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Speaker 2: A headline earlier with South Korea declares marshall law. However,
Speaker 2: lawmakers have now voted to request the lifting of the
Speaker 2: marshal law. The president says that marshal law those necessary
Speaker 2: because of political deadlock over the budget. It's confusing, it's
Speaker 2: moving the FX market. We want to get more for
Speaker 2: you joining us now as Dan Daniel ten Kate joining us,
Speaker 2: he's Asia ecogov Executive Editor, Economic Government Executive Editor. Hey Dan,
Speaker 2: can you just help us understand the last twelve hours.
Speaker 3: Yeah, I mean we're still trying to figure it out.
Speaker 3: But essentially the President kind of stunned the nation with
Speaker 3: this late night power grab where he declared martial law
Speaker 3: for the first time in decades and careers a long
Speaker 3: history of that and essentially banned all political activity, banned parliament, etc.
Speaker 3: Claiming there were North Korea sympathizers that he had to
Speaker 3: take down. In reality, he lost the parliament election in April,
Speaker 3: and ever since then he hasn't had a majority in Parliament,
Speaker 3: and the opposition party is doing what opposition parties do
Speaker 3: around the world, which is, you know, try and block
Speaker 3: his initiatives and push their own initiatives through. So he's
Speaker 3: had a bit of divided government there. It sort of
Speaker 3: came to a head with a vote on the budget.
Speaker 3: They were demanding different things and then he just pulled
Speaker 3: this move which even his own party is condemning at
Speaker 3: the moment. So you had opposition and lawmakers race to Parliament.
Speaker 3: They voted to ask him to withdraw the requests from
Speaker 3: martial law. According to the constitution, that means he must
Speaker 3: comply with the request. There is some legal ambiguity now
Speaker 3: that they're trying to work through. We haven't heard from
Speaker 3: him since parliament voted, so we're not sure if he'll comply.
Speaker 3: But people are coming on the streets. There was some
Speaker 3: clashes with police. Overall fairly calm on the streets that
Speaker 3: we could see right now. But the big question now
Speaker 3: is whether he'll comply and drop this whole thing.
Speaker 4: I have to ask the question, Danielle, but who has
Speaker 4: the support of the armed forces of South Korea.
Speaker 3: Well, that's a big question right now. You know, it's
Speaker 3: unclear if the army is going to back him to
Speaker 3: the extent if you get mass protests, are they going
Speaker 3: to you know, started shooting in the streets or something
Speaker 3: like that. I mean, that's that's a big question. And
Speaker 3: we've seen in Asia a couple other places where the
Speaker 3: army has refused to do that. This year. Bangladesh in particular,
Speaker 3: was was one. It doesn't appear like it's coming to
Speaker 3: that yet. Well, we'll have to see with the next
Speaker 3: and a few hours in days spring, but that that's
Speaker 3: an open question.
Speaker 2: So I guess okay, let's just pretend that the president says, okay,
Speaker 2: you guys are repealing martial law. Fine, then what happens
Speaker 2: because we're still clearly at a standstill, and clearly this
Speaker 2: is a big negotiating tactic that the president was using
Speaker 2: to get his agenda passed. So then what happens if
Speaker 2: the government is in paralysis? What gives.
Speaker 3: Well, I mean they were, they were negotiating about it,
Speaker 3: so you know, his his his view of paralysis and
Speaker 3: and what's actually taking place on the ground. There are
Speaker 3: two different things it looks. So you know, there's already
Speaker 3: people calling for him to be impeached after this. His
Speaker 3: own ruling party is condemning his move. He's very unpopular anyway,
Speaker 3: so you know, it's very likely we could see support
Speaker 3: and tun and he could be impeached and turn out
Speaker 3: of office that way. That looks the way it's going,
Speaker 3: unless the army worked to back him and he worked
Speaker 3: to kind of bend the constitution, which you know, so
Speaker 3: far we haven't seen that. We're pariously on the brink
Speaker 3: of that.
Speaker 4: My gosh, all right, Daniel, thank you so much for
Speaker 4: your reporting.
Speaker 5: Really appreciate it.
Speaker 4: Daniel ten Kate he is Asia Economic and Government Executive
Speaker 4: editor for Bloomberg News.
Speaker 5: He is based in Hong Kong.
Speaker 4: For those of you that have a terminal, Top go
Speaker 4: and you kind of get t live and boy, this
Speaker 4: top Live blog is kind of that's where we're getting
Speaker 4: all information, real up to date information from reporters on
Speaker 4: the ground in that part of the world here, so
Speaker 4: we will certainly keep you off the time date on that.
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Speaker 2: All right, let's get the market. Then take here with
Speaker 2: Nancy Tangler, CEO and CIO of Laffler Tangler Laffer Tangler Investments. Nancy,
Speaker 2: I keep reading about how there's so much money in stocks.
Speaker 2: We're still in a US exceptionalism kind of situation, but
Speaker 2: no one wants to pull the trigger and like sell
Speaker 2: and go somewhere else. What are you guys doing?
Speaker 6: Yeah, well, we still like the US best best house
Speaker 6: on the block in terms of earning's growth, in terms
Speaker 6: of productivity, in terms of technological innovation, and the valuations
Speaker 6: despite all the handwringing, are not super out of line.
Speaker 6: I mean, you've got look at the equal weighted pees
Speaker 6: eighteen times forward earnings. Historically it's average seventeen and a half.
Speaker 6: So we keep going back to our analogy, which we've
Speaker 6: been taking about for almost two years, which is this market,
Speaker 6: this economy is analogous to the nineteen nineties, and we
Speaker 6: see so many similarities. I mean, no analogy is perfect, right,
Speaker 6: but we see so many analogies that line up, and
Speaker 6: that was a time when you had, you know, an
Speaker 6: inverted yield curve of labor shortage, geopolitical tension, you know
Speaker 6: a number of the things that we have today as
Speaker 6: well as high interest rates ten years between five and
Speaker 6: eight percent, fed funds rate above five percent, yet you
Speaker 6: had robust stock returns coexisting with that. So we still
Speaker 6: think you want to be long this market for some time.
Speaker 6: And you know, Europe has dramatically underperformed. The rest of
Speaker 6: world has dramatically underperformed for the last twenty years, and
Speaker 6: I think a lot of that has to do with technology.
Speaker 5: So what is your technology call?
Speaker 1: Here?
Speaker 5: These days? We still like it.
Speaker 6: I mean, you know, I think the MAG seven is
Speaker 6: the MAG seven. But we are still exposed to the
Speaker 6: chip sector and we have been we had been shifting
Speaker 6: to software, so we still like a number of those names.
Speaker 6: Largest holding reports tomorrow which is Oracle, but we own
Speaker 6: Service now Microsoft, we own some Adobe, so we're in
Speaker 6: the space and we think that continues to be where
Speaker 6: you want to be.
Speaker 2: What do you do with the super popular AI plays,
Speaker 2: like like in Nvidia, if you didn't own it, actually
Speaker 2: do you own it? And if you didn't know what
Speaker 2: would do? Okay, would you add or do you just
Speaker 2: kind of put it in there and say, all right,
Speaker 2: you're good, I'm going to go look elsewhere.
Speaker 6: It's such a great question because if you're trained like
Speaker 6: I was as a value investor, you're always waiting for
Speaker 6: the pullback. But if you go back and look at Amazon,
Speaker 6: for example, since IPO in May of ninety seven May fifteenth,
Speaker 6: it's up two hundred and seventy thousand percent. So when
Speaker 6: was it too late to get involved with Amazon? We
Speaker 6: added Nvidia in the summer during the tech the summer
Speaker 6: tech swound, so we missed, you know, a big chunk
Speaker 6: of it. But I think, like Tesla, these are stocks
Speaker 6: that are driving in. You can go back and look
Speaker 6: at Walmart. I mean that stock outperformed for many, many years,
Speaker 6: and so I think this again is where you want
Speaker 6: to be. We owned the and still own the poor
Speaker 6: man's Nvidia, which is Broadcom in our twelve Best Ideas portfolio,
Speaker 6: along with Service now, Microsoft and some of the names
Speaker 6: I already mentioned.
Speaker 4: You mentioned the chip Space have had Intel in the news.
Speaker 4: With mister Gelsinger, we now blim we're reporting that he
Speaker 4: was forced out by the board here. What's your take
Speaker 4: on Intel, because we all grew up with Intel as
Speaker 4: being a leader.
Speaker 5: Now obviously they are not. Can they get the mojo
Speaker 5: back at all?
Speaker 6: Do you think, Paul, I'm not optimistic. I think go
Speaker 6: back to Xerox, who developed the mouse but did not
Speaker 6: commercialize it. So Microsoft and Apple commercialized it and then
Speaker 6: they lost their innovative edge. I think Intel is so
Speaker 6: far behind at this point. We sold it about three
Speaker 6: years ago because it was clear to me that he
Speaker 6: didn't have the leadership chops to turn the thing around. Instead,
Speaker 6: he went to Washington with his in hand and got
Speaker 6: you attempted to get money, which he did. But now
Speaker 6: you've got to deliver and the foundry business is losing money.
Speaker 6: But the money from Washington is contingent on having a
Speaker 6: foundry business. It wasn't just Pat, I mean, Bob Swan
Speaker 6: ran the company sort of as a placeholder for a
Speaker 6: couple three years, and there was a time when we
Speaker 6: used to joke that AMD existed simply to ensure that
Speaker 6: Microsoft didn't have a monopoly. And look how that has
Speaker 6: shifted with the right leadership. So I think in a
Speaker 6: bull market there are much better places to be and
Speaker 6: you're not even getting paid to wait via the dividend
Speaker 6: any longer.
Speaker 2: So that's sort of your call on tech. You mentioned
Speaker 2: Walmart a couple of times. What other stocks are on
Speaker 2: your radar right now?
Speaker 5: We like a lot.
Speaker 6: We're overweight industrial and industrials and consumer discretionary, and our
Speaker 6: theme is old economy companies that have pivoted to the
Speaker 6: right technologies.
Speaker 7: So in.
Speaker 6: I'm sorry, in industrials, think of Quantus Services, which is
Speaker 6: PWR and Emerson Electric. Those are names that we own,
Speaker 6: along with a number of the fence names. But that's
Speaker 6: that's where we're focused in that space. In consumer discretionary,
Speaker 6: we like, you know, some of the usual suspects, but
Speaker 6: included in that is home Depot and Chipotle, which are
Speaker 6: both in our twelve Best Ideas portfolio, as well as Amazon,
Speaker 6: which is in our twelve Best Ideas portfolio.
Speaker 4: Did you guys change your investment outlook approach the day
Speaker 4: after the election last month?
Speaker 5: Did anything change?
Speaker 7: No?
Speaker 6: We anticipated, I mean as much as you could. And
Speaker 6: you know, I always tell our clients because we've got
Speaker 6: on both sides of the spectrum, right, don't invest your
Speaker 6: politics by great companies that you can own for a lifetime.
Speaker 6: So we've been kind of shifting in the summer during
Speaker 6: the second summer tech swoon in a two years in
Speaker 6: a row, and then broadening out over the last year.
Speaker 6: And I think, you know, we run a clean energy
Speaker 6: infrastructure strategy, but we had it with oil. So I
Speaker 6: think there's there's a you know, it's a little cynical
Speaker 6: that you need that bridge. And so I think there
Speaker 6: are a lot of ways to make money no matter
Speaker 6: who's in office, and so that that's been our.
Speaker 2: Focus for consumer discretionary in particular. Do tariffs raise your
Speaker 2: eyebrows at all?
Speaker 6: I think, Alex, I think it's mostly rhetoric. I mean,
Speaker 6: I know that he uses this as a negotiating tactic.
Speaker 6: We know that from last administration. Could it be problematic?
Speaker 6: I mean, I think the costs just get passed along
Speaker 6: to the consumer, so that has its own implications for inflation.
Speaker 6: But I just don't I just don't see this president
Speaker 6: is so this elect president elect is so focused on
Speaker 6: the markets. I don't think there are going to be
Speaker 6: policies that are designed to cause problems for US companies.
Speaker 6: So that's speculation.
Speaker 4: Folks on the East coast, This is what some folks
Speaker 4: on East coast do they winter in Florida and they
Speaker 4: summer you know, in New Hampton's or.
Speaker 5: Something like nor If you're on't a west, Oh yeah,
Speaker 5: you summer Lake Tahoe and winter in Lake Scottsdale. That's
Speaker 5: how it's done.
Speaker 2: Out o It doesn't it get cold in Scottsdale?
Speaker 6: Yeah, does a little bit.
Speaker 2: But what has cold mean? It doesn't mean this.
Speaker 6: It means, oh, it's forty five degrees outside. I better
Speaker 6: put on another down jacket over my.
Speaker 5: Downvest because you're like fifteen minutes.
Speaker 6: You're wrecked for every other climate when you live in Scottsdale.
Speaker 2: Yeah, yeah, Scotstdale. Isn't it like? You know, you start
Speaker 2: out the morning in a thirty degrees and then it
Speaker 2: gets to be eighty and then it goes back to fifty.
Speaker 2: I can't it's too much. You know, as a woman,
Speaker 2: you already carry a big person. It's heavy, and now
Speaker 2: you got to carry layers, layers, that's what it's too hard.
Speaker 4: Nancy, thank you so much for joining us here in
Speaker 4: our studio. Nancy Tangler, she's the CEOP and she's investment
Speaker 4: officer Laffert Tangler Investments again coming in from the West
Speaker 4: to bring us some of her thoughts on you're.
Speaker 1: Listening to the Bloomberg Intelligence Podcast. Catch us live weekdays
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Speaker 2: Joining us now in studio is Sarah Samuels, head of
Speaker 2: Investment Manager Research over at n EPC. She's a partner
Speaker 2: over there and oversees the firm's forty five person investment
Speaker 2: manager selection team across private equity, private debt, private real estate,
Speaker 2: real assets, hedge funds, and public markets. Sarah, it's great
Speaker 2: to have you in studio. Thank you for joining us.
Speaker 7: Thank you very much. It's a pleasure to see you again.
Speaker 2: You too, So little see public markets side for a
Speaker 2: sec because we get plenty of guys with their calls
Speaker 2: blah blah blah. Let's talk about the private market. What
Speaker 2: do you think is going to the hotspots are going
Speaker 2: to be for next year?
Speaker 7: Well, you know, just to set the stage for what's
Speaker 7: on limited partners minds, institutional investors' minds today. They're really
Speaker 7: not seeing the distribution activity that they typically have, so
Speaker 7: distribution to paid in capital is not coming back at
Speaker 7: the pace that they had modeled out, and what that
Speaker 7: means is that there are fewer dollars to commit to
Speaker 7: future funds because it's an equation, it's a closed loop system.
Speaker 7: There isn't unlimited capital. And so we're really hoping that
Speaker 7: we see deal activity and distributions and transaction activity begin
Speaker 7: to pick up in twenty twenty five, and I think
Speaker 7: that it will. We are seeing lower interest rate, which
Speaker 7: helps with the deal economics. We are seeing better valuations,
Speaker 7: and you know, we may see some simulative policy and.
Speaker 4: It looks like from a I guess just maybe from
Speaker 4: a tax perspective, there may be some easier tax treatment
Speaker 4: for some of these gains that some of the limited
Speaker 4: partners have.
Speaker 5: Do you expect this new administration to foster more deal flow?
Speaker 4: We have seen some reporting on that, do you, guys,
Speaker 4: from your perspective, expectancy increase deal flow, whether it's IPOs,
Speaker 4: whether it's and a emdeon.
Speaker 7: Yes. So there are a number of ways that these
Speaker 7: things can happen, that these deals can can actually be executed.
Speaker 7: There's obviously the IPO market which is open today but
Speaker 7: not being tapped broadly because buyers and sellers are not
Speaker 7: the meeting in the middle on price. There are strategic investments,
Speaker 7: so selling to corporations, and we are still seeing a
Speaker 7: lot of that. And then there's sponsored a sponsor, which
Speaker 7: is a private markets firm buying something from another private
Speaker 7: markets firm. And so if we see the more favorable
Speaker 7: tax treatment, if we see lower interest rates, more easy
Speaker 7: antitrust stances as well as regulatory then I think that
Speaker 7: it could be quite a bit easier for smaller companies
Speaker 7: in particular, to either go public or to grow their earnings.
Speaker 2: So typically when I talk to someone in private equity,
Speaker 2: they're like, oh, well, you know it's a vintage, so
Speaker 2: it's a long term, right, So you're gonna give us
Speaker 2: money now, you don't get it back for ten years.
Speaker 2: Like it's fine, Like everything will sort itself out in
Speaker 2: ten years. And then we get to today and then
Speaker 2: I want my money back. It's been ten years and
Speaker 2: it's hard to get that cash back. Does that interrupt
Speaker 2: the popularity of private equity or even a private credit
Speaker 2: at this point, or are these things that are just managed.
Speaker 7: It's a great question. There's a lot to it, So
Speaker 7: it doesn't interrupt the popularity because there is still a
Speaker 7: pretty meaningful premium for private market investments over public markets,
Speaker 7: and public markets alone are not going to get institutions
Speaker 7: to where they need to be. Many institutions haven't expect
Speaker 7: a return of six seven eight percent nomenal, and we're expecting,
Speaker 7: you know, mid single digit returns for US equities, for example,
Speaker 7: over the next ten years, whereas in the private markets,
Speaker 7: we're expecting double digit returns.
Speaker 2: Double digit like ten eleven, twelve percent, or like more
Speaker 2: than that. Orpends on the area.
Speaker 7: So for something like private debt, and there are a
Speaker 7: variety of different flavors in there. There's subordinated capital, there's
Speaker 7: you know, direct lending, which is a lower returning asset today,
Speaker 7: there's a lot of capital in there, there's distress, and
Speaker 7: then there's opportunistic which we're really excited about. And that's
Speaker 7: a catch all term for really creative financing solutions. So
Speaker 7: that's either providing so being a liquidity provider is what
Speaker 7: we are most excited about, both in this year, in
Speaker 7: twenty twenty four and next year. That could be providing
Speaker 7: creative financing solutions for GPS to get capital back to LPs.
Speaker 7: It could be being a lender to real estate, you know,
Speaker 7: with real estate debt through private debt, or by investing
Speaker 7: in secondaries and providing liquidity to GPS and LPs alike.
Speaker 4: Are you surprised we haven't had more IPO activity in
Speaker 4: twenty twenty four and the S and p's of twenty
Speaker 4: five percent back in the day, I would have been
Speaker 4: ripping companies.
Speaker 5: Out of look into the marketplaces.
Speaker 4: I mean, we get a ten percent move in the market,
Speaker 4: we're on the phone straight for thirty six hours calling everybody.
Speaker 7: So I have IPO activity has honestly not historically been
Speaker 7: the line's share of exits, so but it is very
Speaker 7: important and it is open. So I think it's really
Speaker 7: interesting that we haven't seen more companies price and go public.
Speaker 7: Many cases, especially in venture capital, the last round financing
Speaker 7: is the valu valuation methodology that is used, and that
Speaker 7: last round of financing won't reset until they price another round,
Speaker 7: and so we are seeing lots of companies that are
Speaker 7: held at valuations that are not actually reasonable and there
Speaker 7: will need to be a reconing.
Speaker 2: Where in say, private credit is the most interesting, and
Speaker 2: how do you look at it? Is it like industry
Speaker 2: based is in how do you break it down into buckets?
Speaker 7: Yeah, so we are looking at things like distressed debt,
Speaker 7: which is really looking to take advantage of the type
Speaker 7: of financially not necessarily like sector based right now. Well,
Speaker 7: and then we're also you know, pretty interested in as
Speaker 7: a backed lending, so abl investing, and so there are
Speaker 7: there are a number of other areas and ways to
Speaker 7: play this, but I would say that direct blending is
Speaker 7: becoming more and more mainstream and less of a premium there.
Speaker 4: When I got to the board at a large university,
Speaker 4: I was shocked to see how much is allocated to
Speaker 4: private getting in private alternatives broadly defined, not the ten
Speaker 4: to fifteen percent that I grew up with, forty yes
Speaker 4: and more.
Speaker 7: And I've been in that set. I've worked at an
Speaker 7: endowment and like, so.
Speaker 5: In twenty twenty two comes along twenty twenty three, I'm like,
Speaker 5: we're the marks down.
Speaker 3: Kids.
Speaker 5: Didn't get a mark down.
Speaker 4: It's such a scam that private business they don't mark
Speaker 4: That's why I'm so shocked that they allocate so.
Speaker 5: Much to that.
Speaker 4: Is that A Are you surprised that universities have taken
Speaker 4: such an aggressive.
Speaker 5: View of their portfolios of really its alternatives.
Speaker 7: I'm not surprised. As I mentioned earlier, the return premium
Speaker 7: is there over public markets. You do need a chief
Speaker 7: investment officer mindset when you're allocating capital to private equity.
Speaker 7: So you don't want to lock up your capital in
Speaker 7: just any investment. You want to make sure that you're
Speaker 7: being paid to lock up your capital, and you can
Speaker 7: do that looking at public market equivalents or other measures.
Speaker 7: And you know, these universities and public pensions for that matter,
Speaker 7: have pretty lofty return targets and they need to get there.
Speaker 7: The thing to look at is how much of the
Speaker 7: operating budget is the institution supporting? Is it thirty forty
Speaker 7: fifty percent? And if it is, then be really careful
Speaker 7: with your liquidity guardrails. And that's something that we do
Speaker 7: for our clients at ANYPC. It's a number of simple
Speaker 7: but very powerful metrics. Understand if we get out over
Speaker 7: our skis, and if we had those in place prior
Speaker 7: to two thousand and eight, a lot of heartache would
Speaker 7: have been avoided.
Speaker 2: That's really interesting, Hey, Sarah, really great stuff. I really
Speaker 2: appreciate you. How you coming in, Sarah Samuels. We will
Speaker 2: definitely be seeing you soon joining us from an EPC.
Speaker 2: Thank you so very much.
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