WEBVTT - P&L: Trump Can't Micromanage a Manufacturing Revival 0:00:04.760 --> 0:00:07.720 Welcome to the Bloomberg P and L Podcast. I'm Pim 0:00:07.800 --> 0:00:11.080 Fox along with my co host Lisa Abramowitz. Each day 0:00:11.119 --> 0:00:14.360 we bring you the most important, noteworthy, and useful interviews 0:00:14.400 --> 0:00:16.560 for you and your money, whether at the grocery store 0:00:16.800 --> 0:00:19.960 or the trading floor. Find the Bloomberg P L Podcast 0:00:20.000 --> 0:00:28.840 on iTunes, SoundCloud and at Bloomberg dot com. I want 0:00:28.840 --> 0:00:32.640 to bring in my colleague Brook Sutherland, a Bloomberg Gadfly 0:00:32.800 --> 0:00:36.400 columnist who wrote a piece that was really terrific yesterday 0:00:36.479 --> 0:00:41.199 about President elect Donald trumps celebration of a decision that 0:00:41.280 --> 0:00:46.479 he says he reached with Carrier UH to keep with 0:00:46.560 --> 0:00:49.479 Carriers Heating and air Conditioning unit to save about one 0:00:49.520 --> 0:00:52.720 thousand Indiana jobs. Brooke, thank you so much for being 0:00:52.960 --> 0:00:55.320 with us. So can you just talk first a little 0:00:55.320 --> 0:00:58.880 bit about what this agreement was and what this really 0:00:58.960 --> 0:01:01.760 does with respect to saving jobs in the US. Sure, 0:01:01.880 --> 0:01:03.960 you know, I think we're still waiting for all of 0:01:04.000 --> 0:01:07.679 the details. But United Technologies announced the decision earlier this 0:01:07.760 --> 0:01:11.039 year to shut down to Indiana plants actually and move 0:01:11.160 --> 0:01:15.160 the jobs to Mexico. So the agreement that Trump is 0:01:15.200 --> 0:01:17.800 talking about has to do with the facility in Indianapolis, 0:01:18.000 --> 0:01:21.280 um and they are planning on saving about a thousand 0:01:21.400 --> 0:01:24.199 jobs there. We don't know yet what's going to happen 0:01:24.240 --> 0:01:27.959 to the other Indiana factory, which was in Huntington's uh So, 0:01:28.480 --> 0:01:31.880 you know, at best, this is sort of a stop gap, 0:01:32.000 --> 0:01:35.240 half measure that maybe save some jobs, but not all 0:01:35.319 --> 0:01:38.720 of them. And it's just not really clear if it 0:01:38.800 --> 0:01:41.880 does much more beyond that. Um So, just real quick, 0:01:42.240 --> 0:01:45.040 what what exactly what kinds of jobs are we talking 0:01:45.080 --> 0:01:49.320 about that? Uh? United Technology was going to move to 0:01:49.400 --> 0:01:52.720 Mexico and you know, how long will they actually stay here? 0:01:52.720 --> 0:01:56.160 Why were they thinking of moving to Mexico? Sure? You know, 0:01:56.240 --> 0:02:00.120 so these are manufacturing jobs that typically play pay pretty all. 0:02:00.160 --> 0:02:02.520 I mean, you're talking about about twenty five dollars an hour, 0:02:02.600 --> 0:02:05.080 which is a lot more than somebody can make working 0:02:05.120 --> 0:02:08.720 in the service industry. But you can have those same 0:02:08.800 --> 0:02:11.160 jobs done in Mexico for a lot less, and so 0:02:11.240 --> 0:02:13.520 that's part of the appeal. The other part is that, 0:02:13.960 --> 0:02:16.480 you know, there have been significant regulations in the air 0:02:16.520 --> 0:02:19.680 conditioning and h VAC industry in terms of making the 0:02:19.680 --> 0:02:23.120 products more efficient, living up to sort of environmental standards, 0:02:23.120 --> 0:02:26.239 and those have a cost, and so to be competitive. 0:02:26.360 --> 0:02:29.000 What United Technologies has said is they need to lower 0:02:29.120 --> 0:02:31.440 labor costs, and a lot of its competitors have already 0:02:31.440 --> 0:02:34.399 made these moves to Mexico. And so that's really where 0:02:34.440 --> 0:02:36.560 it's coming from, not you know, we don't want to 0:02:36.600 --> 0:02:40.119 support America. Is it also the case that while these 0:02:40.200 --> 0:02:44.080 jobs may be saved, other factory jobs in Indiana in 0:02:44.120 --> 0:02:49.080 the geographical location where this United Technologies carrier plant is located, 0:02:49.800 --> 0:02:54.880 those layoffs and those moves to Mexico they're continuing exactly. 0:02:54.880 --> 0:02:56.520 I mean, it's not even that all of the United 0:02:56.520 --> 0:02:59.200 Technologies jobs are going to be saved, they're only saving 0:02:59.280 --> 0:03:02.000 some of them. So but there are you know, other 0:03:02.080 --> 0:03:04.360 manufacturers who have had to make these same decisions. And 0:03:04.400 --> 0:03:07.280 I don't think that manufacturers like making these decisions, but 0:03:07.320 --> 0:03:09.240 a lot of times it's just sort of the reality 0:03:09.240 --> 0:03:12.080 of the economic situation they find themselves in. And to 0:03:12.200 --> 0:03:15.560 your point, Rex Nerd, which is another industrial manufacturer, is 0:03:15.600 --> 0:03:18.680 also in Indiana, not too far from where the United 0:03:18.680 --> 0:03:21.320 Technologies plant is actually, and they are looking at shutting 0:03:21.320 --> 0:03:24.200 down that facility and moving those jobs to Mexico. And 0:03:24.240 --> 0:03:26.520 we haven't really heard as much about rex Nerd, and 0:03:26.520 --> 0:03:29.280 I have to wonder if that's because there's no viral 0:03:29.400 --> 0:03:31.680 video about the rex nerd layoffs the way that there 0:03:31.760 --> 0:03:34.639 was with Carrier. It hasn't gotten as much public attention, 0:03:34.680 --> 0:03:37.800 It hasn't drawn as much pushback, it hasn't really been 0:03:37.840 --> 0:03:41.960 talked about about by President Trump. Um So I just 0:03:42.000 --> 0:03:44.000 sort of wonder if we're going to see anything there, 0:03:44.000 --> 0:03:46.120 if he's just sort of picking and choosing the ones 0:03:46.200 --> 0:03:49.280 that might bring good publicity. I love the lead Donald 0:03:49.280 --> 0:03:52.640 Trump can't micromanage his way to a man manufacturing revival 0:03:53.160 --> 0:03:57.240 in America. Perhaps he can't micromanage his way to a 0:03:57.280 --> 0:04:00.360 manufacturing revival. But is there something on a policy level 0:04:00.360 --> 0:04:04.200 that he could do to keep manufacturing jobs in the 0:04:04.280 --> 0:04:08.440 US or these jobs just going away because of automation. Well, 0:04:08.440 --> 0:04:10.320 I think that's sort of a tough question. You know, 0:04:10.400 --> 0:04:13.800 he's talked about leveling hefty tariffs at these companies that 0:04:14.000 --> 0:04:16.560 manufacture products in Mexico and then bring them back to 0:04:16.600 --> 0:04:19.679 the US. He's talked about doing this on an individual basis, 0:04:19.720 --> 0:04:22.159 which I think would be very hard to implement without 0:04:22.200 --> 0:04:25.640 looking like you're picking and choosing who wins in this country. 0:04:25.640 --> 0:04:27.800 And you know which businesses do well and if they 0:04:27.800 --> 0:04:29.680 don't do exactly what you tell them to do, you're 0:04:29.680 --> 0:04:32.839 going to punish them. That's a very dangerous precedent to set. 0:04:32.880 --> 0:04:34.560 I don't know if you want to have a mass 0:04:34.640 --> 0:04:37.640 tariff because that could spark trade war. So I don't 0:04:37.880 --> 0:04:40.240 really know what you do on a national scale to 0:04:40.279 --> 0:04:42.760 stop this from happening. And even if you put those 0:04:42.800 --> 0:04:45.119 types of policies in place, you're not going to change 0:04:45.160 --> 0:04:48.080 sort of the broader trends that are driving this momentum. 0:04:48.120 --> 0:04:50.560 A lot of it is technology. You know, these jobs 0:04:50.560 --> 0:04:53.479 are being replaced by machines because they don't need people 0:04:53.520 --> 0:04:56.840 to do them, or there's excess manufacturing capacity because these 0:04:56.839 --> 0:05:00.520 companies have merged, or their products just aren't into and anymore. 0:05:00.520 --> 0:05:03.480 If you're Caterpillar or Joy Global. People just aren't buying 0:05:03.560 --> 0:05:07.400 mining equipment right now because commodity prices have eroded so much. 0:05:07.720 --> 0:05:09.880 I just want to note that another new store. You 0:05:09.920 --> 0:05:13.840 mentioned technology, but something called the Internet Archive. They preserve 0:05:13.920 --> 0:05:16.719 the digital records of billions of web pages, indeed, even 0:05:16.839 --> 0:05:20.280 cash pages of websites that no longer exist. They are 0:05:20.320 --> 0:05:23.520 moving their backup data to Canada because they fear potential 0:05:23.600 --> 0:05:27.160 changes in legislation due to a Trump administration could maybe 0:05:27.160 --> 0:05:29.360 put the archives at at risk. All different a lot 0:05:29.400 --> 0:05:31.839 of moving pieces there is, and you know, I think 0:05:32.040 --> 0:05:35.240 that's what makes it hard to tackle these sort of 0:05:35.360 --> 0:05:37.680 job decisions on a national level. And that's one of 0:05:37.680 --> 0:05:39.320 the points I was trying to make is that typically 0:05:39.320 --> 0:05:41.599 this is a conversation that happens on the state level, 0:05:41.880 --> 0:05:45.679 where you have state governors or legislators talking to companies 0:05:45.680 --> 0:05:48.120 about specific facilities within their state and what they can 0:05:48.120 --> 0:05:50.440 do to preserve jobs. But it's hard to translate that 0:05:50.480 --> 0:06:04.799 on the national level. I want to bring in Eric Marshall, 0:06:04.920 --> 0:06:08.680 portfolio manager with Hodges Funds, to talk a little bit 0:06:08.800 --> 0:06:12.600 about what to look for in small cap stocks. And 0:06:12.720 --> 0:06:15.320 we've just seen an amazing run in the Russell two 0:06:15.360 --> 0:06:19.560 thousand and other small small cap indexes, the Russell two 0:06:19.560 --> 0:06:24.760 thousand gaining almost eleven percent since the US election. Thank 0:06:24.800 --> 0:06:25.920 you for being with us, Eric. Do you think that 0:06:25.960 --> 0:06:28.880 this can continue? We think that there's a good case 0:06:29.040 --> 0:06:31.960 that we'll see the bull market and small caps continue, 0:06:32.000 --> 0:06:34.440 and there's a couple of things that make us encouraged 0:06:34.520 --> 0:06:37.640 in this space. You know, it's been a very bifurcated 0:06:37.720 --> 0:06:40.680 market within small caps. This year where a lot of 0:06:40.720 --> 0:06:44.080 the things having to do with reads and utilities and 0:06:44.160 --> 0:06:47.200 a lot of the defensive areas have really carried very 0:06:47.279 --> 0:06:52.279 high multiples, while a lot of areas within consumer discretionary 0:06:52.440 --> 0:06:56.640 industrials have not. And you know, as we look at 0:06:56.680 --> 0:07:00.800 the prospects for higher interest rates, lower taxes, US regulation 0:07:01.240 --> 0:07:05.640 and it continued pick up in merger and acquisition activity, 0:07:06.040 --> 0:07:08.960 we think you could still see room to run in 0:07:09.040 --> 0:07:11.840 this bull market for small cap stocks. All right, can 0:07:11.880 --> 0:07:15.239 you give us some specific industry groups or even names? 0:07:15.280 --> 0:07:18.880 I know, for example, we're looking at a potential infrastructure 0:07:18.960 --> 0:07:23.680 spending plan coming from President elect Donald Trump administration. Is 0:07:23.720 --> 0:07:26.480 that going to help small cap stocks? Yeah, And that's 0:07:26.520 --> 0:07:28.960 one of the areas in the Hodges Small Cap Fund 0:07:28.960 --> 0:07:31.520 that we've really been focused on is companies that can 0:07:31.600 --> 0:07:35.240 benefit from that infrastructure spend and it leads us to 0:07:35.280 --> 0:07:39.520 own a lot of the materials, uh, including concrete and 0:07:39.560 --> 0:07:43.720 cement companies. One that we like is a relatively new 0:07:43.760 --> 0:07:47.720 I p o Ra and this is a company that 0:07:47.760 --> 0:07:51.800 makes large diameter concrete pipes and so forth that are 0:07:51.880 --> 0:07:55.239 used for water infrastructure, which is UH, there's a huge 0:07:55.440 --> 0:07:58.240 upgrade cycle going on. The stock trades at a very 0:07:58.320 --> 0:08:02.560 reasonable valuation and very much still underneath the radar. They 0:08:02.560 --> 0:08:05.200 went public a couple of months ago, and uh, not 0:08:05.520 --> 0:08:08.240 exactly a great time for small cap I p o s, 0:08:08.640 --> 0:08:11.720 but we like things like that. We're seeing opportunities in 0:08:11.920 --> 0:08:14.240 some of the steel companies and a lot of these 0:08:14.280 --> 0:08:18.600 material companies that will benefit from a multi year spending 0:08:18.760 --> 0:08:22.120 cycle for infrastructure. Just tell us the name of the company. Again, 0:08:22.160 --> 0:08:25.800 people may not have heard, uh, Fonterra Fontera indeed. And 0:08:26.440 --> 0:08:27.960 did you buy it at the IP or did you 0:08:27.960 --> 0:08:30.200 wait for it to come out? We bought some of 0:08:30.200 --> 0:08:31.800 the I p O and it broke that I p 0:08:31.920 --> 0:08:34.400 O price and actually traded off and we've added to 0:08:34.480 --> 0:08:39.280 it since. Um, you have a fund, the Pure Contrarian Fund. 0:08:40.160 --> 0:08:45.520 What's your most contrarian bet within that fund? Um Our 0:08:45.720 --> 0:08:48.640 founder of our firm, Craig Hodges, manages that fund, and 0:08:48.679 --> 0:08:52.199 I would say one of the pure contrarian funds. UH 0:08:52.760 --> 0:08:55.880 biggest moves was in some of the steel and iron 0:08:55.880 --> 0:08:59.960 ore companies which were kind of left for dead, probably 0:09:00.000 --> 0:09:03.720 doably a year or two ago, and we found some 0:09:04.000 --> 0:09:07.520 very deep value opportunities and several companies there that have 0:09:07.600 --> 0:09:11.240 done very well so you know, when US Steel got 0:09:11.240 --> 0:09:14.120 down to eight dollars of share, that fund took a 0:09:14.240 --> 0:09:17.440 large position in that stock, as well as things like 0:09:17.480 --> 0:09:21.800 Cleveland Cliffs and some of the those more commodity type 0:09:21.840 --> 0:09:24.960 companies that people had really just kind of thrown away 0:09:25.000 --> 0:09:27.480 with the bathwater. Do you think that, given the rally 0:09:27.520 --> 0:09:29.480 that we've seen recently, that there's still more room to 0:09:29.559 --> 0:09:32.520 run with the steel and metals companies. I think that 0:09:32.600 --> 0:09:36.400 there is. When you look at overall consumption of steel 0:09:36.679 --> 0:09:42.960 in in the United States, Uh, it's relicatively good. The 0:09:43.040 --> 0:09:46.600 capacity utilization of a lot of domestic steel companies has 0:09:46.679 --> 0:09:50.400 been running in the sixty six percent area now for 0:09:50.440 --> 0:09:54.079 the past couple of years because of so much cheap 0:09:54.200 --> 0:09:58.560 imports of steel coming out of Southeast Asia and Turkey, 0:09:58.760 --> 0:10:01.480 places like this. And I think as you see some 0:10:01.559 --> 0:10:06.320 of the trade regulations tighten up a little bit, if 0:10:06.360 --> 0:10:08.360 you mean tariffs, I mean, because that's what's not the 0:10:08.400 --> 0:10:12.320 steel industry, right. I mean, they put sanctions on imported steel, 0:10:12.360 --> 0:10:15.440 making it more expensive and or more competitive with US 0:10:16.000 --> 0:10:19.360 produced products. And you've seen US steel new core all 0:10:19.480 --> 0:10:21.840 move higher, absolutely and PIM A lot of people don't 0:10:21.880 --> 0:10:25.360 realize we don't have enough steel capacity in our country. 0:10:25.480 --> 0:10:28.319 We need to import of our steel just to meet 0:10:28.360 --> 0:10:32.559 our needs. The problem is we've been importing thirty percent 0:10:32.640 --> 0:10:35.360 or thirty five percent of that steel and that's really 0:10:35.440 --> 0:10:40.200 caused pricing not to recover while demand has recovered for 0:10:40.280 --> 0:10:42.960 things like auto and infrastructure and construction. Let me just 0:10:43.000 --> 0:10:45.920 turn your attention Hodges small cap fund. Right, you're up 0:10:45.960 --> 0:10:49.080 more than thirteen and a half percent so far this year. 0:10:49.160 --> 0:10:52.440 Good on't you? U? J C. Penny is in the 0:10:52.559 --> 0:10:56.560 portfolio small cap? How does that end up being? What's 0:10:56.559 --> 0:10:58.680 your definition of small cap? It seems to change no 0:10:58.720 --> 0:11:01.600 matter you know who portfolio manager. Well, believe it or not. 0:11:01.760 --> 0:11:04.240 J C. Penny's is down to about a three billion 0:11:04.280 --> 0:11:06.920 dollar market cap, and when we bought the stock, I 0:11:07.000 --> 0:11:08.839 think it was about two and a half billion dollar 0:11:08.920 --> 0:11:12.319 market cap, so well within the definition of the Russell 0:11:12.400 --> 0:11:15.840 two thousand market cap range. But it's really a turnaround 0:11:15.880 --> 0:11:21.520 situation where we see, uh, some good underlying assets in 0:11:21.559 --> 0:11:23.520 the former real estate and so forth, and we think 0:11:23.520 --> 0:11:26.040 that the management's new plan to kind of reinvent the 0:11:26.080 --> 0:11:30.120 business through the house wares and Sephora brand, some of 0:11:30.120 --> 0:11:32.520 these new things that they're doing and kind of cater 0:11:32.640 --> 0:11:35.840 to a younger generation as well as gain back some 0:11:35.920 --> 0:11:38.720 of those core customers. We think that there's a very 0:11:38.720 --> 0:11:43.439 good risk award there. What's your concern about the rise 0:11:43.559 --> 0:11:46.800 in benchmark borrowing costs and how that could affect some 0:11:46.880 --> 0:11:50.520 of these smaller companies which are going to need to 0:11:50.559 --> 0:11:55.440 borrow and might not be able to borrow at higher rates. Well, 0:11:55.440 --> 0:11:58.520 I think if you look at um, you know, corporate 0:11:58.520 --> 0:12:02.599 balance sheets in general roll uh, they're in really relatively 0:12:02.640 --> 0:12:05.839 good good shape right now. And I do think that 0:12:06.240 --> 0:12:10.280 you definitely need to be more aware in a higher 0:12:10.600 --> 0:12:14.720 interest rate environment about the uh, you know, interest burden 0:12:15.200 --> 0:12:18.640 that smaller companies have with their balance sheets as the 0:12:18.679 --> 0:12:22.160 cost of capital goes up. But I think, you know, 0:12:22.200 --> 0:12:26.640 everybody's had a very long period of time of low 0:12:26.720 --> 0:12:30.480 interest rates to refinance get their balance sheets in order. 0:12:30.960 --> 0:12:35.080 And I think that the in general, um, you know, 0:12:35.120 --> 0:12:38.880 that a lot of the concerns there could be offset 0:12:39.040 --> 0:12:44.320 by you know, a lower lower tax corporate tax rate. Transports, 0:12:44.360 --> 0:12:46.440 I noticed you got a Jet Blue holding in there. 0:12:46.480 --> 0:12:50.400 I mean Warren Buffett recently going in and buying shares 0:12:50.480 --> 0:12:56.120 of airline companies Delta United, you know, and that that's 0:12:56.120 --> 0:12:59.600 another one. You missed our Kntrian fund earlier. That's one 0:12:59.640 --> 0:13:01.679 of the big bets we made a couple of years ago, 0:13:01.760 --> 0:13:04.480 and no one liked airlines. We were buying airlines, and 0:13:04.720 --> 0:13:06.959 we what we see going on in the airline industry 0:13:07.240 --> 0:13:09.960 is not that much different than what happened in the 0:13:10.080 --> 0:13:13.600 railroad industry ten years ago, where they had kind of 0:13:13.640 --> 0:13:17.120 come out of a decade's worth of consolidation and you 0:13:17.240 --> 0:13:20.320 started to see an environment where now I think the 0:13:20.360 --> 0:13:25.520 top four airlines control about seventy of the domestic capacity, 0:13:25.720 --> 0:13:29.160 so you're getting a more rational pricing environment. People are 0:13:29.160 --> 0:13:32.600 being more careful about how they add capacity, how they 0:13:32.640 --> 0:13:36.280 manage that, and we think that we're in an environment 0:13:36.360 --> 0:13:39.920 now where airlines, for the first time in about thirty years, 0:13:39.920 --> 0:13:43.760 will actually generate respectable shareholder returns. So I want to 0:13:43.760 --> 0:13:59.200 thank you there. Eric Marshall, portfolio manager Hodges Funds. Two 0:13:59.200 --> 0:14:01.480 asset classes want to focus on right now our private 0:14:01.480 --> 0:14:05.280 equity and venture capital, and joining us is Greg Stento. 0:14:05.360 --> 0:14:09.000 He is managing director at Harbor Vest Are based in Boston, 0:14:09.240 --> 0:14:12.400 home to Bloomberg. Greg, thanks very much for being here much. 0:14:12.400 --> 0:14:14.320 I appreciate it. Let me just give you a headline 0:14:14.320 --> 0:14:17.160 though that Brent crude is rising to the highest this 0:14:17.240 --> 0:14:21.680 year after the agreement in Vienna by OPEC to hold 0:14:21.840 --> 0:14:24.800 production levels flat. And one if you could speak a 0:14:24.800 --> 0:14:27.960 little bit about increases in the price of almost everything, 0:14:28.080 --> 0:14:31.320 including money, and what would that do to private equity 0:14:31.360 --> 0:14:35.880 and venture capital markets. Sure well. Harbor Vest is a 0:14:35.920 --> 0:14:40.280 global private equity asset manager focused on providing solutions to 0:14:40.760 --> 0:14:45.200 investors around the globe seeking to access the private markets. 0:14:45.280 --> 0:14:49.760 Solutions being money like a lot of mezzanine financing, solutions 0:14:49.760 --> 0:14:53.120 being uh, ways in which investors can access the asset class, 0:14:53.120 --> 0:14:57.000 whether that be through a co mingle fund, through a 0:14:57.160 --> 0:15:01.080 dedicated account, or through some type of a specialized vehicle. Uh. 0:15:01.120 --> 0:15:03.560 And so that those are ways in which investors are 0:15:03.560 --> 0:15:06.280 coming into the asset class. You know, with regards to 0:15:06.600 --> 0:15:11.200 the pricing environment that you speak about, uh, you know, 0:15:11.400 --> 0:15:14.800 we're focused on long term investing and so uh, no question, 0:15:14.880 --> 0:15:17.560 the valuations over the past year have been pretty full 0:15:17.600 --> 0:15:19.640 around the board, but you know, in all parts of 0:15:19.640 --> 0:15:23.200 the business, uh, And so investors have got to work 0:15:23.200 --> 0:15:26.320 hard to find those special opportunities where there's growth, where 0:15:26.360 --> 0:15:29.400 there's very strong secular long term trends to be able 0:15:29.400 --> 0:15:32.120 to overcome the full prices that that folks have had 0:15:32.160 --> 0:15:33.680 to pay here in the short term. But again, this 0:15:33.720 --> 0:15:36.640 is all about long term investing, uh, And that's what 0:15:36.840 --> 0:15:39.360 you know, brings it back to our firms that we've 0:15:39.360 --> 0:15:42.320 been doing this for thirty five years and have the 0:15:42.400 --> 0:15:45.160 access to those types of opportunities where we can see 0:15:45.160 --> 0:15:48.600 long term value and long term creation of growth. You know, Greg, 0:15:48.640 --> 0:15:52.120 there's been a lot of discussion about how pensions and 0:15:52.720 --> 0:15:56.640 insurance companies have moved away from hedge funds um just 0:15:56.760 --> 0:16:00.120 because of how high the fees are. I'm one ring 0:16:00.160 --> 0:16:02.680 whether that holds in the private equity world as well. 0:16:02.720 --> 0:16:05.240 I saw a story in the Boston Globe last night 0:16:05.280 --> 0:16:08.520 about the Massachusetts State pension fund paying one point five 0:16:08.560 --> 0:16:10.800 billion dollars to more than one hundred private equity firms 0:16:10.800 --> 0:16:13.160 of the past five years, and that that's sort of 0:16:13.200 --> 0:16:16.800 that's the headline, even though the returns were, uh, we're 0:16:16.840 --> 0:16:22.080 remarkable eighteen percent annualized from two thousand elements. So no question, 0:16:22.120 --> 0:16:24.840 there's a focus on fees within the private markets that 0:16:24.880 --> 0:16:26.880 are being paid. But what we think is that the 0:16:26.920 --> 0:16:28.600 real focus needs to be on the net returns. As 0:16:28.640 --> 0:16:30.320 you just talked about. I mean that has been the 0:16:30.360 --> 0:16:35.800 best performing part of the Massachusetts State portfolio. Um, the 0:16:35.880 --> 0:16:38.640 returns that you can earn in the private markets have 0:16:39.320 --> 0:16:42.200 consistently exceeded what you can earn in the private the 0:16:42.240 --> 0:16:46.200 public equity markets, or other other asset classes over a 0:16:46.240 --> 0:16:49.600 long period of time. Why can you demystify that for us? Sure? 0:16:50.120 --> 0:16:52.520 So there's a number of reasons. UM. First of all, 0:16:52.600 --> 0:16:54.720 when you operate in the private markets, you haven't you 0:16:54.840 --> 0:16:58.480 operate out of the glare of the public investors, and 0:16:58.560 --> 0:17:00.680 you have an opportunity to really think long term about 0:17:00.720 --> 0:17:03.120 building a business and growing a business. You know, in 0:17:03.120 --> 0:17:06.960 the venture capital space, for instance, UH, there's the creation 0:17:07.040 --> 0:17:09.880 of new business ideas, you know, something like an uber 0:17:09.920 --> 0:17:12.719 that never existed ten years ago, that when you have 0:17:13.280 --> 0:17:17.840 the right entrepreneur um, the right product market fit, in 0:17:17.920 --> 0:17:20.639 the right risk capital, you can bring that together to 0:17:20.680 --> 0:17:23.280 create solutions to to meet unmet needs and create very 0:17:23.280 --> 0:17:26.600 scale businesses. As a company that's been you know, UH 0:17:26.760 --> 0:17:28.679 quoted in the press is being worth more than sixty 0:17:28.680 --> 0:17:31.760 billion dollars today, UH and UH I land up. So 0:17:31.960 --> 0:17:36.679 there are those opportunities to develop um UH solutions for 0:17:36.760 --> 0:17:40.720 unmet needs, whether they be in technology or in healthcare 0:17:40.920 --> 0:17:45.240 or other markets. Uh, and finding those right globally diversified 0:17:45.240 --> 0:17:47.920 ideas or what we what we're focused on at Harper Ust. 0:17:48.240 --> 0:17:50.679 You've got a lot of investments in Canada. I understand 0:17:51.240 --> 0:17:53.159 also it's global, right. I wonder if you could just 0:17:53.200 --> 0:17:55.359 speak a little bit about how the change in the 0:17:55.440 --> 0:18:00.000 price of energy affects the decision making process for places 0:18:00.080 --> 0:18:02.520 is like Canada, Because if you've got an overall economy 0:18:02.520 --> 0:18:05.600 that is driven by commodity prices, what is that? How 0:18:05.640 --> 0:18:09.560 does that sort of inform your view? Sure? So we 0:18:09.600 --> 0:18:11.639 have a specialized fund that we put in place in 0:18:11.720 --> 0:18:14.600 Canada in conjunction with a Kittian government, and I think 0:18:14.640 --> 0:18:18.160 it was very much to diversify away from what you're discussing. 0:18:18.200 --> 0:18:21.159 So the idea was to generate new business formation in 0:18:21.200 --> 0:18:24.200 Canada's focused on the venture capital market. So it's trying 0:18:24.200 --> 0:18:28.520 to find those Canadian venture capital firms and other other 0:18:28.800 --> 0:18:32.040 global investment firms investing in Canada that can help drive 0:18:32.080 --> 0:18:35.480 new business creation and new industries in Canada to to 0:18:35.680 --> 0:18:39.159 somewhat diversify away from an economy that has written its 0:18:39.240 --> 0:18:43.480 natural resource base. How has fundraising been so far this 0:18:43.560 --> 0:18:44.840 year and what do you expect it to be like 0:18:44.920 --> 0:18:47.760 next year? Well, for Harvarvest, it's been a it's been 0:18:47.760 --> 0:18:49.719 a record year. For us, We've had a phenomenal year 0:18:49.760 --> 0:18:52.639 in terms of the reception that we've had from investors 0:18:52.640 --> 0:18:58.200 seeking UM commingle funds, UH, specialized funds like our Canadian 0:18:58.240 --> 0:19:01.960 fund or are messing income fund or also looking at 0:19:02.000 --> 0:19:04.800 you know, dedicated separate accounts that want a very specific 0:19:04.800 --> 0:19:07.360 and bespoke solution. So for US has been a record year. 0:19:07.359 --> 0:19:09.159 It's been, it's been, it's been quite good at invest 0:19:09.200 --> 0:19:13.399 in the history UM Broadly across the industry, fundraising is 0:19:13.520 --> 0:19:16.960 up mildly over last year. Uh, it's something that we watch, 0:19:17.040 --> 0:19:20.400 you know, because those imbalances of capital in the market 0:19:20.880 --> 0:19:23.960 are are of concern in any market, but also in 0:19:24.200 --> 0:19:28.840 the private markets. Importantly, the reassuring thing has been that 0:19:28.880 --> 0:19:32.160 there hasn't been a proliferation of the number of new 0:19:32.480 --> 0:19:34.640 funds and the new managers coming into the business. So 0:19:35.119 --> 0:19:38.080 while the capital is up slightly year over year, the 0:19:38.200 --> 0:19:41.959 number of market participants is relatively steady h and so 0:19:42.000 --> 0:19:45.560 that keeps the competitive dynamic and the competitive balance in place. 0:19:45.600 --> 0:19:47.479 And again those are the types of things that are 0:19:47.520 --> 0:19:50.000 investors seek from us to try to make sure that 0:19:50.040 --> 0:19:53.719 we're finding those opportunities that despite the market environment, we're 0:19:53.760 --> 0:19:55.880 going to have good, good potential for long term success. 0:19:56.200 --> 0:19:58.720 We're speaking with Greg Stento, he is managing director at 0:19:58.720 --> 0:20:01.560 Harbor Vest the topic of an equity and venture capital. 0:20:01.760 --> 0:20:03.920 I believe it early in November, right, you just closed 0:20:03.960 --> 0:20:06.879 on a on a fund. I believe this was, what 0:20:07.000 --> 0:20:12.200 about a four point seven seven billion dollar fund? Tell 0:20:12.280 --> 0:20:14.560 us a little bit about this. This is a secondaries fund, 0:20:15.240 --> 0:20:18.120 it is, and that's correct. Secondaries is something that we've 0:20:18.160 --> 0:20:21.359 been doing since so we celebrated over thirty years of 0:20:21.440 --> 0:20:23.240 having been active in the market. Just to be clear, 0:20:23.320 --> 0:20:26.280 secondaries means people who want to sell their stake in 0:20:26.320 --> 0:20:28.640 a private equity fund can sell it to somebody else 0:20:28.680 --> 0:20:30.560 through this type of fund. Correct. That's right. It's an 0:20:30.600 --> 0:20:33.960 ill liquid market and it's it's done through private transactions, 0:20:34.320 --> 0:20:38.000 whether it be a fund position or a position in companies. UH. 0:20:38.040 --> 0:20:39.920 And again we've been one of the pioneers in that space, 0:20:39.960 --> 0:20:41.679 having done it now for more than thirty years, and 0:20:41.680 --> 0:20:44.399 we closed a close to fund in early November that 0:20:44.600 --> 0:20:47.960 is focused on that market, dedicated to that market. UH. 0:20:47.960 --> 0:20:50.240 In particular, I think where we've carved out a niche 0:20:50.240 --> 0:20:52.000 in the secondary market and is what we call the 0:20:52.040 --> 0:20:57.280 complex transactions. So um these are doing things that UM 0:20:57.320 --> 0:21:00.000 again we that are a little bit off the beaten 0:21:00.040 --> 0:21:05.000 half of the typical commodity like lp UM purchase. So 0:21:05.040 --> 0:21:07.560 these could be an end of fund life solution where 0:21:07.760 --> 0:21:09.960 a private equity fund has reached near the end of 0:21:09.960 --> 0:21:13.680 its life. The general partner still feels as though they've 0:21:13.680 --> 0:21:15.639 got assets that they like to manage and continue to 0:21:15.680 --> 0:21:18.000 grow for the next three to five years. But at 0:21:18.000 --> 0:21:20.400 the same point, their investors are tired and maybe want 0:21:20.400 --> 0:21:21.679 to some of them want to get out. So we 0:21:21.720 --> 0:21:25.760 can provide a special vehicle to bridge that solution. Greg Stento, 0:21:25.880 --> 0:21:28.800 managing director at Harbor Fest, speaking to us about the 0:21:28.800 --> 0:21:33.880 outlook for private equity and venture capital. This is Bloomberg 0:21:46.440 --> 0:21:50.080 Americans just loving their trucks. General Motors, Ford and other 0:21:50.359 --> 0:21:56.040 major automakers beat analysts estimates for US sales y because 0:21:56.359 --> 0:21:59.880 Americans just can't get enough pickups and SUVs. I want 0:21:59.880 --> 0:22:04.679 to bringing Kevin Tynan, senior auto analysts for Bloomberg Intelligence, 0:22:04.720 --> 0:22:07.520 talk a little bit about, uh, just how good these 0:22:07.520 --> 0:22:10.760 sales numbers really were, and whether they can last. So, Kevin, 0:22:10.800 --> 0:22:13.880 thanks so much for joining us, Hi Lisa. UM. Yeah, 0:22:14.000 --> 0:22:19.119 so very good numbers in the sense that UM, you know, 0:22:19.320 --> 0:22:23.440 consumer buying frenzy, end of the year, Black Friday through 0:22:23.480 --> 0:22:27.080 the end of the year, clearance sales UM incentives obviously 0:22:27.200 --> 0:22:30.800 higher and and very aggressive. UM. But I think the 0:22:30.840 --> 0:22:34.800 concern there is if incentives don't work, which obviously they 0:22:34.840 --> 0:22:40.000 are UM, and then what happens come January February you 0:22:40.080 --> 0:22:43.199 have a little bit of a hangover? UM. You know, 0:22:43.240 --> 0:22:46.560 the automakers are not as aggressive on on the incentive 0:22:46.600 --> 0:22:50.240