David Baverez (H.88)
Hong Kong. We read David’s book: Génération tonique, a short and effective essay on the new economy that is emerging, as well as a great call to action for French. David welcomed us in his home for our week in Hong Kong and we had time to listen to his innumerable stories and anecdotes. It is just mind-blowing.
Read full transcript…
HU: Let’s start with our little Chinese portrait. So if you were… a color?
D: Red, like the Chinese communists.
HU: An animal?
D: A tiger.
HU: A meal?
D: A steak.
HU: A song?
D: La Marseillaise!
HU: A movie?
D: Les Chinois à Paris. (silence) You don’t seem to know Les Chinois à Paris.
D: It’s a movie from the 1970s, the Chinese are invading Paris and Jean Yanne and Daniel Prévost are “collabo”. It’s absolutely amazing.
I thought people were learning at HEC but they don’t learn anymore. (laughs) Anyway, go on!
HU: A sin?
HU: Of course! An object?
D: A painting. Or a sculpture.
HU: A sport or a game?
HU: A book?
HU: A (super)hero?
D: Tough one… God.
“I am basically the help desk of the CEOs I have trusted with my money, so I tell them to give me a call every time there is a problem. I am only interested in bad news. The good news I don’t care because the CEO doesn’t need me.”
HU: Now, can you try to sum up your professional background in just 30 seconds?
D: I have just been doing one thing: investing. It consists in being intellectually curious, understanding the world in which you are living and trying to anticipate where it’s going to be. It did this in Berlin after the wall came down. Then in London when we were building Europe and today I am doing it in Hong Kong where I think we are building the 21st century.
HU: Did you work in specific companies or on your own?
HU: Very concretely, what does it mean to be an investor? How do you become an investor?
D: There are thousand ways of investing and no common or single way to become an investor. You just need to be intellectually curious and try to see something that the rest of the world hasn’t seen on what is going to happen in the future.
You can do what I did, which is to go to what was, at the time, the best company in the world, Fidelity Investment, where you get trained as an analyst and then fund manager. Then, when you think you know a little bit what you are doing you settle your own company, you raise funds and you invest in various companies.
I did this in Europe for 15 years on listed equities and then I came to Hong Kong, where I realize the best way of investing is not on the listed financial market but directly on private companies. This is what we call private equity.
HU: What do you like in this job?
D: You are looking for surprises. Everyday, when I make up, I want to find something that the rest of the world hasn’t seen and I don’t go to bed until I found something that surprizes me in newspapers or in blogs.
Once I found a surprise in whatever industry, I try to understand, through lateral thinking, how this surprise can affect other industries. If something surprises me in a specific industry, I expect this trend is going to surprize people in other industries.
“I think we are super lucky to have an energy revolution, a technological revolution and geopolitical revolution at the same time. You need to go back to the 18th century to find such coordination.”
HU: Is there any discovery you are particularly proud of?
D: I am not a Nobel Prize who discovered something amazing, or anything like that! (laughs). I think it’s a continuous process and if I had made only one discovery I would probably have a huge nervous breakdown!
This morning for example, I was in the office and I saw that the Chinese were about to spend $15 billion on the hotel industry. This could completely change the hotel industry in the world. The kind of thing that is in my brain today is to ask myself what are the other industries where the Chinese will be able to put their money. Think that they have $100 – $150 billion to spend on the semi-conductor industry, in which we are not present but in which they are going to be very present over the next 5 years. I find that quite interesting.
HU: Have you coped with a difficult choice in your professional life?
D: Every time you make a choice it’s very very tough. In 1995, when I decided to go to Fidelity to do this job, everybody wanted to go to investment banking, the investors were losers and the Asset Management business was the poor child of the finance industry and therefore it was the right choice.
When I left Fidelity after 10 years to set up my own firm, everybody was telling me: “You are crazy, we are abandoning all the comfort of a very large organization where you are one of the rising stars.”
When I closed my fund at the end of 2010, this was the toughest decision I ever made and therefore the best one. I was thinking: “Investing in Europe over the next 20 years is going to be a nightmare, like it has been in Japan over the preceding 20 years, but it’s going to be super fun in Asia where I need to start from scratch again.”
Because we are in Asia I can tell you to always listen to Lee Kwan Yew, the guy who made Singapore: “The toughest decisions are always the best ones.” So if you ever hesitate between 2 options in your life, always choose the hardest option, because that’s the best one.
HU: What does your typical working week look like?
D: There is no typical week. Now I am investing in start-ups and none of my companies have a typical week. I am basically the help desk of the CEOs I have trusted with my money, so I tell them to give me a call every time there is a problem. I am only interested in bad news. The good news I don’t care because the CEO doesn’t need me.
Today for example, I didn’t get any call, so it’s OK, but yesterday, I had 3 calls for 3 problems to solve. This is what is really fun and my ideal day would be a day full of problems.
“The spirit of entrepreneurship you had in the US at the beginning of the 20th century is in Hong Kong today.”
HU: We guess you don’t have a real long-term strategy, because you are watching carefully to find new opportunities. But what are, in your opinion, the fields or the next big disruptive evolutions we should take a look at?
D: The reason why it’ so fun to be an investor now and the reason why I made this choice to come to Asia in 2010 is because we are going through revolutionary times. It’s very rare and I think we are super lucky to have an energy revolution, a technological revolution and geopolitical revolution at the same time. You need to go back to the 18th century to find such coordination.
This is why there are so many disruptive evolutions happening and the good thing is that it’s in various industries in Asia that the disruption now takes place. Before Europe, which is obvious, but also before the US, which is less obvious, even in technology, for example the mobile technology. That’s what it’s so fun to be here.
HU: So let’s talk a bit more about this town, Hong Kong. Is it pleasant to live here?
D: Hong Kong is absolutely amazing. We live on a small island with 7 million people (including Kowloon), or 2 million people just on the island, but 60% of this island is green and we also have the mountain and the sea. We are in Corsica, with the slight exception that we have one of the biggest financial center of the world in the island as well. Within one hour, you can be at Goldman Sachs or UBS or Morgan Stanley and the beach and the mountain. Quite fun.
HU: Imagine you only have 24 hours left to live in Hong Kong. What would you do?
D: Fantastic. I would start with a run along the beach in the morning. Then I would have a fantastic meal in one of the Chinese restaurant of the city, because some of them are just amazing. Then I go all along Sheung Wan its small streets and its super nice small trendy shops. Then I go to the Sevva Bar to have a drink before joining tons of friends. If you give me the night I would go to Lan Kwai Fong, then Wanchai for party before taking my plane directly at around 5 or 6 in the morning. I should be on time at the airport.
“If you are a Martian and you lend in Hong Kong, the second country you want to visit is France! Because the best restaurants, the best luxury goods and even the best derivative products in banks and the best big data engineers you can find in Hong Kong are French! Our country is just unbelievable!”
HU: Sounds good. What do you like with people in Hong Kong?
D: It’s where East meets West. It’s the New York of the 21st century. Although people think that there are 95% of Chinese and 5% of international people, the reality is different, because lots of Chinese are “ABC”: American Born Chinese. They are the guys who are going to build the 21st century and making sure that the East and the West meet at some stage.
Hong Kong will keep this as long as there is no rule of law in the 20 trillion of GDP that is around Hong Kong within a 4 hours flight: when people want to build something in the region they need to sign a contract and the only place where you can sign a contract in the region is Hong Kong. This is what New York did in the 20th century and if the Chinese don’t mess it up completely, Hong Kong should be able to do that in the 21st century. This is why you should be here. It’s not Singapore, it’s not Beijing, Shanghai, London or New York. It’s absolutely unique.
The spirit of entrepreneurship you had in the US at the beginning of the 20th century is here today. The guys who built the IFC One, a 40-floor mall, were already billionaires when they decided to make an 80-floor building called IFC Two. They became multi-multi-billionaires but they said: “Ok this is too easy, we are going to build a 120-floor mall called ICC but we are going to do it on Kowloon, the other part of the city, where no one does any business.” Today the Ritz Carlton, Morgan Stanley, Deutsche Bank and Credit Suisse have all located their offices there.
This is the area of the world where people are the most daring. This is why I think they can build the 21st century.
“What you need to learn when you come from Europe to Asia, is to make sure to come up with a product/service that is affordable to 7 billion people. And then I think you’ve understood where the 21st century is going.”
HU: Do you see more and more French entrepreneurs coming to Hong Kong?
D: I stayed between 1995 and 2010 in London, where I saw the French community moving from 50,000 to 500,000. It’s exactly the same in Hong Kong. The French were 5,000 a few years ago and we are now between 20,000 and 30,000 and on the way to 50,000. We go up tenfold and that’s because the French population remains fantastically entrepreneurial and super open-minded. Whether you go to Palo-Alto, New York or London, you see the French in all the key decision centers of the worlds. And Hong Kong will be one of those.
If you come here, there is absolutely no decline in soft power for France. On the contrary. If you are a Martian and you lend in Hong Kong, the second country you want to visit is France! Because the best restaurants, the best luxury goods and even the best derivative products in banks and the best big data engineers you can find in Hong Kong are French! Our country is just unbelievable!
HU: A lot of pros, but what and the cons of the city? What is Hong Kong’s main challenge?
D: The big problem of Hong Kong is that it has been very successful since 1997, the year of the handover back to China and it became the model role for Mainland China. Hong Kong has done a reverse takeover of Mainland: everybody thought Mainland China was going to invade Hong Kong but in reality Hong Kong has invaded Mainland China, where everybody wants to be a capitalist and as rich as an Hong Konger. Hong Kong has done a fantastic job.
The problem now is that we are at a turning point: Mainland China has not the issue of becoming capitalist – it’s done – but the issue of developing a lifestyle that is suitable for the 21st century. And the big question Mainland China is asking is “How can Hong Kong help me do that?”
For young people in Hong Kong, it’s only about democracy, which is precisely what Mainland China wants to avoid. This creates a big clash between Hong Kong and Mainland China and if Hong Kong doesn’t develop this role model of sustainable smart city in the 21st century, the mainland is going to look at other regions. Over the last 12 to 18 months, Hong Kong has suffered a lot because the tourism from Mainlanders has moved to the new TST (Tokyo, Seoul, Taipei) instead of Hong Kong. All of this because the Chinese government told to Mainlanders: “Don’t go shopping to Hong Kong anymore, but go to the rest of the world, because we disagree with democracy and we don’t want our own people to go to Hong Kong.”
This is the biggest challenge of Hong Kong today.
HU: It’s a long time ahead, but what do you think is going to happen in 2047, when Hong Kong and Mainland China will decide if they want to continue this “One Country, Two Systems” or not?
D: The problem will be solved before. In 1997, Hong Kong represented 30% of the Chinese GDP. Today it’s 3%. Hong Kong is now economically irrelevant for China and unless Hong Kong defines its new role model, it will become completely irrelevant.
But if Hong Kong manages to reinvent itself and to better serve the future growth and the development of Mainland China, Hong Kong will remain what it is, that is to say the only area in this region where you can sign a contract and the only area where the RMB, the Chinese yuan, can become convertible, which is one of the biggest objective of the Chinese government in the next 5 to 10 years.
Hong Kong has still a lot to offer but in order to do so, Hong Kong needs to reinvent itself from the old model: shopping mall and banking. These two pillars of Hong Kong are the most attacked by the digital revolution. The shopping mall by the e-commerce and banking by the fintech. Just to give you an example, 70% of the US millennials say they prefer going to the dentist rather than seeing a banker. Hong Kong will be in trouble if it thinks that these two industries are the industries of the future, because there are obviously done. They need to reinvent themselves and this is why the French are here, to tell the Hong Kongers: “Guys, you need to be creative and we can help you.”
HU: Is Hong Kong already making those changes?
D: I wouldn’t be bullish on Hong Kong today. I think Hong kong will go through tough times, precisely because those new industries take some time to emerge.
It’s not the US with the Silicon Valley, only very little money goes into the Tech Industry or environment.
Hong Kong is in the hands of 10 tycoons who are around 80-85 years old and the next generation is not up to the preceding one.
And there is no government: public spending is 20% of GDP. This is great because it is low and taxes are very low and all public services work effectively because they have been privatized and those private companies run the country very well. But when you have big disruptions, the State can help by taking new directions and making big long-term bets, like infrastructures. If you want electrical cars for instance, you need a top-down approach aiming at creating an electrical infrastructure for electrical cars. Hong Kong should be the first city in the world to have only electrical cars, because the maximum you are going to drive in the city from point A to pint B is 20-30 km, but there is no infrastructure, or very little. This is a typical example where Hong Kong should take the lead, and maybe will, but so far cities like Singapore are much ahead of Hong Kong in terms of planning a city.
“To me Facebook has no interest because there are only weak links and very low added-value content exchanged. HEC should be building a virtual campus, with very high valued-added content being exchanged and building some very strong links. This is the future of business schools.”
HU: What can France learn from Hong Kong and Hong Kongers?
D: What people don’t realize in France despite having internet and reading newspapers, is that the world is moving from a world of 700 million privileged Westerners, Europeans and Americans of the 20th century, to a world of 7 billion people of the 21st century. The world goes up tenfold in the 21st century. This is why it is so exciting.
As an investor, this is fantastic, because it means that if a company has the right product, at the right price, its addressable market goes up tenfold.
In Europe we have something fantastic: our lifestyle, that everybody envies. The big negative is that we have a completely outrageous cost-structure that makes this lifestyle unaffordable for 90% of the world’s population. So what you learn when you are here is how to develop what I call a “frugal” business model, after removing everything that is unnecessary from the value chain. At each step of the value chain, you ask your client: “Are you ready to pay for this feature of my product?” and if the answer is no, you remove it to reduce your cost structure and your price.
In France we build roundabouts – we have half of the roundabouts in the world – whereas China builds drones to deliver pharmaceutical products in villages where there is no road. You divide your cost structure by 10. In the US, healthcare spending is 20% of GDP vs 5% here in Hong Kong, where the life expectancy is higher than in the US. A 5-year loan to a SME costs 7% of the loan (i.e. le rate is 7%) if you go to a French bank. Here, a peer-to-peer lending costs 2% of the loan so Hong Kong reduced the cost of intermediation by a factor of 3.5%. E-commerce is the same: no bricks and mortar, so companies here can reduce the costs of delivering a product to a client by a factor of 2 to 3.
What you need to learn when you come from Europe to Asia, is to make sure to come up with a product/service that is affordable to 7 billion people. And then I think you’ve understood where the 21st century is going.
HU: We recognize some of the elements we read in your book, Génération Tonique and we have to admit that this is the first time we hear that frugal business models are the key of the 21st century.
D: You went to the best business school in France, you are the most clever guys, the best educated, you have Internet, you live in a free society where you can access to any media but still you didn’t know it!
HU: Not really… (we feel a bit stupid)
D: What you should be doing is telling all your friends who have stayed in France that they absolutely need to understand this.
HU: That’s what we are here for! (we feel better)
D: Thank you!
HU: Lets talk abut HEC now. When did you graduate from HEC?
D: I graduated in 1988.
HU: What was your favorite place on the HEC campus?
D: La Kfet, of course.
HU: No comment…
D: Especially late at night. The Thursday’s parties were unbeatable.
HU: What is your best memory from HEC?
D: I am in a very particular promotion, because we were nameless for 10 years. There was a guy called Mr Bouygues, who built a new head office called “Challenger” he was extremely proud of. Just before graduating, we all got invited to this Versailles of the 21st century and the school organized a great visit but we were students so we just went there and put a total “bordel” (i.e. mess) into the Bouygues head office. When we had to choose the name of the promotion, we decided to call our promotion “Challenger” after Bouygues shouted at all the mess we had done at the head office, but the Dean of HEC refused. We were all extremely proud. It’s only 10 years later that they told us: “OK, there is prescription, you can go back to calling your promotion Challenger.”
That is probably the best souvenir in terms of fighting for freedom and right of expression that we won 10 years later. (he smiles) So I am part of a promotion that really like challengers. Nice guys.
HU: How ironic. Do you still see your fellow challengers?
D: Absolutely! Last week one of my friends came here visiting from Paris, he’s a CEO of an Internet company in which I have invested. I have godsons and goddaughters among the children of my HEC friends. Friends for life. Friends for life.
HU: Would you advise someone to go to HEC today?
D: It’s not obvious. As I told you early on, if the world is changing dramatically, what was maybe not the best education for me 25 years ago might not necessarily be the right education for young women and men today.
In Hong Kong, this question arouses every year in May and June when young people graduate from highschool after the baccalauréat in the Lycée Français of Hong Kong. They all have “Mention Très Bien” (i.e. magna cum laude) so they are all super bright. 70% of them go to the US or the UK, 15% stay in Asia and only 15% go to France. I don’t have a counter argument to give to a guy who wants to go to the US or the UK.
I have come to this conclusion: HEC only fits a certain type of people, who can go through the preparatory classes and who are very good at scholar skills and so on. But for others, I think HEC might not be the best place to go to. We don’t have the monopoly of talents for the 21st century.
When you look at what the UST in Hong Kong (University of Science and Technology) has done over the last 20 years, I think that these guys, and I am sorry if I am provocative, have done far more than HEC. Although HEC has been fantastic at building an international brand over the last 20 years, what UST has done deserves even more admiration than what HEC has done.
Now, we need to move the school from an environment of 700 million people – Europe & US – into a 7 billion environment. HEC’s biggest competitors in the next 20 and 30 years might be in Asia as much as in the US, with the difference that we have identified our competitors in the US, we know them very well, but I am not sure HEC has identified the competitors from Asia. We could be surprised.
“Don’t replicate what my generation has been doing, but go into new types of companies, new types of businesses and new types of jobs because you are here to build a new world! “Apprendre à oser!”
HU: Do you think HEC should settle in Asia? A Chinese alumnus we met in Beijing told us that HEC should open a campus in Shenzhen, where there are many entrepreneurs and tech companies. Do you share his opinion?
D: I think we should be more ambitious. We shouldn’t be only in Shenzhen. Back to what I told you about 700 million vs 7 billion, I think we need to move from a classroom of 50-200 people to a classroom of 500-1000 people. And I am not talking about MOOCs. Let me explain.
There is a big paradox: education is supposed to teach people how to look at the future but it’s one of the last industries moving online. People working in education have not seen the disruption.
We need to divide the cost of education by 10 by building a virtual campus, what HBS (Harvard Business School) has started to do. You can have classrooms of 2,000 people and campus friends all around the world. You connect with them online and you build a virtual community, what social networks are going to be in the future. To me Facebook has no interest because there are only weak links and very low added-value content exchanged. HEC should be building a virtual campus, with very high valued-added content being exchanged and building some very strong links. This is the future of business schools.
And when I tell you that Asian universities are going to be competitors in the coming years, it’s because I think UST is likely to build such a virtual campus before HEC.
I don’t think we should look at Shenzhen because building a physical campus is the typical Western mistake of replicating a Western business model in Asia. The 21st century is not about replicating what we already did. On the contrary, it is about adapting a business model to this new world going up tenfold. Online education is for me an unbelievable opportunity for the next 10-20 years.
“If I was McAfee, a professor from the MIT, I would have been very happy to find this formula: “Policy should be about protecting the future from the past and not the past from the future.”
HU: Do you think a virtual campus can fully replace a physical one, where real people meet each other?
D: Why do you want to replace it? It can complement it. Online education is mostly for guys who are looking for Executive Education programs or certificates and who are 40-50 years old, but you can also imagine 20-year old guys who are working during the day and who have the freedom to do their education in the evening whenever they want.
You paid 10,000 euros a year as Grande École students but in reality a year costs around 30,000 euros and this is unaffordable in emerging markets. This business model is not replicable in emerging markets.
This is a typical example where we need to be very imaginative because if we are not, HEC is going to become a nice brand but without any financial power. And a brand without financial power goes nowhere.
HU: That’s a frugal business model we should develop then…
D: Exactly! And you see that frugal doesn’t mean low quality. When I called someone in Europe with Skype, the quality is better than when I call from my mobile trough telecom operators. You are too young so you don’t know this great Fiat advertising saying: “Y a moins bien, mais c’est plus cher!” (i.e. “You can find lower quality, but it’s more expensive.”)
That’s exactly the frugal business model: you do better and cheaper.
HU: Let’s come back to HEC and to young students who graduate every year. What would be your advice to a 20-year-old HEC?
D: What is very important when you are in disruptive times, is to try to find a job that didn’t exist two years ago. This is the way I invest: I invest in companies that couldn’t have existed two years ago.
When Samsung was in trouble 5 years ago, the CEO gathered the 200 top executives in a room and said: “Change everything, except wifes.” That’s what I would tell to a young HEC graduate. Don’t replicate what my generation has been doing, but go into new types of companies, new types of businesses and new types of jobs because you are here to build a new world! “Apprendre à oser!”
HU: Is this what we can call “being tonic” (reference to David’s book: Génération Tonique)?
D: Forget the past and give always the priority to your new ideas and the risks you are going to take as an entrepreneur. This is being tonic. Put always the future ahead of protecting the past, which is “les avantages acquis” (i.e. acquired advantages) that are linked to your diploma and that are your worst enemies for your future life.
My best advice to an HEC graduate is to forget that you have an HEC diploma, because the biggest impediment to being an entrepreneur is your diploma.
HU: Last question. HEC’s motto is, like you said, “Apprendre à Oser” or “The more you know the more you dare”. What would be your motto?
D: If I was McAfee, a professor from the MIT, I would have been very happy to find this formula: “Policy should be about protecting the future from the past and not the past from the future.”
… or pick a category…
…or an Alumnus
They weren't friends at HEC. Today they live and work together
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