Speaker 1: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 1: Tim Stenevic 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 but beautiful day in Boston. What
Speaker 1: more can we ask for? I mean, I guess what
Speaker 1: more 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 ine 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: and an amazing percentage actually didn't live through the Great
Speaker 1: financial recession 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 was seventeen
Speaker 1: 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, GE's and H, the ability to
Speaker 1: move manufacturing globally to places that could do it much
Speaker 1: less expensively, and we are in a period where the
Speaker 1: cost of regulation is going up. Those three very anti
Speaker 1: inflationary forces that predominated for most of the last two
Speaker 1: to three decades allowed the FED and then more recently
Speaker 1: fiscal authorities to pump enormous amounts of liquidity into the
Speaker 1: system without causing inflation, and that resulted in that zero
Speaker 1: interest rate environment that we refer to that we've we've
Speaker 1: already had the benefit of as we look forward, because
Speaker 1: those anti inflationary forces have been reversed or at least
Speaker 1: a run out of steam, and we are looking at
Speaker 1: a series of things that will be a challenge from
Speaker 1: an inflationary perspective in terms of putting it back in
Speaker 1: a tube most um uh, I guess most forcefully, let's
Speaker 1: look at at wage price inflation and um the need
Speaker 1: for people to get ever higher wages to deal with
Speaker 1: the ever higher cost of living. Um. The FED is
Speaker 1: going to be very focused on trying to do whatever
Speaker 1: it takes to not put us back into a situation
Speaker 1: that we experienced in the eighties, and I think there's
Speaker 1: a high probability they will succeed. The bigger question is
Speaker 1: what's the new normal when we get there. Is it
Speaker 1: four or five percent interest rates or three and a
Speaker 1: half percent interest rates? Can they get to two percent
Speaker 1: inflation or will we be back in a world of
Speaker 1: about three to four percent inflation? That would have been
Speaker 1: nirvana as we thought about it for most of the
Speaker 1: nine seventies, eighties and even into the nineties, but seems
Speaker 1: very high today. And the implication for that is what
Speaker 1: we've been talking about, which is it has a very
Speaker 1: significant impact on the way that we price the value
Speaker 1: of companies in the public markets and also in the
Speaker 1: private markets for those of us in private equity. Well, Scott,
Speaker 1: let's bring it back to to your point the private markets.
Speaker 1: I'm curious what the bowl cases for private markets at
Speaker 1: a time when I think it's widely understood that private
Speaker 1: lags the public markets. And if there's still a lot
Speaker 1: of pain in store for the public markets, then by
Speaker 1: definition doesn't mean there still want to be a lot
Speaker 1: of 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 can kind
Speaker 1: 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: UH is as UM accurate as possible, and that the
Speaker 1: folks like Fannie and Freddie who often own that paper
Speaker 1: and take those properties, can then UM put it that
Speaker 1: property back into the market as efficiently. So what are
Speaker 1: you guys seeing in that business right now? 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 were nowhere
Speaker 1: near UM. Uh. What happened during the Great Financial Recession. Obviously,
Speaker 1: as we anticipate a more difficult macro economic environment, UM
Speaker 1: that that that may change a bit the higher volume
Speaker 1: of core closures. Hey, Scott, we gotta run thirty seconds left?
Speaker 1: Just a comment on high tower advisors wealth management given
Speaker 1: market plunge, how's that in a business? Thirty seconds? So, Uh,
Speaker 1: These R I A H advisory businesses are 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 Spilling, we love
Speaker 1: talking to you. You've got to come back and join
Speaker 1: us again 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 Spilling. This is Bloomberg