Speaker 1: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 1: Tim Stenovic on Bloomberg Radio. Well, we spent a ton
Speaker 1: of time talking about the public markets, how they fared in,
Speaker 1: how they're faring in. I mean that's what we do
Speaker 1: here at Bloomberg, we talk markets. But what about private markets?
Speaker 1: We do spend a good time talking about them, but
Speaker 1: we really want to get into it with Scott Sperling,
Speaker 1: the co CEO at Thomas h Lee Partners. He's a
Speaker 1: great voice when it comes to everything that's happening when
Speaker 1: it comes to privates alternatives. He's been a decade with
Speaker 1: the Harvard Management Company overseeing alternative assets for Harvard's endowment.
Speaker 1: He's joining us now with an outlook on private equity.
Speaker 1: It's good to have you with us, Scott. How are you?
Speaker 1: Thank you? Good, good, beautiful day in Boston. What more
Speaker 1: can we ask for? I mean, I guess what more
Speaker 1: we could ask for is I don't know, you know,
Speaker 1: a decade of near zero rates. But that's neither here
Speaker 1: nor there. I think that that that prayer was already answered. Okay,
Speaker 1: we got that. The question is now what? So now
Speaker 1: what in and beyond? As the fed looks at a
Speaker 1: guest traders look at a terminal rate of five percent,
Speaker 1: which you know, when you look historically, is not all
Speaker 1: that high. That's what everybody keeps saying, Scott, it is.
Speaker 1: It is if you're under forty the truth. That's the truth.
Speaker 1: And I don't mean that in a funny way. I
Speaker 1: just I truly mean that. What you know, look at
Speaker 1: the percentage of people you have on Wall Street now
Speaker 1: who have never lived in an interest rate environment. You
Speaker 1: know that we saw in like the seventies, eighties or nineties,
Speaker 1: an amazing percentage actually didn't live through the great financial
Speaker 1: reception in two thousand and eight now, fortunately or unfortunately.
Speaker 1: I still remember the first mortgage that my wife and
Speaker 1: I got back in night. Can I guess it was
Speaker 1: seventeen and a half. I was going to say, fifth team,
Speaker 1: I mean, this is That's the thing. So okay, So
Speaker 1: does that mean we have a repeat of the nineteen eighties? Yeah,
Speaker 1: so I don't think so. I think that that the
Speaker 1: world has evolved the nature of the business models that
Speaker 1: are prevalent. Uh in the preponderance of the value in
Speaker 1: the in the public markets and also in the private
Speaker 1: markets is much better than the nature of the business
Speaker 1: models that existed back in the eighties. I think the
Speaker 1: ability um to better control inflation does exist relative to
Speaker 1: where we were in the late seventies and early eighties,
Speaker 1: given the enormity of the pop and energy prices. But
Speaker 1: what we are losing is the benefit of twenty to
Speaker 1: thirty years of strong anti inflationary forces, such as technologies
Speaker 1: that allowed us to produce much more energy at much
Speaker 1: lower pricing UH technology, GEAS, and the ability to move
Speaker 1: manufacturing globally to places that could do it much less expensively.
Speaker 1: And we are in a period where the cost of
Speaker 1: regulation is going up. Those three very anti inflationary forces
Speaker 1: that predominated for most of the last two to three
Speaker 1: decades allowed the FED and then more recently fiscal authorities
Speaker 1: to pump enormous amounts of liquidity into the system without
Speaker 1: causing inflation, and that resulted in that zero interest rate
Speaker 1: environment that we referred to that we've we've already had
Speaker 1: the benefit of as we look forward, because those anti
Speaker 1: inflationary forces have been reversed or at least a run
Speaker 1: out of steam, and we are looking at a series
Speaker 1: of things that will be a challenge from an inflationary
Speaker 1: perspective in terms of putting it back in a tube
Speaker 1: most um uh, I guess most forcefully, let's look at
Speaker 1: at wage price inflation and um the need for people
Speaker 1: to get ever higher wages to deal with the ever
Speaker 1: higher cost of living UM. The FED is going to
Speaker 1: be very focused on trying to do whatever it takes
Speaker 1: to not put us back into a situation that we
Speaker 1: experienced in the eighties, and I think there's a high
Speaker 1: probability they will succeed. The bigger question is what's the
Speaker 1: new normal when we get there. Is it four or
Speaker 1: five percent interest rates or three and a half percent
Speaker 1: interest rates? Can they get to two percent inflation or
Speaker 1: will we be back in a world of about three
Speaker 1: to four percent inflation? That would have been nirvana as
Speaker 1: we thought about it for most of the nineties, seventies, eighties,
Speaker 1: and even into the nineties, but seems very high today.
Speaker 1: And the implication for that is what we've been talking about,
Speaker 1: which is it has a very significant impact on the
Speaker 1: way that we price the value of companies in the
Speaker 1: public markets and also in the private markets for those
Speaker 1: of us in private equity. Well, Scott, let's bring it
Speaker 1: back to to your point the private markets. I'm curious
Speaker 1: what the bowl cases for private markets at a time
Speaker 1: when I think it's widely understood that private lags the
Speaker 1: public markets. And if there's still a lot of pain
Speaker 1: in store for the public markets, then by definition does
Speaker 1: not mean there's still going to be a lot of
Speaker 1: pain in the private market. So what is the incentive, uh,
Speaker 1: to to pursue that. Well, I think that there are
Speaker 1: two sets of opportunities. And you know, interestingly, if you
Speaker 1: look at the data over the course of the last
Speaker 1: thirty years, it has been periods of economic turmoil where
Speaker 1: you have the most attractive investing opportunities for private equity
Speaker 1: because of the nature of of the patients that we
Speaker 1: can have as an investor, and because of the ability,
Speaker 1: um at least for firms like ours who can help
Speaker 1: companies better navigate difficult financial situations. Uh, when we see
Speaker 1: this kind of disruption and valuation, that tends to be
Speaker 1: an attractive time to invest. You're exactly correct, though about
Speaker 1: the lag time. So the public markets have corrected. Uh.
Speaker 1: Maybe a lot of things aren't cheap, but there's certainly
Speaker 1: a lot lower price than they were six, twelve, eighteen
Speaker 1: months ago, and there are a lot of companies that,
Speaker 1: again have very good business models. Think about some of
Speaker 1: the technology companies, particularly things that have high recovering revenues,
Speaker 1: good models to invest in. Well, let's talk about what's
Speaker 1: the right what's the right multiple level Well, let's talk
Speaker 1: about some of these companies. Definitely interested in hearing about
Speaker 1: your thoughts about some of your portfolio companies. UM, let's
Speaker 1: just go with auction dot Com, for example, the company
Speaker 1: sells foreclosed homes. I would love to hear what you're
Speaker 1: seeing when it comes to the pipeline for or closures
Speaker 1: and and bids for these properties because it it can
Speaker 1: kind of tell us about the broader economy. Sure so UM.
Speaker 1: To be clear, auction dot com itself is not involved
Speaker 1: in the foreclosure process or UH chain of ownership of
Speaker 1: foreclosed properties. So it's a technology platform that is a
Speaker 1: automated marketplace that allows the folks who own that mortgage
Speaker 1: paper or the actual foreclosed property too much more efficiently
Speaker 1: and hopefully with many fewer fewer errors, go through the
Speaker 1: process it's necessary of foreclosure and then be able to
Speaker 1: put that property back into the market UH at the
Speaker 1: lowest possible cost, most efficiently. So Auction dot Com. UM
Speaker 1: is a technology company that serves UM the folks who
Speaker 1: are involved in UM the mortgage market more broadly, but
Speaker 1: specifically UM to help ensure that the for closure process
Speaker 1: is as UM accurate as possible, and that the folks
Speaker 1: like Fannie and Freddie who often own that paper and
Speaker 1: take those properties, can then UM put it that property
Speaker 1: back into the market as efficiently. So what are you
Speaker 1: guys seeing in that business right now? Possible? You know,
Speaker 1: I would say that there's certainly a turn up in
Speaker 1: the number of foreclosures, but you know we're nowhere near UM. Uh.
Speaker 1: What happened during the Great Financial Recession. Obviously, as we
Speaker 1: anticipate a more difficult macro economic environment, UM that that
Speaker 1: that may change a bit the higher volume of closures. Hey, Scott,
Speaker 1: we gotta run thirty seconds left? Just a comment on
Speaker 1: high tower advisors wealth management given market plunge, how's that
Speaker 1: in a business? Thirty seconds? So? Uh, These r I
Speaker 1: A H advisory businesses are a good, strong businesses. UM.
Speaker 1: We've seen continued significant growth, very strong secular forces driving
Speaker 1: towards the r I A from the wire house UM
Speaker 1: and UM. What we've tried to do is build the
Speaker 1: industry leading platform again using technology and the ability to
Speaker 1: scale services to the individual advisors. Scott Sprewing, We love
Speaker 1: talking to you. You've got to come back and join
Speaker 1: us against soon. He's coach CEO of Thomas h Lee Partners.
Speaker 1: He spent years at Harvard Management overseeing privates for Harvard's
Speaker 1: endowment private equity. Really good to have you with us,
Speaker 1: Scott Sprewing. This is Bloomberg