Speaker 1: This is Bloomberg Business Wait inside from the reporters and
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Speaker 1: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: Yes, indeed, everybody, we are finishing up one more day
Speaker 2: and some more wonderful interviews Carol Masser here at the
Speaker 2: Milkin Institute Global Conference, and of course, as you know
Speaker 2: on YouTube and on our Bloomberg original streaming service. I
Speaker 2: have to say in a special edition of the BW Daily,
Speaker 2: some reporting by our team Cat Doherty and Alison McNeely,
Speaker 2: they noted the glum mood among the financial elite at
Speaker 2: the Milkin Institute conference here hasn't been limited to bankers.
Speaker 2: They talked about the lousy environment for private equity fundraising,
Speaker 2: but as our next guest will tell you, they were
Speaker 2: actually putting the finishing touches on a capital raise while
Speaker 2: at Milkin. So we're going to get into it with
Speaker 2: us on site here at Milkin is one of the
Speaker 2: co founders of the Private from Red Arts Capital, Nick
Speaker 2: and Twan, and he joins us. Welcome, Welcome, great to
Speaker 2: be here.
Speaker 3: Thanks for having me.
Speaker 2: It's great to have you here. I want to get
Speaker 2: to the capital raise in just a moment. But the
Speaker 2: stresses that we are seeing in the banking community, the
Speaker 2: regional banks, what impact are you feeling at all when
Speaker 2: it comes to I don't know your world in general,
Speaker 2: or people maybe coming to you where they can't get
Speaker 2: funding elsewhere.
Speaker 3: Sure.
Speaker 4: Well, I think it's stratified between size of business. So
Speaker 4: our firm focuses on middle market companies, so some of
Speaker 4: those businesses might be more impacted than others. Fortunately, our
Speaker 4: portfolio has not been impacted in today.
Speaker 2: You haven't seen any impact, Okay, So tell me about
Speaker 2: this fundraise. You guys just wrapped up what fundraising from
Speaker 2: about two hundred and seventy million for the debut of
Speaker 2: your private equity fund. Tell me about it.
Speaker 3: Yes, and it was oversubscribed right, Yes, our target was
Speaker 3: two twenty five So yeah.
Speaker 4: We're sector focused on investing in the supply chain and logistics,
Speaker 4: and we believe deeply in sector expertise.
Speaker 3: So I think that was part of.
Speaker 4: The hitch was this is the right time to be
Speaker 4: investing in supply chain given all the challenges we saw
Speaker 4: during COVID.
Speaker 2: Because of the unshoring that's going on somewhat of the
Speaker 2: as I have some of the conversations I've hit here
Speaker 2: at milk and it's not that globalization is it's just
Speaker 2: moving around. Maybe it's gonna be different markets, but there
Speaker 2: is more onshoing going on.
Speaker 3: This is absolutely true.
Speaker 4: I think you're seeing it across the board, big Fortune,
Speaker 4: five hundreds and smaller businesses. I think people have learned
Speaker 4: even though supply chain challenges have diminished somewhat here in
Speaker 4: this country, people have learned that there needs to be
Speaker 4: additions to the supply chain strategy so there isn't one
Speaker 4: point of failure.
Speaker 3: In the future.
Speaker 2: What kind of companies in particular, I know trucking is
Speaker 2: among some of the companies that you guys have been
Speaker 2: involved in. What particularly is coming before you?
Speaker 3: Yeah, so we're spending a lot of time looking at warehousing.
Speaker 4: I think that's a trend regardless what's going on in
Speaker 4: terms of onshoing or near shoring.
Speaker 2: Is the actual actual buildings.
Speaker 3: Or that's correct.
Speaker 4: Yeah, the businesses that operate within warehousing facilit We are
Speaker 4: particularly focused on investing right now in transloading.
Speaker 3: Or rail related services around warehousing.
Speaker 4: So moving big heavy bulky loads, and we're also focused
Speaker 4: on contract packaging. We have a business called Courgistics that
Speaker 4: is invested in They're a large contract packager focused on
Speaker 4: consumer brands as well as industrial brands.
Speaker 3: When we're spending a lot of time in aerospace and defense.
Speaker 2: As well, what specifically there I was curious about that.
Speaker 4: Yeah, so we like manufacturers of parts and components that
Speaker 4: go into engines, maintenance repair of those engines.
Speaker 3: Obviously, commercial airlines were heavily.
Speaker 4: Impacted by COVID, but there's a major ramp up and
Speaker 4: an unfortunately because a lot of the uncertainty globally, there's
Speaker 4: also a high demand for defense related aerospace services.
Speaker 2: So it's actually the supply chains of the things that
Speaker 2: are moving things around, That's correct. Like you can break
Speaker 2: it down so many different ways. What are the valuations
Speaker 2: on things? I mean, have they come down a bit
Speaker 2: in terms of when you're you know.
Speaker 4: Well, I think that goes back to the size of
Speaker 4: businesses as we discussed before. Or I also think that
Speaker 4: there is a bit of a gap or a delta
Speaker 4: between what the sellers are expecting and what buyers are
Speaker 4: willing to pay for businesses, and some of that has
Speaker 4: to do with you know, leverage capacity and what lenders
Speaker 4: are willing.
Speaker 2: To do in favor of the buyers. Are the sellers.
Speaker 3: I think it's been well.
Speaker 4: I think it's sellers expectations might be a little bit
Speaker 4: higher than what what buyers are willing to pay, and
Speaker 4: you see that probably more likely.
Speaker 3: In the higher ends.
Speaker 4: Of the market than the lower ends of the market. Right,
Speaker 4: But in our space, I think there's plenty of opportunities still,
Speaker 4: particularly because we're so focused.
Speaker 2: Nick, I'm wondering. I mean, I love that you play
Speaker 2: in the middle market space. I mean, I feel like
Speaker 2: we often talk about the big, you know, publicly traded companies,
Speaker 2: but there's so many companies in the middle market space,
Speaker 2: and it's one of the areas I think that we're
Speaker 2: concerned about not being able to get the financing they
Speaker 2: need or the funding that they need. Based on the
Speaker 2: activity that you're seeing in the companies that you're seeing,
Speaker 2: what does it tell you about the economic outlook?
Speaker 3: Yeah, I think it's mixed.
Speaker 5: Right.
Speaker 4: In some parts of the economy, things are very strong.
Speaker 4: If we touched on in aerospace and defense industries are
Speaker 4: booming and others for instance and trucking, where we do
Speaker 4: not have any investments currently. Freight rates have been significantly impacted,
Speaker 4: and now that's again off of a kind of an
Speaker 4: all time hide during COVID. But I think there are
Speaker 4: some woves and that does create opportunities for investment, particularly
Speaker 4: if companies or families are looking to exit or have
Speaker 4: liquidity challenges.
Speaker 2: Because a lot of times there are family owned businesses
Speaker 2: right in that space. Having said that, what are the
Speaker 2: exits for you guys? What's your time frame of holding?
Speaker 2: Is it typical private equity or is it maybe a
Speaker 2: sell to a company or something much more quickly.
Speaker 4: Yeah, so we are a typical private equity firm. I
Speaker 4: think what perhaps might be a little bit different. I
Speaker 4: think this is the trend that we're seeing in private
Speaker 4: dect BEE in general, is it's so hard to find the.
Speaker 3: Right business, the right culture, the right people.
Speaker 4: So when you find that the idea of having to
Speaker 4: flip things right away, it can be challenging. So I
Speaker 4: think what part of our thematic related investment work is
Speaker 4: to find businesses where we understand what the strategy is.
Speaker 3: To grow a bit business before we get involved.
Speaker 4: And so what we tell sellers and families is that
Speaker 4: if the strategy is to grow over a longer period
Speaker 4: of time.
Speaker 3: We can help provide the solutions to do that.
Speaker 4: If it's really just they're looking for the liquidity and
Speaker 4: they're looking for stewardship for the business for the future,
Speaker 4: that's a different strategy as well.
Speaker 2: Listen, we only have unfortunately thirty forty seconds you're black
Speaker 2: owned private equity firm. It's a rarity. Yes, I know,
Speaker 2: it is unfortunate, and these are some things I'm going
Speaker 2: to talk about with John O'Bryant in a little bit.
Speaker 2: But I am curious, does it also maybe help you
Speaker 2: in the middle market space to some extent are not
Speaker 2: necessarily is it? Does it help you or is it sometimes?
Speaker 4: Why I think diversity is good for business, not just
Speaker 4: the right thing to do, it's good for business. The
Speaker 4: diversity of thought is incredibly powerful competitive advantage. We don't
Speaker 4: market to our firms that we're black owned. We market
Speaker 4: that we're experts in our space. But it's something that
Speaker 4: we consider and then for instance, today our firm is
Speaker 4: about fifty percent women.
Speaker 2: I love that. I saw that.
Speaker 3: It is also a rarety improvidence.
Speaker 2: So diversity with internally as well.
Speaker 3: Yeah, you got to you got to walk the walk.
Speaker 2: Right, and it brings you also diverse thinking, diverse right
Speaker 2: in terms of investments.
Speaker 3: That's great.
Speaker 2: Thank you so much. I hope we can stay in touch,
Speaker 2: love to hear more as you guys are making investments
Speaker 2: and where you're going. Logistics is always a fun space
Speaker 2: in terms of what it tells us. Nick Antwine of
Speaker 2: Red Arts Capital. Right here at Milkin, Folks, you are
Speaker 2: listening and watching Bloomberg BusinessWeek. This is Bloomberg.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 1: or watch us live on YouTube.
Speaker 2: Carol Master live at the Milken Institute Global Conference. And
Speaker 2: I want to get to our guests because every time
Speaker 2: I speak with him, spend some time with him, he
Speaker 2: always inspires. He reminds us that will take work and
Speaker 2: conscious decisions to bring about a more equality and equitable world.
Speaker 2: So with us as the chairman and CEO of the
Speaker 2: nonprofit in Financial Literacy and Economic Conclusion, Operation Hope, He's
Speaker 2: involved in so much to close the gap. He's also
Speaker 2: a vice chair of former President Bush's Council on Financial Literacy.
Speaker 2: I mean, you've worked with President Obama Council on financial capability.
Speaker 2: You've done so much of You're hands in so much
Speaker 2: financial literacy. You're thinking about, you know, housing access, what's
Speaker 2: top of mind as you had I'm sure a million
Speaker 2: conversations here at milkon and have we gotten better in
Speaker 2: terms of equity?
Speaker 5: We've gotten better. The world's gotten worse.
Speaker 2: Well that doesn't feel good.
Speaker 5: Yeah, Well, the world's in turmoil now, so it's hard
Speaker 5: to find stable ground to sit. Good ideas. We've got
Speaker 5: more good ideas, we've got more proven ideas. Me yesterday,
Speaker 5: Fast Company announced that we were the World Changing We
Speaker 5: won this World Changing Ideas Award. In a more stable time,
Speaker 5: that would have been the shot the news that sort
Speaker 5: of rang around the world and have been rallying around that.
Speaker 5: You know, in this environment, you're an active shooter in Atlanta.
Speaker 5: You've got a bank going bus, you gotta you got
Speaker 5: a stalemate in Washington, d C. On the debt crisis.
Speaker 5: You've got so there's so many things distracting people. The
Speaker 5: urgent is crowding out the important.
Speaker 2: And yet you are getting stuff done.
Speaker 5: John, Yet we're still getting stuff done. I'll just punched
Speaker 5: right through it, you know, over and around it, through it.
Speaker 5: I go to it, and rainbow's only follows.
Speaker 3: Storms.
Speaker 5: Cannot have a rainbow without a storm first. I don't
Speaker 5: mind a good fight. I don't mind having to punch
Speaker 5: through the rhetoric with substance. I've been doing that my
Speaker 5: whole life, and we have a lot of substance now.
Speaker 5: And look we're here. I'm here talking to you. I'm
Speaker 5: not being pushed to the I'm not sorry. I'm not
Speaker 5: at the edges of the conversation. I'm often at the
Speaker 5: center of a conversation, right That's where I've wanted to be.
Speaker 5: That's where the issue needs to be. We're just there
Speaker 5: in a very chaotic, crazy times. I think that we're
Speaker 5: sitting in a moment in history right now, Carol. The
Speaker 5: history does not feel historic when you're sitting in it.
Speaker 5: It just feels like another day. But I think that
Speaker 5: what happens between now and twenty thirty, between the pandemic
Speaker 5: and George Floyd's murder and the attack on our capital
Speaker 5: which reset everything, and the end of twenty thirty, is
Speaker 5: what I call the third reconstruction and this next ten
Speaker 5: this ten year period will decide the quality of life
Speaker 5: for the next one hundred years. So I don't mind
Speaker 5: being exhausted, worn out from work from cancy in the
Speaker 5: morning and can't see at night. I think it's relevant.
Speaker 5: I think it matters what I'm saying, what you're doing matters.
Speaker 5: You cannot have a movement without the media. Doctor King
Speaker 5: never would have had a movement if it wasn't for
Speaker 5: the media being amplifying his good message. So I think
Speaker 5: that all this.
Speaker 2: Is Oh, I appreciate that. I mean, it's not perfect.
Speaker 3: If we know that.
Speaker 2: I want to ask about your partnership that you've had
Speaker 2: with Fulton Bank. Talk to me a little bit about
Speaker 2: I feel like you know you and I've talked about
Speaker 2: this a lot of folks. There's lots of conversations. You
Speaker 2: actually take those conversations and put it into action. So
Speaker 2: tell us about this.
Speaker 5: Yeah, PhDs are good, pH d's are better. So the
Speaker 5: one thing I love about this, And Fulton won't appreciate
Speaker 5: the way I'm going to characterize this, but I think
Speaker 5: it's an important characterization. A relatively small sized bank in
Speaker 5: Pennsylvania small by banking standards, not small by bank their standards.
Speaker 5: It's actually a big bank by their standars. Fulton Bank
Speaker 5: is this great institution in Pennsylvania doing great work, but
Speaker 5: they're not household name. This relatively small market cap bank
Speaker 5: based on the banks we hear on TV or in
Speaker 5: Bloomberg all the time. Did a billion dollars in mortgage
Speaker 5: creation for African American not just minority, not women, not
Speaker 5: some super group of underserved, just African Americans. A billion
Speaker 5: dollars through Operation Hope in our Hope and sides, proving
Speaker 5: that you can do well and do good, proving that
Speaker 5: you can move the needle on forty one percent of
Speaker 5: af Americans who own a home, and when seventy five
Speaker 5: percent of Whites own a home, that delta thirty percent
Speaker 5: is the loss of wealth creation, the loss of tax base,
Speaker 5: the loss of our opportunity lasts. So the fact that one
Speaker 5: bank that is not yet a household name, they mean
Speaker 5: they will be after this interview, right, did a billion
Speaker 5: dollars of credible, well underwritten structured home ownership. Tying it
Speaker 5: to our coaching work at Hope Inside, where we got
Speaker 5: credit scores up, debt down, savings up. Some people could qualify.
Speaker 5: So did it in a safest down basis. We just
Speaker 5: did the hard work together. A billion dollars. That's a
Speaker 5: real number.
Speaker 2: What's interesting is right, it was for people who qualified,
Speaker 2: and you talked about getting the credit scores up. I
Speaker 2: mean these are people that you guys have worked with, right,
Speaker 2: who wanted to be homeowners?
Speaker 5: Yes?
Speaker 2: And what did they have to do?
Speaker 5: Yes?
Speaker 2: And you educated them yes, and then they did the work.
Speaker 5: So we're getting the bank out of the no business
Speaker 5: and back into the yes business by working with and
Speaker 5: I want to again a command Fulton Bank in their leadership,
Speaker 5: their chairman, see, I command wells Fargo, I command well
Speaker 5: as far as ordered a hundred of our hope in
Speaker 5: side locations plus. That's not charity, that's business. Bank of
Speaker 5: America's ordered one hundred plus.
Speaker 2: Locations true outside the bank.
Speaker 5: Inside the bank. We're the only nonprofit in US history
Speaker 5: allowed to operate inside of a bank branch. Truist once
Speaker 5: has been half of their bank branches. They have two
Speaker 5: thousand branches. You're talking about changing banking itself. But back
Speaker 5: to this example of Fulton. So we go into the
Speaker 5: bank branch and we can do what the banker can't
Speaker 5: do we can actually ask the personal direct question, missus Jones. Yes,
Speaker 5: let's look at your credit report. This is like a
Speaker 5: bus accident. And we both have a nice laugh because
Speaker 5: miss Jones knows that she knows her history. Yeah, I
Speaker 5: haven't looked at my credit at score in a while. Okay,
Speaker 5: what's that? I don't know, John, what that's called an error? Okay?
Speaker 5: The law states that if the credit bureaus, three of
Speaker 5: them can't confirm that that's yours, they must remove it.
Speaker 5: How about we write a letter to the credit bureaus
Speaker 5: together and challenge them. Yes, we write that letter together.
Speaker 5: What's banking a trust business? It's about belief, It's about confidence.
Speaker 5: Credit comes to the work the Latin word credit od
Speaker 5: which is credibility capital from the Latin word capitas knowledge
Speaker 5: in the head. Now that this is about money, it's
Speaker 5: about how you feel. So we get the letter to
Speaker 5: the credit bureaus. They can't confirm that it's hers. They
Speaker 5: are removing it. In thirty days, her credit score pops
Speaker 5: thirty points. So now you go, yes, so now you
Speaker 5: go from five ninety to six twenty. Well, what happens
Speaker 5: to listen to her? To missus Jones self, esteem. It
Speaker 5: goes up her belief in the financial system, her trust,
Speaker 5: her confidence, her sense of independence. So she now she's
Speaker 5: sitting going okay, what else can we do? So then
Speaker 5: we tackle the charge off on her credit bureau. Well,
Speaker 5: that is hers. She was divorced ten years ago. It
Speaker 5: was a thousand dollars phone bill or balloons, one thousand dollars.
Speaker 5: They chased her, couldn't find her. That was sold to
Speaker 5: a credit repair agency, a debt collection agency for five
Speaker 5: cents on the dollar. We know that it's fifty bucks.
Speaker 5: What do they want? They want one hundred percent profit.
Speaker 5: They want one hundred bucks, Miss Jones. Let's call them together.
Speaker 5: We have missus Jones here. We're looking for her. She's
Speaker 5: looking for you. We want to pay our debt. We
Speaker 5: want a hundred bucks. No, we're gonna pay you two
Speaker 5: hundred bucks. Why because we want your absolute attention to
Speaker 5: take this off her credit report after she's satisized to
Speaker 5: fix it. And then when it shows back up on
Speaker 5: her credit report because it's been there ten years, we're
Speaker 5: got to write another letter to the credit burias and
Speaker 5: get it off again. They get it, They get a
Speaker 5: two hundred percent profit. She got an eighty percent discount.
Speaker 5: Fair exchange is no robbery. Her credit score goes up
Speaker 5: another twenty thirty forty points. So now she's an example.
Speaker 5: And she said, let's just say six fifty six sixty,
Speaker 5: she's now in striking distance of a six to eighty
Speaker 5: prime rate mortgage. We work on our budget, we work
Speaker 5: on a few other things, and all of a sudden,
Speaker 5: she's a shiny pinny.
Speaker 2: John, I am like, it is amazing what you do.
Speaker 2: And the thing is, you are all about financial literacy.
Speaker 2: And I think you and I've talked about it. I
Speaker 2: wish kids were starting from kindergarten that they learned about it.
Speaker 2: You work on it from middle school through college.
Speaker 5: Right now, now kindergarten, by the way you are doing
Speaker 5: we're doing kids accounts in kindergarten and Atlanta public schools.
Speaker 2: I mean, and you're working with employee. I mean, you're
Speaker 2: making a difference. Right, people are really learning about the
Speaker 2: financial system and understanding how they can make it work
Speaker 2: for them.
Speaker 3: Yeah.
Speaker 5: So now we've told major employers, so Doug McMillan and
Speaker 5: the CEO of Walmart not co sharing financial literacy for all.
Speaker 5: Our mission is again eighty percent of the fortune five
Speaker 5: hundred to embed financial literacy into their business plan. So
Speaker 5: this is not public affairs or community affairs. This is
Speaker 5: a serious business. We say, this is what healthcare was
Speaker 5: forty or fifty years ago, financial well being inside the workplace.
Speaker 5: So then Delta CEO comes to us and says, this
Speaker 5: is something relevant to our people. There are folks who
Speaker 5: said this is important. We'll give a thousand dollars, sorry,
Speaker 5: invest one thousand dollars to every one of our workers
Speaker 5: who go through financial coaching for an emergency savings account.
Speaker 5: Because sixty four percent of Americans, Carol, don't have four
Speaker 5: hundred dollars for an unplanned event that affects their ability
Speaker 5: to focus on the job, their ability. They're stressed out
Speaker 5: on the job, they're not paying attention. So he's like,
Speaker 5: I want there, I want all share of mind. I
Speaker 5: don't want them stressed out. He achieved a year's worth
Speaker 5: of financial well being coaching targets in two months with
Speaker 5: this program. So he had ninety thousand employees at Delta,
Speaker 5: and I can't go through an airport now without two
Speaker 5: things happening. A Delta employee is saying, I got my
Speaker 5: thousand dollars or I'm in my coaching sessions right now.
Speaker 5: Thank you or the TSA agents screaming out the credit
Speaker 5: score to me.
Speaker 2: But how great is that? Listen? Fifteen seconds left. Final
Speaker 2: thought to anybody who's listening.
Speaker 5: You can be the change we want to see in
Speaker 5: the world. Figure out how you can help call Operation Hope. Volunteer,
Speaker 5: become a member, become a donor become a partner. This
Speaker 5: is this is about making free enterprise work for all
Speaker 5: of God's show. This is silver rights. This is not
Speaker 5: about red or blue race. I mean politics are black
Speaker 5: or white. It's about green economics, more of it for all, GDP,
Speaker 5: for America, and truly by getting more people in the game.
Speaker 2: I love it, make so much sense.
Speaker 5: Love all you guys, Appreciate you. We want you at
Speaker 5: our whole global form.
Speaker 3: By the way, all right, John O'Brien, you're special.
Speaker 1: You're a special You're listening to the Bloomberg Business Week Podcast.
Speaker 1: Catch us live weekday afternoons from three to six Easter
Speaker 1: on Bloomberg Radio, the Bloomberg Business App, and YouTube. You
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Speaker 1: New York station Just Say Alexa, playing Bloomberg eleven thirty,
Speaker 1: and I want to get right.
Speaker 2: To our next guest. He's the co founder of the
Speaker 2: French asset manager TKO Capital. They've got over fifteen billion
Speaker 2: US in assets under management. We welcome Matthew Chabron. He
Speaker 2: is here with us on site, so nice to have
Speaker 2: you here with us.
Speaker 6: Thanks for cool.
Speaker 2: Let's start with the FED policy. You know, we're talking
Speaker 2: to interest rates. I feel like, you know, we really
Speaker 2: need to do global interest rates because banks globally are
Speaker 2: on fighting inflation. How does that impact you in your thinking?
Speaker 6: Well, I think the first message is, you know, the
Speaker 6: confirming that liquidity will have a cost for longer. And
Speaker 6: that was not the case obviously for the past ten years.
Speaker 6: And had we had this discussion a year ago, I
Speaker 6: think I was saying that we were coming out of
Speaker 6: the model of all a p howur you know, And
Speaker 6: right now they're telling us effectively, the ball might remain closed,
Speaker 6: you know, for a little bit longer. So get used
Speaker 6: to it. Get used to it, you know, in the
Speaker 6: cost of liquidity, in the cost of credit. Maybe we'll
Speaker 6: touch base on that, but you know, now, you know,
Speaker 6: what was maybe a three percent cost of funding right
Speaker 6: maybe close to eight or nine and guess what, you
Speaker 6: know what we learned at school when you know, interest
Speaker 6: rate goes up as the prices go down. So it's
Speaker 6: may be a bit simplistic, but that's an environment we're in.
Speaker 2: But Matthew, it doesn't mean that deals don't get done
Speaker 2: and things don't get done and investments don't get done,
Speaker 2: right because it's not as high as it could be
Speaker 2: and we've had in certain environments.
Speaker 6: Yeah, so it's about you know, your underwriting assumptions, your
Speaker 6: anti entry price. And I think there's still a little
Speaker 6: bit of adjustments to be to be made. I think
Speaker 6: we went Carol from let me phrase, I think that
Speaker 6: there is a fine line between between comfort and complacency,
Speaker 6: and I think that's that's where we are. It was
Speaker 6: very comfortable to have this whole liquidity and now we're like, okay,
Speaker 6: there's less liquidity, but let's pretend still a little bit.
Speaker 6: And I think we should not pretend. We should readjust
Speaker 6: you know, just do it already, right, I think so? Yeah,
Speaker 6: I think so, And I think the private market law
Speaker 6: that effectively.
Speaker 2: Well so the value of credit. I know that was
Speaker 2: something before we got go and you were talking about
Speaker 2: talk to us a little bit about that. What that means, well,
Speaker 2: it's what we need to think.
Speaker 6: About who's providing credit, banks, capital markets, uh, private markets.
Speaker 6: Now Here in the US we with the BDCs. In
Speaker 6: many places of the world we don't have that. And
Speaker 6: what about bank telling us that they're tightening credit. I
Speaker 6: want you to elaborate on year of regional banks in a
Speaker 6: situation here, but I can tell you in Europe, the
Speaker 6: CB just came out with the report saying that crede
Speaker 6: conditions are as worse as twenty eleven, which is right
Speaker 6: after the GFC and the euro crisis. The capital market
Speaker 6: are extremely selective. Not everyone can tap the captain market
Speaker 6: if you're an SMP company or CAC forty or foot see,
Speaker 6: it's okay. But an economy is not just made up
Speaker 6: of all these companies, right so, and.
Speaker 2: The backbone is often not absolutely.
Speaker 6: In particular when it comes to employment and jobs, which
Speaker 6: is you know what you know public policies are all
Speaker 6: focusing on. So I think there is effectively this opportunity
Speaker 6: for an alternative source of capital to step into this
Speaker 6: what was the cyclical opportunity the pastenos I think it's
Speaker 6: becoming a bit more structural.
Speaker 2: So but when you see where capital flows are going
Speaker 2: or who is demanding some of that private capital, where
Speaker 2: is it so certain industries or is it just every
Speaker 2: body in that kind of smaller space.
Speaker 6: Now, I think it's it's a bit of everybody. So
Speaker 6: if we who are the asset owners today's insurance company globally,
Speaker 6: they've been operating in a very low interest rate environment.
Speaker 6: They can relyfform that, so they're deperying capital there. Hear
Speaker 6: in North America, public pension funds, endowments long term, you know,
Speaker 6: asset owners, family offices. You know, a lot of family
Speaker 6: offices are shifting you know, into this into this asset
Speaker 6: class because effectively the public market cannot provide the recurring
Speaker 6: income they may need, like an endowment of foundation. By
Speaker 6: the way, so we're seeing all of the above. Obviously
Speaker 6: here in North America. In the US were much more
Speaker 6: advanced than you know, the part of the world. Asia was,
Speaker 6: you know, Korea, Japan very well positioned on the market.
Speaker 6: Europe was lacking, you know, by by far. So you know,
Speaker 6: even if they move by five ten percent, it's a
Speaker 6: lot of capital coming in. And I think it's a
Speaker 6: good news to address the liquidity is shortage is enough.
Speaker 2: To kind of keep the globe economy, the US economy,
Speaker 2: European economy, from slowing down too much or hitting a recession,
Speaker 2: which I feel like we debate constantly.
Speaker 6: It's very interesting because very often we oppose recession and inflation.
Speaker 3: In this debate.
Speaker 6: We like to add the third dimension, which is liquidity.
Speaker 6: And where does this liquidity contry is really valuable?
Speaker 2: I think it is.
Speaker 6: I mean, what again, going back to the banks, yeah, saga,
Speaker 6: you know, the past few a few weeks, it's pure.
Speaker 6: You know, how much are you giving me for the
Speaker 6: money I gave you? And if I can find better elsewhere,
Speaker 6: you know, I will go elsewhere. Right, you know, what
Speaker 6: do I get in front of my deposit?
Speaker 3: You know?
Speaker 6: And so coming back to interest rate, you know, once again,
Speaker 6: that's the environment where we're in. Part of the inventory
Speaker 6: may be a little bit age or dated, defined as
Speaker 6: it does not pay what it should pay in this market.
Speaker 6: So let me allocate to this market. I think it's
Speaker 6: relatively healthy. I'm not seeing some kind of systemic risk
Speaker 6: you know, around that, But it's healthy because capital capital
Speaker 6: flows and liquidity, you know, we'll have a much more
Speaker 6: a much higher price than you had for the past
Speaker 6: ten years, you know.
Speaker 2: And I'm looking at a headline crossing the Bloomberg about
Speaker 2: PacWest set to waigh strategic options, including a sale. So
Speaker 2: we continue to see the stress in the US regional banks.
Speaker 2: What you're saying is here's an option, right, and that
Speaker 2: will keep potentially liquidity going and flowing.
Speaker 6: At least four available, at least for the clients of
Speaker 6: those banks who might not be there. You know, it's
Speaker 6: great that JP Morgan is taking over you know, one
Speaker 6: of those banks. Maybe you know more banks, but we
Speaker 6: know that if you are ten twenty, maybe even your
Speaker 6: fifty million a BDA business across the US or across Europe,
Speaker 6: you don't bank with many of these large institutions, so
Speaker 6: you need alternative. So once again, I think it's it's
Speaker 6: it's relatively healthy.
Speaker 2: I would love to ask you, because we have about
Speaker 2: a minute left here. One of the things that I
Speaker 2: know that you've been thinking about are working within is
Speaker 2: opportunities and sustainability and decarbonization. And I do feel, like Matthew,
Speaker 2: that there has been a bigger focus on that finally
Speaker 2: clean technology. It's really happening.
Speaker 6: Yeah, because you know, when we started five years ago
Speaker 6: it was nice to have and today's I must have.
Speaker 6: So you know there's no debate.
Speaker 3: Anymore around that.
Speaker 6: And yes, you need the return on capitol you deployed
Speaker 6: to that, but there's also the impact embedded, you know,
Speaker 6: with what to do. And uh, we've been relative early
Speaker 6: a ticko. You know, five years ago, we've been deploying
Speaker 6: across private equity, credit, asset finance here and here at.
Speaker 2: More so than you were doing maybe a year ago.
Speaker 6: Oh yeah, yeah, yeah, because you know it has become
Speaker 6: it's a it's no longer an option. It's not long
Speaker 6: an option. You know, your clients, that's what they're asking
Speaker 6: I mean, our client, that's what they're asking us to do.
Speaker 6: There's no other alternaty.
Speaker 2: If I had to ask you in twenty seconds, and
Speaker 2: I am going to because I have twenty seconds, are
Speaker 2: you more optimistic about the next twelve to twenty four
Speaker 2: months or more cautious?
Speaker 6: All right, here's the answer. I'm optimistic because I'm an entrepreneur.
Speaker 6: I'm relatively pessimistic because I'm a leveraged finance banker by background,
Speaker 6: and so you know, we have to put all that
Speaker 6: together and hopefully be right in the swimming line.
Speaker 2: Kind of the French version of J. Powell right like,
Speaker 2: kind of covering it all. Enjoyed this look forward to
Speaker 2: hopefully catching up with you again in the future. Met
Speaker 2: you Show Brown. He is, of course, the co founder
Speaker 2: of the French asset manager TKO Capital. Joining us here
Speaker 2: on Bloomberg pac Quest shares in the aftermarket down thirty
Speaker 2: one percent.
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Speaker 7: Dot Commutek Well Brier up Ladn on Bloomberg Radio three
Speaker 7: forty nine on Wall Street. This is a special edition
Speaker 7: of Bloomberg Business Sweek on this FED Decision Day. I'm
Speaker 7: Doug Prisner at the Bloomberg Interactive Broker Studio in New York.
Speaker 7: Carol Master is live from the Milk and Institute Global
Speaker 7: Conference in Beverly Hills. We'll be checking in with Carol
Speaker 7: at the top of the hour. In the meantime, let's
Speaker 7: get to John Cadunas. He is president and CEO of
Speaker 7: Kalamos Investments. He joins us live from the Milk and
Speaker 7: Institute Global Conference in Beverly Hills. John, thanks for being
Speaker 7: with us. Glad you could make time to chat with us.
Speaker 7: Yeh absolutely, So I want to get your reaction to this.
Speaker 7: The Fed movement today as expected, twenty five bases point
Speaker 7: rate hike and the suggestion now the implication that the
Speaker 7: Fed is ready to pause in its tightening. Have we
Speaker 7: seen enough contraction in credit to keep the economy from
Speaker 7: going into recession.
Speaker 8: Well, we need more data points to say whether we
Speaker 8: go into recession or not. In my opinion, we've been
Speaker 8: having a rolling recession. And I call it rolling because
Speaker 8: last year we saw that we had a couple of
Speaker 8: consecutive quarters of negative GDPs. So we're at the cusp
Speaker 8: and we're gonna have to wait to see if we
Speaker 8: fall back into that. But every month, every quarter, we
Speaker 8: get more data, and that's what Powell and the rest
Speaker 8: of the governors are looking at.
Speaker 7: Is this an opportunity for private credit? One of the
Speaker 7: things that FED Scher has said today is that the
Speaker 7: FED is going to be monitoring credit conditions very tightly.
Speaker 7: We know the story when it comes to some of
Speaker 7: the regional banks. Even before the SVB situation, credit was contracting.
Speaker 7: Is this an opportunity for the private market to step in.
Speaker 8: I think it's a huge opportunity for private credit. If
Speaker 8: you see the evolution I mean here at the Milking conference,
Speaker 8: we look at the origins of Michael who started his
Speaker 8: own asset class basically high yield or junk bonds back
Speaker 8: in the eighties that gave liquidity and money to mid
Speaker 8: sized companies. To you see the transformation of Las Vegas.
Speaker 8: It went into corporate because of the financing of a
Speaker 8: high yield and then the big banks were giving money
Speaker 8: after that the next couple of decades till they got
Speaker 8: overregulated with dot frank and whatnot. That pulled the liquidity
Speaker 8: out of the system instead of into the system, and
Speaker 8: it went to the smaller banks. And so now we've
Speaker 8: seen what's happened with the smaller banks. So who's going
Speaker 8: to replace that? Private credit is ripe to become a
Speaker 8: huge lender of last resort, if you will. So, I
Speaker 8: think private credit is going to be a very, very
Speaker 8: very strong asset class here going forward in the next
Speaker 8: couple of years.
Speaker 7: When you look at opportunities, John, are there industries right
Speaker 7: now that you really feel represent opportunity to kind of
Speaker 7: build relationships, provide credit and to benefit in the long run.
Speaker 8: Well, I mean, if you look at just what's been
Speaker 8: performing this year, it's a little bit of the similar
Speaker 8: story of a couple of years ago, where the Fang
Speaker 8: stocks we're doing really well. We look at there's approximately
Speaker 8: eight stocks that's providing almost ninety percent of all the
Speaker 8: upside this year in the S and P five hundred
Speaker 8: and some of those underlying stocks, of course aren't in
Speaker 8: tuck and whatnot. And you know, a lot of the
Speaker 8: buzz here in the conference too has been AI and
Speaker 8: there are a couple of these companies that are heavily
Speaker 8: invested in AI. So I think that's also another big
Speaker 8: opportunity in growth.
Speaker 7: What is the conversation at milk and when it comes
Speaker 7: to commercial real estate, I mean, when we talk about
Speaker 7: the stress that some of these regional banks have been faced,
Speaker 7: saying the finger goes right to the property market, particularly
Speaker 7: office buildings. Is that part of the conversation.
Speaker 8: That is part of the conversation. Everybody's looking at all
Speaker 8: the resets right with these loans coming due and at
Speaker 8: higher rates here, so we'll see how how some of
Speaker 8: these uh cnbs commercial workers backed securities do that are
Speaker 8: going to be stressed now because some people will be
Speaker 8: able to take the payments of higher rates and others
Speaker 8: won't and no flesh out some of this stuff, so
Speaker 8: they are anticipating bracing for some some fallout here in
Speaker 8: that market.
Speaker 7: So will there be opportunities then in terms of distressed
Speaker 7: debt for some of these real estate companies.
Speaker 8: There's always is, But once again, the landscape has changed
Speaker 8: too since COVID, So the the amount of office space
Speaker 8: that may have been needed in the past, now it's
Speaker 8: being transformed into something different and so there may not
Speaker 8: be the same amount and it's used differently than it
Speaker 8: has in the past because of the a lot of
Speaker 8: work from home kind of mentality, which at this point
Speaker 8: we don't know how long that will last. We are
Speaker 8: starting to see a lot more companies going back full time,
Speaker 8: but it's not nearly as robust as it was. Obviously
Speaker 8: pre covid.
Speaker 7: You mentioned earlier the conversation at Milkin around artificial intelligence.
Speaker 7: I'm curious. I mean, there's been so much debate when
Speaker 7: it comes to this technology. We know that companies like
Speaker 7: Alphabet and Microsoft are already playing. There has been many
Speaker 7: many folks who have raised a lot of concern and
Speaker 7: I would place Jeffrey Hinton, who left Google recently. I
Speaker 7: don't know if you saw the article in the New
Speaker 7: York Times the other day. He was very very cautious
Speaker 7: and advising companies on kind of slowing down the pace
Speaker 7: of their adoption of this technology. Is that something that
Speaker 7: concerns you. If you had to put money to work
Speaker 7: as a credit investor and you're talking about artificial intelligence,
Speaker 7: how would you extend credit? What would your criteria be?
Speaker 8: Well, the first part of your question, it is concerning.
Speaker 8: It is concerning where this technology is going, and you know,
Speaker 8: all the good that it does, there's definitely fallout in
Speaker 8: terms of some of the bad that it may do.
Speaker 8: There's concerns that there's no question that technology over the
Speaker 8: years has brought efficiency, but also efficiency has brought you know,
Speaker 8: loss of jobs, right, and so you can do so
Speaker 8: much more with so much less because of the technology,
Speaker 8: and AI is a form of technology that allows for that. Now,
Speaker 8: having said that, things have transfer, people has transformed, jobs
Speaker 8: have transformed and filled in there's more jobs in other
Speaker 8: areas that have taken place, and so as long as
Speaker 8: there continues to be a transformation with new types of
Speaker 8: jobs for people to fill, it's not going to be
Speaker 8: as concerning as it could possibly be.
Speaker 7: Well, you mentioned technology. One of the things that I
Speaker 7: think of relations between the US and China. We know
Speaker 7: the semiconductor story. How do you view that relationship right now?
Speaker 7: The geopolitics is that of concern to you when you're
Speaker 7: making decisions these days?
Speaker 8: I think geopolitics is a huge concern. I think fiscal
Speaker 8: policy is a huge concern, almost more of than monetary policy.
Speaker 8: I think that some of the moves in fiscal policy
Speaker 8: has definitely helped and hurt unfortunately as of late, hurt
Speaker 8: a lot of what's going on with the economy and
Speaker 8: so bringing these jobs back home, bringing manufacturing back to
Speaker 8: the United States, not being dependent on other countries for
Speaker 8: some of the really important things, whether it be the microchips,
Speaker 8: whether it be pharmaceuticals. I think it's really important that
Speaker 8: we incentivize companies to do and manufacture in the United
Speaker 8: States so we don't have to be dependent like we
Speaker 8: are right now. And I think this administration has definitely
Speaker 8: dropped the ball on that.
Speaker 3: We'll leave it there.
Speaker 7: Thanks so much. Great conversation, John Codunas. He is president's
Speaker 7: CEO of Kalamos Investments, Live from the Milk and Institute
Speaker 7: Global Conference.
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