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Speaker 2: David Sherman, chief investment Officer, Crossing Bridge Advices, joins us
Speaker 2: here in Studio Wine Studio.
Speaker 3: I have no idea.
Speaker 2: Maybe he's returning some gifts here, David Boy And you
Speaker 2: look at the equity markets in twenty twenty five, fifteen
Speaker 2: percent gains in ES and p five hundred and twenty
Speaker 2: percent gains in Nasdaq fixed income pretty much high single
Speaker 2: digit returns across fixing them across the board in twenty
Speaker 2: twenty five, What are we doing twenty six.
Speaker 4: Ray No look. Valuations are high, spreads are tight, multiples
Speaker 4: are high, commodities are high. Geopolitical risk tensions are high.
Speaker 4: Uncertainty is high. I think that people are not praising
Speaker 4: in enough liquidity or premium to tail risk. That being said,
Speaker 4: the economy of the US, at least and in the world,
Speaker 4: has done a lot better than people expected, especially after
Speaker 4: being liberated. So therefore, you know it's sort of an
Speaker 4: interesting act between two very different outcomes that could occur.
Speaker 4: You've seen that, by the way, in portfolio managers, right,
Speaker 4: You've had some equity perform managers have had standing years
Speaker 4: and some they've had just mediocre years where they've actually
Speaker 4: underperformed fixed income. And I think that just sort of
Speaker 4: goes to show the joke about the recession the economy
Speaker 4: being a K economy. I think our financial professionals are
Speaker 4: a bit of a K.
Speaker 5: Yeah, that's a good way to describe it. But I
Speaker 5: think if I had one word for twenty twenty five,
Speaker 5: it might be resilience, Right, I mean from the consumer
Speaker 5: to corporations, because you see it in their earnings. Whatever
Speaker 5: you threw with us, right, I mean, we just kept
Speaker 5: coming back. Can talk about Liberation Day even despite the terroorffs.
Speaker 5: I mean, this is an economy that continues to grow
Speaker 5: at a pretty good clip. We'll see what happens in
Speaker 5: Q one. But what about opportunities outside the US?
Speaker 4: So we're primarily credit oriented fixed income and what's great
Speaker 4: is we've actually found a lot of opportunities outside the US,
Speaker 4: which is one of the few times in my I
Speaker 4: hate to say a forty year career now. But one
Speaker 4: of the things that happened was, for my first time
Speaker 4: in my entire career, we invested in a debtorin possession
Speaker 4: syndicated financing bond by Deutsche Bank. So this is something
Speaker 4: anyone can buy that's a professional. Debtor in possession is
Speaker 4: the death they lend to companies when they're in bankruptcy.
Speaker 4: I was an autoparts company. Auto OEM manufacturer called it Morelli,
Speaker 4: but you're getting sofur plus eight hundred. It's coming out
Speaker 4: sometime in twenty six a one h two takeout price,
Speaker 4: cash required. And what's interesting is as Japan's insurance are
Speaker 4: going up, we're going to see more of this because
Speaker 4: the government of Japan has been encouraging companies to no
Speaker 4: longer hoard and to be more focused on improving outcomes
Speaker 4: for shareholders, and there's been activism. So this was an
Speaker 4: LVO again autoparts. It's on my first step. And in Japan,
Speaker 4: the reason it happened is Japanese institution's view bankruptcy is failure,
Speaker 4: so they're not willing to participate to create this and
Speaker 4: this is what creates the opportunity and then so that's
Speaker 4: a great opportunity. We think the Nordic high yield market
Speaker 4: still represents the most interesting high yield market in the
Speaker 4: world today, So we think those two things are very interesting.
Speaker 4: And then obviously with the commodity places, that's changing the
Speaker 4: whole dynamics of how people think about places like Latin
Speaker 4: America and Africa.
Speaker 2: Where do you see fixed income opportunities in your part
Speaker 2: of the curve? These you know, you did a debtor
Speaker 2: in possession of financing and that's high.
Speaker 4: Risk, actually very low risk, low risk to you. Okay, Now,
Speaker 4: I think it's actually very low risk. So for instance,
Speaker 4: when Pacific Gas and Electric went into bankruptcy, they usued
Speaker 4: debtor in possession financing. It was actually rated triple B,
Speaker 4: so it was rated in investment grade. And the reason
Speaker 4: I think it's less risk is, yes, the company's in bankruptcy,
Speaker 4: but you're the first person to get paid other including
Speaker 4: the tax authorities, and you're usually secured. So unless the
Speaker 4: company is administratively insolvent or is ill liquid and just
Speaker 4: vaporizes like First Brands, you're perfectly fine. Now, obviously in
Speaker 4: First Brands case, they're the debtor in possession financing was
Speaker 4: looks like fools money.
Speaker 3: Yep, So why are you getting paid eight hundred basis
Speaker 3: points of spread?
Speaker 4: Then if you're you know, it's interesting. One it's automotive,
Speaker 4: so it's OEM. Two it's Japan's first step. Three they
Speaker 4: had to syndicate a Japanese company into the Europe and
Speaker 4: US market. Three dips pay a big spread because it's
Speaker 4: a lot of work and very few people can participate,
Speaker 4: similar to other assets.
Speaker 6: Ye.
Speaker 5: So if Japan views bankruptcy as failure, what is the
Speaker 5: US view bankruptcy? I'm just curious, mind, Yeah.
Speaker 4: That's a good question. I don't know. In fact, I
Speaker 4: don't think the bankruptcy process is working very well in
Speaker 4: the United States. So back in the seventies there was
Speaker 4: no restructuring process. Then they've created the bankruptcy laws, and
Speaker 4: now with all the securitized products like CLO's assetbacks, you
Speaker 4: have different groups with very very different agendas, which is
Speaker 4: why we have the creditor on credit or warfare. I
Speaker 4: think it's very difficult, and you know, bankruptcy shouldn't cost
Speaker 4: twenty thirty million dollars as a starting point to get
Speaker 4: out of bankruptcy.
Speaker 2: Twenty twenty six, where do you guys from a credit perspective,
Speaker 2: see opportunities going forward.
Speaker 4: I guess it's again a k theme. We're going to
Speaker 4: be on really high quality, relatively liquid stuff and part
Speaker 4: of the portfolio, and then we hope to be opportunistic
Speaker 4: on the bottom half. And where we see the opportunistic
Speaker 4: part is really outside of the United States. There'll be
Speaker 4: opportunities the United States, but between the structural issues with
Speaker 4: again the credits on creditor and the clos unless you're
Speaker 4: in the club or in the room where happens from
Speaker 4: online from Hamilton, it's a big problem. So where we
Speaker 4: find the more interesting opportunities is overseas, and we think
Speaker 4: the Nordic market, which is I've talked about on the
Speaker 4: show before, has more yield. Be are quality securities, but
Speaker 4: they also went through a big boom. When you go
Speaker 4: through big boom, bad underwriting happens and they'll be underwriting problems.
Speaker 4: And we think that fundamentally those companies are good companies
Speaker 4: with bad balance sheets, which is not necessarily the case,
Speaker 4: and that i'd say tomorrow, a lot of the US
Speaker 4: companies that are bankrupts are just kicking the can down
Speaker 4: the road, and we think that that'll be a very
Speaker 4: good opportunity. We're involved in one. Now we're super excited.
Speaker 5: Oh good for you. Nice way to head into the
Speaker 5: new year. But real quick, before we let you go,
Speaker 5: the FED, what your expectations for rate cuts next year?
Speaker 4: So I am a bottom up practitioner with value bent,
Speaker 4: so people should discount a lot. But it's pretty clear
Speaker 4: to me that the administration wants rates lower. They're going
Speaker 4: to get short term rates lower, whether people like it
Speaker 4: or not. The real question will be we have a
Speaker 4: housing problem, meaning people don't find it affordable, and the
Speaker 4: question is what can the government do about making that
Speaker 4: more affordable. And one of the outliers I have is
Speaker 4: that somehow the treasuring in the FED couarda and buying
Speaker 4: mortgages or create policy to protect the rates.
Speaker 2: Dave, thanks so much for joining us. Appreciate it. David Sherman,
Speaker 2: he's a chief investment officer Crossing Bridge Advisors. Talk to
Speaker 2: us a little bit about the credit side and where
Speaker 2: there might be some opportunities in twenty twenty six.
Speaker 6: Stay with us.
Speaker 3: More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live
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Speaker 5: We know that consumers have been in it to win,
Speaker 5: it powering the strongest US economic growth in two years
Speaker 5: in the third quarter, when GDP grew at an annual
Speaker 5: rate of four point three percent. Can it continue? What's
Speaker 5: the fourth quarter going to show? What's next year going
Speaker 5: to show? Bill Adams, chief economist of America Bank, joins
Speaker 5: us to give us some insights. So Bill, a bit
Speaker 5: of a hard act to follow after that the number
Speaker 5: we got for Q three, But what's your expectation for
Speaker 5: what Q four might look like? But more importantly, looking ahead,
Speaker 5: what about Q one?
Speaker 7: Q four, I think you have to remember was the
Speaker 7: quarter of the government shutdown, and so that was a
Speaker 7: substantial headwind, and we're likely to see a much softer
Speaker 7: number for Q four GDP. I have annualized real GDP
Speaker 7: in Q four of under one percent.
Speaker 6: With that said, I think twenty twenty six is likely.
Speaker 7: To be a year of solid economic growth and broadening
Speaker 7: economic growth, where lower interest rates from the Fed and
Speaker 7: we're expecting raycus to likely continue in the new year
Speaker 7: are going to support some recovery of existing home sales
Speaker 7: and industries related to the housing market as well.
Speaker 6: Bill talk to us.
Speaker 2: About you know this Fed of reserves, look at that inflation,
Speaker 2: looking at the labor market.
Speaker 3: Let's start with the labor market here. What's your view
Speaker 3: of the US labor market.
Speaker 2: I mean, if you just look at the headline inflation
Speaker 2: rate or okay, everything's okay, don't worry.
Speaker 7: There's been a big disconnect in the past year between
Speaker 7: pretty good real GDP growth on the one hand, and
Speaker 7: a softening labor market on the other. I have been
Speaker 7: following very closely measures of the labor market that tend
Speaker 7: to be more cyclical during economic slowdowns. If you look
Speaker 7: at the unemployment rate for black or African American workers,
Speaker 7: that's up to eight point four percent in the November
Speaker 7: jobs report. It's up more than two and a quarter
Speaker 7: percentage points since the middle of this year. That's a
Speaker 7: very large increase, and so that points to a substantial
Speaker 7: softening of labor demand in the last three to six months.
Speaker 7: We have seen the payrolls numbers holding up being positive
Speaker 7: for most of this year.
Speaker 6: We'll see whether those get.
Speaker 7: Revised in early twenty twenty six, There is a lot
Speaker 7: of guesswork. I guess you could say the d has
Speaker 7: an estimate of jobs added at newly forming companies and
Speaker 7: jobs lost at companies that are going out of business,
Speaker 7: and that model creates a.
Speaker 6: Lot of uncertainty in the payrolls numbers months to month.
Speaker 7: My sense is that that's likely to be revised down,
Speaker 7: given that the unemployment rate has been moving higher and
Speaker 7: that we've been seeing these measures like the Black unemployment
Speaker 7: rate softening. Even more so, I think the Fed they
Speaker 7: have a mandate for maximum employment.
Speaker 6: They don't have a mandate for maximum GDP growth. It's
Speaker 6: maximum employment and stable prices.
Speaker 7: And the unemployment rate taking higher as well as these
Speaker 7: forward looking measures of labor demand also softening, I think
Speaker 7: points to a need for more support for the economy
Speaker 7: into the new year.
Speaker 5: Well, Bill, you certainly don't have to search far to
Speaker 5: find wild cards possible wild cards in next year, everything
Speaker 5: from AI to we've got the transition happening at the
Speaker 5: Federal Reserve. But I'm going to throw this out there
Speaker 5: and say, I think the biggest wildcard next year might
Speaker 5: just be the consumer. And a lot of of course
Speaker 5: is contingent upon what happens in the job market. What's
Speaker 5: the biggest wildcard to your mind.
Speaker 7: I think the end of Chuir Powell's term in May
Speaker 7: is going to be a potential source of volatility for
Speaker 7: the economy and.
Speaker 6: For financial markets.
Speaker 7: We'll have to see who the new appointee at the
Speaker 7: FED is going to be.
Speaker 6: But I think the President.
Speaker 7: Has been open throated and calling for someone who will
Speaker 7: support the economy with lower interest rates, and I think
Speaker 7: that has financial markets nervous about politicization of US monetary policy. Now,
Speaker 7: I will say, over the last couple of months, the case,
Speaker 7: to my mind, of for lower interest rates has become
Speaker 7: a little more plausible.
Speaker 6: Based on economic data.
Speaker 7: We already talked about the softening of the labor data if.
Speaker 6: You look at the inflation data.
Speaker 7: Now, I don't know how much credence to put into
Speaker 7: the November CPI report given the data gaps that we've
Speaker 7: had recently. But oil prices are down, the housing market
Speaker 7: continues to soften.
Speaker 6: That's going to reduce shelter price inflation.
Speaker 7: Rents are also rising slower nationally, with the largest decrease
Speaker 7: in rent inflation in the parts of the economy. The
Speaker 7: parts of the nation where we've added the most housing
Speaker 7: supply recently the sun Bell so that is going to
Speaker 7: keep inflation moving on a lower trajectory into twenty twenty six,
Speaker 7: with the exception of terror price increases.
Speaker 6: I think the US is set up.
Speaker 7: For a cooler labor market, cooler inflation backdrop, and services
Speaker 7: which to my mind supports lower interest rates. Might make
Speaker 7: this FED leadership transition less fraut over time.
Speaker 6: But I think as that announcement of the next FED.
Speaker 7: Chair is being made, and as markets are trying to
Speaker 7: anticipate what that change in leadership could mean, I see
Speaker 7: that as a potential source of volatility.
Speaker 2: Bill we all know about the K shaped economy out there,
Speaker 2: and with that just kind of as a backdrop, how
Speaker 2: do you view the US consumer here? Because boy, it
Speaker 2: just it feels like you never count out the US consumer.
Speaker 7: I will say I was concerned about the consumer going
Speaker 7: into the holidays shopping season. The initial data that we've
Speaker 7: seen for Black Friday spending going into early December, it
Speaker 7: looks pretty good. I think the consumer has again held
Speaker 7: up the economy this holiday season. Probably helped that the
Speaker 7: government shutdown ended and then there was a reasonable gap
Speaker 7: between the end of the government shutdown and people getting
Speaker 7: their salaries again, and then the holiday shopping season really
Speaker 7: kicking off in late November. I think the consumer we
Speaker 7: still continue to have this as you say, k shaped economy.
Speaker 7: Low and moderate income consumers are definitely under pressure from
Speaker 7: the cost of living, but I think the overall consumer
Speaker 7: is supported by the acid price increases, especially the robust
Speaker 7: increase in the stock market in the last year, and
Speaker 7: a lot of American consumers. An increasing number of American
Speaker 7: consumers are retirees, and so for retiree households, it's the
Speaker 7: cost of living and then also asset price returns and
Speaker 7: their income from pensions and from social security that are
Speaker 7: driving consumer spending. And retiree households have been under pressure
Speaker 7: from inflation, yes, but also benefiting from the stock market
Speaker 7: and from other asset price returns. So I think that
Speaker 7: part of the consumer market is really holding up the
Speaker 7: economy and is insulated from concerns about the job market
Speaker 7: and job availability.
Speaker 6: In twenty twenty six, which you see.
Speaker 7: Weighing on a lot of conventional measures of consumer confidence
Speaker 7: like the Conference Sports Consumer Confidence.
Speaker 2: Index bill are seen your bio that you're fluent in Mandarin, Chinese,
Speaker 2: what is that about?
Speaker 3: Where do you pick that up?
Speaker 1: Dude?
Speaker 7: I bombed the Spanish placement test on my first week
Speaker 7: of college and I needed to pass a foreign language.
Speaker 7: So long story short, I found myself learning Chinese, and
Speaker 7: I actually kicked off my career as an economist as
Speaker 7: the Conference Board's China Economists from two thousand and nine
Speaker 7: to twenty eleven.
Speaker 3: All right, all right, see when you read people's bios,
Speaker 3: I love it. I love that kind of stuff.
Speaker 2: My son, twenty one year old son, he's all into
Speaker 2: Japanese and I'm like, dude, just take French Spanish like
Speaker 2: regular people. No, he's doing Japanese and he's doing a
Speaker 2: semester in Japan and he's got lined up a summer
Speaker 2: internship in Tokyo.
Speaker 3: So I don't know.
Speaker 4: We'll see how that goes.
Speaker 3: Fine, So when i'm mee see people like Bill fluent
Speaker 3: and Chinese? Who does that?
Speaker 2: All right, Bill, thanks so much for journey. Appreciate it.
Speaker 2: Bill Adams, he's a chief economist of co America Bank.
Speaker 2: You appreciate getting a few minutes of his time.
Speaker 3: Stay with us. More from Bloomberg Surveillance coming up after this.
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Speaker 2: Holiday shopping I think it was I don't know. It
Speaker 2: seemed pretty busy out there to me out there in
Speaker 2: the marketplace. I know people were clicking away on the
Speaker 2: e commerce side.
Speaker 3: I know I was clicking away.
Speaker 6: Yep.
Speaker 5: So a lot of that might have been happening behind
Speaker 5: closed doors, as they.
Speaker 6: Say, and as you do the returns.
Speaker 3: You know, some companies are charging you for returns for
Speaker 3: the what is it re talking fee?
Speaker 5: I guess that's back it's a thing again, yep, all right, Yeah,
Speaker 5: I don't know.
Speaker 2: There are a lot of gifts under the tree, That's
Speaker 2: all I know.
Speaker 3: And that I was like, I don't want anything.
Speaker 4: I don't want anything.
Speaker 2: Julia Wilson, Principal Advisory Strategies KPMG, based in Atlanta, Georgia. Juliet,
Speaker 2: from your perspective, what are your clients telling you about
Speaker 2: kind of the holiday season, the retail space out there?
Speaker 3: Are people spending money?
Speaker 8: I think they were, But I think over all your
Speaker 8: kind of view of a holiday might have been the
Speaker 8: word of the day. So so holiday was stronger than expected.
Speaker 8: We saw consumer spend the results coming out higher than
Speaker 8: analysts had predicted. But I would say it was kind
Speaker 8: of a you know, at least in my house, what
Speaker 8: we called it was the year of the sweater So
Speaker 8: it was a very practical holiday spending, you know, withheld
Speaker 8: all of the headwinds, but it didn't give anybody a.
Speaker 6: Ton of surprises.
Speaker 8: You know, things were very practical that the smart consumer
Speaker 8: kind of played out well.
Speaker 3: Ours was socks socks.
Speaker 5: Yeah, well, you know what, the SNL had a great skit.
Speaker 5: They always do it. It was it's an old skit,
Speaker 5: but they did it where the mom gets a robe
Speaker 5: every year, but everybody else in the family gets like
Speaker 5: really cool gifts and she's like, okay, I have another robe.
Speaker 5: So I feel you on the sweater robe sock thing.
Speaker 5: But what about gift cards? You remember when they were
Speaker 5: sort of all the rage, people were going out and
Speaker 5: buying gift cards because they didn't know what else to do.
Speaker 6: Do you think that was as it crept up on them?
Speaker 8: Yeah, absolutely so, I think gift cards and we'll really
Speaker 8: see where the consumer plays out in terms of the
Speaker 8: categories because of the gift card trend, I think a
Speaker 8: lot of people the sentiment, you know, And actually we
Speaker 8: had fewer days between Black Friday and Christmas Day this year,
Speaker 8: so a lot of people it caught them by surprise.
Speaker 8: And so gift card as the gift of choice is
Speaker 8: definitely something that we predicted with our consumer Pulse survey.
Speaker 6: And then I'll actually played out.
Speaker 8: So I think you'll see a lot of spend over
Speaker 8: this weekend to see if you know, if electronics kind
Speaker 8: of nudge ahead, or if people are still using the
Speaker 8: gift card to get the things that they kind of
Speaker 8: were holding out on just as they were, you know,
Speaker 8: a bit spind thrift over the period.
Speaker 2: Alexis, you know that Julia is a big time consoling
Speaker 2: because right behind her is a white board, and whenever
Speaker 2: a white board is brought out in a meeting, I'm in,
Speaker 2: I get up and I leave, thank you very much.
Speaker 3: I'm transition.
Speaker 8: It's actually a painting, but yeah, I can get the whiteboards.
Speaker 8: On the other side of the room, there is a
Speaker 8: whiteboard and lots of business books.
Speaker 3: That's how they do it.
Speaker 2: That's how the consultants think they're big time out of
Speaker 2: the box, Juia. How do retailers reach their consumers these days?
Speaker 2: I mean, I mean, you know, how do you reach
Speaker 2: a John Tucker who's not at the beck and Call
Speaker 2: of influencers on social media?
Speaker 8: So, you know, the new retail strategy is definitely being
Speaker 8: where the consumer is, so omnichannel demand is kind of
Speaker 8: the thing and finding them whether you're you do like
Speaker 8: to see it in your feed. So the traditional social
Speaker 8: media outlets of Facebook, Instagram, et cetera are not gone, Chat, GPT,
Speaker 8: Jim and I everything. Making sure that you're searchable there
Speaker 8: and that it's easy to click through is kind of
Speaker 8: the second area. I would say this is the first
Speaker 8: year that we really saw AI take off from a
Speaker 8: consumer perspective. And then the traditional ad it's not gone.
Speaker 8: You know, there's some of us that are still in.
Speaker 8: You know, we watch TV, we watch it, you know,
Speaker 8: we do things on YouTube, et cetera, and so finding
Speaker 8: that that perfect mix is complex, but we have a
Speaker 8: lot more tools today to get in front of the consumer.
Speaker 5: All Right, who here is doing dry January? Try January
Speaker 5: being that you don't drink for the month of January.
Speaker 8: I've heard, you know, sprinkle January is another thing. Our
Speaker 8: consumer survey said about one in three Americans are participating
Speaker 8: in Dry January. It's for health reasons, is the number
Speaker 8: one reason, but the second reason is to spend less money.
Speaker 8: So I think we if we aren't knocked over the
Speaker 8: head with the thing of the frugal consumer, we're continuing
Speaker 8: to see that even as we head into Dry January.
Speaker 8: But it is our strained consumer thinking about help and
Speaker 8: wellness for sure.
Speaker 2: You know, AI has kind of seeped into all aspects
Speaker 2: of our lives, all aspects of the economy. How are retailers,
Speaker 2: how are consumers using AI in their purchasing.
Speaker 8: I have to tell you, as a last minute shopper,
Speaker 8: AI does not bring the package to your door. So
Speaker 8: that's one thing that we could maybe look for in
Speaker 8: the future. If you're buying in the last ten hours
Speaker 8: of the holiday a shopping spree, then you do need
Speaker 8: to go in a store and physically pick it up.
Speaker 8: But I think AI is helpful. You know, we just
Speaker 8: mentioned that the returns that are about to happen, so
Speaker 8: figuring out where to go, how to print a label,
Speaker 8: some of those really tactical things that you'd have to
Speaker 8: sift through and try to figure out AI is helping
Speaker 8: the consumer on that side. But from the retailers perspective,
Speaker 8: you know, we can't forget just how important it is
Speaker 8: for them to use it to drive productivity and enhance personalization.
Speaker 8: So KPMG, we talked about the front, middle and back office.
Speaker 8: AI is really helping us do some of those things
Speaker 8: of you know, the chats to when a consumer has
Speaker 8: a question about how to put together a toy or
Speaker 8: where to return. Chatbots are one of the first places
Speaker 8: to leverage AI.
Speaker 3: Juey, thank you so much for joining us. Really appreciate it.
Speaker 2: Julian Wilson, she's a principal Advisory Strategy group at KPMG.
Speaker 3: Talking about retail and retail sales.
Speaker 6: Here stay with us.
Speaker 3: More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or
Speaker 1: watch us live on YouTube.
Speaker 2: Scott Sperling Joints us here chief executive officer THHL Partners.
Speaker 2: For those of us that have been in the business
Speaker 2: a couple of eons. That would be Thomas H.
Speaker 6: Lee Partners.
Speaker 3: Did a lot of biz with them back in the day.
Speaker 2: Scott news Away, thanks so much for joining us here.
Speaker 2: Talk to us about kind of the m and a
Speaker 2: environment out there. Scott, what do you expect for twenty
Speaker 2: twenty six. It seems like we've got a pretty decent
Speaker 2: We got the FED cutting rates, the economy is pretty good,
Speaker 2: earnings are pretty good.
Speaker 3: It would seem like you.
Speaker 2: Guys, as we'd be writing some tickets here, what's your expectation?
Speaker 9: And certainly on the larger end, if you look at
Speaker 9: the return to normalcy in terms of our anti trust regime,
Speaker 9: that certainly opened up a number of opportunities to do
Speaker 9: things that make sense in terms of bringing companies together
Speaker 9: that could streamline their costs, provide better service more cost
Speaker 9: effectively for consumers.
Speaker 6: So I think those opportunities exist.
Speaker 9: I think on the private equity side, the cost of
Speaker 9: capital hasn't been a huge problem. That's not really what's
Speaker 9: driven some of the slow down that we've seen over
Speaker 9: the course of the last twenty four months.
Speaker 6: I think that's more.
Speaker 9: Specific to the fact that in the twenty one into
Speaker 9: early twenty two period, a lot of things were required
Speaker 9: at multiples that may have made less sense than it's
Speaker 9: to people at the time, and it's taking a while
Speaker 9: for those companies to grow into their valuations, and that
Speaker 9: has really slowed down both the number of things that
Speaker 9: have come to market as well as the ability to
Speaker 9: get deals done at prices that in today's world would
Speaker 9: make sense from a risk adjusted return perspective. So the
Speaker 9: industry has been slow for the last couple of years.
Speaker 9: In private equity, we do anticipate that picking up. I
Speaker 9: think time has been helpful. Their companies have continued to
Speaker 9: perform by and large and therefore growing into valuations that
Speaker 9: might have been too high from a multiple perspective a
Speaker 9: few years ago. So I think we'll see more activity.
Speaker 9: I hope to see more activity as we go into
Speaker 9: twenty twenty six in private equity. And as I said,
Speaker 9: for overall M and A, you are seeing this handful
Speaker 9: of rather large deals occur that that you would not
Speaker 9: have seen three years ago.
Speaker 5: Yeah, Scott, because when I was looking, I was looking
Speaker 5: at some of the numbers, roughly four point eight trillion
Speaker 5: dollars in deal value this year, but the amount of
Speaker 5: deals were pretty modest, right, So what does that tell
Speaker 5: you about the deals that are happening and how that's
Speaker 5: setting us up for twenty twenty six.
Speaker 9: Sure, you know, again we're seeing some very large strategic consolidations.
Speaker 9: Those are things that under the prior antitrust authorities would
Speaker 9: not even be considered. Those Both the DOJ and the
Speaker 9: FTC leadership had theories that did not correspond to either
Speaker 9: the laws most people saw or to a long tradition
Speaker 9: about how to evaluate antitrust, and so that put a real,
Speaker 9: real chill, as we know, on any kind of activity
Speaker 9: of this kind. But the opportunity now to actually do
Speaker 9: things that make sense for consumers in particular, or customers
Speaker 9: if it's a business business type situation. I think that's
Speaker 9: allowing these very large acquisitions to occur.
Speaker 6: That's making up the bulk of.
Speaker 9: That of that number that you spoke of.
Speaker 2: Scott, I love to get your thoughts on kind of
Speaker 2: kind of where the market is in terms of monetizing
Speaker 2: or exiting investments. It's my understanding that three to five
Speaker 2: years is a nice folding period for the average private
Speaker 2: equity fund, but many funds over the last decade or
Speaker 2: so have been five years, seven years, maybe even longer,
Speaker 2: which is impact the returns for your LPs. What's the
Speaker 2: environment like now for monetizing some of the investments you
Speaker 2: guys as an industry.
Speaker 9: Have made, so you know, again, I think that it's
Speaker 9: getting better. I think that the ability to see more
Speaker 9: more offerings of companies from private equity players so that
Speaker 9: there could be more opportunity to see acquisitions occur at
Speaker 9: multiples that would make sense that also provide a reasonable
Speaker 9: return for those companies that were acquired. Again, in this
Speaker 9: particularly let's call it the twenty one to twenty two period,
Speaker 9: it's been more difficult, as I mentioned earlier, for those
Speaker 9: deals to happen, and as a result, the time frame
Speaker 9: the average hold has extended to I think for many
Speaker 9: funds that were formed in that period and slightly before
Speaker 9: to over that five year number. I think five point
Speaker 9: eight years is the last number that I saw as average,
Speaker 9: so that would be longer than we have generally seen
Speaker 9: for most sets of vintages over the course of the
Speaker 9: almost forty five years I've been doing this.
Speaker 5: We've got some big companies on deck to go public
Speaker 5: next year, including SpaceX and open AI. I'm just wondering,
Speaker 5: what are you what sort of excites you that if
Speaker 5: you can't talk specifics there and then what about industries?
Speaker 5: But I have to think consolidation is going to continue
Speaker 5: in things like AI and healthcare.
Speaker 9: Hard for me to talk about the valuations of entities
Speaker 9: like that. You know, obviously they're building, you know, potentially
Speaker 9: great companies. Uh, whether or not the valuations that they
Speaker 9: come to market at will make sense over the long term,
Speaker 9: you know, who knows. I think there's a lot of talk,
Speaker 9: and you know, we'll see what the reality is.
Speaker 6: You know, certainly.
Speaker 9: The market tends to gather momentum when you have I
Speaker 9: pos that do well. We've been in a period the
Speaker 9: last couple of years where even if there's been a
Speaker 9: good initial pop, the companies that have gone public have
Speaker 9: tended to float back down towards their original offering in
Speaker 9: many of them below. So I think it's really crucial
Speaker 9: that when companies like that come out, that they come
Speaker 9: out at valuations that are sustainable and that can provide
Speaker 9: a reasonable return. I think in terms of areas of growth,
Speaker 9: you know, we look at areas like pharmacy services where
Speaker 9: you know, there's an enormous confluence going on right now
Speaker 9: between technology, generative AI technologies that are enablers of drug
Speaker 9: development and the ability to take those drugs through their
Speaker 9: clinical trial processes, and the need and ability to provide
Speaker 9: therapeutics for a whole range of diseases. So we think
Speaker 9: that's a really interesting area as we look at it. Obviously,
Speaker 9: the application of AI across a broad range of automation
Speaker 9: is going to really drive i've continued productivity, we hope
Speaker 9: in the economy that will offset some other flaws that
Speaker 9: we have when you look below the surface in our
Speaker 9: current economy. And so companies that are continuing to actually
Speaker 9: solve more automation specific problems for a broad, broad range
Speaker 9: of functions something that you know, we continue to look
Speaker 9: at UH and then other areas wealth management, you know,
Speaker 9: continue to be areas of great interest to us. So
Speaker 9: we think there'll be a range of things that are
Speaker 9: going to be interesting opportunities. You know, you have to
Speaker 9: work really hard in private equity, I would say these days,
Speaker 9: even at the prices that that are currently allowing deals
Speaker 9: to occur, to be able to add value operationally to
Speaker 9: these companies, we need to have a very specific thesis
Speaker 9: about how you're going to take a company.
Speaker 2: We're to leave it here Scott just spends the time,
Speaker 2: but thank you so much for joining us. We really
Speaker 2: appreciate getting a few minutes of your time. Scott Spurling,
Speaker 2: Chief executive Officer, THL Partners.
Speaker 6: This is Bloomberg.
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