2023 saw a boom in job market growth, creating 2.7 million jobs that year coming off of pandemic trends. With so many concerns around employment — from AI workplace adoption to inflation stressors on the labor market — coming off of such highs, many are wondering what kind of complications and opportunities lie in store for workers in 2024.

Vista Equity Partners Founder, Chairman, and CEO Robert F. Smith sits down with Yahoo Finance's Julie Hyman and Brian Sozzi from the World Economic Forum in Davos, Switzerland to examine DEI (Diversity, Equity, and Inclusion) initiatives executed for educational institutions and companies, particularly in tech.

"We are teaching and training, and we are having these large super-scaler large tech companies, saying how do we participate?" Smith explains. "How do we ensure that these students have a chance to actually contribute to the fabric of this artificial intelligence so that we actually have the ability to ensure that bias does not exist and we're taking into account all of the elements of our society so that we can actually make this a highly productive tool, and not one that's going to disadvantage certain communities."

Smith goes on to characterize generative AI as an "enabling technology," commenting on how this new wave of tech adoption may be fueling valuations in Big Tech.

It's all part of Yahoo Finance's exclusive coverage from the World Economic Forum in Davos, Switzerland, where our team will speak to top decision-makers as well as preeminent leaders in business, finance, and politics about the world’s most pressing issues and priorities for the coming year.

Watch this full episode of Yahoo Finance Live here.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

[AUDIO LOGO]

JULIE HYMAN: Well, DEI initiatives have been under attack in some quarters in the United States. Of course, they are part of the conversation here at the World Economic Forum in Davos. And one of the folks who is definitely putting forth, pushing forward that conversation is Robert Smith. He's Vista Equity Partners Founder, Chairman, and CEO. That firm has around $100 billion in assets under management. And it's always a pleasure to talk to him, to have the opportunity, Robert--

ROBERT SMITH: Always happy to be here with you.

JULIE HYMAN: Welcome, thanks for being here. So as I mentioned, DEI has gotten quite controversial in the United States. What do you make of that? And how do you manage around that and stay the course?

ROBERT SMITH: Yeah, it's interesting, Julie. I'm not quite sure why it is so controversial. The facts are irrefutable that more diversity in thought and opinion and teams actually produce better outcomes, lower risk, higher returns, faster growth. And you know, McKinsey, BCG, you name the consultant, has come up with this.

In our space in asset management, we in AIC has put together a 20-year longitudinal study. They've done it twice. And shows that diverse firms have been performing 200 to 1,600 basis points over the Burgess average for over 25 years. So you just wonder why it's so controversial in some respects.

And I can't explain exactly why it is, but I will tell you that the proof of the pudding is that these companies have performed better. And when you have diverse boards, when you have diverse companies, that diversity of insight actually has accelerated growth. So it's-- while some are coming forward with rhetoric about, oh, it's not the right answer.

What we are saying, I'm saying with executive CEOs that I know in the US and here are they actually follow the data, and say, listen, while we may not talk about it as much, we are going to absolutely do the things that make sense as fiduciaries of capital and of stewards of stakeholder interest to ensure that we get the highest returns and the lowest risk profile. And diversity shows that. And having more diversity and inclusion is one of the best ways to accomplish that at scale, sustainably, over time.

JULIE HYMAN: Are you finding that you are having fruitful conversations here in Davos? How are you sort of bringing that to Davos and moving it that forward?

ROBERT SMITH: You know it is so wonderful that you asked that question, because people say, why do you go to Davos? And this is one of the reasons. And I was just reminded one of my good friend, Chuck Robbins at Cisco. And he and I have-- do a bunch of things together in glance, but it was here that we decided to do something about the broadband disparity for the HBCUs.

And in that effort, one of the elements we found the Department of Education had basically put out, in essence, an edict that if you don't have the proper cybersecurity infrastructure and protection, you lose Title IV funding. Well, the HBCUs, about 80% of the students need that in order to matriculate. And Chuck and I sat in one of the buildings and said, you know, let's do something about it.

And Cisco came in with capital. We came in with resources, capital and resources. And we have now completed 61 of the companies or the HBCUs that actually had deficiencies in that area, which protected $1.5 billion a year in Title IV funding. Now that's kind of phase 1. Phase 2, of course, is how do we bring infrastructure for broadband access for the 82% of the HBCUs that are in these broadband deserts.

And it's the partnerships that I have created here and the relationships that I've created here that translate back as part of the Edison Alliance and others with Verizon and others that has enabled us to now put together over 45 different town halls, over 5,000 people in the US across the Southern states so that we now have the ability to deliver the data, the information so they now can access $100 billion, in essence, the broadband funding that was put into law a few years ago.

So all of those are activities that, in many cases, started here. So you know, Davos has a special place in my heart for enabling our community to participate in this fourth Industrial Revolution, this next generation of opportunity.

BRIAN SOZZI: So many very large tech companies here, Robert, Microsoft, Amazon, you name it, all really trying to shape the future and having it being driven by AI. How are these big cap tech companies doing on DEI initiatives?

ROBERT SMITH: I will tell you they all have the proper intentions and to continue to put efforts forward. One of the things-- all of them are partners of ours. And we all know there's going to be phases of this. First phase is going to be the hardware vendor is going to capture the vast majority of the economic rent. And then there's the superscalers, it's the Microsofts, the AWS, Googles, et cetera.

And our engagements with them is they are keenly focused on ensuring that we have capacity and understanding in our community. A classic example, we have hackathons across our portfolio of companies. And in those hackathons, we had HBCU students participate in those hackathons. These are senior developers.

Those hackathons are funded with technologies from Microsoft, from AWS, from Google. And from that, actually, we've come up with very specific applications and use that we use across our portfolio of companies. And in fact, two of those students were on winning teams from those hackathons. So that's one instance.

Another instance is we've stood up one-- a curriculum at Morehouse using one of our companies, Stats Perform in sports. And highly oversubscribed. And now we are teaching and training, and we are having these large superscaler tech companies saying, how do we participate?

How do we ensure that these students have a chance to actually contribute to the fabric of this artificial intelligence so that we actually have the ability to ensure that bias does not exist, and we're taking into account all of the elements of our society so that we can actually make this a highly productive tool, and not one that's going to disadvantage certain communities.

JULIE HYMAN: I want to switch gears and talk about your portfolio of companies, and just what you're seeing in your business. Because we've been talking all about AI, right? You're known as like the enterprise tech guy when it comes to private equity. Are you looking for opportunities specifically in generative AI or are you sort of agnostic, and you're just looking for good opportunities? How are you thinking about that?

ROBERT SMITH: We are looking-- it is an enabling technology, just like other enabling technologies have come and ultimately been infused into the fabric of our companies, cloud technologies, blockchain technologies. We've been, of course, engaging in artificial intelligence for well over a decade, and implementing those in products and solutions and services.

GenAI gives another gear to that. And so first thing, I say, we put together a framework and a risk rubric of existing portfolio of companies. Where's the opportunity? Where's the risk? And how do we apply our resources against that? How do we ensure we have the right partnerships with these superscalers, these technology providers to providers to think about the platforms that they are developing to enable us to develop better products, services, solutions, go-to-market activities for our portfolio companies? So that's one main thrust.

The second gear, of course, is what I call the productivity nature of it. We have-- 68% of our employee base of our portfolio companies are developers. So 90% of our companies now are implementing some form of GenAI in code development and code assist. We're seeing between 10% and 35% productivity increases.

Now, huge numbers. We've got a choice. You direct that for towards building more, faster products, solutions services, or do you use that to capture more profitability? We have been talking for years about the war for talent. We think this is an enabling activity for us to ensure that we can continue to drive our companies forward, and in some cases, reduce the cost of delivery. And that's where the rubric of decision making.

JULIE HYMAN: Just sorry, just to follow up on that real quickly. But you're not saying you're cutting 10% to 35% of folks?

ROBERT SMITH: Oh, no, no, no, no.

JULIE HYMAN: Right? If that's what you're getting--

ROBERT SMITH: But that's the productivity you gain, you get from your developers. Now you have choices. Do you actually use those productivity gains to develop more code faster?

JULIE HYMAN: Right.

ROBERT SMITH: Right? And put those into the market? New solution sets, et cetera. Or do you use that to reduce the number of people who are actually maintaining existing code bases?

JULIE HYMAN: Oh, got it.

ROBERT SMITH: So it's new products, new opportunities, or reduction of cost for maintaining what is your existing code base. So that's-- and it gives you a completely different dimension on which you can underwrite, and completely different dimension on which you can think about your investment decisions and how the market landscapes will change for the competitive dynamic in each of your portfolio companies. So it's quite fun.

BRIAN SOZZI: A lot of technology here-- it's cool. Like it really captures your mind on what a lot of businesses could potentially do at some point. But are the valuations on these companies just too lofty?

ROBERT SMITH: So if you think about the GenAI, we have seen this how many times in the last few years? So you'll see this-- oh, wow, this is where we have to rush into. And it's created an interesting opportunity for us in this respect. The venture capitalist, growth equity-- a lot of the capital is flowing to the GenAI model type platforms, et cetera, et cetera, et cetera.

I always think about it-- the first wave is going to ultimately go to the hardware vendors. My sense, $2 to $3 trillion of economic rent and value will accrue to that category of providers. Some new, some existing, et cetera. The next wave will be these superscalers, right? They're going to actually capture a massive amount of economic rent.

The long tail is going to be the enterprise software companies. The small and medium businesses aren't going to build their own solutions. They're going to come to enterprise software vendors and ask us for how do we utilize GenAI to create more effective and efficient productivity in our businesses. So that's a dynamic.

There's going to be-- what that's created is a movement of capital VC into the GenAI providers, which-- so some of the enterprise software companies now are looking-- and the small ones are now looking for capital. They can't get it out of that marketplace. And that's created a massive opportunity for us in private credit.

OK, so that's where our private credit business now call is overrun with opportunities in many respects, because they need capital. The VCs who might be in there don't want necessarily mark down the equity values of those businesses, because they were marked in 2020, 2019 with lofty valuations, but they need the capital. And we can actually put together some pretty unique structures that we think serve our stakeholders, our credit stakeholders quite well. So it's created a massive opportunity because of the gold rush over in--

JULIE HYMAN: Wow, really interesting.

ROBERT SMITH: --GenAI.