Bloomberg New Economy Forum Panel: Accelerating Growth Without Stimulus (2022)

At the 2022 Bloomberg New Economy Forum in Singapore, Neil Shen, Founding and Managing Partner of HSG, joined a distinguished panel of global leaders for an in-depth discussion on the future of economic growth amid rising global uncertainty.

Together with investors and executives from Mubadala, Swedbank Robur, and GIC, Shen shared insights on how economies can accelerate progress—and avoid stagnation—without relying on the easy levers of policy stimulus and excess liquidity.

Moderated by The Economist’s Zanny Minton Beddoes, the panel discussion explored resilient business models, the role of innovation and long-term investment, and the evolving relationship between governments, capital, and the private sector in driving sustainable growth.

A lightly edited transcript is included below.

Emcee: Liza Jonson, Chief Executive Officer of Swedbank Robur. Lim Chow Kiat, the Chief Executive Officer of GIC, Private Limited, and Neil Shen, the Founding and Managing Partner of Sequoia Capital China. Welcome.

Zanny Minton Beddoes: Thank you, Eric. Good morning, everybody. Good morning to all of you. Following on from that very upbeat early panel about rising geopolitical uncertainties right now, we are going to focus on exactly what Eric has asked us to do: rebuilding. How are we going to get growth in a world where you can no longer rely on loose monetary policy and fiscal stimulus?

We have geopolitical uncertainty. We have no easy solutions in terms of loose fiscal and monetary policy, but we need to get growth going. We have, luckily, here around me, some of the biggest asset allocators with the biggest amounts of private capital around, so let’s go straight into it.

We have 36 minutes, so I want us to talk about four topics: Where will the growth come from? How do you boost innovation? What’s the role of private capital, and how do you link the two, particularly in the energy transition? Chow Kiat, can I start with you? You are a large source of funds. Where are you in this new environment looking for growth? What regions and what sectors?

Lim Chow Kiat: Good morning. Let’s look at the macro picture. I will start with the higher real interest rate. That’s a big headwind for almost every asset class. That already is a difficult starting point. Having said that, especially for long-term investors, having higher asset yield is a good thing because, if you look at long-term return, the compounding of higher yield is the driver of longer-term return.

Now, with that in mind, of course, you look around the world and look at the different growth and inflation mixes, you would see that we are still dealing with the inflation pressures. But there have been some good structural developments. I would, in fact, highlight the US as an interesting market.

Valuation may not be quite there yet, but if you look at some of the longer-term trends, for example, the government incentives to really reindustrialize the economy, that’s a big positive. We are pretty confident that, down the road, we should be able to find good investment opportunities from that. There are some other trends, like supply chain realignment, that should benefit countries in this region, perhaps India, Mexico. These are also places where you could see more capital allocation.

Zanny: Thank you. That’s a great place to start. The US supply chain realignment, the incentives that are coming from US policies. Khaldoon, what’s your take on this? Where are you looking?

Khaldoon Khalifa Al Mubarak: I think very similar. We look through the same lens. I think, particularly us in Singapore, we have a lot of commonalities in terms of how we think and how we look. I think you have to look at the glass half full. When you look at high inflation, high interest rates, at the end of the day, I think this is a much needed correction that’s happening in terms of where the world was going over the last five to seven years. And the adjustment that’s coming about right now, which I think for investors such as ourselves, looking at it from a long-term perspective, the valuations now are coming to a much better place.

I still think there’s more pain, generally speaking, but I think we will have more opportunities than fewer opportunities in the time ahead of us. In terms of sectors, I’ll answer you quickly. In terms of sectors and in terms of the geographic look. Sectors, very much the same thematic spaces that we in Mubadala have been focusing on for the last five years.

What we define as areas with headwinds remain thematically the same today as they were probably five years ago. Energy transition remains a very core area of investment for us. Life sciences, the healthcare space, again, thematically, remains a focus area for us. Technology, digitalization, digital infrastructure, and infrastructure. I think these spaces remain and haven’t changed thematically for us. We remain very firm in our views that this these are sectors with tailwinds. We will continue to invest in those spaces.

Geographically speaking, I agree. I think the US market remains, I think, a very, very attractive market even as we see valuations now adjust there. I think it’ll be more interesting in the time to come. It remains a core area for us. We’re focusing a lot on Asia. We’re doing a lot in Asia, across Asia. That, again, from a growth perspective, we see a lot of growth potential there. As we see supply chains, we adjust, and as we see some of the markets also, again, awaken.

You mentioned India. India is a very, very interesting market. We were talking behind the scenes over there about Indonesia. Indonesia’s another very interesting market, but that continues. I remain also very keen on growing our portfolio in China. I think, overall, China, India, Japan, Korea, Southeast Asia are areas of focus for us.

Zanny: Interesting. I’m going to get to China in just a second, Neil, but Liza first, I wanted to bring you in. Are your customers behaving differently now? Do you sense a change in this new environment of higher rates, less stimulus, any change from Europe?

Liza Jonson: Definitely so. And just for the perspective, since I am an asset manager and not an asset owner, the allocation is partly or mostly driven by the customer’s allocations. Since it’s a lot of retail customers, it’s an interesting pattern to follow. But yes, of course, they’re reducing the risk, but the interesting part is how we actually future proof the portfolios. We sort of shifted the portfolios completely, and we started five years ago.

It’s a lot based on the thematic investments and those themes that you’re mentioning about securing the future. The “chaos” in the world, if I can use a word that strong, doesn’t fundamentally change anything in our allocation because we are really trying to find those sectors that are looking at the future growth. When I speak to my portfolio managers, there’s no change in that, but of course, they’re looking more at healthcare and food security.

Zanny: So much asset allocation change.

Liza: No.

Zanny: That’s interesting.

Liza: Yes, but a lot going on and, of course, we see also that the bonds are growing in interest now that you can actually get a decent yield there. Most importantly, I think also, when you look at the future perspective is that you shouldn’t only look at the risk return perspective. If you add a sustainability in it, then you get the long-term horizon, and then it’s easier to navigate in this environment.

Zanny: That lens makes you think more long term. We’re going to come back to that later in this conversation. Neil, first of all, China: the one part of the world that doesn’t seem to have been doing terribly well recently economically is China. How are you thinking differently about – and particularly about – venture capital in China? Are you thinking differently about investing and allocating capital in this new environment?

Neil Shen: I’m going to talk from probably a global perspective. Clearly, I have a lot of focus on China. Traditionally, over the last 17-20 years, we’ve always looked for growth. And that growth still there. If you’re looking at some of the new sectors, for example, climate tech has definitely become mainstream. The launch of this climate coalition highlights that this is such an important topic.

Obviously new energy is a very important part of it. But it’s not just limited to new energy. We have the metaverse, XR, AR, VR, and we have healthcare, which is always a very important area. All of that growth is still driven by the same parameter: technology innovation. On the other hand, in recent months, we’re actually looking at investments from another angle, which is value. Indeed, over the last five years, a bunch of leading consumer internet companies have been built.

Now, growth has been somewhat impacted negatively because of the high interest rates, economic slowdown, and so on. But it largely has consolidated the market, and those companies have become dominant leaders in many of their respective sectors. They’re getting a lot more profitable because there’s less competition. And given the recent sell down in the public markets, the primary market has also adjusted. We’re starting to see for the first time that, in the tech space, the value companies, the value stocks, have become investment targets.

Zanny: Far from being uninvestable, China is cheap. Is that what you’re saying?

Neil: Well, even in the US, valuations haven’t adjusted that much. Very similar, but I would say, in terms of China, the US, if you look at a few sectors, consumer internet being one of them, valuations are becoming very reasonable.

Zanny: Interesting. Let’s move on to the second theme, which was innovation and how you boost innovation because I’m very struck, Chow Kiat, that you started off saying one of the reasons you were interested in the US was the incentives for reindustrialization. What we’re seeing now, just to give you a sense, global spending on R&D exceeded $2.1 trillion last year, which is 2.5% of GDP, which is a record for quite a while. It’s a global record. But the nature of the climate for innovation is now quite different. It’s much more government directed. There’s huge incentives, as you said, in the US, there’s huge incentives in China. Everyone’s into industrial policy. It’s a very keen thing. Do you think that’s a good thing for boosting investment?

Chow Kiat: Well, generally it’s a good thing. We need more money to do the long-term stuff. Obviously, you have to look at individual cases, but in quite a lot of areas, without government incentive, it’s hard to kick start that process. Let’s take climate, for example. This whole decarbonization, it’s going to take money. It’s going to result in higher costs. Even with new technology – and it’s great that Bloomberg is leading this new effort on climate tech – you need initial capital.

Of course, private capital can come in, but to really scale, I think, you really have to explore blended finance and other kinds of arrangements. To that extent, in quite a few areas, government incentive is almost a must. On the private side, we continue to see private capital flowing into the innovation space. Of course, we all have to recognize that – and Neil is an expert in this –the success rate of startups is not exactly super high.

Everybody has to go in with their eyes open, but certainly, if you look at in aggregate, it’s well worth private capital to go into that space because they really can change the world. As far as GIC is concerned, we are committed to doing more.

Zanny: When you are looking at your investment allocation now, are you looking to see how much governments are providing incentives and how active the industrial policy is in different countries?

Chow Kiat: That certainly is an important consideration.

Zanny: Now, the corollary of that, of course, is that governments, particularly the US government, have also been much more active in terms of trying to disrupt the flow of technology, export controls and so forth, like the increasing use of sanctions. Khaldoon, how has that environment changed your asset allocation decision? Are we in a more fragmented world, and does that affect how you think about where you invest?

Khaldoon: I don’t think it affects the way or where we invest per se. If you allow me to bridge back into it by just continuing on what Lim was saying, innovation and technology is a key driver. I think you heard it from all of us here. It’s a key driver for us as investors. It’s the future. It’s what’s been doing so well over the last years, obviously. It’s what’s going to change everything going forward, so we have to keep focused on that space.

When governments spur growth by supporting investment in technology and innovation in R&D, I think that’s great. I’m very supportive of that, and I think it’s very important and it’s a good indicator from an investor perspective, when we see governments do that. When we see governments support industrial growth, advanced manufacturing, again, that’s a positive. I’m more skeptical when governments go and give just money for people to sit at home or to reduce costs.

I think that is money that’s not really producing ultimately a long-term net rate of return from a macro perspective. I think going back just to conclude that point, and I think that’s a good thing, and I think when governments do that particularly in an educated and thoughtful way with a long-term view, I think that’s a net positive. We see that from an investor perspective as a strong indicator.

Going back to your question, from UAE perspective, being a small country, being a country that’s throughout its history, been a trade hub between East, West, North, South, we are all for globalization. We’re all for less boundaries, connectivity, trade flows. I think this is something that has done well for the UAE, and it’s something that we encourage.

From an investor perspective, I see the efficiencies of efficient value chains rather than inefficient value chains that are constructed for geopolitical reasons rather than for the efficiency of productivity ultimately. We’ve seen that through COVID. The world started this fight against this pandemic. In the first stage, everyone was fractured and looking at it insularly.

Each country was looking in the early first wave, not in a collaborative approach, but rather we’ve seen herding of simple stuff like medical equipment, N95 masks, and testing equipment. It was very difficult in the early stages. It’s only when we started opening up the supply chains and working collaboratively on everything, from vaccines and other things, that the world found its way out of that pandemic. So I think there’s a lot of value in collaboration. There’s a lot of value in opening up the value chains, the supply chains. I see a lot of value in moving away from restrictive measures.

Zanny: You’re being very diplomatic, but can I take this to be essentially a criticism of quite a lot of current policy, which is clearly moving in the opposite direction?

Khaldoon: You can take it in whatever way you want. [laughter]

What I’m saying is I’m support of non-restrictive measures.

Zanny: Neil, one of the biggest recent disruptions has been the US imposition of export controls on super high-end chips. I’m not expecting you to comment on that directly, but can you give me a sense of whether that is going to really set back the pace of innovation within China or whether there will be greater efforts to accelerate, to try and catch up?

Neil: When you look at innovation, there are a few places where that innovation is happening. One of these places is universities, whether they’re in the US, China, or Europe. The second is the major corporations, and similarly, across the globe. And then lastly, startups. From our perspective, the third part is very important, because startups are often able to really make a difference and try to disrupt whatever industry they’re in—and also try to be the first to turn those research lab scientific findings into real-life applications.

For that purpose, I haven’t seen much change, because those innovators—those entrepreneurs in the early stage—are less affected by high interest rates, public market sell-offs, or high inflation. In fact, what’s more important is how the investors—the venture investors in particular—can do a better job enabling and helping them to grow. I think, in a way, this is exactly the role that investors should play. We shouldn’t just sit there and provide funding—we should really get deeply involved in the whole process.

When we launched the Bloomberg New Economy Climate Technology Coalition, it reminded me of one thing. Back 200 years ago in Birmingham, UK, there was an interesting organization called the Lunar Society, where many of those innovators and industrialists and financiers got together, brainstormed, and tried to work out productive solutions—and then, obviously, created the steam engine. That was the very first industrial revolution.

I think we should do the same thing. We should have people from different angles come together and find solutions that address global issues—like climate change.

Zanny: We’re going to come to those because climate is clearly an area where the private sector and government works together. But just to ask you one more China-related question, because I think many people around the world are really interested in what exactly is the nature of the new degree of cooperation between the Chinese government and innovation. I mean, there seems to be much greater government involvement now in innovation in China than there was.

Neil: Well, in the last, 17-20 years…

Zanny: In the last two, three.

Neil: Yes. In certain sectors, you do see more government funding. But in general, the private sector is still the main driving force behind the flow of capital. We’ve seen some provincial governments set up so-called guidance funds, which, more or less, contribute only a limited portion of the overall capital flow in the RMB market. Overseas investors and the private sector are still by far the major sources of funding for innovation.

Zanny: So those guidance funds are not a big part of your life right now?

Neil: No.

Zanny: Okay, thank you. Liza, one important and crucial thing for innovation is human capital and boosting of skills and boosting of human capital. What is your sense of how much needs to change there?

Liza: I’m not sure what needs to change, but if I return to the original question about the substitutes and other things, what we need to get that innovation and get those people going all in is predictability. We were talking yesterday or someone on the panels about how you actually get more capital into innovation and to these new technologies, and then you need clear regulations, and you need a path forward. Right now, the regulations continue to shift, and the governmental incentives, they come and go.

If you don’t get that long-term commitment from the public side, it’s very hard to get the risk willing private capital in there. I think those two are interconnected. So make sure that you know the game plan, and then you can add a human capital and a private capital into the innovation.

Zanny: From your perspective, there’s too much unpredictability right now?

Liza: Absolutely, yes.

Zanny: Chow Kiat, where are you seeing the most promising talent? Which parts of the world, where is talent moving to?

Chow Kiat: Well, I would say, of course, they are the big pockets in the US, in China, Europe as well, but really, talent is mobile. I think talent goes to where other talent is. Talent goes where there’s some predictability of the environment that allows them to do the work that they would like to do. To that extent, I think you really have to bring together quite a few things.

Bring enough talent to a place, or if you already have them, keep them there. Then you have to have money because you have to fund a lot of these efforts that the talent needs in order to take it further. Then you need the environment to be supportive. It can be down to simple things like housing, visas, and things like that. To that extent, I think Asia is seeing some pockets of that, perhaps Singapore.

Zanny: Singapore is not doing too badly.

Chow Kiat: Singapore has a bit of that benefit. We just have to deal with our capacity challenge. Yes, that’s the way to go.

Zanny: Khaldoon, what about you? When you go around the world, where are you most excited about the quality of talent people coming? Which parts? Particularly in the innovative sectors that you mentioned – like healthcare and so forth – talent really is essential. Where are you most excited about?

Khaldoon: I think you always have to look at the education sector. You have to look at countries where they have a strong primary education system, college undergraduate and graduates. That’s really the main driver. I think the big change that we’ve seen over the last couple of years is this point about mobility of talent.

Two things have changed. One, I think we discovered the value of virtual and the applicability of virtual on day-to-day business combined with, now in the post-COVID era, using what we’ve seen from a technological standpoint of operating in a virtual environment with now bringing in mobility back where travel is coming back and ability to move much quicker.

I think with these dynamics, we’re going to see a change in the mobility of talent from now forward that’s going to be driven by quality of life and the education sector. Especially a lot of the talent are younger folks, younger families. I think the quality of life linked is also the quality of education for the children. Security, I think this is a point that is coming more and more right now as a critical point, quality of life and security.

I think this is where I will agree, many of the Asian countries and again using the example of the UAE and Singapore, I think are good examples in which all of the above – quality of life, education, security – are net positives in the selection for talent to move and go to.

Today, talent is not about nationality anymore. It’s about ease of movement and locations that can actually make it easy to access, easy to set up, easy to move, easy to operate, and then provide the technological ability to operate technically or technologically and the mobility in terms of the infrastructure, in terms of airlines, et cetera. That’s where this is going, I believe. I think the UAE and Singapore are very well-positioned in that space.

Zanny: Is your office here growing?

Khaldoon: Yes, in Asia. We’re building operations in many places in Asia.

Zanny: Let’s turn to the structures of finance that will be the ones that grow fastest in this new world. Maybe, Neil, I’ll start with you perhaps somewhat provocatively, has venture capital had it?

Neil: Well, as I said, economies cycles up and down. It’s a very, very important catalyst for innovations. Frankly, this is even more important today than before. Coming back to my previous point, I said it’s important that venture capitalists play a more important role than just being a founding partner but become enabling partner. I think today that the incubation is almost a requirement to be a successful venture capitalist.

We can play a role because, once we have insights about the sector where we operate, we can really put people together. We’re building a few incubation centers in China, and there are very important things we can bring, for example, industrial veterans together with KOLs from hospitals and to create something in the medical device space.

We can do the same thing for climate tech. We can bring the leading battery companies together with some research teams which are developing next-generation materials. That’s exactly the type of stuff that venture capitalists should be doing. We’re not just a financial partner per se, but rather, we become an operator. This is what I think venture capitalists have to do in the future instead of just looking at the deal flows passively and trying to be another minority investor.

Zanny: That’s actually a really important point. In some ways, and I was obviously being somewhat flippant with my earlier question, but in an environment where actually it’s tougher, where real rates are higher, does that force you to go back to what VC was really all about, which is finding and incubating?

Neil: That’s a very good question because, over the last 10 years, there were some good times when you could invest in the growth companies, and they seem to be at least growing valuations every three months or every six months, and the public market has been awarded with some very rich premiums. Today, the market’s changed completely.

You have to go back to say, roll up your sleeves and invest early. How do you invest early? You have to create companies or at least participate in creating the companies, and that’s not easy. It means that you have to be very specialized. One thing I took notice of when I visited Silicon Valley back some 25 years ago, when I visited every single firm, I found that many of those partners are from the industries. They’re really the CEOs and CFOs.

Here in Asia, I have to say over the last 10 years, you see that is up and coming but not yet widespread. Most of these people in the VC industry are from consulting or from banking. I’m not trying to criticize the people with that background, but with an operating background, it helps a lot, because you can really become a partner to the CEOs and founders. That’s the only way that I think venture capital can create value and create returns.

Zanny: Chow Kiat, what do you think? In this tougher environment where we’ve no longer got free money, what kind of capital structures, what kind of vehicles do you think will you be looking more at?

Chow Kiat: Right. Well, I agree totally with Neil. I think the eventual is going to stay as an important part of finance. It has, in fact, over the last maybe 10-15 years gotten a new structural advantage. For example, technologies now enable a lot of these startups to sell directly to customers. It used to be that they had to sell to some big companies. Now you can go directly. That allows you, of course, better margins and scaling.

These kinds of structural changes are in place, so that’s not going to change. At the same time, there is scarcity of capital. Higher real interest rate and the availability of capital is a lot less. I think a lot of the growth or startup companies need to be making sure that their balance sheets are strong and that they have the cost discipline to stay through this period. In fact, I think for those who play the long game, they will benefit because some of the weaker ones will fall out. They will then enjoy actually a more rational competitive landscape. Certainly, I think for investors, there’s still an important allocation that we need to have, whether it’s the early-stage venture or even the growth aspect of it.

Zanny: Liza, I want to turn on the time we’ve got left to the one area where everyone recognizes there could be huge progress, which is green investing, sustainable investing, financing the green transition that everyone recognizes is necessary. What do you think is still missing for private capital to really accelerate this transition? Is there anything on your wish list that you would like to see there?

Liza: Yes. I need new investment vehicles in Europe, where I can actually allocate pension capital for retail clients into this sphere. There’s a lot of value created there. I also believe that the solutions to most of the issues we’re discussing here, and if I just speak to the companies presented here at the Bloomberg Forum, a lot of it is private capital, private companies, and they are working for the global solutions, and I can’t invest in them right now.

If I would have an investment vehicle that actually allowed me not to have daily liquidity in my pension funds, I mean, there could be huge flow of capital into the sector where it’s very much needed. There’s definitely a lot of potential there.

Zanny: You need that. Khaldoon, what is needed to get the scale of capital necessary particularly to the emerging countries, which are going to be the place where this climate transition is decided? You need to get emissions down there. Is it what’s going on in Sharm El-Sheikh? Is it the private sector? Is it new vehicles linking the two? What needs to happen? Clearly, the Bloomberg initiative is great, but I suspect more will be needed.

Khaldoon: I’ll use three words, which maybe some of them will be conflicting: sprint, patience, and wisdom. I think we need to sprint, but we also need to be patient, and we need to be wise in how we invest. What do I mean by all of that? On the energy transition side, from my perspective, is about continuing to invest in conventional oil and gas, in wind, in solar, in nuclear, in hydrogen, in all of the above.

The solution is all of the above, not “let’s switch off investing in conventional energy, and let’s just put all our investment in in renewables and new energies.” That creates the situation we’re in today, which is a situation where there was underinvestment for a long period of time, creating ultimately the energy crisis that we’re in right now.

Of course, there are other components that add to it, but at its heart there are institutions, maybe some around the table here today, that could not have invested in conventional energy for many reasons, like the lack of ability to finance. And that created the challenge. I think on an ongoing forward basis, I think we need to accept that the energy transition is a solution that encompasses all of the above.

We have to invest in all the above. We have to sprint in investing in new technologies, like wind, solar, hydrogen, ammonia, et cetera, but we also need to be wise in continuing to invest in that transition with energy sources that are available right now that are a critical component of that energy transition process.

Zanny: Sprint, strength, and wisdom. Neil, what do you think is missing in terms of financing vehicles?

Neil: We need innovative financing solutions in the ecosystem. It took 20 years for the solar sector, for EVs and the EV value chain, to really build and scale. Today, for example, hydrogen is a very, very important area. Everyone knows about it—but how do we scale it up? That’s a big question, because it’s a kind of chicken-and-egg issue.

We can use solar and wind to produce hydrogen, and hydrogen can be turned into ammonia, which is easier to transport. But because the market is still small—people are just getting started—you can’t really sign long-term contracts or offtake agreements, since there isn’t yet a commodity price you can lock in. Because of that, bank financing becomes difficult. So again, it’s a chicken-and-egg problem.

What kind of financing solution can break through and help complete that whole closed loop?

Zanny: Answer your own question. What kind of financing –

Neil: I think we need leading corporates to make a big push into that. You need different types of financing solutions to match—mass financing, debt, equity—all coming together to solve that particular equation.

Zanny: Chow Kiat, what’s your take on that? This will probably be the last word. You have a lot of money that you can throw at this. What are the structures that are missing?

Chow Kiat: Well, it comes back to two areas—new technologies, for one. If we can develop an offtake market, I think that will greatly help with scaling, it will lower the cost curve, and it will get the whole infrastructure going in that space.

The other is transition finance. I think we’ve had some success, actually—for example, with a utility in the US. We provided them with $2 billion to convert from coal to renewables.

The regulators there—very importantly—were, I would say, enlightened. They viewed the transition as necessary and allowed a slight increase in consumer rates, which in turn enabled the whole transition to happen. I think we need more examples like that around the world.

Zanny: Are you optimistic—yes or no, from all of you—that we are on the path to achieving that?

Chow Kiat: I think we all have to work hard—and harder. It’s a challenge.

Liza: No. But still, two-thirds of the global population live in places where renewable energy is actually cheaper to produce than continuing to use depreciated fossil energy. I think that says a lot.

Zanny: Says a lot. Yes or no—are you optimistic that we’re going to get there?

Khaldoon: Yes, I’m optimistic.

Neil: Yes. But like Khaldoon said, we need to be patient. I hope this time it’s not 20 years—maybe it’s 10 years.

Zanny: Thank you all. Sprint, patience, wisdom. A very good way to end. Thank you all very much.