funds are going, all right, well, if we're going to pay fees for stuff, we're going to do it for private equity or private credit. We're not doing it to buy listed equities because we think we can do it themselves. So, no big supers at the heart of

it. But like James Perpetual's stock pickers,

I mean, they've kind of been the legends of Australian funds management for the past 30 years. If these sorts of firms are under pressure, which they are, I mean, where are the next lot of legends going to come from? Where's the power in Australian equity market?

Good question. Well, I guess the obvious answer is inside the super funds, right? But they've got bigger and bigger equities teams with some super, super smart people running them. So, those teams will become, I guess, the next training ground for the next generation investors. But this is really hitting on the sad part about Perpetual's demise. And it has been the training ground for not just Perpetual, but an entire industry. Lots of ex-perpetual investors have gone off and started their own firms and then they've trained other people. So, there's sort of this network effect, I guess, that spreads out from these firms like Perpetual. So, it is definitely sad to see that go. And will it be the same with the super funds? Not sure. They have a different ethos, a different view of the world, I think. So, perhaps the next set of investment legends will have a slightly different style and we'll have to get used to that. But one of the things, the other special things about Perpetual is they to use a colloquial term that they were famous for sort of keeping the bastards on us, for putting pressure on CEOs and management teams and boards. When they did something silly, they would go in and say, hey, no, we're not having this. That's an acquisition to stupid idea. You need to break this business up. Lots of CEOs hate that. I mean, fund managers don't run businesses, they critique them a bit like a shot to clear colloquial.

But you've

been involved in some of these situations where Perpetual played a really important role of accountability in the market.

Yeah, 100%. If I just think in the past decade, we had Woolworths, for example, Woolworths got off track. It must have been eight years ago or so. It sort of lost focus on its core supermarkets. Perpetual was pretty influential in getting them to divest the petrol stations, forget about masters, the hardware store, and just sort of stick to its knitting, reinvest in the supermarkets. Woolworths has done that. I know it's going through a bit of a tough time again, but it's been a good strategy. We saw crown resorts get sold, the casino's owner. Perpetual was pretty influential behind the scenes on that. Even companies like Bramble's, Grandcorp, there's quite a few of them out there. But it's not going to be lost on any CEO or Chairman James. And without tuning our own horn too much, we do get quite a few CEOs listening to this show. And it comes up a bit when you meet them, but it will not be lost on any of them that Perpetual is doing this walk of shame this week. And Perpetual's equity team has been giving it to these CEOs in German for years when it turns out their own head office has kicked plenty of own goals of their own, and is now in the position it's in. A walk of shame. I like that, Anthony. Well, James, let's move to our second topic. And as you mentioned at the top of the podcast, I spent most of the week at the annual investor conference held by the millionaire's factory Macquarie. Sadly, my pockets didn't magically fill up, but I did hear a lot of fascinating speakers talk about the state of the world. Now, one of the best was a guy called John Gray, who is president and chief operating officer at the US private capital giant Blackstone, which manages $1.9 trillion. A big part of his presentation, James, was about the collision of two ideas, the boom in data centers, thanks to AI, and the challenge of getting the energy to power these things. Now, James, you spoke to John this week. Did you get the sense this energy problem could derail the AI

boom? Possibly.

Yeah. I was surprised to learn that in Ireland, they've already started restricting data centers and the power they can consume. They're doing the same in North Virginia in America, which is a big data center hub. So economies are already starting to go, hey, sorry, how much power do these data centers need? We'd like to keep the lights on if that's okay with

you. And I think we

really do have a collision is a great way to put it. We've got this gold rush in data centers, which is extraordinary. It was extraordinary anyway, and now it's been compounded by this generative AI push. The generative AI chips need lots more power and a lot more water for cooling. But the question of where to get this power from is really difficult, because as we all know, we're going through this energy transition as it is. We're trying to electrify everything from transport to heating and cooling at home. And so the demand for electricity is going up anyway. And then you've got this AI demand on top of it becomes very difficult to manage. And we're struggling in Australia with how we get the transmission right, how we get the grid right. And what John Gray made clear is this is a global challenge. Nobody's quite solved how to get enough renewable energy into the system fast enough. No one's quite solved how to get the transmission and the grid stability to all work. No one's quite solved. What sources of energy are best? You know, John Gray's view is we need everything. Renewables, wind, solar, we might need small modular nuclear reactors. We'll probably need gas as a transition fuel. We're all trying to get off coal. But for the moment, if we want this AI boom to continue, we're going to have to think about everything. But what I do notice, though, Anthony, and I know Macquarie's CEO, Shimara Wickrena-Mica, talked about this at the conference too. There is still a lot of capital that is ready to go into these two sectors, isn't there?

Oh, there's heaps of capital. Yeah. I like both Macquarie and Blackstone. It was really interesting, actually. Shimara and John Gray, I mean, they were very much on the same page, these big themes. I don't know if they'd spoken about it beforehand or what, but I think we can take it, having heard them both. These are the two big forces, and there's a huge amount of money. I think John Gray said that three years ago, Blackstone didn't really have any data center investments. Now it's got US$50 billion worth, and it's got a pipeline of another US$50. So they're really rushing in. Macquarie's got some data center investments, but the bigger way that it's playing it is on the energy side, it's got a stack of renewable investments. Shimara would say 20 years worth, all sorts of stuff. You've got your generation mucking around with hydrogen, carbon capture, you name it. They're very, very big on this energy transition as an investment thematic, and they've even launched some energy transition funds recently just to specialize in it. So I think Macquarie's proving to be a bit of the head of the game on this one. It's like the pennies just dropped for the rest of us that you've got these two big forces, digitization and energy transition. But the first one can only happen if the second one's already happened, right? But we need to transition the grid and all the energy generation, all the sources, if we're going to be able to have this digitization boom. Because like you said, if your data centers aren't being built because of the heavy energy intensity, what's the point of even thinking about generative AI and what it's going to do? So yeah, I think they're on the Macquarie's proving to be head of the game on it. James, one of the local players to get into this is Goodman Group. And this, I mean, Goodman Group stocks up more than 50% in six months as investors bet that it's going to be able to transition from being a warehouse developer into a data center developer. I mean, do you think there's any danger that that sort of share price run or the hype around it could be completely overdone?

I don't know about completely overdone, but I do sense a bit of a gold rush here that everybody's trying to get into the same sector at the same time. And usually that is a recipe for excess and someone's going to lose money. But I spoke to Greg Goodman, the CEO of Goodman Group. He's not a gold rush type of guy. He's a very sensible, pragmatic guy. Doesn't get over excited about things. Very thoughtful. He made a great point that there's two constraints on excess in this sector. One is energy, which we've talked about. The other is just how much money you need to build one of these things. So it's not like a warehouse that you can find a patch of land on the outskirts of town, throw something up and start calling for tenants. There's a lot of planning that goes into this. The price of building one of these things is anywhere from $500 million to $1 billion to $3 to $4 billion for these new AI campuses, which are basically big data centers clumped together. So there's only a certain type of player that can muster that sort of fun. So it should keep a lid on any excess. But what I keep coming back to, Anthony, you spent the week down at Macquarie. I've spent the week talking to John Gray and Greg Goodman, getting more cleaner energy into the systems, obviously bigger than AI. But from what I can tell, we've got the urgency. We've got a lot of government policy. We've got energy demand going up. We've got lots of capital. Why can't we get this done faster?

Well, I think the returns just aren't there at the moment, James. And that's a bit of a problem. I mean, you're mate, John Gray pointed out that it's all about policy settings. And it doesn't matter whether it's the energy transition or housing or whatever problem it needs. It needs a lot of paying for it. Capital can only come from a few places that either comes from governments who can build this stuff. It can come from customers or it comes from private capital, people like Blackstone. And while there's Blackstone's got lots of money and it talks a big game and looks like it wants to deploy heaps of it, I mean, those go, they're only there if they can invest in something and make their 15 or 20% a year. And in order to do that, it needs to help along at the moment from either the government, via the policy settings or tax breaks or whatever, or it's going to need the customers to pay for it. So while we all sit here and say we want this energy transition and it is happening, maybe not as fast as it needs to, but it is happening. But I don't think we're still at the bottom of realizing who needs to fund it. And

Anthony, are you saying who needs to fund it is probably taxpayers or households, which at the end of the day is the same

thing? 100%. Blackstone is not doing it for free. Macquarie is not doing it for free. I mean, you're going to the budget next week, James. And I know we're going to talk about that later. But how much have we seen on the energy transition in the made in Australia stuff? Yes, we've got the solar panels being manufactured, but it's like a billion dollars. It's not like this huge industry setting stuff going on.

Yeah. All right, Anthony, quickly give us a couple more highlights from the Aquarium conference. There's 75,000 companies people presenting. Who really stood out for you?